PROXY STATEMENT
The
Board of Trustees (the "Board") is furnishing this Proxy Statement to solicit proxies to be voted at the 2018 Annual Meeting of Shareholders (the "2018 Annual Meeting") of Senior Housing
Properties Trust, a Maryland real estate investment trust (together with its direct or indirect subsidiaries, the "Company," "we," "us" or "our"). The meeting will be held at Two Newton Place, 255
Washington Street, Suite 100, Newton, Massachusetts 02458 on Tuesday, May 22, 2018, at 9:30 a.m., Eastern time.
The
mailing address of the Company's principal executive offices is Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458. The Company commenced mailing to its
shareholders a Notice Regarding the Availability of Proxy Materials containing instructions on how to access the Company's Proxy Statement and its 2017 Annual Report on Form 10-K on or about
April 3, 2018.
All
properly executed written proxies, and all properly completed proxies submitted by telephone or internet, that are delivered pursuant to this solicitation will be voted at the 2018 Annual Meeting
in accordance with the directions given in the proxy, unless the proxy is revoked prior to it being exercised at the meeting. These proxies also may be voted at any postponements or adjournments of
the meeting.
Only
owners of record of common shares of beneficial interest, par value $0.01 per share, of the Company ("Common Shares") as of the close of business on February 1, 2018, the record date for
the meeting (the "Record Date"), are entitled to notice of, and to vote at, the meeting and at any postponements or adjournments of the meeting. Holders of Common Shares are entitled to one vote for
each Common Share held on the Record Date. On February 1, 2018, there were approximately 237,625,781 Common Shares issued and outstanding.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE 2018
ANNUAL MEETING TO BE HELD ON TUESDAY, MAY 22, 2018.
The
Notice of 2018 Annual Meeting, Proxy Statement and Annual Report to Shareholders for the year ended December 31, 2017 are available at
www.proxyvote.com
.
SENIOR HOUSING PROPERTIES TRUST
2018 Proxy Statement 5
QUESTIONS AND ANSWERS
Proxy Materials and Voting Information
1.
What is included in the proxy materials? What is a proxy statement and what is a proxy?
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The
proxy materials for the 2018 Annual Meeting include the Notice Regarding the Availability of Proxy Materials, Notice of 2018 Annual Meeting, this Proxy Statement and the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (the "Annual Report" and, together with the other materials, the "proxy materials"). If you request a
paper copy of these materials, the proxy materials will also include a proxy card or voting instruction form.
A
proxy statement is a document that the Securities and Exchange Commission ("SEC") regulations require the Company to give you when it asks you to return a proxy designating individuals to vote on
your behalf. A proxy is your legal designation of another person to vote the shares you own. That other person is called your proxy. We are asking you to designate the following three persons as your
proxies for the 2018 Annual Meeting: Jennifer B. Clark, Managing Trustee and Secretary; Adam D. Portnoy, Managing Trustee; and Richard W. Siedel, Chief Financial Officer and
Treasurer.
2.
What is the difference between holding shares as a shareholder of record and as a beneficial owner?
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If
your shares are registered directly in your name with the Company's registrar and transfer agent, Equiniti Trust Company (formerly known as Wells Fargo Shareowner Services), you
are considered a shareholder of record of those shares. If you are a shareholder of record, you should receive only one notice or proxy card for all the Common Shares you hold in certificate form and
in book entry form.
If
your shares are held in an account you own at a bank or brokerage or you hold shares through another nominee, you are considered the "beneficial owner" of those shares. If you are a beneficial
owner, you will receive voting instruction information from the bank, broker or other nominee through which you own your Common Shares.
If
you hold some shares of record and some shares beneficially, you should receive a notice or proxy card for all the Common Shares you hold of record and a separate voting instruction form for the
shares from the bank, broker or other nominee through which you own Common Shares.
3.
What different methods can I use to vote?
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By Written Proxy.
All shareholders of record can submit voting instructions by written proxy card. If you are
a shareholder of record and receive a Notice Regarding the Availability of Proxy Materials, you may request a written proxy card by following the instructions included in the notice. If you are a
beneficial owner, you may request a written proxy card or a voting instruction form from your bank, broker or other nominee. Proxies submitted by mail must be received by 11:59 p.m., Eastern
time, on May 21, 2018 or, if the meeting is postponed or adjourned to a later date, by 11:59 p.m., Eastern time, on the day immediately preceding the date of the reconvened meeting.
By Telephone or Internet.
All shareholders of record also can authorize a proxy to vote their shares by
touchtone telephone by calling 1-800-690-6903, or through the internet at
www.proxyvote.com
, using the procedures and instructions described in your
Notice Regarding the Availability of Proxy Materials or
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SENIOR HOUSING PROPERTIES
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2018 Proxy Statement
proxy
card. Beneficial owners may authorize a proxy by telephone or internet if their bank, broker or other nominee makes those methods available, in which case the bank, broker or nominee will
include the instructions with the proxy voting materials. To authorize a proxy by telephone or internet, you will need the 16 digit control number provided on your Notice Regarding the Availability of
Proxy Materials, proxy card or voting instruction form. The telephone and internet proxy authorization procedures are designed to authenticate shareholder identities, to allow shareholders to vote
their shares and to confirm that their instructions have been recorded properly. Proxies submitted by telephone or through the internet must be received by 11:59 p.m., Eastern time, on
May 21, 2018 or, if the meeting is postponed or adjourned to a later date, by 11:59 p.m., Eastern time, on the day immediately preceding the date of the reconvened meeting.
In Person.
All shareholders of record may vote in person at the meeting. Beneficial owners may vote in person
at the meeting if they have a legal proxy, as described in the response to
question 15
.
If
you have any questions or need assistance in voting your shares or authorizing your proxy, please call the firm assisting the Company in the solicitation of proxies:
Morrow
Sodali LLC
470 West Avenue
Stamford, Connecticut 06902
Shareholders Call Toll Free: (800) 662-5200
Banks and Brokers Call Collect: (203) 658-9400
4.
Who may vote at the 2018 Annual Meeting?
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Holders
of record of Common Shares as of the close of business on February 1, 2018, the Record Date, may vote at the meeting. Holders of Common Shares are entitled to one vote
for each Common Share held on the Record Date.
SENIOR HOUSING PROPERTIES TRUST
2018 Proxy Statement 7
5.
What are my voting choices for each of the proposals to be voted on at the 2018 Annual Meeting and what are the voting standards?
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Proposal
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Voting Choices and Board Recommendation
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Voting Standard
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Item 1: Election of Trustees
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vote in favor of both
Trustee nominees;
withhold
your vote for both Trustee nominees; or
vote in favor of one Trustee nominee and withhold your vote for the other Trustee nominee.
The Board recommends a vote FOR
both Trustee nominees.
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Plurality of all votes cast*
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Item 2: Advisory vote to approve executive compensation**
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vote in favor of the
advisory vote;
vote against
the advisory vote; or
abstain from voting on the advisory vote.
The Board recommends a vote FOR the advisory vote to approve executive compensation.
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Majority of all votes cast
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Item 3: Ratification of the appointment of Ernst & Young LLP as independent auditors
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vote in favor of the
ratification;
vote against
the ratification; or
abstain
from voting on the ratification.
The Board recommends a vote FOR the ratification.
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Majority of all votes cast
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*
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The
Board has adopted a resignation policy pursuant to which an incumbent Trustee who fails to receive a majority of votes cast in an uncontested election will offer
to resign from the Board and, in such circumstance, the Board will decide whether to accept or reject the resignation offer.
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**
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As
an advisory vote, the proposal to approve executive compensation is not binding upon the Company. Our Compensation Committee, which is 100% comprised of
Independent Trustees, is responsible for determining and approving any compensation payable directly by the Company to our executive officers and administering the Company's equity compensation
program. Our Compensation Committee values the opinions expressed by shareholders and will consider the outcome of this vote, among other factors, when making future compensation decisions.
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Our
Audit Committee, which is 100% comprised of Independent Trustees, appoints the Company's independent auditors. Your vote will ratify prior action by
the Audit Committee and will not be binding upon the Audit Committee. However, the Audit Committee values the opinions of the Company's shareholders and may reconsider its prior appointment of the
independent auditors or consider the results of this shareholder vote, among other factors, when it determines to appoint the Company's independent auditors in the future.
6.
What if I am a shareholder of record and do not specify a choice for a matter when returning a proxy card or authorizing a proxy
by internet or telephone?
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If
you return a signed proxy card or authorize a proxy by internet or telephone and do not specify a choice for a matter, you will be instructing your proxy to vote in the manner
recommended by the Board on that matter:
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FOR the election of both Trustee nominees identified in this Proxy Statement;
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FOR the advisory vote to approve executive compensation; and
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FOR the ratification of the appointment of Ernst & Young LLP as independent auditors.
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SENIOR HOUSING PROPERTIES
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2018 Proxy Statement
7.
What if I am a beneficial owner and do not give voting instructions to my broker?
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If
you are a beneficial owner and do not provide voting instructions to your bank, broker or other nominee, the following applies:
Non-Discretionary Items.
The election of the Trustees and the advisory vote to approve executive compensation
are non-discretionary items and may not be voted on by brokers, banks or other nominees who have not received specific voting instructions from beneficial owners. The result of the inability of a
broker, bank or other nominee to vote on a non-discretionary item for which it has not received specific voting instructions from beneficial owners is referred to as a broker non-vote.
Discretionary Items.
The ratification of the appointment of Ernst & Young LLP as independent
auditors is a discretionary item. Generally, banks, brokers and other nominees that do not receive voting instructions from beneficial owners may vote on this proposal in their discretion.
8.
What is a quorum? How are abstentions and broker non-votes counted?
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A
quorum of shareholders is required for shareholders to take action at the 2018 Annual Meeting. The presence, in person or by proxy, of shareholders entitled to cast a majority of
all the votes entitled to be cast at the 2018 Annual Meeting constitutes a quorum.
Abstentions
and broker non-votes are included in determining whether a quorum is present. Abstentions are not votes cast and, therefore, will not be included in vote totals and will have no effect on
the outcome of any Item to be voted on at the 2018 Annual Meeting. Broker non-votes are not votes cast and, therefore, will not be included in vote totals and will have no effect on the outcome of
Items 1 or 2. There can be no broker non-votes on Item 3 as it is a matter on which, if you hold your shares in street name and do not provide voting instructions to the broker, bank or
other nominee that holds your shares, the nominee has discretionary authority to vote on your behalf.
With
respect to Item 1, a proxy marked "WITHHOLD" will have the same effect as an abstention and will not be counted for purposes of determining a plurality of votes cast, but will be counted
as a vote "AGAINST" for purposes of determining a majority of votes cast under the Company's Trustee resignation policy. Pursuant to the Company's Governance Guidelines, if a Trustee nominee fails to
receive a majority of votes cast, she will offer to resign from the Board and the Board will decide whether to accept or reject the resignation offer.
9.
What may I do if I change my mind after I authorize a proxy to vote my shares?
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Shareholders
have the right to revoke a proxy at any time before it is voted at the 2018 Annual Meeting, subject to the proxy voting deadlines described above. Shareholders may
revoke a proxy by authorizing a proxy again on a later date by internet or by telephone (only the last internet or telephone proxy submitted prior to the meeting will be counted) or by signing and
returning a later dated proxy card or by attending the meeting and voting in person. If you are a beneficial owner, see the response to
question 15
.
A
shareholder's attendance at the 2018 Annual Meeting will not revoke that shareholder's proxy unless that shareholder votes again at the meeting or sends an original written statement to the
Secretary of the Company revoking the prior proxy. An original written notice of revocation or subsequent proxy should be delivered to Senior Housing Properties Trust, Two Newton Place,
255 Washington Street, Suite 300, Newton, Massachusetts 02458, Attention: Secretary, or hand delivered to the Secretary before the taking of the vote at the 2018 Annual
Meeting.
Beneficial
owners who wish to change their votes should contact the organization that holds their shares.
SENIOR HOUSING PROPERTIES TRUST
2018 Proxy Statement 9
10.
Can I access the proxy materials on the internet? How can I sign up for the electronic proxy delivery service?
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The
Notice of 2018 Annual Meeting, this Proxy Statement and the Annual Report are available at
www.proxyvote.com
. You may access these
proxy materials on the internet through the conclusion of the 2018 Annual Meeting.
Instead
of receiving future copies of the Company's proxy materials by mail, shareholders of record and most beneficial owners may elect to receive these materials electronically. Opting to receive
your future proxy materials electronically will save us the cost of printing and mailing documents, and also will give you an electronic link to our proxy voting site. Your Notice Regarding the
Availability of Proxy Materials instructs you as to how you may request electronic delivery of future proxy materials.
11.
When will the Company announce the voting results?
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The
Company will report the final results in a Current Report on Form 8-K filed with the SEC following the completion of the 2018 Annual Meeting.
12.
How are proxies solicited and what is the cost?
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The
Company bears all expenses incurred in connection with the solicitation of proxies. The Company has engaged Morrow Sodali LLC ("Morrow") to assist with the solicitation of
proxies for an estimated fee of $20,000 plus reimbursement of expenses. The Company has agreed to indemnify Morrow against certain liabilities arising out of the Company's agreement with Morrow. We
will request banks, brokers and other nominees to forward proxy materials to the beneficial owners of Common Shares and to obtain their voting instructions. We will reimburse those firms for their
expenses of forwarding proxy materials.
Proxies
may also be solicited, without additional compensation, by the Company's Trustees and officers, and by The RMR Group LLC ("RMR LLC"), its officers and employees and its parent's
and subsidiaries' directors, officers and employees, by mail, telephone or other electronic means or in person.
13.
What is householding?
