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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
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Filed by the Registrant
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Filed by a Party other than the Registrant
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Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material under §240.14a-12
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COMMONWEALTH REIT
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(1)
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Title of each class of securities to which transaction applies:
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(2)
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Aggregate number of securities to which transaction applies:
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(3)
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
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(4)
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Proposed maximum aggregate value of transaction:
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(5)
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Total fee paid:
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration Statement No.:
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(3)
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Filing Party:
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Date Filed:
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COMMONWEALTH REIT
Two Newton Place
255 Washington Street, Suite 300
Newton, Massachusetts 02458
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 8, 2012
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To the Shareholders of CommonWealth REIT:
Notice
is hereby given that the annual meeting of shareholders of CommonWealth REIT, a Maryland real estate investment trust, will be held at 9:30 a.m., local time, on Tuesday,
May 8, 2012, at Two Newton Place, 255 Washington Street, Suite 100, Newton, Massachusetts 02458 for the following purposes:
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1.
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To
elect the nominee named in our proxy statement to our Board of Trustees as the Independent Trustee in Group II ("proposal 1").
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2.
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To
elect the nominee named in our proxy statement to our Board of Trustees
as the Managing Trustee in Group II ("proposal 2").
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3.
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To
consider and vote upon a proposal to adopt the CommonWealth REIT 2012 Equity Compensation Plan ("proposal 3").
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4.
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To
hold an advisory vote relating to our executive compensation ("proposal 4").
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5.
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To
ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending
December 31, 2012 ("proposal 5").
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6.
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To
consider and vote upon such other matters as may properly come before the meeting and at any adjournments or postponements thereof.
OUR
BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE "
FOR
" THE NOMINEES FOR TRUSTEE IN PROPOSALS 1 AND 2 AND
"
FOR
" PROPOSALS 3, 4 AND 5.
We
encourage you to contact the firm assisting us in the solicitation of proxies, Innisfree M&A Incorporated, or Innisfree, if you have any questions or need assistance in voting your
shares. Banks and brokers may call Innisfree, collect, at (212) 750-5833. Shareholders may call Innisfree, toll-free, at (877) 825-8971.
Shareholders
of record at the close of business on February 17, 2012, are entitled to notice of, and to vote at, the meeting and at any adjournment or postponement thereof.
Securities and Exchange Commission rules allow us to furnish proxy materials to our shareholders on the internet. You can now access proxy materials and authorize
a proxy to vote your shares at www.proxyvote.com. You may also authorize a proxy to vote your shares over the internet or by telephone by following the instructions on that website. In order to vote
over the internet or by telephone you must have your shareholder identification number, which is set forth in the Notice Regarding the Availability of Proxy Materials mailed to you. If your shares are
held in the name of a brokerage firm, bank, nominee or other institution, you should provide instructions to your broker, bank, nominee or other institution on how to vote your shares. You may also
request a paper proxy card to submit your
vote by mail. If you attend the meeting and vote in person, that vote will revoke any proxy you previously submitted. If you hold shares in the name of a brokerage firm, bank, nominee or other
institution, you must provide a legal proxy from that institution in order to vote your shares at the meeting. Whether or not you plan to attend the meeting, please read the proxy statement and
complete or authorize a proxy for your shares as soon as possible. Your vote is important, no matter how many or how few shares you own.
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By Order of the Board of Trustees,
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Jennifer B. Clark, Secretary
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Newton,
Massachusetts
February 28, 2012
COMMONWEALTH REIT
Two Newton Place
255 Washington Street, Suite 300
Newton, Massachusetts 02458
PROXY STATEMENT
FOR THE
ANNUAL MEETING OF SHAREHOLDERS
To be held at 9:30 a.m. on Tuesday, May 8, 2012
at
Two Newton Place
255 Washington Street, Suite 100
Newton, Massachusetts 02458
INTRODUCTION
A notice of the annual meeting of shareholders of CommonWealth REIT, a Maryland real estate investment trust, or the Company, is on the
preceding page and a form of proxy solicited by our Board of Trustees, or our Board, accompanies this proxy statement. This proxy statement and a form of proxy, together with our annual report to
shareholders for the year ended December 31, 2011, are first being made available, and a Notice Regarding the Availability of Proxy Materials, or the Notice of Internet Availability, is first
being mailed, to shareholders on or about February 28, 2012.
