Restructuring Agreement for Business Management Fees between Hospitality Properties Trust and Reit Management & Research LLC
Hospitality Properties Trust (HPT) and Reit Management & Research LLC (RMR) have agreed to restructure the fees under their Business Management Agreement. Starting in 2014, base management fees will be calculated on the lower of HPT’s real estate asset cost or total market capitalization, with 10% of these fees paid in HPT common shares. Incentive fees will be based on shareholder returns exceeding benchmarks set by HPT’s Compensation Committee, paid in shares that vest over several years and may be clawed back if financial results are restated. Final approval is pending from HPT’s Compensation Committee.
Exhibit 10.1
Overview of Restructuring of Business Management Agreement with Reit Management & Research LLC (“RMR”)
Hospitality Properties Trust (“HPT”) and RMR have agreed to restructure the fees payable to RMR under the Business Management Agreement as follows:
· The base business management fees paid by HPT to RMR, which are included in HPT’s “G&A” expenses, are currently calculated at the annual rate of approximately 0.5% of the gross historical cost of HPT’s real estate assets. Beginning in 2014, these fees will be calculated on the basis of the lower of: (i) gross historical cost of HPT’s real estate assets or (ii) HPT’s total market capitalization. Market capitalization will include the market value of HPT’s common shares, plus the liquidation preference of preferred shares and the principal amount of debt. The market value of HPT’s common shares will be calculated based on the average shares outstanding multiplied by the average closing share price during the period in which the fees are earned.
· Beginning in 2014, 10% of the base business management fees will be paid in common shares of HPT. The amount of HPT common shares granted as part of the base business management fee will be calculated based on the average closing share price during the period in which the fees are earned.
· Annual incentive fees payable by HPT to RMR included in HPT’s “G&A” expenses are currently calculated based upon increases in funds from operations (FFO) per share and are paid in common shares of HPT which vest immediately. Beginning in 2014, the incentive fees which may be earned by RMR will be calculated based upon total returns realized by HPT common shareholders (i.e., share price appreciation plus dividends) in excess of benchmarks. The benchmarks will be set by the Compensation Committee of HPT’s Board (which is comprised solely of Independent Trustees) and will be disclosed in HPT’s annual meeting proxy statements. Incentive fees will be paid in common shares of HPT which will vest over a multiyear period and will be subject to a “claw back” in the event of certain material restatements of financial results. The terms of the incentive fee, including among other things, the measurement periods, targets and benchmarks are to be developed and set by the Compensation Committee.
HPT’s Compensation Committee has directed that a definitive revised Business Management Agreement giving effect to the above restructuring be provided to it for final approval in connection with the Committee’s consideration later this year of the renewal of RMR’s engagement as HPT’s manager.