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As
permitted by the Securities Exchange Act of 1934, as amended (the "Exchange Act"), we may deliver only one copy of the Notice Regarding the Availability of Proxy Materials, Notice
of 2018 Annual Meeting, this Proxy Statement and the Annual Report to Shareholders residing at the same address, unless the shareholders have notified us of their desire to receive multiple copies of
those documents. This practice is known as "householding."
We
will deliver a separate copy of any of those documents to you if you write to the Company at Investor Relations, Senior Housing Properties Trust, Two Newton Place, 255 Washington Street,
Suite 300, Newton, Massachusetts 02458, or call the Company at (617) 796-8234. If you want to receive separate copies of our notices regarding the availability of proxy materials,
notices of annual meetings, proxy statements and annual reports in the future, or if you are receiving multiple copies and would like to receive only one copy per household, you should contact your
bank, broker or other nominee, or you may contact us at the above address or telephone number.
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SENIOR HOUSING PROPERTIES
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2018 Proxy Statement
2018 Annual Meeting Information
14.
How do I attend the 2018 Annual Meeting in person?
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IMPORTANT NOTE: If you plan to attend the 2018 Annual Meeting, you must follow these instructions to ensure admission.
All attendees need to bring photo identification for admission.
Please note that cameras and audio or video recorders are not
permitted at the meeting. Any cell phones, pagers or similar electronic devices must be shut off for the duration of the meeting.
Attendance
at the meeting is limited to the Company's Trustees and officers, shareholders as of the Record Date (February 1, 2018) or their duly authorized representatives or proxies, and other
persons permitted by the Chairman of the meeting.
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Record owners:
If you are a shareholder as of the Record Date who holds shares directly, you
need not present any documentation to attend the 2018 Annual Meeting, other than photo identification.
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Beneficial owners:
If you are a shareholder as of the Record Date who holds shares indirectly
through a brokerage firm, bank or other nominee, you may be required to present evidence of your beneficial ownership of shares. For this purpose, a letter or account statement from the applicable
brokerage firm, bank or other nominee confirming such ownership will be acceptable. Please note that you will not be able to vote your shares at the meeting without a legal proxy, as described in the
response to
question 15
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Authorized named representatives:
If you are a shareholder as of the Record Date and intend to
appoint an authorized named representative to attend the meeting on your behalf, including if you are a corporation, partnership, limited liability company or other entity, you must
notify us of your intent by regular mail to our Secretary or by email to secretary@snhreit.com.
Requests for authorized named representatives to attend the meeting must be
received no later than Tuesday May 15, 2018,
or if the meeting is postponed or adjourned to a later date, on or before the 5
th
business day before
the reconvened meeting.
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Please
include the following information when submitting your request:
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(1)
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Your
name and complete mailing address;
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(2)
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Proof
that you owned shares of the Company as of February 1, 2018 (such as a copy of the portion of your voting instruction form showing your name and
address, a bank or brokerage firm account statement or a letter from the bank, broker or other nominee holding your shares); and
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(3)
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A
signed authorization appointing such individual to be your authorized named representative at the meeting, which includes the name, address, telephone number and
email address of the authorized named representative.
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Upon
receipt of proper documentation, you and your named representative will receive confirmation that your named representative has been authorized to
attend the meeting. For admission to the meeting, the photo ID presented must match the documentation provided in response to item (3) above. The Company reserves the right to limit the number
of representatives who may attend the meeting.
If
you have questions regarding these admission procedures, please call Investor Relations at (617) 796-8234.
SENIOR HOUSING PROPERTIES TRUST
2018 Proxy Statement 11
15.
How can I vote in person at the meeting if I am a beneficial owner?
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If
you are a beneficial owner and want to vote your shares at the 2018 Annual Meeting, you need a legal proxy from your bank, broker or other nominee. You also need to follow the
procedures described in the response to
question 14
and to bring the legal proxy with you to the meeting and hand it in with a signed ballot that will be provided
to you at the meeting. You will not be able to vote your shares at the meeting without a legal proxy. If you do not have a legal proxy, you can still attend the meeting by following the procedures
described in the response to
question 14
. However, you will not be able to vote your shares at the meeting without a legal proxy. The Company encourages you to vote
your shares in advance, even if you intend to attend the meeting.
ELECTION OF TRUSTEES (ITEM 1)
The Board serves as the decision making body of the Company, except for those matters reserved to the shareholders. The Board selects and oversees the Company's officers, who are charged by the Board
with conducting the day to day business of the Company.
In
accordance with our Amended and Restated Declaration of Trust (our "Declaration of Trust") and Bylaws, the Board currently consists of five members, three of whom are Independent
Trustees and two of whom are Managing Trustees. Our Declaration of Trust, as supplemented by Articles Supplementary filed with the State Department of Assessments and Taxation of Maryland on
June 30, 2017, provides that the Board is divided into three classes, with each Trustee of each class elected at an annual meeting of shareholders serving for a term that continues until the
third annual meeting of shareholders following his or her election and until his or her successor is elected and qualifies. In accordance with our Declaration of Trust and Bylaws, on March 29,
2018, pursuant to a recommendation of the Nominating and Governance Committee, the Board elected Jennifer B. Clark as a Managing Trustee in Class I to fill the vacancy created by the death of
Barry M. Portnoy on February 25, 2018 and to serve the remainder of the full term of the Class I Trustees, the Class of Trustees which stands for election at the 2018 Annual Meeting.
Assuming
a quorum is present at the meeting, a plurality of all the votes cast is required to elect a Trustee at the 2018 Annual Meeting. Pursuant to the Company's Governance Guidelines, if an
incumbent Trustee does not receive a majority of the votes cast in an uncontested election, the Trustee will submit an offer to resign from the Board. In such circumstance, the Nominating and
Governance Committee will make a recommendation to the Board as to whether to accept or reject the resignation offer. The Board will act on the resignation offer taking into account the recommendation
of the Nominating and Governance Committee and make its decision within 90 days following the certification of the election results.
The
Nominating and Governance Committee is responsible for identifying and evaluating nominees for Trustee and for recommending to the Board nominees for election at each annual
meeting of shareholders. The Nominating and Governance Committee may consider candidates suggested by the Company's Trustees, officers or shareholders or by others.
Shareholder Recommendations for Nominees.
Shareholders who would like to recommend a nominee for the
position of Trustee should submit their recommendations in writing by mail to the Chair of the Nominating and Governance Committee, c/o Senior Housing Properties Trust, Secretary, at Two Newton Place,
255 Washington Street, Suite 300, Newton, Massachusetts 02458 or by email to secretary@snhreit.com. A shareholder's recommendation should include any information that the recommending
shareholder believes relevant to the Nominating and Governance Committee's consideration. The Nominating and Governance Committee may request additional information about the shareholder recommended
nominee or about the shareholder recommending the nominee. Recommendations by shareholders will be considered by the Nominating and Governance Committee in its discretion using the same criteria as
other candidates it considers.
Shareholder Nominations for Trustee.
Our Bylaws also provide that a shareholder of the Company may nominate
a person for election to the Board provided the shareholder complies with the advance notice provisions set forth in our Bylaws, which include, among other things, requirements as to the proposing
shareholder's timely delivery of advance notice, continuous requisite ownership of Common Shares and submission of specified documentation and information. For more information on how shareholders can
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SENIOR HOUSING PROPERTIES
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2018 Proxy Statement
nominate
Trustees for election to the Board, see "Shareholder Nominations and Other Proposals" beginning on page 36.
Trustees
are responsible for overseeing the Company's business. This significant responsibility requires highly skilled individuals with various qualities, attributes and
professional experience. The Board believes that there are general requirements that are applicable to all Trustees, qualifications applicable to Independent Trustees and other skills and experience
that should be represented on the Board as a whole, but not necessarily by each Trustee. In accordance with our Declaration of Trust and Bylaws, the Board currently consists of five Trustees: two
Managing Trustees and three Independent Trustees. As set forth in our Bylaws, Independent Trustees are Trustees who are not employees of RMR LLC, who are not involved in the Company's day to
day activities and who meet the qualifications of independent directors under the applicable rules of The Nasdaq Stock Market LLC (the "Nasdaq") and the SEC. As set forth in our Bylaws,
Managing Trustees are Trustees who have been employees, officers or directors of RMR LLC or who have been involved in the Company's day to day activities for at least one year prior to their
election as Trustees. The Board and the Nominating and Governance Committee consider the qualifications of Trustees and Trustee candidates individually and in the broader context of the Board's
overall composition and the Company's current and future needs.
Qualifications for All Trustees
In its assessment of each potential candidate, including those recommended by shareholders, the Nominating and Governance Committee considers
the potential nominee's integrity, experience, achievements, judgment, intelligence, competence, personal character, likelihood that a candidate will be able to serve on the Board for an extended
period and other matters that the Nominating and Governance Committee deems appropriate. The Nominating and Governance Committee
also takes into account the ability of a potential nominee to devote the time and effort necessary to fulfill his or her responsibilities to the Company.
The
Board and Nominating and Governance Committee require that each Trustee candidate be a person of high integrity with a proven record of success in his or her field. Each Trustee candidate must
demonstrate the ability to make independent analytical inquiries, familiarity with and respect for corporate governance requirements and practices and a commitment to serving the Company's long term
best interests. In addition, the Nominating and Governance Committee may conduct interviews of potential Trustee candidates to assess intangible qualities, including the individual's ability to ask
appropriate questions and to work collegially. The Board does not have a specific diversity policy in connection with the selection of nominees for Trustee, but due consideration is given to the
Board's overall balance of diversity, including professional background, experience, perspective, gender and ethnicity.
SENIOR HOUSING PROPERTIES TRUST
2018 Proxy Statement 15
Specific Qualifications, Attributes, Skills and Experience to be Represented on the
Board
The Board has identified particular qualifications, attributes, skills and experience that are important to be represented on the Board as a
whole, in light of the Company's long term interests. The following table summarizes certain key characteristics of the Company's business and the associated qualifications, attributes, skills and
experience that the Board believes should be represented on the Board.
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Business Characteristics
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Qualifications, Attributes, Skills and Experience
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The Board's responsibilities include understanding and overseeing the various risks facing the Company and ensuring that appropriate policies and procedures are in place to effectively manage those risks.
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Risk oversight/management
expertise.
Service on other
public company boards and committees.
Operating business experience.
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The Company's business involves complex financial and real estate transactions and healthcare regulatory matters.
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High level of financial
literacy.
Knowledge of the
commercial real estate ("CRE") industry and real estate investment trusts ("REITs").
Familiarity with medical office building leasing activities and healthcare regulation trends and activity.
Management/leadership experience.
Knowledge of the Company's historical business activities.
Familiarity with the public
capital markets.
Work
experience.
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The Board must constantly evaluate the Company's strategic direction in light of current real estate and healthcare business trends, healthcare policy trends and expected regulatory changes.
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Experience at a strategic
or policymaking level in a business, government, non-profit or academic organization of high standing.
Commitment to serve on the Board over a period of years in order to develop knowledge about the Company's operations.
Understanding of the impact of financial market trends on the real
estate industry.
Understanding of healthcare policy, trends and regulations, healthcare business trends and their impact on the Company's business and strategic plans.
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The Board meets frequently and, at times, on short notice to consider time sensitive issues.
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Sufficient time and
availability to devote to Board and committee matters.
Practical wisdom and mature judgment.
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The Board will be better informed if the members of the Board have diverse perspectives, backgrounds and experiences.
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Gender and ethnic
diversity.
Nationality.
Experience.
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The Board is comprised of two Managing Trustees and three Independent Trustees.
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Qualifying as a Managing
Trustee in accordance with the requirements of our Bylaws.
Qualifying as an Independent Trustee in accordance with the requirements of the Nasdaq, the SEC and our Bylaws.
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2018 Proxy Statement
2018 Nominees for Trustee
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The
following table sets forth the names of the Trustee nominees and those Trustees who will continue to serve after the 2018 Annual Meeting:
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Name
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Position
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Class
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Current Term Expires
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Lisa Harris Jones*
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Independent Trustee
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I
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2018
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Jennifer B. Clark*
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Managing Trustee
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I
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2018
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John L. Harrington
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Independent Trustee
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II
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2019
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Adam D. Portnoy
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Managing Trustee
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II
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2019
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Jeffrey P. Somers
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Independent Trustee
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III
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2020
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Upon
the recommendation of the Nominating and Governance Committee, the Board has nominated Ms. Lisa Harris Jones for election as an Independent Trustee in Class I and Jennifer B. Clark
for election as a Managing Trustee in Class I. Each Trustee nominee currently serves on the Board. If elected, each nominee would serve until the Company's 2021 annual meeting of shareholders
and until her successor is duly elected and qualifies, subject to the individual's earlier death, resignation, retirement, disqualification or removal.
We
expect that each nominee for election as a Trustee will be able to serve if elected. However, if a nominee should become unable or unwilling to serve, proxies may be voted for the election of a
substitute nominee designated by the Board.
The
Board believes that the combination of the various qualifications, attributes, skills and experiences of the Trustee nominees would contribute to an effective Board serving the Company's long term
best interests. The Board and the Nominating and Governance Committee believe that the Trustee nominees possess the necessary qualifications to provide effective oversight of the business and quality
advice and counsel to the Company's management. Below is a summary of the key experiences, qualifications, attributes and skills that led the Nominating and Governance Committee and the Board to
conclude each such person is currently qualified to serve as a Trustee.
The Board of Trustees recommends a vote "FOR" the election of both Trustee nominees.
Trustees and Executive Officers
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The
following is some important biographical information, including the ages and recent principal occupations, as of March 30, 2018, of the Company's Trustees, Trustee
nominees and executive officers. The business address of the Trustees, Trustee nominees and executive officers is c/o Senior Housing Properties Trust, Two Newton Place, 255 Washington Street,
Suite 300, Newton, Massachusetts 02458. Included in each Trustee's biography below are the attributes of that Trustee consistent with the qualifications, attributes, skills and experience the
Board has determined are important to be represented on the Board. For a general discussion of the particular Trustee qualifications, attributes, skills and experience, and the process for selecting
and nominating individuals for election to serve as a Trustee, please see "Election of Trustees" beginning on page 14.