The
annual meeting record date is February 17, 2012. Only shareholders of record at the close of business on February 17, 2012, are entitled to notice of, and to vote at,
the meeting and at any postponement or adjournment thereof. We had 83,721,736 common shares of beneficial interest, $0.01 par value per share, or common shares, outstanding on the record date and
entitled to vote at the meeting. Our common shares are listed on the New York Stock Exchange, or NYSE. The holders of our outstanding common shares are entitled to one vote per common share.
A
quorum of shareholders is required for shareholders to take action at the meeting, except that the shareholders entitled to vote at the meeting may adjourn the meeting if less than a
quorum is present at the meeting. The presence, in person or by proxy, of holders of common shares entitled to cast a majority of all votes entitled to be cast at such meeting shall constitute a
quorum. Common shares represented by valid proxies will count for the purpose of determining the presence of a quorum for the meeting. Abstentions and broker non-votes, if any, will be
treated as shares present for purposes of determining whether a quorum is present. Failure of a quorum to be present at the meeting will necessitate adjournment of the meeting and will subject us to
additional expense. Under our bylaws, the chairperson of the meeting may adjourn the meeting if less than a quorum is present at the meeting.
The
affirmative vote of a majority of the votes cast will be necessary to elect the nominees for Trustee described in proposals 1 and 2, to approve the CommonWealth REIT 2012 Equity
Compensation Plan in proposal 3, to approve the resolution regarding named executive officer compensation described in proposal 4 and to ratify the appointment of Ernst & Young LLP as
our independent registered public
accounting firm in proposal 5. For purposes of satisfying NYSE Rule 312.07, or the NYSE Shareholder Approval Rule, which sets forth the vote required under the NYSE listing standards for
shareholder approval of a new equity compensation plan, the total votes cast on proposal 3 also must represent greater than 50% of all shares entitled to vote on the proposal.
Proposals
4 and 5 are nonbinding shareholder advisory votes and, if approved, would serve only as recommendations to our Board.
The
individuals named as proxies on a properly completed proxy will vote in accordance with your directions as indicated thereon. If you properly complete your proxy and give no voting
instructions, your shares will be voted "FOR" the nominees for Trustee in proposals 1 and 2 and "FOR" proposals 3, 4 and 5.
Shareholders
of record may authorize a proxy to vote their shares over the internet or by telephone in the manner provided on the website indicated in the Notice of Internet Availability
mailed to them, or, if they requested and received paper or email copies of proxy materials, by completing and returning the proxy card or by attending the meeting and voting in person. Proxies
submitted by mail, over the internet or by telephone must be received by 11:59 p.m. Eastern time on Monday, May 7, 2012.
Broker
non-votes occur in respect of shares held in street name when the broker indicates that voting instructions for a particular matter have not been received from the
beneficial owners or other persons entitled to vote those shares and the broker does not have discretionary voting authority to vote those shares on that particular matter. Broker
non-votes and abstentions will have no effect on the outcome of proposals 1, 2, 4 and 5. For purposes of the NYSE Shareholder Approval Rule, we understand that under NYSE policy broker
non-votes with respect to proposal 3 will not count as a "vote cast" and, if the total votes cast on the proposal represent over 50% of all shares entitled to vote on the proposal, broker
non-votes will have no effect on the outcome of proposal 3. For purposes of the NYSE Shareholder Approval Rule, we understand that under NYSE policy abstentions will be treated as "votes
cast" and, thus, will have
the effect of a vote against proposal 3. A proxy marked "WITHHOLD" will have the same effect as an abstention.
The
record date for the meeting will apply to any adjournment or postponement of the meeting unless our Board fixes a new record date for the adjourned or postponed meeting. If we
adjourn the annual meeting, we will announce the time and place of the adjourned meeting at the original meeting, but we do not intend to deliver another notice of the meeting unless we fix a new
record date for the adjourned meeting. At any subsequent reconvening of the annual meeting, all proxies will be voted in the same manner as they would have been at the original convening of the
meeting (except for any proxies that have been effectively revoked or withdrawn).
