By Business Wire, September 23, 2013, 08:10:00 AM EDT
Further Aligning Interests of RMR with GOV Shareholders While
Maintaining Low Cost Structure
NEWTON, Mass.--(BUSINESS WIRE)--
Government Properties Income Trust (NYSE:GOV) today announced the
restructuring of its management agreement with Reit Management &
Research LLC (RMR) and the recommendation to shareholders to have annual
election of all Trustees.
Restructuring of Management Agreement with RMR.
GOV and RMR have agreed to restructure their business management
agreement as follows:
The base business management fees paid by GOV to RMR, which are
included in GOV's "G&A" expenses, are currently calculated at the
annual rate of approximately 0.5% of the gross historical cost of
GOV's real estate assets. Beginning in 2014, these fees will be
calculated on the basis of the lower of: (i) gross historical cost of
GOV's real estate assets or (ii) GOV's total market capitalization.
Market capitalization will include the market value of GOV's common
shares, plus the liquidation preference of preferred shares and the
principal amount of debt. The market value of GOV's common shares will
be calculated based on the average shares outstanding multiplied by
the average closing share price during the period in which the fees
are earned. Accordingly, GOV's fees paid to RMR may decline when the
market value of GOV's common shares declines.
All of the base business management fees currently paid by GOV to RMR
are paid in cash. Beginning in 2014, 10% of the base business
management fees will be paid in common shares of GOV. The amount of
GOV common shares granted as part of the base business management fee
will be calculated based on the average closing share price during the
period in which the fees are earned. Accordingly, RMR's common share
ownership of GOV is expected to increase over time.
Annual incentive fees payable by GOV to RMR included in GOV's "G&A"
expenses are currently calculated based upon increases in funds from
operations (FFO) per share and are paid in common shares of GOV which
vest immediately. Beginning in 2014, the incentive fees which may be
earned by RMR will be calculated based upon total returns realized by
GOV common shareholders (i.e., share price appreciation plus
dividends) in excess of benchmarks. The benchmarks will be set by the
Compensation Committee of GOV's Board (which is comprised solely of
Independent Trustees) and will be disclosed in GOV's annual meeting
proxy statements. Incentive fees will be paid in common shares of GOV
which will vest over a multiyear period and will be subject to a "claw
back" in the event of certain material restatements of financial
results. Accordingly, the incentive fees payable to RMR are expected
to have a direct relationship to total returns realized by GOV common
Recommending Annual Election of All Trustees.
The GOV Board of Trustees has determined to recommend to shareholders
that GOV's Declaration of Trust be amended to permit the annual election
of all Trustees. GOV's Trustees currently serve staggered, three year
terms. The proposed amendment to GOV's Declaration of Trust will be
presented to GOV's shareholders at GOV's next annual shareholders'
meeting in the spring of 2014. If this amendment is approved by GOV's
shareholders, all Trustees will thereafter be elected for one year terms.
GOV's Independent Trustees issued the following joint statement
regarding today's announcements:
"Historically, GOV's Board and management have focused on providing high
quality management services to GOV at or below average costs. The
changes announced today are intended to further align RMR's financial
incentives with the returns realized by shareholders and enhance the
Company's governance, while allowing GOV to continue receiving high
quality management services at or below average costs. The GOV Board is
also currently considering additional governance enhancements which may
be announced during the next several months."
Government Properties Income Trust is a real estate investment trust
(REIT) that primarily owns properties leased to government tenants
located throughout the United States. GOV is headquartered in Newton, MA.
WARNING CONCERNING FORWARD LOOKING STATEMENTS
THIS PRESS RELEASE CONTAINS STATEMENTS THAT CONSTITUTE FORWARD LOOKING
STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995 AND OTHER SECURITIES LAWS. ALSO, WHENEVER GOV USES
WORDS SUCH AS "BELIEVE", "EXPECT", "ANTICIPATE", "INTEND", "PLAN",
"ESTIMATE" OR SIMILAR EXPRESSIONS, GOV IS MAKING FORWARD LOOKING
STATEMENTS. THESE FORWARD LOOKING STATEMENTS ARE BASED UPON GOV'S
PRESENT INTENT, BELIEFS AND EXPECTATIONS, BUT FORWARD LOOKING STATEMENTS
ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR. ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY THESE FORWARD LOOKING
STATEMENTS AS A RESULT OF VARIOUS FACTORS. FOR EXAMPLE:
THIS PRESS RELEASE STATES THAT FUTURE INCENTIVE FEES PAYABLE TO RMR
ARE EXPECTED TO HAVE A DIRECT RELATIONSHIP TO TOTAL RETURNS REALIZED
BY GOV'S COMMON SHAREHOLDERS. AN IMPLICATION OF THIS STATEMENT MAY BE
THAT SHAREHOLDERS WILL RECEIVE INCREASED TOTAL RETURNS. IN FACT,
FUTURE TOTAL RETURNS REALIZED BY SHAREHOLDERS WILL BE IMPACTED BY MANY
FACTORS, INCLUDING SOME BEYOND GOV'S AND RMR'S CONTROL. FOR EXAMPLE,
THE TOTAL RETURNS REALIZED BY SHAREHOLDERS ARE DEPENDENT UPON THE
CHANGES IN THE TRADING PRICE OF GOV SHARES WHICH MAY REFLECT CHANGES
IN INTEREST RATES, THE EXPECTATION OF FUTURE INTEREST RATE CHANGES OR
OTHER GENERAL MARKET CONDITIONS. ACCORDINGLY, THERE CAN BE NO
ASSURANCE THAT THE CHANGES IN THE METHOD OF CALCULATING THE INCENTIVE
FEES PAID BY GOV TO RMR WILL INCREASE THE TOTAL RETURNS REALIZED BY
GOV COMMON SHAREHOLDERS.