SENIOR HOUSING PROPERTIES TRUST
2018 Proxy Statement 17
Trustee Nominees
Lisa Harris Jones
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Independent Trustee since
2015
Class/Term:
Class I with a term expiring
at the 2018 Annual Meeting
Age:
50
Board Committees:
Audit; Compensation; Nominating and Governance (Chair)
Other Public Company
Boards:
TravelCenters of America LLC (since 2013); Industrial Logistics Properties Trust (since 2018)
Ms. Harris Jones is the founding
member of Harris Jones & Malone, LLC, a law firm based in Maryland. Since founding Harris Jones & Malone, LLC in 2000, Ms. Harris Jones has represented a wide range of clients, focusing her practice in government
relations and procurement at both the state and local levels. Prior to founding Harris Jones & Malone, LLC, Ms. Harris Jones was associated with other Maryland law firms from 1993 to 1999, and she has represented the City of
Baltimore and many of its agencies and related quasi-public entities in various real estate development and financing transactions. In addition to her professional accomplishments, Ms. Harris Jones has held leadership positions in many community
service and civic organizations for which she has received recognitions and awards, including being the recipient of the YWCA Greater Baltimore Special Leadership Award in 2012.
Specific Qualifications, Attributes, Skills and Experience:
professional skills and experience in legal and business finance matters;
experience in public policy matters;
experience in real estate matters;
demonstrated leadership capability as an
entrepreneur and founding member of a law firm;
work on public company boards and board committees;
African-American;
female; and
qualifying as an Independent Trustee in accordance with the requirements of the Nasdaq, the SEC and our Bylaws.
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18
SENIOR HOUSING PROPERTIES
TRUST
2018 Proxy Statement
Jennifer B. Clark
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Managing Trustee since
2018
Class/Term:
Class I with a term expiring at
the 2018 Annual Meeting
Age:
56
Other Public Company Boards:
The RMR Group Inc. (since 2018)
Ms. Clark has been Executive Vice President, General Counsel and
Secretary of The RMR Group Inc. ("RMR Inc.") since shortly after its formation in 2015. Ms. Clark joined RMR LLC in 1999 as a vice president; she became a senior vice president in 2006, an executive vice president and general
counsel in 2008 and secretary in 2015. Ms. Clark serves as the secretary of each of the companies to which RMR LLC or its subsidiaries provide management services, including the Company and Five Star Senior Living Inc. Ms. Clark also serves
as a director and secretary of Sonesta International Hotels Corporation; a director and executive vice president, general counsel and secretary of RMR Advisors LLC; executive vice president, general counsel and secretary of Tremont Realty
Advisors LLC; and secretary and chief legal officer of RMR Real Estate Income Fund. Prior to joining RMR LLC, Ms. Clark was a partner at the law firm of Sullivan & Worcester LLP.
Specific Qualifications, Attributes, Skills and Experience:
professional skills and experience in legal, corporate governance
and real estate matters;
leadership position with RMR LLC and demonstrated management ability;
extensive experience in, and knowledge of, the CRE industry and REITs;
institutional knowledge earned through prior service as an officer
of the Company and in leadership positions with RMR LLC;
female; and
qualifying as a Managing Trustee in accordance with the requirements of our Bylaws.
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SENIOR HOUSING PROPERTIES TRUST
2018 Proxy Statement 19
Trustees
John L. Harrington
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Independent Trustee since
1999
Class/Term:
Class II with a term expiring
at the 2019 annual meeting of shareholders
Age:
81
Board Committees:
Audit (Chair); Compensation; Nominating and Governance
Other Public Company
Boards:
Hospitality Properties Trust (since 1995); RMR Real Estate Income Fund, including its predecessor funds (since 2003); Government Properties Income Trust (since 2009); Tremont Mortgage Trust (since 2017)
Mr. Harrington has been chairman of the board of trustees of the Yawkey Foundation (a charitable foundation) since 2007 and prior to that from 2002 to 2003. He served as a
trustee of the Yawkey Foundation since 1982 and as executive director from 1982 to 2006. He was also a trustee of the JRY Trust from 1982 through 2009. Mr. Harrington was chief executive officer and general partner of the Boston Red Sox Baseball
Club from 1986 to 2002 and served as that organization's vice president and chief financial officer prior to that time. He was president of Boston Trust Management Corp. from 1981 to 2006 and a principal of Bingham McCutchen Sports
Consulting LLC from 2007 to 2008. Mr. Harrington represented the Boston Red Sox majority interest in co-founding The New England Sports Network, managing it from 1981 to 2002. Mr. Harrington served as a director of Fleet Bank from 1995
to 1999 and of Shawmut Bank of Boston from 1986 to 1995, a member of the Major League Baseball Executive Council from 1998 to 2001, assistant secretary of administration and finance for the Commonwealth of Massachusetts in 1980, treasurer of the
American League of Professional Baseball Clubs from 1970 to 1972, assistant professor and director of admissions, Carroll Graduate School of Management at Boston College from 1967 through 1970 and as supervisory auditor for the U.S. General
Accounting Office from 1961 through 1966. He was an independent trustee of RMR Funds Series Trust from shortly after its formation in 2007 until its dissolution in 2009. Mr. Harrington has held many civic leadership positions and received
numerous leadership awards and honorary doctorate degrees. Mr. Harrington holds a Massachusetts license as a certified public accountant.
Specific Qualifications, Attributes, Skills and Experience:
demonstrated leadership capability;
work on public company boards and board committees and in key management roles in various enterprises;
service on the boards of several private and charitable
organizations;
professional skills and expertise in accounting, finance and risk management and experience as a chief financial officer;
expertise in compensation and benefits matters;
institutional knowledge earned through prior service on the Board
since shortly after the Company's formation; and
qualifying as an Independent Trustee in accordance with the requirements of the Nasdaq, the SEC and our Bylaws.
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20
SENIOR HOUSING PROPERTIES
TRUST
2018 Proxy Statement
Adam D. Portnoy
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Managing Trustee since
2007
Class/Term:
Class II with a term expiring at
the 2019 annual meeting of shareholders
Age:
47
Other Public Company Boards:
Hospitality Properties Trust (since 2007); Government Properties Income Trust (since 2009); RMR Real Estate Income Fund, including its predecessor funds (since 2009); Select
Income REIT (since 2011); The RMR Group Inc. (since 2015); Industrial Logistics Properties Trust (since 2017); Tremont Mortgage Trust (since 2017); TravelCenters of America LLC (since 2018); Five Star Senior Living Inc. (since 2018)
Mr. Portnoy has been a managing director of RMR Inc. and its president and chief executive officer since shortly after its formation in 2015. Mr. Portnoy has
been president and chief executive officer of RMR LLC since 2005 and was a director of RMR LLC from 2006 until June 5, 2015 when RMR LLC became a majority owned subsidiary of RMR Inc. and RMR Inc. became RMR LLC's
managing member. Mr. Portnoy has been a director of RMR Advisors LLC since 2007 and served as its president from 2007 to September 2017 and its chief executive officer from 2015 to September 2017. Mr. Portnoy has been a director of
Tremont Realty Advisors LLC since March 2016, and he was its president and chief executive officer from March 2016 through December 2017. Mr. Portnoy is an owner and has been a director of Sonesta International Hotels Corporation since
2012. Mr. Portnoy served as president and chief executive officer of RMR Real Estate Income Fund from 2007 to 2015 and as president of Government Properties Income Trust from 2009 to 2011. Mr. Portnoy was a managing trustee of Equity
Commonwealth from 2006 until 2014 and served as its president from 2011 to 2014. Prior to joining RMR LLC in 2003, Mr. Portnoy held various positions in the finance industry and public sector, including working as an investment banker at
Donaldson, Lufkin & Jenrette and ABN AMRO as well as working in private equity at DLJ Merchant Banking Partners and at the International Finance Corporation (a member of The World Bank Group). In addition, Mr. Portnoy previously founded
and served as chief executive officer of a privately financed telecommunications company. Mr. Portnoy currently serves as the honorary consul general of the Republic of Bulgaria in Massachusetts, and previously served on the board of governors
for the National Association of Real Estate Investment Trusts and the board of trustees of Occidental College.
Specific Qualifications, Attributes,
Skills and Experience:
extensive experience in, and knowledge of, the CRE industry and REITs;
leadership position with RMR LLC and demonstrated management ability;
public company director service;
experience in investment banking and private equity;
government organization
service;
experience in
starting a telecommunications company and serving as its senior executive;
institutional knowledge earned through prior service on the Board and in leadership positions with RMR LLC; and
qualifying as a Managing Trustee in accordance with the requirements
of our Bylaws.
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SENIOR HOUSING PROPERTIES TRUST
2018 Proxy Statement 21
Jeffrey P. Somers
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Independent Trustee since
2009;
Lead Independent Trustee since
2015
Class/Term:
Class III with a term expiring at the 2020 annual meeting of shareholders
Age:
75
Board Committees:
Audit; Compensation (Chair); Nominating and Governance
Other Public Company Boards:
Government Properties Income Trust (since 2009); RMR Real Estate Income Fund, including its predecessor funds (since
2009); Select Income REIT (since 2012); Tremont Mortgage Trust (since 2017)
Mr. Somers has been, since 2010, of counsel to, and from 1995 to 2009, was a member, and
for six of those years the managing member, of the law firm of Morse, Barnes-Brown & Pendleton, PC. Prior to that time, he was a partner for more than 20 years at the law firm of Gadsby Hannah LLP (now McCarter & English,
LLP) and for eight of those years was managing partner of the firm. Mr. Somers served as a director for Cantella Management Corp., a holding company for Cantella & Co., Inc., an SEC registered broker-dealer, from 2002
until January 2014, when the company was acquired by a third party. From 1995 to 2001, he served as a trustee for the Pictet Funds. Before entering private law practice, Mr. Somers was a staff attorney at the SEC in Washington, D.C. He has
previously served as a trustee for Glover Hospital, a private not for profit regional hospital, which is currently part of Beth Israel Deaconess Hospital, among various other civic leadership roles.
Specific Qualifications, Attributes, Skills and Experience:
expertise in legal, corporate governance and regulatory matters;
leadership role as a law
firm managing member;
experience as a hospital trustee, including guiding the hospital's sale process;
service as a trustee of public REITs and investment companies;
extensive experience in complex business transactions;
sophisticated understanding of finance and accounting matters;
work on public company
boards and board committees;
institutional knowledge earned through prior service on the Board; and
qualifying as an Independent Trustee in accordance with the requirements of the Nasdaq, the SEC and our Bylaws.
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SENIOR HOUSING PROPERTIES
TRUST
2018 Proxy Statement
Executive Officers
David J. Hegarty
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President and Chief Operating Officer since
1999
Age:
61
Mr. Hegarty has been an executive vice president of RMR LLC since 2006. Mr. Hegarty was a director of RMR LLC from 1995 until June 5, 2015 when RMR LLC
became a majority owned subsidiary of RMR Inc. and RMR Inc. became RMR LLC's managing member. Mr. Hegarty has been employed in various positions at RMR LLC and its managed companies since 1987. Prior to joining RMR LLC,
Mr. Hegarty worked at Arthur Young & Co., a predecessor to Ernst & Young LLP. Mr. Hegarty is a certified public accountant.
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Richard W. Siedel, Jr.
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Chief Financial Officer and Treasurer since
2016
Age:
38
Mr. Siedel served as chief accounting officer of Five Star Senior Living Inc. from 2014 through 2015, and he previously served as controller of RMR LLC from 2013 to
2014. Mr. Siedel's former experience also includes various accounting leadership positions, including corporate controller at Sensata Technologies (NYSE: ST) from 2010 to 2013 and an auditor at Ernst & Young LLP from 2001 to
2010.
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There
are no family relationships among any of the Company's Trustees or executive officers. The Company's executive officers serve at the discretion of the Board.
RMR LLC
or its subsidiaries provide management services to public and private companies, including the Company, Government Properties Income Trust, Hospitality Properties Trust, Industrial
Logistics Properties Trust, Select Income REIT, Tremont Mortgage Trust, Five Star Senior Living Inc., TravelCenters of America LLC, Sonesta International Hotels Corporation and
Affiliates Insurance Company. Government Properties Income Trust is a public REIT that primarily invests in properties that are majority leased to government tenants and office properties in the
metropolitan Washington, D.C. market area that are leased to government and private sector tenants ("GOV"). Hospitality Properties Trust is a public REIT that owns hotels and travel centers ("HPT").
Industrial Logistics Properties Trust is a public REIT that
owns industrial and logistics properties ("ILPT"). Select Income REIT is a public REIT that primarily owns net leased, single tenant properties ("SIR"). Tremont Mortgage Trust is a public REIT that
focuses primarily on originating and investing in first mortgage loans secured by middle market and transitional CRE ("TRMT" and, together with GOV, HPT, ILPT and SIR, the "Other RMR Managed REITs").
Five Star Senior Living Inc. is a public real estate based operating company in the healthcare and senior living services business ("FVE"). TravelCenters of America LLC is a public real
estate based operating company in the travel center, convenience store and restaurant businesses ("TA"). Sonesta International Hotels Corporation is a private company that operates and franchises
hotels, resorts and cruise ships ("Sonesta"). Affiliates Insurance Company is a private Indiana insurance company ("AIC"). RMR LLC is a majority owned subsidiary of RMR Inc., a public
company whose controlling shareholder is ABP Trust, which is controlled by its sole trustee, Adam D. Portnoy, one of our Managing Trustees, and to which RMR LLC provides management services.