IMPORTANT: If your shares are held in the name of a brokerage firm, bank, nominee or other institution, you should provide instructions to your broker, bank,
nominee or other institution on how to vote your shares. Please contact the person responsible for your account and give instructions for a proxy to be completed for your shares. If you have any
questions or need assistance in voting your shares, please call the firm assisting us in the solicitation of proxies:
Innisfree M&A Incorporated
501 Madison Avenue, 20th Floor
New York, New York 10022
Brokers and Banks Call Collect at (212) 750-5833
Shareholders Call Toll-Free at (877) 825-8971
A
shareholder of record who has given a proxy may revoke it any time prior to its exercise by delivering to our Secretary a written revocation or a duly executed proxy bearing a later
date, by
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authorizing
at a later date a proxy to vote his or her common shares over the internet or by telephone in the manner provided on the website indicated in the Notice of Internet Availability or by
attending the meeting and voting his or her common shares in person. If a shareholder of record wants to receive a paper or email copy of the proxy card, he or she may request one. Proxies submitted
by mail, over the internet or by telephone must be received by 11:59 p.m. Eastern time on May 7, 2012. If your shares
are held in the name of a brokerage firm, bank, nominee or other institution and you wish to change a prior instruction you gave to your brokerage firm, bank, nominee or other institution to vote your
shares, you must follow the brokerage firm's, bank's, nominee's or other institution's instructions for changing your prior voting instructions. In addition, if you hold shares in the name of a
brokerage firm, bank, nominee or other institution, you must provide a legal proxy from that institution in order to vote your shares at the meeting.
Our
principal executive offices are located at Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458.
Our
website address is included in this proxy statement as a textual reference only, and the information in the website is not incorporated by reference into this proxy statement.
Notice Regarding the Availability of Proxy Materials
From the date of mailing of the Notice of Internet Availability through the conclusion of the meeting, shareholders will be able to
access all of the proxy materials on the internet at www.proxyvote.com. The proxy materials will be available free of charge. The Notice of Internet Availability will instruct you as to how you may
access and review all of the important information contained in the proxy materials (including our annual report to shareholders) over the internet or through other methods specified at the website
designated in the Notice of Internet Availability. The website designated contains instructions as to how to vote over the internet or by telephone. The Notice of Internet Availability also instructs
you as to how you may request a paper or email copy of the proxy card. If you received a Notice of Internet Availability and would like to receive printed copies of the proxy materials, you should
follow the instructions for requesting such materials included in the Notice of Internet Availability.
PROPOSALS 1 AND 2
ELECTION OF TRUSTEES
The number of our Trustees is fixed at five, and our Board is divided into three groups, with two Trustees in Group I, two Trustees in
Group II and one Trustee in Group III.
Trustees in each group are elected for three year terms and serve until their successors are elected and qualified.
Our
current Trustees are William A. Lamkin and Adam D. Portnoy in Group II with a term of office expiring at the meeting to which this proxy statement relates, Patrick F. Donelan in
Group III with a term of office expiring at our 2013 annual meeting of shareholders and Barry M. Portnoy and Frederick N. Zeytoonjian in Group I with a term of office expiring at our 2014 annual
meeting of shareholders. The term of the Group II Trustees elected at the meeting to which this proxy statement relates will expire at our 2015 annual meeting of shareholders.
Our
Trustees are also categorized as Independent Trustees or Managing Trustees. Our Board is composed of three Independent Trustees and two Managing Trustees. Our Independent Trustees
are not employees or affiliates, as such term is defined in our declaration of trust and our bylaws, of Reit
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Management &
Research LLC, or RMR, our manager, do not have a material business or professional relationship with RMR or any other person or entity that holds in excess of 9.8% of our
issued and outstanding shares of beneficial interest, are not involved in our day to day activities, do not perform services for us except as Trustee and are persons who qualify as independent under
our declaration of trust, our bylaws and the applicable rules of the NYSE and the Securities and Exchange Commission, or SEC. Our Managing Trustees are not Independent Trustees and have been employees
of RMR or involved in our day to day activities for at least one year. Messrs. Donelan, Lamkin and Zeytoonjian are our Independent Trustees, and Messrs. Adam Portnoy and Barry Portnoy
are our Managing Trustees. Biographical information relating to our Trustees and other information relating to our Board appears elsewhere in this proxy statement.