THIS PRESS RELEASE IMPLIES THAT GOV'S HISTORICAL AND FUTURE G&A COSTS
HAVE BEEN, AND WILL BE, AT OR BELOW THE AVERAGE OF SUCH COSTS AMONG
ITS PEER GROUP. CALCULATING THE RELATIVE COSTS OF G&A SERVICES CAN BE
DONE IN MANY DIFFERENT WAYS; FOR EXAMPLE, IN ACTUAL DOLLAR AMOUNTS, AS
A PERCENTAGE OF ASSETS VALUED AT COST OR BOOK VALUES, AS A PERCENTAGE
OF BOOK OR MARKET EQUITY VALUES, AS A PERCENTAGE OF REVENUES, OR
OTHERWISE. GOV BELIEVES THAT ITS STATEMENTS ARE BASED UPON CUSTOMARY
CALCULATIONS USED IN THE REIT INDUSTRY TO COMPARE G&A COSTS BASED ON
FINANCIAL STATEMENT METRICS. HOWEVER, DEPENDING UPON HOW RELATIVE G&A
COSTS ARE CALCULATED, IT MAY BE POSSIBLE TO ARGUE THAT GOV'S
HISTORICAL AND FUTURE G&A COSTS ARE NOT, AND WILL NOT BE, AT OR BELOW
THIS PRESS RELEASE STATES THAT GOV'S BOARD HAS DETERMINED TO RECOMMEND
TO SHAREHOLDERS THAT GOV'S DECLARATION OF TRUST BE AMENDED TO PROVIDE
THAT ALL TRUSTEES BE ELECTED TO SERVE FOR ONE YEAR TERMS. THIS
AMENDMENT MAY NOT BE APPROVED BY GOV'S SHAREHOLDERS. ALSO, ALTHOUGH
GOV'S BOARD HAS NO CURRENT INTENTION TO DO SO, GOV'S BOARD MAY
DETERMINE IN THE FUTURE NOT TO PROCEED WITH A PROPOSAL TO SHAREHOLDERS
TO PROVIDE THAT ALL TRUSTEES BE ELECTED TO SERVE FOR ONE YEAR TERMS.
THIS PRESS RELEASE STATES THAT GOV IS CURRENTLY CONSIDERING OTHER
ENHANCEMENTS TO GOVERNANCE THAT MAY BE ANNOUNCED IN THE NEXT SEVERAL
MONTHS. THE GOV BOARD MAY DECIDE TO MAKE NO FURTHER GOVERNANCE
ENHANCEMENTS OR ANY ADDITIONAL ENHANCEMENTS MAY BE DELAYED UNTIL
BEYOND THE NEXT SEVERAL MONTHS.
FOR THESE REASONS, AMONG OTHERS, INVESTORS ARE CAUTIONED NOT TO PLACE
UNDUE RELIANCE UPON ANY FORWARD LOOKING STATEMENTS IN THIS PRESS RELEASE.
EXCEPT AS REQUIRED BY LAW, GOV DOES NOT INTEND TO UNDERTAKE ANY
OBLIGATION TO UPDATE ANY FORWARD LOOKING STATEMENT IN THIS PRESS RELEASE
AS A RESULT OF FUTURE EVENTS, NEW INFORMATION WHICH MAY COME TO GOV'S
ATTENTION OR OTHERWISE.
A Maryland Real Estate Trust with transferable shares of beneficial
interest listed on the New York Stock Exchange. No shareholder, Trustee
or officer is personally liable for any act or obligation of the Trust.
Source: Government Properties Income Trust