RMR Advisors LLC, a subsidiary of RMR LLC, is an SEC registered investment adviser to the RMR Real Estate Income Fund, which is an investment company registered under the Investment
Company Act of 1940, as amended ("RIF"). Tremont Realty
SENIOR HOUSING PROPERTIES TRUST
2018 Proxy Statement 23
Advisors LLC,
a subsidiary of RMR LLC, is an SEC registered investment adviser that provides investment advisory services to its investment advisory clients, which include TRMT, a
private fund and separately managed accounts that invest in CRE debt, including secured mortgage debt and mezzanine financing opportunities. Tremont Realty Advisors LLC also provides management
services to certain of its investment advisory clients, including originating, underwriting, closing and managing certain real estate loans or other real estate investments. Tremont Realty
Advisors LLC, as an intermediary, also provides mortgage brokerage services, originating and arranging CRE loans for third parties who are not investment advisory clients. The foregoing
entities may be considered to be affiliates of the Company.
24
SENIOR HOUSING PROPERTIES
TRUST
2018 Proxy Statement
TRUSTEE COMPENSATION
The
Compensation Committee is responsible for reviewing and determining the Common Share awards granted to Trustees and making recommendations to the Board regarding cash compensation paid to
Trustees, in each case, for Board, committee and committee chair services. Managing Trustees do not receive cash compensation for their services as Trustees but do receive Common Share awards for
their
Board service. The number of Common Shares awarded to each Managing Trustee for Board service is the same as the number awarded to each Independent Trustee.
All
Trustees receive compensation in Common Shares to align the interests of Trustees with those of the Company's shareholders. To this end, the Company's Governance Guidelines codify our expectation
that, subject to certain exemptions, each Trustee retain at least 20,000 Common Shares by the later of: (i) the date of the 2019 annual meeting of shareholders of the Company and
(ii) five years from the annual meeting of shareholders of the Company at which the Trustee was initially elected or, if earlier, the first annual meeting of shareholders of the Company
following the initial appointment of the Trustee to the Board.
In
determining the amount and composition of our Trustees' compensation, the Compensation Committee and the Board take various factors into consideration, including, but not limited to, the
responsibilities of Trustees generally, as well as for service on committees and as committee chairs, and the forms of compensation paid to trustees or directors by comparable companies, including the
compensation of trustees and directors of other companies managed by RMR LLC or its subsidiaries. The Board reviews the Compensation Committee's recommendations regarding Trustee cash
compensation and determines the amount of such compensation.
2017 Annual Trustee Compensation
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In
2017, each Independent Trustee received an annual fee of $40,000 for services as a Trustee, plus a fee of $1,250 for each meeting attended. Up to two $1,250 fees were paid if a Board meeting and
one or
more Board committee meetings, or two or more Board committee meetings, were held on the same date. Each Independent Trustee and Managing Trustee received an award of 3,000 Common Shares in 2017.
Each
Independent Trustee who served as a committee chair of the Board's Audit, Compensation or Nominating and Governance Committees received an additional annual fee of $15,000, $10,000 and $10,000,
respectively. The Lead Independent Trustee received an additional annual cash retainer fee of $12,500 for serving in this role. Trustees were reimbursed for travel expenses they incurred in connection
with their duties as Trustees and for out of pocket costs they incurred in connection with their attending certain continuing education programs.
SENIOR HOUSING PROPERTIES TRUST
2018 Proxy Statement 25
The
following table details the total compensation of the Trustees for the year ended December 31, 2017 for services as a Trustee.
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Name
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Fees Earned or
Paid in Cash
($)
(1)
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Stock Awards
($)
(2)
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All Other
Compensation
($)
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Total ($)
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John L. Harrington
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$
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75,000
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$
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63,750
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$
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$
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$138,750
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Lisa Harris Jones
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71,250
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63,750
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135,000
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Adam D. Portnoy
(3)
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63,750
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63,750
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Barry M. Portnoy
(3)(4)
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63,750
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63,750
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Jeffrey P. Somers
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87,500
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63,750
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151,250
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(1)
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The
amounts reported in the Fees Earned or Paid in Cash column reflect the cash fees earned by each Independent Trustee in 2017, consisting of a
$40,000 annual cash fee and each of Ms. Harris Jones and Messrs. Harrington and Somers earned an additional $10,000, $15,000 and $10,000, respectively, for service as a committee chair
in 2017. Ms. Harris Jones and Messrs. Harrington and Somers each earned an additional $21,250, $20,000 and $22,500 in fees for meetings attended in 2017, respectively. Mr. Somers
also earned $15,000 in aggregate for his roles as Lead Independent Trustee and Special Committee co-chairperson.
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(2)
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Equals
3,000 Common Shares multiplied by the closing price of such shares on May 18, 2017, the award date. Amounts shown are also the
compensation cost for the award recognized by the Company for financial reporting purposes pursuant to Financial Accounting Standards Board Accounting Standards Codification
TM
Topic 718,
"CompensationStock Compensation" ("ASC 718") (which equals the closing price of the shares on the award date, multiplied by the number of shares subject to the grant). No assumptions were
used in this calculation. All Common Share awards to Trustees vested at the time the award was granted.
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(3)
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Managing
Trustees do not receive cash compensation for their services as Trustees.
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(4)
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Mr. Barry
M. Portnoy served as a Managing Trustee of the Company until his death on February 25, 2018. On March 29, 2018, the
Board elected Jennifer B. Clark to fill the resulting vacancy.
26
SENIOR HOUSING PROPERTIES
TRUST
2018 Proxy Statement
CORPORATE GOVERNANCE
The
Board is committed to corporate governance that promotes the long term interests of our shareholders. The Board has established Governance Guidelines that provide a framework for effective
governance. The guidelines address matters such as general qualification standards for the Board, Trustee responsibilities, Board meetings and communications, Board committees, Trustee access to
management and independent advisers, Trustee compensation and share ownership guidelines, Trustee
orientation and continuing education, executive development and succession planning, related person transactions, annual performance evaluation of the Board and other matters. The Board regularly
reviews developments in corporate governance and updates our Governance Guidelines and other governance materials as it deems necessary and appropriate.
The
governance section of our website makes available our corporate governance materials, including the Governance Guidelines, the charter for each Board committee, the Code and information about how
to report matters directly to management, the Board or the Audit Committee. To access these documents on the Company's website,
www.snhreit.com
, click
on "Investors" and then click on "Governance." In addition, instructions on how to obtain copies of the Company's corporate governance materials are included in the response to
question
16
in the "Questions and Answers" section on page 12.
Board Leadership Structure
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In
accordance with our Declaration of Trust and Bylaws, the Board is currently comprised of five Trustees, including three Independent Trustees and two Managing Trustees. All
Trustees play an active role in overseeing the Company's business both at the Board and committee levels. As set forth in the Company's Governance Guidelines, the core responsibility of our Trustees
is to exercise sound, informed and independent business judgment in overseeing the Company and its strategic direction. Our Trustees are skilled and experienced leaders and currently serve or have
served as members of senior management in public and private for profit organizations and law firms, and have also served in academia. Our Trustees may be called upon to provide solutions to various
complex issues and are expected to, and do, ask hard questions of the Company's officers and advisors. The Board is small, which facilitates informal discussions and communication from management to
the Board and among Trustees.
We
do not have a Chairman of the Board. In 2015, the Board amended the Company's Governance Guidelines to provide for the role and responsibilities of a Lead Independent Trustee to be selected
annually by a majority of the Independent Trustees, and our Independent Trustees selected Mr. Somers to serve in such role. Among other things, the Lead Independent Trustee's responsibilities
include: serving as a liaison between the Company's management and the Independent Trustees; presiding at all meetings of the Board at which the Managing Trustees are not present, including each
executive session of the Independent Trustees; assisting the Compensation Committee in its annual evaluation of the performance of the Company's management; being reasonably available for consultation
and direct communication with shareholders upon request; and such other responsibilities as the Board may determine. The Lead Independent Trustee may call meetings of the Independent Trustees or
executive sessions of Independent Trustees and presides at any such meeting.
Our
President and Treasurer are not members of the Board, but they regularly attend Board and Board committee meetings, as does our Director of Internal Audit. Other officers of RMR LLC also
sometimes attend Board meetings at the invitation of the Board. Special meetings of the Board may be called at any time by any Managing Trustee, the President or pursuant to the request of any two
Trustees then in office. Our Managing Trustees, in consultation with the Company's management and the Director of Internal Audit, set the agenda for Board meetings. The Lead Independent Trustee may
place an item on an agenda, and any other Independent Trustee may suggest agenda items by submitting such a request
SENIOR HOUSING PROPERTIES TRUST
2018 Proxy Statement 27
to
the Lead Independent Trustee. Discussions at Board meetings are led by the Managing Trustee or Independent Trustee who is most knowledgeable on a subject.
Pursuant
to the Company's Governance Guidelines, the Company's Independent Trustees are expected to meet in regularly scheduled meetings at which only Independent Trustees are present. It is expected
that these executive sessions may occur at least twice per year. Our Independent Trustees also meet
separately with the Company's officers, with the Company's Director of Internal Audit and with the Company's independent auditors.
In
2017, the Board held eight meetings. In 2017, each then Trustee attended 75% or more of the aggregate of all meetings of the Board and the committees on which he or she served. All of the then
Trustees attended last year's annual meeting of shareholders. The Company's policy with respect to Board members' attendance at meetings of the Board and annual meetings of shareholders can be found
in the Company's Governance Guidelines, the full text of which appears at the Company's website,
www.snhreit.com
.
Under
the corporate governance listing standards of the Nasdaq, the Board must consist of a majority of Independent Trustees. To be considered
independent:
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a trustee must not have a disqualifying relationship, as defined in the corporate governance section of the Nasdaq rules; and
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the Board must affirmatively determine that the trustee otherwise has no relationship which would interfere with the exercise of independent
judgment in carrying out the responsibilities of a trustee. To facilitate the trustee independence assessment process, the Board has adopted written Governance Guidelines as described below.
Our
Bylaws also require that a majority of the Board be Independent Trustees. Under our Bylaws, Independent Trustees are Trustees who are not employees of RMR LLC, are not involved in the
Company's day to day activities and who meet the qualifications of independent directors under the applicable rules of the Nasdaq and the SEC.
The
Board affirmatively determines whether Trustees have a direct or indirect material relationship with the Company, including the Company's subsidiaries, other than serving as the Company's Trustees
or trustees or directors of the Company's subsidiaries. In making independence determinations, the Board observes the Nasdaq and SEC criteria, as well as the criteria set forth in our Bylaws. When
assessing a Trustee's relationship with the Company, the Board considers all relevant facts and circumstances, not merely from the Trustee's standpoint, but also from that of the persons or
organizations with which the Trustee has an affiliation. Based on this review, the Board has determined that John L. Harrington, Lisa Harris Jones and Jeffrey P. Somers currently qualify as
independent trustees under applicable Nasdaq and SEC criteria and as Independent Trustees under our Bylaws. In making these independence determinations, the Board reviewed and discussed additional
information provided by the Trustees and the Company with regard to each of the Trustees' relationships with the Company, RMR Inc. or RMR LLC and the other companies to which
RMR LLC or its subsidiaries provide management services. The Board has concluded that none of these three Trustees possessed or currently possesses any relationship that could impair his or her
judgment in connection with his or her duties and responsibilities as a Trustee or that could otherwise be a direct or indirect material relationship under applicable Nasdaq and SEC standards.
28
SENIOR HOUSING PROPERTIES
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2018 Proxy Statement
The
Board has an Audit Committee, Compensation Committee and Nominating and Governance Committee. The Audit Committee, Compensation Committee and Nominating and Governance Committee
have each adopted a written charter, which is available on the Company's website,
www.snhreit.com
, by clicking on "Investors" and then clicking on
"Governance." Shareholders may also request copies free of charge by writing to Investor Relations, Senior Housing Properties Trust, Two Newton Place, 255 Washington Street, Suite 300,
Newton, Massachusetts 02458.
Our
Audit Committee, Compensation Committee and Nominating and Governance Committee are comprised entirely of Independent Trustees, and an Independent Trustee serves as Chair of each committee. The
Director of Internal Audit, with the assistance of Company management, proposes the agenda for committee meetings under the oversight and direction of the Committee Chairs. Additionally, the charter
of each of our Audit Committee, Compensation Committee and Nominating and Governance Committee provides that the committee may form and delegate authority to subcommittees of one or more members when
appropriate. Subcommittees are subject to the provisions of the applicable committee's charter. Additional information about the committees is provided below.
SENIOR HOUSING PROPERTIES TRUST
2018 Proxy Statement 29
Audit Committee
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John L. Harrington
Committee Chair
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"The Audit Committee is dedicated to maintaining the integrity of the Company's financial reporting; monitoring and mitigating the Company's financial risk exposure; selecting,
assessing the independence and performance of, and working productively with, the Company's independent auditors; overseeing and collaborating with the Company's internal audit function; and
monitoring the Company's legal and regulatory compliance."
Additional Committee Members:
Lisa Harris Jones and Jeffrey P. Somers
Meetings Held in 2017:
7
Purpose and Primary Responsibilities:
The Audit Committee was established in accordance with Section 3(a)(58)(A) of the Exchange Act. The purpose of the Audit Committee is to assist the Board in fulfilling its responsibilities for
oversight of: (1) the Company's accounting and financial reporting processes; (2) the audits of the Company's financial statements and internal control over financial reporting;
(3) the Company's compliance with legal and regulatory requirements; and (4) the Company's internal audit function generally. The Audit Committee takes a leading role in helping the
Board fulfill its responsibilities for oversight of the Company's financial reporting, internal audit function, risk management and the Company's compliance with legal and regulatory requirements.