PROPOSAL 1: ELECTION OF ONE INDEPENDENT TRUSTEE
Our Board has nominated Mr. William A. Lamkin for election as the Independent Trustee in Group II, whose nomination was
recommended to our Board by our Nominating and Governance Committee. The term of the Independent Trustee in Group II elected at the meeting will expire at our 2015 annual meeting of shareholders. The
persons named in the
accompanying proxy intend to exercise properly executed and delivered proxies "FOR" the election of Mr. Lamkin, except to the extent that properly completed proxies indicate that the votes
should not be so cast.
Mr. Lamkin
has agreed to serve as the Independent Trustee in Group II if elected. If, however, Mr. Lamkin becomes unable or unwilling to accept election to our Board, the
proxies will be voted for the election of a substitute nominee designated by our Board. Our Board has no reason to believe that Mr. Lamkin will be unable or unwilling to serve.
The
affirmative vote of a majority of the votes cast will be necessary to elect Mr. Lamkin as the Independent Trustee in Group II.
Our Board recommends you vote "FOR" the election of Mr. Lamkin as the Independent Trustee in Group II.
PROPOSAL 2: ELECTION OF ONE MANAGING TRUSTEE
Our Board has nominated Mr. Adam D. Portnoy for election as the Managing Trustee in Group II, whose nomination was recommended
to our Board by our Nominating and Governance Committee. The term of the Managing Trustee in Group II elected at the meeting will expire at our 2015 annual meeting of shareholders. The persons named
in the accompanying proxy intend to exercise properly executed and delivered proxies "FOR" the election of Mr. Adam D. Portnoy, except to the extent that properly completed proxies indicate
that the votes should not be so cast.
Mr. Adam
D. Portnoy has agreed to serve as the Managing Trustee in Group II if elected. If, however, Mr. Adam D. Portnoy becomes unable or unwilling to accept election to
our Board, the proxies will be voted for the election of a substitute nominee designated by our Board. Our Board has no reason to believe that Mr. Adam D. Portnoy will be unable or unwilling to
serve.
The
affirmative vote of a majority of the votes cast will be necessary to elect Mr. Adam D. Portnoy as the Managing Trustee in Group II.
Our Board recommends you vote "FOR" the election of Mr. Adam D. Portnoy as the Managing Trustee in Group II.
4
PROPOSAL 3
ADOPTION OF THE COMMONWEALTH REIT
2012 EQUITY COMPENSATION PLAN
Our 2003 Incentive Share Award Plan, or the 2003 Plan, became effective on May 30, 2003, and is scheduled to expire on
May 30, 2013. In order to replace the 2003 Plan, on February 22, 2012, our Board approved, subject to shareholder approval, the CommonWealth REIT 2012 Equity Compensation Plan, or the
2012 Plan, in the form attached to this proxy statement as Appendix A. The 2012 Plan is intended to replace the 2003 Plan as the plan under which we grant equity awards to meet our objective of
compensating and rewarding our officers and Trustees, employees of our manager, consultants, advisors or other persons or entities providing management, administrative or other services to us or to
our subsidiaries. In particular, the 2012 Plan will:
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reserve for issuance a total of 3,000,000 of our common shares for new awards; and
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permit us to continue to grant awards of our common shares through the tenth anniversary of the date of this annual
meeting of shareholders.
In
considering and approving the 2012 Plan, our Board determined that the number of common shares to be reserved for issuance under the 2012 Plan can be expected to allow us to continue
our historical equity compensation practices through the ten year term of the 2012 Plan. If the 2012 Plan is approved by our shareholders, it will replace the 2003 Plan and no new awards will be made
under that plan. If
the 2012 Plan is not approved by our shareholders, we will continue to use the 2003 Plan until all available common shares under the 2003 Plan are exhausted or until the term of such plan expires.
