Select Income REIT Announces Restructuring of Management Agreement with RMR
and Recommending Annual Election of All Trustees
Further Aligning Interests of RMR with SIR Shareholders While Maintaining Low
NEWTON, Mass. -- September 23, 2013
Select Income REIT (NYSE:SIR) 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.
SIR and RMR have agreed to restructure their business management agreement as
*The base business management fees paid by SIR to RMR, which are included
in SIR’s “G&A” expenses, are currently calculated at the annual rate of
approximately 0.5% of the gross historical cost of SIR’s real estate
assets. Beginning in 2014, these fees will be calculated on the basis of
the lower of: (i) gross historical cost of SIR’s real estate assets or
(ii) SIR’s total market capitalization. Market capitalization will include
the market value of SIR’s common shares, plus the liquidation preference
of preferred shares and the principal amount of debt. The market value of
SIR’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, SIR’s fees paid to RMR
may decline when the market value of SIR’s common shares declines.
*All of the base business management fees currently paid by SIR to RMR are
paid in cash. Beginning in 2014, 10% of the base business management fees
will be paid in common shares of SIR. The amount of SIR 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 SIR is
expected to increase over time.
*Annual incentive fees payable by SIR to RMR included in SIR’s “G&A”
expenses are currently calculated based upon increases in funds from
operations (FFO) per share and are paid in common shares of SIR which vest
immediately. Beginning in 2014, the incentive fees which may be earned by
RMR will be calculated based upon total returns realized by SIR common
shareholders (i.e., share price appreciation plus dividends) in excess of
benchmarks. The benchmarks will be set by the Compensation Committee of
SIR’s Board (which is comprised solely of Independent Trustees) and will
be disclosed in SIR’s annual meeting proxy statements. Incentive fees will
be paid in common shares of SIR 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 SIR common shareholders.
Recommending Annual Election of All Trustees.
The SIR Board of Trustees has determined to recommend to shareholders that
SIR’s Declaration of Trust be amended to permit the annual election of all
Trustees. SIR’s Trustees currently serve staggered, three year terms. The
proposed amendment to SIR’s Declaration of Trust will be presented to SIR’s
shareholders at SIR’s next annual shareholders’ meeting in the spring of 2014.
If this amendment is approved by SIR’s shareholders, all Trustees will
thereafter be elected for one year terms.
SIR’s Independent Trustees issued the following joint statement regarding
“Historically, SIR’s Board and management have focused on providing high
quality management services to SIR 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 SIR to continue receiving high quality management services at
or below average costs. The SIR Board is also currently considering additional
governance enhancements which may be announced during the next several
Select Income REIT is a real estate investment trust (REIT) which owns
properties that are primarily net leased to single tenants. SIR 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 SIR USES WORDS SUCH AS
“BELIEVE”, “EXPECT”, “ANTICIPATE”, “INTEND”, “PLAN”, “ESTIMATE” OR SIMILAR
EXPRESSIONS, SIR IS MAKING FORWARD LOOKING STATEMENTS. THESE FORWARD LOOKING
STATEMENTS ARE BASED UPON SIR’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 SIR’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 SIR’S AND RMR’S CONTROL. FOR EXAMPLE, THE TOTAL
RETURNS REALIZED BY SHAREHOLDERS ARE DEPENDENT UPON THE CHANGES IN THE
TRADING PRICE OF SIR 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 SIR TO RMR WILL INCREASE
THE TOTAL RETURNS REALIZED BY SIR COMMON SHAREHOLDERS.
*THIS PRESS RELEASE IMPLIES THAT SIR’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. SIR 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 SIR’S HISTORICAL AND FUTURE G&A COSTS ARE NOT, AND
WILL NOT BE, AT OR BELOW AVERAGE.
*THIS PRESS RELEASE STATES THAT SIR’S BOARD HAS DETERMINED TO RECOMMEND TO
SHAREHOLDERS THAT SIR’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 SIR’S SHAREHOLDERS. ALSO, ALTHOUGH SIR’S BOARD HAS NO
CURRENT INTENTION TO DO SO, SIR’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 SIR IS CURRENTLY CONSIDERING OTHER
ENHANCEMENTS TO GOVERNANCE THAT MAY BE ANNOUNCED IN THE NEXT SEVERAL
MONTHS. THE SIR 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, SIR 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 SIR’S ATTENTION OR OTHERWISE.
A Maryland Real Estate Investment Trust with transferable shares of beneficial
interest listed on the New York Stock Exchange.
No shareholder, Trustee or officer is personally liable for any act or
obligation of the Trust.
Select Income REIT
Timothy A. Bonang, 617-796-8320
Vice President, Investor Relations
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