Under its charter, the Audit Committee is directly responsible for the appointment, compensation, retention and oversight, and the evaluation of the qualifications, performance and independence, of
the Company's independent auditor and the resolution of disagreements between management and the independent auditor regarding financial reporting. The Audit Committee reviews the overall audit scope
and plans of the audit with the independent auditor. The independent auditor reports directly to the Audit Committee. The Audit Committee also has final authority and responsibility for the
appointment and assignment of duties to the Director of Internal Audit. The Audit Committee also reviews with management and the independent auditors the Company's quarterly reports on
Form 10-Q, annual reports on Form 10-K and earnings releases. The Audit Committee reviews and assesses the adequacy of its charter at least annually and, when appropriate, recommends
changes to the Board.
Independence:
Each member of the Audit Committee meets the independence requirements of the Nasdaq, the Exchange Act and the Company's Governance Guidelines.
Financial Literacy and Expert:
Each member of the Audit Committee is financially literate, knowledgeable and qualified to review financial statements. The Board has determined that Mr. Harrington is the Audit Committee's
"financial expert" and is independent as defined by the rules of the SEC and the Nasdaq. The Board's determination that Mr. Harrington is a financial expert was based on his experience as:
(i) executive director of a large charitable organization; (ii) chief executive officer of a major professional sports business; (iii) a member of the Audit Committee and of the
audit committees of other public companies; (iv) a certified public accountant; (v) a director of a large national bank; and (vi) a college assistant professor of accounting.
30
SENIOR HOUSING PROPERTIES
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2018 Proxy Statement
Compensation Committee
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Jeffrey P. Somers
Committee Chair
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"The Compensation Committee regularly evaluates the Company's compensation practices and considers the incentives and risks associated with the Company's compensation
practices."
Additional Committee Members:
John L. Harrington and Lisa Harris Jones
Meetings Held in 2017:
4
Purpose and Primary Responsibilities:
The purpose of the Compensation Committee is to discharge directly, or assist the Board in discharging, its responsibilities related to: (1) the evaluation of the performance and compensation
of the business and property management services provider to the Company, the President, the Treasurer and any other executive officer of the Company and the Director of Internal Audit of the Company;
(2) the compensation of the Trustees; and (3) the approval, evaluation and administration of any equity compensation plans of the Company. Under its charter, the Compensation Committee
is responsible for the determination and approval of any compensation payable by the Company to the President, the Treasurer and any other executive officer of the Company based on such evaluation.
The Compensation Committee is also responsible for the evaluation and recommendation to the Board of the cash compensation payable by the Company to the Trustees for Board and committee service and
the annual evaluation of the performance of the Director of Internal Audit and the determination of his or her compensation. In addition, the Compensation Committee is responsible for the annual
review of any business and property management agreement of the Company with the business and property management services provider to the Company, the proposal and approval of amendments to or
termination of any business and property management agreement of the Company with any such provider to the Company and the review of amounts payable by the Company under any such management agreement.
Independence:
Each member of the Compensation Committee meets the independence requirements of the Nasdaq, the Exchange Act and the Company's Governance Guidelines.
SENIOR HOUSING PROPERTIES TRUST
2018 Proxy Statement 31
Nominating and Governance Committee
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Lisa Harris Jones
Committee Chair
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"The Nominating and Governance Committee regularly evaluates the Board's leadership structure and corporate governance to promote the best long term interests of the
Company."
Additional Committee Members:
John L. Harrington and Jeffrey P. Somers
Meetings Held in 2017:
2
Purpose and Primary Responsibilities:
The principal purposes of the Nominating and Governance Committee are: (1) to identify individuals qualified to become Board members, consistent with criteria approved by the Board, and to
recommend candidates to the entire Board for nomination or selection as Board members for each annual meeting of shareholders (or special meeting of shareholders at which Trustees are to be elected)
or when vacancies occur; (2) to perform certain assessments of the Board and Company management; and (3) to develop and recommend to the Board a set of governance principles applicable
to the Company. Under its charter, the Nominating and Governance Committee is also responsible for overseeing the evaluation of Company management to the extent not overseen by the Compensation
Committee or another committee of the Board.
Independence:
Each member of the Nominating and Governance Committee meets the independence requirements of the Nasdaq, the Exchange Act and the Company's Governance Guidelines.
32
SENIOR HOUSING PROPERTIES
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2018 Proxy Statement
The
Board is elected by shareholders to oversee the Company's business and long term strategy. As part of fulfilling its responsibilities, the Board oversees the safeguarding of the
assets of the Company, the maintenance of appropriate financial and other internal controls and the Company's compliance with applicable laws and regulations. Inherent in these responsibilities is the
Board's understanding and oversight of the various risks facing the Company. The Board considers that risks should not be viewed in isolation and should be considered in virtually every business
decision and as part of the Company's business strategy.
Oversight of Risk
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The Board oversees risk management.
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Board committees play significant roles in carrying out the risk oversight function.
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RMR LLC implements risk management and the Company's officers and Director of Internal Audit help evaluate and implement risk
management.
The
Board oversees risk as part of its general oversight of the Company. Oversight of risk is addressed as part of various Board and Board committee activities and through regular and special Board
and Board committee meetings. The actual day to day business of the Company is conducted by RMR LLC, and RMR LLC and the Company's officers and Director of Internal Audit are responsible
to incorporate risk management in their activities. The Company's Director of Internal Audit provides the Company advice and assistance with the Company's risk management function.
In
discharging their oversight responsibilities, the Board and Board committees review regularly a wide range of reports provided to them by RMR LLC and other service providers,
including:
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reports on market and industry conditions;
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operating and regulatory compliance reports;
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financial reports;
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reports on risk management activities;
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regulatory and legislative updates that may impact the Company;
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reports on the security of the Company's information technology processes and the Company's data; and
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legal proceedings updates and reports on other business related matters.
The
Board and Board committees discuss these matters among themselves and with representatives of RMR LLC, officers of the Company, the Director of Internal Audit, counsel and the Company's
independent auditors.
The
Audit Committee takes a leading role in helping the Board fulfill its responsibilities for oversight of the Company's financial reporting, internal audit function, risk management and the
Company's compliance with legal and regulatory requirements. The Audit Committee meets at least quarterly and reports its findings to the Board. The Board and Audit Committee review periodic reports
from the Company's independent auditors regarding potential risks, including risks related to the Company's internal control over financial reporting. The Audit Committee also reviews annually,
approves and oversees an internal audit plan developed by the Company's Director of Internal Audit with the goal of helping the Company
systematically evaluate the effectiveness of its risk management, control and governance processes. The Audit Committee also meets periodically with the Company's Director of Internal Audit to review
the results of the Company's internal audits, and directs or recommends to the Board actions or changes it determines appropriate to enhance or improve the effectiveness of the Company's risk
management.
SENIOR HOUSING PROPERTIES TRUST
2018 Proxy Statement 33
The
Compensation Committee evaluates the performance of the Company's Director of Internal Audit and RMR LLC's performance under the Company's business and property management agreements,
including any perceived risks created by compensation arrangements. Also, the Compensation Committee and the Board consider that the Company has a share award program that requires share awards to
executive officers to vest over a period of years. The Company believes that the use of share awards vesting over time rather than stock options mitigates the incentives for the Company's management
to undertake undue risks and encourages management to make longer term and appropriately risk balanced decisions.
It
is not possible to identify all of the risks that may affect the Company or to develop processes and controls to eliminate all risks and their possible effects, and processes and controls employed
to address risks may be limited in their effectiveness. Moreover, it is necessary for the Company to bear certain risks to achieve its objectives. As a result of the foregoing and other factors, the
Company's ability to manage risk is subject to substantial limitations.
To
learn more about the risks facing the Company, you can review the matters discussed in Part I, "Item 1A. Risk Factors" and "Warning Concerning Forward Looking Statements" in our
Annual Report. The risks described in the Annual Report are not the only risks facing the Company. Additional risks and uncertainties not currently known or that may currently be deemed to be
immaterial also may materially adversely affect the Company's business, financial condition or results of operations in future periods.
Shareholders
may effectively communicate a point of view to the Board in a number of ways, including:
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recommending candidates for election to the Board;
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participating in the advisory vote to approve executive compensation;
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directing communications to individual Trustees or the entire Board; and
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attending the annual meeting of shareholders.
Communication with the Board
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The
Board has established a process to facilitate communication by shareholders and other interested parties with Trustees. Communications should be addressed to Trustees in care of
the Secretary, Senior Housing Properties Trust, Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458 or by email to secretary@snhreit.com.
Code of Business Conduct and Ethics
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The
Company has adopted the Code to, among other things, provide guidance to our Trustees and officers and RMR LLC, its officers and employees and its parent's and
subsidiaries' directors, officers and employees to ensure compliance with applicable laws and regulations.
The
Company's shareholders, Trustees, executive officers and persons involved in the Company's business can ask questions about the Code and other ethics and compliance issues, or report potential
violations as follows: by writing to the Director of Internal Audit at Senior Housing Properties Trust, Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458; by
calling toll free (866) 511-5038; by emailing Internal.Audit@snhreit.com; or by filling out a report by visiting the Company's website,
www.snhreit.com
, clicking "Investors," clicking "Governance"
and then clicking "Governance Hotline." We intend to satisfy the requirements under
Item 5.05 of Form 8-K regarding disclosure of amendments to, or waivers from, provisions of our Code that apply to the principal executive officer, principal financial officer or
controller, or persons performing similar functions, by posting such information on our website.
34
SENIOR HOUSING PROPERTIES
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2018 Proxy Statement
Trustee Share Ownership Policy.
All Trustees receive compensation in Common Shares to align the interests of Trustees with those of the Company's shareholders. The
Company's Governance Guidelines codify our expectation that, subject to certain exemptions, each Trustee retain at least 20,000 Common Shares by the later of: (i) the date of the 2019 annual
meeting of shareholders of the Company and (ii) five years from the annual meeting of shareholders of the Company at which the Trustee was initially elected or, if earlier, the first annual
meeting of shareholders of the Company following the initial appointment of the Trustee to the Board.
Trustee Resignation Policy.
The Governance Guidelines provide that if an incumbent Trustee does not receive a majority of the votes cast in an uncontested
election, the Trustee will submit an offer to resign from the Board. In such circumstance, the Nominating and Governance Committee will make a recommendation to the Board on whether to accept or
reject the resignation offer, or whether other action should be taken. The Board will act on the resignation offer taking into account the recommendation of the Nominating and Governance Committee and
make its decision within 90 days following the certification of the election results.
Pursuant
to the Company's insider trading policy, Trustees and executive officers are required to obtain pre-approval from at least two designated individuals before trading or
agreeing to trade in, including by entering into a share trading plan such as a 10b5-1 trading plan, with respect to any Company security, except for regular reinvestments in the Company's securities
made pursuant to a dividend reinvestment plan.
The
Company's insider trading policy generally prohibits (i) the Company's Trustees and officers, (ii) the trustees and officers of the Company's subsidiaries,
(iii) RMR Inc. and its directors and officers and (iv) RMR LLC and its officers and employees, to the extent they are involved in RMR LLC's services to the Company,
from, directly or indirectly through family members or others, purchasing or selling Common Shares or the Company's other equity or debt securities while in possession of material, non-public
information concerning the Company. Similar prohibitions also apply to trading in the securities of RMR Inc. and the other public companies to which RMR LLC provides management services
on the basis of material, non-public information learned in the course of performing services for those companies.
The
Company's business strategy incorporates and values environmental sustainability principles. The Company seeks to operate its properties in a manner that improves the
environmental efficiency of their operations. The Company regularly considers ways to improve the Company's internal culture and the communities in which it operates. The Company's environmental
sustainability and community engagement strategies are primarily implemented by its manager, RMR LLC, and focus on a complementary set of objectives, including the
following:
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Responsible Investment: During the acquisition of properties, RMR LLC assesses, among other things, environmental sustainability
opportunities and climate related risks as part of the due diligence process. The Company regularly seeks to invest in sustainability practices that improves environmental performance and enhances
asset value.
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Environmental Stewardship: The Company, through RMR LLC, seeks to improve the environmental footprint of its properties, including by
reducing energy consumption and water usage at the Company's properties, especially when doing so may reduce operating costs and improve the properties' competitive positions.
SENIOR HOUSING PROPERTIES TRUST
2018 Proxy Statement 35
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Corporate Citizenship: The Company seeks to be a responsible corporate citizen and to strengthen the communities in which it owns properties.
The Company has no employees but the Company's manager, RMR LLC, regularly encourages its employees to engage in a variety of charitable and community programs, including participation in a
company wide service day and a matching charitable giving program.
To
learn more about the Company's and RMR LLC's sustainability initiatives, visit
www.rmrgroup.com/corporate-sustainability
.
Executive Compensation Policies
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See
the "Compensation Discussion and Analysis" beginning on page 50 for a detailed discussion of the Company's executive compensation program.
Shareholder Nominations and Other Proposals
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Trustee Nominations and Shareholder Proposals for the 2019 Annual Meeting of Shareholders:
In order for a shareholder to propose a
nominee for election to the Board or propose business outside of Rule 14a-8 under the Exchange Act at the 2019 annual meeting of shareholders, the shareholder must comply with the advance
notice and other requirements set forth in our Declaration of Trust and Bylaws, which include, among other things, requirements as to the shareholder's timely delivery of advance notice, continuous
requisite ownership of Common Shares, holding of a share certificate for such shares at the time of the advance notice and submission of specified information.
Deadline to Submit Nominations and Proposals for the 2019 Annual Meeting of Shareholders under our Bylaws:
To be timely, shareholder nominations and
proposals intended to be made outside of Rule 14a-8 under the Exchange Act at the 2019 annual meeting of shareholders must be received by the Company's Secretary at the Company's principal
executive offices, in accordance with the requirements of our Declaration of Trust and Bylaws, not later than 5:00 p.m., Eastern time, on December 4, 2018 and not earlier than
November 4, 2018; provided, that, if the date of the 2019 annual meeting of shareholders is more than 30 days earlier or later than May 22, 2019, then a shareholder's notice must
be so delivered not later than 5:00 p.m., Eastern time, on the tenth day following the earlier of the day on which (i) notice of the date of the 2019 annual meeting of shareholders is
mailed or otherwise made available or (ii) public announcement of the date of the 2019 annual meeting of shareholders is first made by the Company.