Principal Reasons for Adoption of the 2012 Plan
Permit Grants Through 2022.
The term of the 2003 Plan will expire on May 30, 2013, following which, absent approval of the 2012
Plan, we will
no longer have an equity compensation plan to enable us to accomplish our compensation objectives. Shareholder approval of the 2012 Plan will permit us to use that plan to satisfy our equity
compensation needs through the tenth anniversary of the 2012 annual meeting.
Reservation of Additional Common Shares.
Under the 2003 Plan, there are currently 1,335,960 common shares available for issuance
pursuant to new
awards. If the 2012 Plan is approved by our shareholders, we will have reserved 3,000,000 common shares for issuance pursuant to new awards. Based on past practices, our Board has determined that the
common shares reserved for issuance under the 2012 Plan can be expected to permit us to meet our compensation needs for the grant of equity awards during the ten year term of the 2012 Plan. If the
2012 Plan is not approved by our shareholders, we will only be able to utilize the remaining 1,335,960 common shares available under the 2003 Plan until its expiration on May 30, 2013 to
achieve our compensation objectives.
Description of Material Terms of the 2012 Plan
The following description of the material terms of the 2012 Plan is qualified in its entirety by the terms of the plan document, which
is attached hereto as Appendix A.
Administration.
The 2012 Plan will be administered by our Board or, in the discretion of our Board, a committee designated by our Board
and composed
of at least two members of our Board. Each member of any committee administering the 2012 Plan is required to qualify as a "non-employee
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director"
(within the meaning of Rule 16b-3 promulgated under Section 16 of the Securities Exchange Act of 1934, as amended, or the Exchange Act). Our Board or a committee
thereof has the authority to administer the 2012 Plan, including the authority to interpret the plan, to make awards thereunder (and determine the terms of such awards), to adopt and approve from time
to time the forms of award agreements under the plan, to make adjustments to awards in response to changes in applicable laws, regulations or accounting principles and to prescribe, amend and rescind
rules and regulations relating to the plan.
Awards.
The 2012 Plan permits discretionary grants of awards of or with respect to our common shares, which will be subject to such
terms and
conditions as our Board or a committee may determine, which may include, without limitation, terms with respect to vesting, forfeiture, repurchase and transfer restrictions, typically based on
continued employment. If it determines to do so, our Board or the designated committee may grant shares under this Plan that are not subject to vesting, forfeiture, repurchase and transfer
restrictions.
Participants.
The 2012 Plan permits awards to be made to our officers and Trustees, employees of our manager, consultants, advisors or
other persons
or entities providing management, administrative or other services to us or to our subsidiaries. Actual participants are determined by our Board or a committee thereof in its discretion.
Amendment and Termination.
The 2012 Plan may be amended or terminated by our Board, subject to shareholder approval where required by
law or
applicable listing requirements. Our Board may not
amend or terminate the terms of an outstanding award or the plan so as to adversely affect a participant's rights, without the participant's consent. The 2012 Plan will, unless terminated earlier by
our Board, terminate on the tenth anniversary of the date of the 2012 annual meeting of shareholders. However, awards granted before the termination of the 2012 Plan may extend beyond that date in
accordance with their terms.
Common Shares Available.
The maximum number of common shares that may be granted under the 2012 Plan is 3,000,000, subject to
adjustment for certain
transactions as set forth in the plan. If any common shares subject to an award are forfeited, cancelled, repurchased or surrendered, the shares with respect to such award will, to the extent of any
such forfeiture, cancellation, repurchase or surrender, again be available for awards under the plan. The number of common shares reserved for issuance under the 2012 Plan and the awards made under
the plan are generally subject to adjustment by our Board upon the occurrence of any stock dividend or similar distribution, stock split or combination of shares, conversion, reorganization,
consolidation, split-up, spin-off, combination, merger, exchange of stock, extraordinary cash dividend or other similar transaction or event. No Trustee or officer of the
Company may be granted more than 1,000,000 shares under the share award plan after the plan's effective date.
On
February 24, 2012, the last reported sale price of our common shares on the NYSE Composite Transactions reports was $19.07 per share.