Deadline to Submit Proposals for the 2019 Annual Meeting of Shareholders for Purposes of Rule 14a-8:
Shareholder proposals pursuant to
Rule 14a-8 under the Exchange Act must be received at the Company's principal executive offices on or before December 4, 2018 in order to be eligible to be included in the proxy
statement for the 2019 annual meeting of shareholders; provided, that, if the date of the 2019 annual meeting of shareholders is more than 30 days before or after May 22, 2019, such a
proposal must be submitted within a reasonable time before the Company begins to print its proxy materials. Under Rule 14a-8, the Company is not required to include shareholder proposals in its
proxy materials in certain circumstances or if conditions specified in the rule are not met.
The
foregoing description of the requirements for a shareholder to propose a nomination for election to the Board at an annual meeting of shareholders or other business for consideration at an annual
meeting of shareholders is only a summary and is not a complete listing of all requirements. Copies of our Declaration of Trust and Bylaws, including the requirements for shareholder nominations and
other proposals, may be obtained by writing to the Company's Secretary at Senior Housing Properties Trust, Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458, or
from the SEC's website,
www.sec.gov
. Any shareholder considering making a nomination or other proposal should carefully review and comply with those
provisions.
36
SENIOR HOUSING PROPERTIES
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2018 Proxy Statement
Related Person Transactions
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The
descriptions of agreements in this "Related Person Transactions" section do not purport to be complete and are subject to, and qualified in their entirety by, reference to the
actual agreements, copies of certain of which are filed as exhibits to the Annual Report.
A
"related person transaction" is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which (i) the Company was, is or will be a
participant, (ii) the amount involved exceeds $120,000 and (iii) any related person had, has or will have a direct or indirect material interest.
A
"related person" means any person who is, or at any time since January 1, 2017 was:
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a Trustee, a nominee for Trustee or an executive officer of the Company;
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known to the Company to be the beneficial owner of more than 5.0% of the outstanding Common Shares when a transaction in which such person had
a direct or indirect material interest occurred or existed;
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an immediate family member of any of the persons referenced in the preceding two bullets, which means any child, stepchild, parent, stepparent,
spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law of any of the persons referenced in the preceding two bullets, and any person (other than a
tenant or employee) sharing the household of any of the persons referenced in the preceding two bullets; or
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a firm, corporation or other entity in which any of the foregoing persons is a partner or principal or in a similar position or in which such
person has a 10.0% or greater beneficial ownership interest.
The
Company has adopted written Governance Guidelines that describe the consideration and approval of related person transactions. Under these Governance Guidelines, the Company may not enter a
transaction in which any Trustee or executive officer, any member of the immediate family of any Trustee or executive officer or other related person, has or will have a direct or indirect material
interest unless that transaction has been disclosed or made known to the Board and the Board reviews and approves or ratifies the transaction by the affirmative vote of a majority of the disinterested
Trustees, even if the disinterested Trustees constitute less than a quorum. If there are no disinterested Trustees, the transaction must be reviewed, authorized and approved or ratified by both
(i) the affirmative vote of a majority of the Board and (ii) the affirmative vote of a majority of the Independent Trustees. In determining whether to approve or ratify a transaction,
the Board, or disinterested Trustees or Independent Trustees, as the case may be, also act in accordance with any applicable provisions of the Company's Declaration of Trust and Bylaws and consider
all of the relevant facts and circumstances and approve only those transactions that they determine are fair and reasonable to the Company. All related person transactions described below were
reviewed and approved or ratified by a majority of the disinterested Trustees or otherwise in accordance with the Company's policies, Declaration of Trust and Bylaws, each as described above. In the
case of transactions with the Company by employees of RMR Inc. and its subsidiaries who are subject to the Code but who are not Trustees or executive officers of the Company, the employee must
seek approval from an executive officer who has no interest in the matter for which approval is being requested. Copies of the Company's Governance Guidelines and the Code are available on the
Company's website,
www.snhreit.com
.
Certain Related Person Transactions
Relationship with FVE.
FVE was the Company's 100% owned subsidiary until the Company distributed its common
shares to the Company's shareholders in 2001. The Company is currently one of FVE's largest stockholders, owning, as of December 31, 2017, 4,235,000 FVE common shares, or 8.5% of FVE's
outstanding common shares. FVE is the Company's largest tenant and the manager of the Company's managed senior living communities.
SENIOR HOUSING PROPERTIES TRUST
2018 Proxy Statement 37
RMR LLC
provides management services to both the Company and FVE. RMR Inc., the managing member of RMR LLC, is controlled by ABP Trust, which is controlled by one of the Company's
Managing Trustees, Adam D. Portnoy. As of December 31, 2017, Adam D. Portnoy and Barry M. Portnoy, the Company's then Managing Trustees, beneficially owned an aggregate of 18,382,121 FVE common
shares, or 36.7% of FVE's outstanding common shares. Adam D. Portnoy also serves as a managing director of FVE, and Barry M. Portnoy also served as a managing director of FVE until his death on
February 25, 2018. FVE's president and chief executive officer, chief financial officer and treasurer and senior vice president and general counsel are officers and employees of RMR LLC,
and FVE's chief financial officer and treasurer was formerly the Company's Chief Financial Officer and Treasurer from 2007 through 2015.
In
order to effect the distribution of FVE common shares to the Company's shareholders in 2001 and to govern the Company's relations with FVE thereafter, FVE entered agreements with the Company and
others, including RMR LLC. Since then, the Company has entered various leases, management agreements and other agreements with FVE that include provisions that confirm and modify these
undertakings. Among other things, these agreements provide that:
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so long as the Company remains a REIT, FVE may not waive the share ownership restrictions in its charter that prohibit any person or group from
acquiring more than 9.8% (in value or number of shares, whichever is more restrictive) of the outstanding shares of any class of FVE stock without the Company's consent;
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so long as FVE is the Company's tenant or manager, FVE will not permit nor take any action that, in the Company's reasonable judgment, might
jeopardize the Company's qualification for taxation as a REIT;
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the Company has the right to terminate the leases and management agreements it has with FVE upon the acquisition by a person or group of more
than 9.8% of FVE's voting stock or other change in control events, as defined therein, affecting FVE, including the adoption of any shareholder proposal (other than a precatory proposal) or the
election to FVE's board of directors of any individual, if such proposal or individual was not approved, nominated or appointed, as the case may be, by a majority of FVE's directors in office
immediately prior to the making of such proposal or the nomination or appointment of such individual; and
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so long as FVE is a tenant of the Company or manager for the Company or has a business management agreement with RMR LLC, FVE will not
acquire or finance any real estate of a type then owned or financed by the Company or any other company managed by RMR LLC without first giving the Company or such company managed by
RMR LLC, as applicable, the opportunity to acquire or finance that real estate.
The Company's Senior Living Communities Leased by FVE.
The Company is FVE's largest landlord and FVE is the Company's largest tenant. As of
December 31, 2017, the Company leased 185 senior living communities to FVE pursuant to the following five leases with FVE:
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Lease No. 1, which expires in 2024 and includes 83 independent living communities, assisted living communities and skilled nursing
facilities ("SNFs").
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Lease No. 2, which expires in 2026 and includes 47 independent living communities, assisted living communities and SNFs.
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Lease No. 3, which expires in 2028 and includes 17 independent living communities and assisted living communities.
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Lease No. 4, which expires in 2032 and includes 29 independent living communities, assisted living communities and SNFs.
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Lease No. 5, which expires in 2028 and includes nine assisted living communities.
38
SENIOR HOUSING PROPERTIES
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2018 Proxy Statement
Under
the Company's leases with FVE, FVE pays the Company annual rent plus percentage rent equal to 4.0% of the increase in gross revenues at certain of the Company's senior living communities over
base year gross revenues as specified in the applicable lease. FVE's obligation to pay percentage rent under Lease No. 5 commenced in 2018. The Company determines percentage rent due under
these leases annually and recognize it at year end when all contingencies are met. The Company recognized total rental income from FVE of approximately $210.5 million (including percentage rent
of approximately $5.5 million) for the year ended December 31, 2017. As of December 31, 2017, FVE's total annual rent payable to the Company was approximately
$206.3 million, excluding percentage rent. Under the Company's leases with FVE, FVE has the option to extend the lease term for two consecutive 10 or 15 year terms. The Company has the
right, in connection with a financing or other capital raising transaction, to reassign one or more of the communities covered by Lease No. 3 or Lease No. 5 to another of our long term
lease agreements with FVE.
The
Company's leases with FVE are "triple net" leases, which generally require FVE to pay rent and all property operating expenses, to indemnify the Company from liability which may arise by reason of
the Company's ownership of the properties, to maintain the properties at FVE's expense, to remove and dispose of hazardous substances on the properties in compliance with applicable law and to
maintain insurance on the properties for FVE's and the Company's benefit. In the event of any damage, or immaterial condemnation, of a leased property, FVE is generally required to rebuild with
insurance or condemnation proceeds or, if such proceeds are insufficient, other amounts made available by the Company, if any, but if other amounts are made available by the Company, the rent will be
increased accordingly. In the event of any material or total condemnation of a leased property, the lease will terminate with respect to that leased property, in which event the Company will be
entitled to the condemnation proceeds and the rent will be reduced accordingly. In the event of any material or total destruction of a leased property, FVE may terminate the lease with respect to that
leased property, in which event FVE will be required to pay the Company any shortfall in the amount of proceeds the Company receives from insurance compared to the replacement cost of that leased
property and the rent will be reduced accordingly.
Under
the Company's leases with FVE, FVE may request that the Company purchase certain improvements to the leased communities in return for rent increases in accordance with a formula specified in the
applicable lease; however, the Company is not obligated to purchase such improvements and FVE is not obligated to sell them to the Company. During the year ended December 31, 2017, the Company
purchased approximately $39.8 million of such improvements and FVE's annual minimum rent payable to the Company increased by approximately $3.2 million, in accordance with the terms of
the applicable leases.
In
August 2017, the Company acquired a land parcel from FVE adjacent to a senior living community located in Delaware that the Company leases to FVE for approximately $750,000, excluding closing
costs. This land parcel was added to the applicable lease and FVE's annual minimum rent payable to the Company increased by approximately $33,000 in accordance with the terms of that lease.
During
the quarter ended June 30, 2017, the Company and FVE agreed to amend the applicable lease for certain construction, expansion and development projects at two senior living communities
the Company owns and leases to FVE. If and when FVE requests that the Company purchase improvements related to these specific projects from them, FVE's annual rent payable to the Company will increase
by an amount equal to the interest rate then applicable to the Company's borrowings under its revolving credit facility plus 2.0% per annum of the amount the Company purchased. This amount of
increased rent will apply until 12 months after a certificate of occupancy is issued with respect to the project; thereafter, FVE's annual rent payable to the Company will be revised to equal
the amount otherwise determined pursuant to the capital improvement formula specified in the applicable lease.
The Company's Senior Living Communities Managed by FVE.
As of December 31, 2017, the Company owned 70 senior living communities that were managed
by FVE. The Company leases its senior living communities that are managed by FVE and include assisted living units or SNF units to the Company's
SENIOR HOUSING PROPERTIES TRUST
2018 Proxy Statement 39
taxable
REIT subsidiaries ("TRSs"), and FVE manages these communities pursuant to long term management agreements.
The
Company and FVE have pooling agreements that combine most of the Company's AL Management Agreements. The pooling agreements combine various calculations of revenues and expenses from the
operations of the applicable communities covered by such agreements. The Company's AL Management Agreements and pooling agreements generally provide that FVE
receives:
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a management fee equal to either 3.0% or 5.0% of the gross revenues realized at the applicable communities,
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reimbursement for its direct costs and expenses related to such communities,
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an annual incentive fee equal to either 35.0% or 20.0% of the annual net operating income of such communities remaining after the Company
realizes an annual minimum return equal to either 8.0% or 7.0% of its invested capital, or, in the case of certain of the communities, a specified amount plus 7.0% of the Company's invested capital
since December 31, 2015, and
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a fee for its management of capital expenditure projects equal to 3.0% of amounts funded by the Company.
The
Company's management agreement with FVE for the part of the senior living community located in New York that is not subject to the requirements of New York healthcare licensing laws, as described
elsewhere herein, and the management agreement for one of the Company's assisted living communities located in California, are not currently included in any of the Company's pooling agreements with
FVE.
The
Company also has a pooling agreement with FVE that combines the Company's management agreements with FVE for senior living communities consisting only of independent living units.
The
Company's management agreements with FVE generally expire between 2030 and 2041, and are subject to automatic renewal for two consecutive 15 year terms, unless earlier terminated or timely
notice of nonrenewal is delivered. These management agreements also generally provide that the Company, and in some cases FVE, each have the option to terminate the agreements upon the acquisition by
a person or group of more than 9.8% of the other's voting stock and upon certain change in control events affecting the other party, as defined in the applicable agreements, including the adoption of
any shareholder proposal (other than a precatory proposal) with respect to the other party, or the election to the board of directors or trustees, as applicable, of the other party of any individual,
if such proposal or individual was not approved, nominated or appointed, as the case may be, by a majority of the other party's board of directors or board of trustees, as applicable, in office
immediately prior to the making of such proposal or the nomination or appointment of such individual.
During
the quarter ended June 30, 2017, the Company and FVE agreed to amend the applicable management and pooling agreements for a construction, expansion and development project at a senior
living community that the Company owns and that is managed by FVE. The Company's minimum return on invested capital for this specific project will increase by an amount equal to the interest rate then
applicable to the Company's borrowings under its revolving credit facility plus 2.0% per annum. This amount of increased minimum return will apply until 12 months after a certificate of
occupancy is issued with respect to the project; thereafter, the amount of annual minimum return on invested capital will be revised to equal the amount otherwise determined pursuant to the applicable
management and pooling agreements. The Company and FVE also agreed that the commencement of the measurement period for determining whether the specified annual minimum return under the applicable
management and pooling agreements has been achieved will be deferred until 12 months after a certificate of occupancy is issued with respect to the project.
40
SENIOR HOUSING PROPERTIES
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2018 Proxy Statement
Transaction Agreement with FVE.
In November 2017, the Company entered a transaction agreement with FVE pursuant to which the Company agreed to acquire
six senior living communities from FVE. Pursuant to this transaction agreement, the Company also agreed that, as the Company acquires these communities, (i) the Company and FVE would enter new
management agreements for FVE to manage these senior living communities for us and (ii) the new management agreements would be combined pursuant to two new pooling agreements to be entered
between the Company and FVE. In December 2017, January 2018 and February 2018, the Company acquired, and FVE began managing for the Company's account, two of these senior living communities located in
Alabama and Indiana, one of these senior living communities located in Tennessee and one of these senior living communities located in Arizona, respectively and, in connection with those acquisitions,
the Company entered management agreements with FVE for each of these senior living communities and two new pooling agreements with FVE. Pursuant to the terms of the management and pooling agreements
for five of these senior living communities, the Company will pay FVE a management fee equal to 5.0% of the gross revenues realized at these communities plus reimbursement for FVE's direct costs and
expenses related to its operation of these communities, as well as an annual incentive fee equal to 20.0% of the annual net operating income of such communities remaining after the Company realizes an
annual minimum return equal to 7.0% of its invested capital for these senior living communities. The terms of the management and pooling agreement for one of these senior living communities that is
subject to an ongoing construction, expansion and development project are substantially the same as the terms of the management and pooling agreements for the other five senior living communities,
except that the Company's annual minimum return on invested capital related to the ongoing construction and development project at this community will be an amount equal to the interest rate then
applicable to borrowings under the Company's revolving credit facility plus 2.0% per annum. This amount of minimum return will apply until the earlier of 12 months after a certificate of
occupancy is issued with respect to the project and the third anniversary of the Company's acquisition of this community; thereafter, the amount of annual minimum return on invested capital related to
this project will be 7.0% of the Company's invested capital. Also pursuant to the terms of the management and pooling agreements for these senior living communities, the Company will pay FVE a fee for
its management of capital expenditure projects at these senior living communities equal to 3.0% of amounts funded by the Company. The terms of these management and pooling agreements will expire in
2041 and will be subject to automatic renewals for two 15 year periods thereafter, unless earlier terminated or timely notices of nonrenewal are delivered. The remaining acquisitions under the
transaction agreement are subject to conditions, including the Company's assumption of certain applicable mortgage debt and receipt of any applicable regulatory approvals. The conditions to these
acquisitions may not be met and some or all of these acquisitions may not be completed, may be delayed or the terms of these acquisitions or the management and pooling agreements for these communities
may change.
Also
in November 2017, the Company amended its preexisting pooling agreements with FVE, among other things, to provide that, with respect to its right to terminate all of the management agreements
covered by a preexisting pooling agreement if the Company does not receive its annual minimum return under such agreement in each of three consecutive years, the commencement year for the measurement
period for determining whether the specified annual minimum return under the applicable pooling agreement has been achieved will be 2017.
The
Company incurred management fees of approximately $14.1 million for the year ended December 31, 2017 with respect to the communities FVE manages for the Company. In addition to
management services to the Company, FVE also provides certain other services to residents at some of the senior living communities it manages for the Company, such as rehabilitation services. At
senior living communities FVE manages for the Company where FVE provides rehabilitation services on an outpatient basis, the residents, third party payers or government programs pay FVE for those
rehabilitation services. At senior living communities FVE manages for the Company where FVE provides both inpatient and outpatient rehabilitation services, the Company generally pays FVE for these
services and charges for these services are included in amounts charged to residents, third party payers or government programs. The Company incurred fees of $7.5 million for the year ended
December 31, 2017 with respect to rehabilitation services FVE provided at senior living communities it manages for the Company that are payable by the Company.
SENIOR HOUSING PROPERTIES TRUST
2018 Proxy Statement 41
D&R Yonkers LLC.
The Company owns a senior living community in New York with 310 living units, a part of which is managed by FVE pursuant to a
long term management agreement with the Company with respect to the senior living units at this community that are not subject to the requirements of New York healthcare licensing laws. The terms of
this management agreement are substantially consistent with the terms of the Company's other management agreements with FVE for communities that include assisted living units, and provide for a
management fee payable to FVE equal to 5.0% of the gross revenues realized, except there is no incentive fee payable by the Company to FVE. This management agreement expires on December 31,
2031.
In
order to accommodate certain requirements of New York healthcare licensing laws, one of the Company's TRSs subleases the part of this community that is subject to the requirements of those laws to
D&R Yonkers LLC, an entity which is owned by the Company's President and Chief Operating Officer and FVE's chief financial officer and treasurer. FVE manages this part of the community pursuant
to a long term management agreement with D&R Yonkers LLC under which FVE earns a management fee equal to 3.0% of the gross revenues realized at that part of the community and no incentive fee
is payable to FVE. D&R Yonkers LLC's management agreement with FVE expires on August 31, 2022, and is subject to renewal for eight consecutive five year terms, unless earlier terminated
or timely notice of nonrenewal is delivered. The Company has entered into an indemnification agreement with the owners of D&R Yonkers LLC, pursuant to which the Company has agreed to indemnify
them for costs, losses and expenses they may sustain by reason of being a member, director or officer of D&R Yonkers LLC or in connection with any costs, losses or expenses under the Company's TRS's
sublease with D&R Yonkers LLC or the management agreement between D&R Yonkers LLC and FVE.
Relationships with RMR LLC and Others Related to It.
The Company has relationships and historical and continuing transactions with
RMR LLC, RMR Inc. and others related to them. RMR LLC is a majority owned subsidiary of RMR Inc. Adam D. Portnoy, one of our Managing Trustees, is the sole trustee
of, and owns beneficial interest in, ABP Trust, the controlling shareholder of RMR Inc. A former Managing Trustee of the Company, Barry M. Portnoy, served as a trustee of, and owned a
majority of the beneficial interest in, ABP Trust until his death on February 25, 2018. Adam D. Portnoy is a managing director and an officer of RMR Inc. and is an officer of ABP
Trust and RMR LLC. Adam D. Portnoy, as the sole trustee of ABP Trust, beneficially owns all the class A membership units of RMR LLC not owned by RMR Inc. Barry M.
Portnoy served as a Managing Trustee of the Company and as a managing director and an officer of RMR Inc. and an officer of RMR LLC until his death on February 25, 2018.
Jennifer B. Clark, the other current Managing Trustee of the Company, also serves as a managing director and an officer of RMR Inc. and an officer of RMR LLC. Each of the
Company's executive officers is also an officer and employee of RMR LLC. Adam D. Portnoy serves, and until his death Barry M. Portnoy served, as a managing trustee or managing director
of all of the public companies to which RMR LLC or its subsidiaries provide management services. The Company's Independent Trustees also serve as independent trustees or independent directors
of other public companies to which RMR LLC or its subsidiaries provide management services. In addition, officers of RMR LLC and RMR Inc. serve as the Company's officers and
officers of other companies to which RMR LLC or its subsidiaries provide management services.
On
March 29, 2018, David J. Hegarty announced his decision to resign from his position as an executive vice president of RMR LLC and as the Company's President and Chief Operating
Officer effective April 30, 2018. In connection with his retirement, RMR LLC entered into a retirement agreement with Mr. Hegarty on March 29, 2018. Pursuant to his
retirement agreement, Mr. Hegarty will remain an employee of RMR LLC until September 30, 2018 or such earlier date as he may elect. In connection with his retirement, the
Compensation Committee fully accelerated the vesting of all of the Common Shares previously awarded to Mr. Hegarty effective upon the date of his retirement from RMR LLC that remain
unvested as of such date, subject to conditions. Pursuant to his retirement agreement, Mr. Hegarty agreed that, as long as he
owns shares in the Company, he will vote those shares at shareholders' meetings in favor of nominees for Trustees and proposals recommended by the Board. Mr. Hegarty made a similar agreement
for the benefit of RMR Inc. and the other public companies to which RMR LLC provides management services.
42
SENIOR HOUSING PROPERTIES
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2018 Proxy Statement
The
Company has no employees. The personnel and various services the Company requires to operate its business are provided to it by RMR LLC. The Company has two agreements with RMR LLC
to provide management services to the Company: (i) a business management agreement, which relates to the Company's business generally, and (ii) a property management agreement, which
relates to the property level operations of the Company's properties leased to medical providers, medical related businesses, clinics and biotech laboratory tenants ("MOBs"), both of which are
described below, see "Management Agreements With RMR LLC."
Interest in RMR Inc.
The Company currently holds 2,637,408 shares of class A common stock of RMR Inc., the parent and managing
member of RMR LLC. The Company and three Other RMR Managed REITs, HPT, GOV and SIR, acquired shares of class A common stock of RMR Inc. in a transaction completed on
June 5, 2015 (the "Up-C Transaction"). Through their ownership of class A common stock of RMR Inc., class B-1 common stock of RMR Inc., class B-2 common stock
of RMR Inc. and class A membership units of RMR LLC, as of February 1, 2018, Adam D. Portnoy and Barry M. Portnoy, in aggregate held, directly and indirectly (including as
trustees of ABP Trust), a 51.9% economic interest in RMR LLC and controlled 91.4% of the voting power of outstanding capital stock of RMR Inc. As part of the Up-C Transaction, on
June 5, 2015, the Company entered into a registration rights agreement with RMR Inc. covering the class A common stock of RMR Inc. that the Company received in the Up-C
Transaction, pursuant to which the Company received demand and piggyback registration rights, subject to certain limitations, and the Company entered into a lock up and registration rights agreement
with ABP Trust and Adam D. Portnoy and Barry M. Portnoy pursuant to which ABP Trust and Adam D. Portnoy and Barry M. Portnoy agreed not to transfer the 2,345,000 Common Shares that ABP Trust received
in the Up-C Transaction for a
10 year period ending on June 5, 2025, and the Company granted them certain registration rights, subject to certain exceptions.
Management Agreements with RMR LLC.
The Company's management agreements with RMR LLC provide for an annual base management fee, an annual
incentive management fee and property management and construction supervision fees, payable in cash, among other terms:
-
-
Base Management Fee.
The annual base management fee payable to RMR LLC by the Company
for each applicable period is equal to the lesser of:
-
◦
-
the
sum of (a) 0.5% of the daily weighted average of the aggregate book value of the Company's real estate assets owned by the Company or its
subsidiaries as of October 12, 1999 (the "Transferred Assets"), plus (b) 0.7% of the average aggregate historical cost of the Company's real estate investments excluding the Transferred
Assets up to $250.0 million, plus (c) 0.5% of the average aggregate historical cost of the Company's real estate investments excluding the Transferred Assets exceeding
$250.0 million; and
-
◦
-
the
sum of (a) 0.7% of the average closing price per share of the Common Shares on the stock exchange on which such Common Shares are
principally traded during such period, multiplied by the average number of the Common Shares outstanding during such period, plus the daily weighted average of the aggregate liquidation preference of
each class of the Company's preferred shares outstanding during such period, plus the daily weighted average of the aggregate principal amount of the Company's consolidated indebtedness during such
period (together, the "Company's Average Market Capitalization"), up to $250.0 million, plus (b) 0.5% of the Company's Average Market Capitalization exceeding $250.0 million.
The
average aggregate historical cost of the Company's real estate investments includes its consolidated assets invested, directly or indirectly, in equity interests in or loans secured by real estate
and personal property owned in connection with such real estate (including acquisition related costs and costs which may be allocated to intangibles or are unallocated), all before reserves for
depreciation, amortization, impairment charges or bad debts or other similar non cash reserves.
SENIOR HOUSING PROPERTIES TRUST
2018 Proxy Statement 43
-
-
Incentive Management Fee.
The incentive management fee which may be earned by RMR LLC
for an annual period is calculated as follows:
-
◦
-
An
amount, subject to a cap, based on the value of the outstanding Common Shares, equal to 12.0% of the product
of:
-
-
the Company's equity market capitalization on the last trading day of the year immediately prior to the relevant three year measurement period,
and
-
-
the amount (expressed as a percentage) by which the total return per share, as defined in the business management agreement and further
described below, of the holders of Common Shares (i.e., share price appreciation plus dividends) exceeds the total shareholder return of the SNL U.S. REIT Healthcare Index, or the benchmark
return per share, for the relevant measurement period.
For
purposes of the total return per share of the holders of Common Shares, share price appreciation for a measurement period is determined by subtracting (1) the closing price of our common
shares on the Nasdaq on the last trading day of the year immediately before the first year of the measurement period from (2) the average closing price of our common shares on the
10 consecutive trading days having the highest average closing prices during the final 30 trading days in the last year of the measurement period.
-
◦
-
The
calculation of the incentive management fee (including the determinations of our equity market capitalization and the total return per share of
holders of Common Shares) is subject to adjustments if additional Common Shares are issued during the measurement period.
-
◦
-
No
incentive management fee is payable by the Company unless its total return per share during the measurement period is positive.
-
◦
-
The
measurement periods are three year periods ending with the year for which the incentive management fee is being calculated.
-
◦
-
If
the Company's total return per share exceeds 12.0% per year in any measurement period, the benchmark return per share is adjusted to be the lesser
of the total shareholder return of the SNL U.S. REIT Healthcare Index for such measurement period and 12.0% per year, or the adjusted benchmark return per share. In instances where the adjusted
benchmark return per share applies, the incentive management fee will be reduced if the Company's total return per share is between 200 basis points and 500 basis points below the SNL U.S. REIT
Healthcare Index by a low return factor, as defined in the business management agreement, and there will be no incentive management fee paid if, in these instances, the Company's total return per
share is more than 500 basis points below the SNL U.S. REIT Healthcare Index.
-
◦
-
The
incentive management fee is subject to a cap. The cap is equal to the value of the number of Common Shares which would, after issuance, represent
1.5% of Common Shares then outstanding multiplied by the average closing price of Common Shares during the 10 consecutive trading days having the highest average closing prices during the final
30 trading days of the relevant measurement period.
-
◦
-
Incentive
management fees the Company paid to RMR LLC for any period may be subject to "clawback" if the Company's financial statements for
that period are restated due to material non-compliance with any financial reporting requirements under the securities laws as a result of the bad faith, fraud, willful misconduct or gross negligence
of RMR LLC and the amount of the incentive management fee the Company paid was greater than the amount the Company would have paid based on the restated financial statements.
44
SENIOR HOUSING PROPERTIES
TRUST
2018 Proxy Statement
-
-
Property Management and Construction Supervision Fees
. The property management fees payable to
RMR LLC by the Company for each applicable period are equal to 3.0% of gross collected rents and the construction supervision fees payable to RMR LLC by the Company for each applicable
period are equal to 5.0% of construction costs.
Pursuant
to the Company's business management agreement with RMR LLC, the Company recognized business management fees of approximately $38.6 million for the year ended
December 31, 2017, which amount reflects a reduction of approximately $3.0 million for the amortization of the liability the Company recorded in accordance with generally accepted
accounting principles in connection with the Up-C Transaction.
Pursuant
to the Company's business management agreement, in January 2018, the Company paid RMR LLC an incentive management fee of $55.7 million for the year ended December 31,
2017. In calculating the incentive management fee payable by the Company, the Company's total shareholder return per share
1
was adjusted in accordance with the business management
agreement to reflect an aggregate increase in the number of Common Shares outstanding as a result of certain share issuances and repurchases by the Company in 2017.
Pursuant
to the Company's property management agreement with RMR LLC, the Company recognized aggregate net property management and construction supervision fees of approximately
$10.9 million for the year ended December 31, 2017, which amount reflects a reduction of approximately $798 million for the amortization of the liability the Company recorded in
accordance with generally accepted accounting principles in connection with the Up-C Transaction.
-
-
Expense Reimbursement
. The Company is generally responsible for all of its operating expenses,
including certain expenses incurred by RMR LLC on its behalf. The Company's property level operating expenses are generally incorporated into rents charged to its tenants, including certain
payroll and related costs incurred by RMR LLC. The Company reimbursed RMR LLC approximately $10.0 million for property management related expenses for the year ended
December 31, 2017. The Company is generally not responsible for payment of RMR LLC's employment, office or administrative expenses incurred to provide management services to the Company,
except for the employment and related expenses of RMR LLC's employees assigned to work exclusively or partly at the Company's properties, its share of the wages, benefits and other related
costs of centralized accounting personnel and its share of RMR LLC's costs for providing the Company's internal audit function. The Audit Committee appoints the Company's Director of Internal
Audit and the Compensation Committee approves the costs of the Company's internal audit function. The amounts recognized as expense for internal audit costs were approximately $0.3 million for
the year ended December 31, 2017.
-
-
Term
. The Company's management agreements with RMR LLC have terms that end on
December 31, 2037, and automatically extend on December 31st of each year for an additional year, so that the terms of its management agreements thereafter end on the
20th anniversary of the date of the extension.
-
-
Termination Rights
. The Company has the right to terminate one or both of its management
agreements with RMR LLC: (i) at any time on 60 days' written notice for convenience, (ii) immediately on written notice for cause, as defined therein, (iii) on
written notice given within
-
1
-
"Total shareholder return" for purposes of the incentive management fee calculation differs from "total shareholder return"
presented in the performance graph in the Annual Report because "total shareholder return" for purposes of the incentive management fee calculation has been determined in accordance with the terms of
the business management agreement and includes adjustments for Common Shares issued and repurchased during the period and other items whereas "total shareholder return" presented in the performance
graph is determined in the same or similar manner as each index reflected in the performance graph and does not include such adjustments and other items.
SENIOR HOUSING PROPERTIES TRUST
2018 Proxy Statement 45
60 days
after the end of an applicable calendar year for a performance reason, as defined therein, and (iv) by written notice during the 12 months following a change of control of
RMR LLC, as defined therein. RMR LLC has the right to terminate the management agreements for good reason, as defined therein.
-
-
Termination Fee
. If the Company terminates one or both of its management agreements with
RMR LLC for convenience, or if RMR LLC terminates one or both of its management agreements for good reason, the Company has agreed to pay RMR LLC a termination fee in an amount
equal to the sum of the present values of the monthly future fees, as defined therein, for the terminated management agreement(s) for the term that was remaining prior to such termination, which,
depending on the time of termination would be between 19 and 20 years. If the Company terminates one or both of its management agreements with RMR LLC for a performance reason, the
Company has agreed to pay RMR LLC the termination fee calculated as described above, but assuming a 10 year term was remaining prior to the termination. The Company is not required to
pay any termination fee if it terminates its management agreements with RMR LLC for cause or as a result of a change of control of RMR LLC.
-
-
Transition Services
. RMR LLC has agreed to provide certain transition services to the
Company for 120 days following an applicable termination by the Company or notice of termination by RMR LLC, including cooperating with the Company and using commercially reasonable
efforts to facilitate the orderly transfer of the management and real estate investment services provided under its business management agreement and to facilitate the orderly transfer of the
management of the managed properties under its property management agreement, as applicable.
-
-
Vendors
. Pursuant to the Company's management agreements with RMR LLC, RMR LLC
may from time to time negotiate on the Company's behalf with certain third party vendors and suppliers for the procurement of goods and services to the Company. As part of this arrangement, the
Company may enter agreements with RMR LLC and other companies to which RMR LLC provides management services for the purpose of obtaining more favorable terms from such vendors and
suppliers.
-
-
Investment Opportunities
. Under the Company's business management agreement with
RMR LLC, the Company acknowledges that RMR LLC may engage in other activities or businesses and act as the manager to any other person or entity (including other REITs) even though such
person or entity has investment policies and objectives similar to the Company's and the Company is not entitled to preferential treatment in receiving information, recommendations and other services
from RMR LLC.
Share Awards to RMR LLC Employees
. The Company has historically granted share awards to certain RMR LLC employees under the Company's
equity compensation plans. During the year ended December 31, 2017, the Company granted annual share awards of 88,100 Common Shares to the Company's officers and to other employees of
RMR LLC valued at approximately $1.7 million, based upon the closing price of the Common Shares on the Nasdaq on the date of grant. One fifth of those share awards vested on the grant
date and one fifth vests on each of the next four anniversaries of the grant date. These share awards to such RMR LLC employees are in addition to the share awards granted to Adam D. Portnoy
and Barry M. Portnoy, as the Company's then Managing Trustees, and the fees the Company paid to RMR LLC. In 2017, the Company purchased 16,654 Common Shares, at the closing price of the Common
Shares on the Nasdaq on the date of purchase, from certain of the Company's officers and certain other employees of RMR LLC in satisfaction of tax withholding and payment obligations in
connection with the vesting of awards of Common Shares.
On
occasion, the Company has entered into arrangements with former employees of RMR LLC in connection with the termination of their employment with RMR LLC, providing for the
acceleration of vesting of Common Share awards previously granted to them under the Company's equity compensation plans. Additionally, each of the Company's executive officers during 2017 received
share awards of other
46
SENIOR HOUSING PROPERTIES
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2018 Proxy Statement
companies
to which RMR LLC or its subsidiaries provide management services, including FVE, in their capacities as officers or employees of RMR LLC.
Leases with RMR LLC
. The Company leases office space to RMR LLC in certain of the Company's properties for RMR LLC's property
management offices. Pursuant to the Company's lease agreements with RMR LLC, the Company recognized rental income from RMR LLC for leased office space of approximately
$0.3 million for the year ended December 31, 2017. The Company's office space leases with RMR LLC are terminable by RMR LLC if the Company's management agreements with
RMR LLC are terminated.
Other
. The Company has in the past held, and likely will in the future hold, business meetings at hotels operated by Sonesta, which is owned in part by
one of the Company's Managing Trustees, Adam D. Portnoy, and the remainder was owned by Barry M. Portnoy until his death and which manages certain hotels owned by HPT, and the Company's Trustees and
officers have in the past stayed, and are likely in the future to stay, overnight at hotels operated by Sonesta when traveling for Company business. The Company pays Sonesta for the use of meeting
space and related services and pays Sonesta or reimburses the Company's Trustees and officers for the costs of these hotel stays.
Relationship with AIC
. The Company, ABP Trust, FVE and four other companies to which RMR LLC provides management services currently own AIC, an
Indiana insurance company, in equal amounts and are parties to a shareholders agreement regarding AIC.
All
of the Company's Trustees (other than Jennifer B. Clark) and most of the trustees and directors of the other AIC shareholders currently serve on the board of directors of AIC. Jennifer B. Clark
serves as president and secretary of AIC. RMR LLC provides management and administrative services to AIC pursuant to a management and administrative services agreement with AIC. Pursuant to
this agreement, AIC pays RMR LLC a service fee equal to 3.0% of the total annual net earned premiums payable under then active policies issued or underwritten by AIC or by a vendor or an agent
of AIC on its behalf or in furtherance of AIC's business.
The
Company and the other AIC shareholders participate in a combined property insurance program arranged and insured or reinsured in part by AIC. The Company also has a one year standalone insurance
policy that provides coverage for the MOB (two buildings) located in Boston, Massachusetts that is owned in the Company's joint venture arrangement, which it obtained as a part of this insurance
program. The Company (including the consolidated joint venture) paid aggregate annual premiums, including taxes and fees, of approximately $2.4 million in connection with this insurance program
for the policy year ending June 30, 2018, which amount may be adjusted from time to time as the Company acquires or disposes of properties that are included in this insurance program.
Directors' and Officers' Liability Insurance
. The Company, RMR Inc. and certain other companies to which RMR LLC or its subsidiaries
provide management services, including FVE, participate in a combined directors' and officers' liability insurance policy. This combined policy expires in September 2019. The Company paid an aggregate
premium of approximately $0.3 million for this policy.
The
foregoing descriptions of the Company's agreements with RMR Inc., RMR LLC, FVE, AIC and other related persons are summaries and are qualified in their entirety by the terms of the
agreements. A further description of the terms of certain of those agreements is included in the Annual Report. In addition, copies of certain of the agreements evidencing these relationships are
filed with the SEC and may be obtained from the SEC's website,
www.sec.gov.
The Company may engage in additional transactions with related persons,
including businesses to which RMR LLC or its subsidiaries provide management services.
SENIOR HOUSING PROPERTIES TRUST
2018 Proxy Statement 47
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Executive officers, Trustees and certain persons who own more than 10.0% of the outstanding Common Shares are required by Section 16(a)
of the Exchange Act and related regulations:
-
-
to file reports of their ownership of Common Shares with the SEC and the Nasdaq; and
-
-
to furnish the Company with copies of the reports.
To
the Company's knowledge, based solely on review of the copies of such reports furnished to us and written representations that no other reports were required, during the fiscal year ended
December 31, 2017, our executive officers, Trustees and greater than 10.0% beneficial owners timely filed all required Section 16(a) reports.
OWNERSHIP OF EQUITY SECURITIES OF THE COMPANY
Trustees and Executive Officers
|
The
following table sets forth information regarding the beneficial ownership of then outstanding Common Shares by each Trustee nominee, each Trustee, each of our named executive
officers, and our Trustees, Trustee nominees and executive officers as a group, all as of March 30, 2018. Unless otherwise noted, to the Company's knowledge, voting power and investment power
in the Common Shares are exercisable solely by the named person and the principal business address of the named person is c/o Senior Housing Properties Trust, Two Newton Place, 255 Washington Street,
Suite 300, Newton, Massachusetts 02458.
|
|
|
|
|
|
|
|
|
Name and Address
|
|
|
Aggregate
Number of
Shares
Beneficially
Owned*
|
|
|
Percent of
Outstanding
Shares**
|
|
Additional Information
|
Adam D. Portnoy
|
|
|
2,901,739
|
|
|
1.22%
|
|
Includes 2,550,019 Common Shares owned by ABP Trust. Voting and investment power with respect to Common Shares owned by ABP Trust may be deemed to be held by Adam D. Portnoy as ABP Trust's sole trustee.
|
David J. Hegarty
|
|
|
134,170
|
|
|
Less than 1%
|
|
Includes 230 Common Shares owned jointly by Mr. Hegarty and his wife.
|
Jennifer B. Clark
|
|
|
98,848
|
|
|
Less than 1%
|
|
|
John L. Harrington
|
|
|
30,000
|
|
|
Less than 1%
|
|
Includes 30,000 Common Shares owned by the John L. Harrington Revocable Trust. Mr. Harrington may be deemed to hold voting and investment power as a trustee and beneficiary of the John L. Harrington Revocable
Trust.
|
Jeffrey P. Somers
|
|
|
22,500
|
|
|
Less than 1%
|
|
|
Lisa Harris Jones
|
|
|
8,000
|
|
|
Less than 1%
|
|
|
Richard W. Siedel
|
|
|
7,000
|
|
|
Less than 1%
|
|
|
All Trustees and executive officers as a group (seven persons)
|
|
|
3,202,257
|
|
|
1.35%
|
|
|
|
|
|
|
|
|
|
|
|
-
*
-
Amounts exclude fractional shares.
-
**
-
Based on approximately 237,625,781 Common Shares outstanding as of the Record Date, February 1, 2018.
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2018 Proxy Statement