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New Plan Benefits
If approved by our shareholders, participants in the 2012 Plan will be eligible for awards of shares as determined by our Board or
designated committee. Persons eligible to receive grants of shares under the 2012 Plan will be those key persons selected by our Board or committee in its discretion from among our officers and
Trustees, employees of our manager, consultants, advisors or other persons or entities providing management, administrative or other services to us or to our subsidiaries. Approximately 50 individuals
will be eligible to participate in the 2012 Plan.
Awards
under the 2012 Plan following its adoption will generally be made in the discretion of our Board or designated committee and are therefore not determinable at this time. Please
refer to the
Grants of Plan Based Awards Table
in this proxy statement to review equity awards made to our named executive officers in 2011. If the 2012
Plan is approved by our shareholders, we intend to utilize the Plan to make annual equity grants to our Trustees following such approval. In 2011, each Trustee received a grant of 2,000 common shares,
although the size of such grant may change from time to time in the future as determined by our Board or a committee thereof.
Certain Federal Income Tax Consequences
Set forth below is a discussion of certain federal income tax consequences with respect to awards that may be made under the 2012 Plan.
The following discussion is a brief summary only, and reference is made to the Internal Revenue Code and the regulations and
interpretations issued thereunder for a complete statement of all relevant federal tax consequences. This summary is not intended to be exhaustive and does not describe state, local or foreign tax
consequences of participation in the 2012 Plan. Participants in the 2012 Plan are advised to consult with their own tax professionals regarding the consequences of participating in the plan.
Share Awards.
A participant will generally recognize taxable income on the grant of unrestricted common shares in an amount equal to
the fair market
value of the shares on the grant date. The Company will ordinarily be entitled to a deduction at the same time and in the same amounts as the ordinary income recognized by the participant.
Restricted Shares.
The term "restricted shares" refers to a grant of common shares under the 2012 Plan that are subject to forfeiture
restrictions. A
participant generally will not be taxed at the time of a restricted share award but will recognize taxable income when the award is no longer subject to a substantial risk of forfeiture. The amount of
taxable income will be the fair market value of the shares at the time the risk of forfeiture lapses. The Company will ordinarily be entitled to a deduction at the same time and in the same amounts as
the ordinary income recognized by the participant.
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Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information about common shares that may be issued upon the exercise of options and restricted stock units
under all of our existing equity compensation plans as of December 31, 2011.
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Plan category
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Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
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Weighted-average
exercise price of
outstanding options,
warrants and rights
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Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
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(a)
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(b)
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(c)
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Equity compensation plans approved by security holders
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None
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None
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None
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Equity compensation plans not approved by security holders2003 Plan
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None
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None
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1,335,960
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(1)
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Total
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None
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None
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1,335,960
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(1)
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(1)
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Pursuant
to the terms of the 2003 Plan, in no event shall the number of shares issued under the 2003 Plan exceed 1,611,495. 1,335,960 represents the
aggregate number of shares that were available under such plans as of December 31, 2011. 275,535 shares have been issued under the 2003 Plan since it was established, excluding shares that have
become available again under the 2003 Plan as a result of their forfeiture, cancellation, repurchase or surrender. Share amounts have been adjusted to give effect to the reverse stock split that
resulted in a one for four combination of our common shares effective July 1, 2010.
Approval of the 2012 Plan
The affirmative vote of a majority of the votes cast is necessary to approve the 2012 Plan. For purposes of satisfying the NYSE
Shareholder Approval Rule, the total votes cast on proposal 3 must represent greater than 50% of all shares entitled to vote on the proposal.
PROPOSAL 4
ADVISORY APPROVAL RELATING TO EXECUTIVE COMPENSATION
As previously reported in the Current Report on Form 8-K/A that we filed with the SEC on August 12, 2011, our
Board has determined that we will hold a nonbinding, advisory vote on the compensation paid to our named executive officers pursuant to Section 14A of the Exchange Act once every year.
Accordingly, we are including a proposal for our shareholders to vote to approve, on a nonbinding, advisory basis, the compensation of those of our executive officers listed in the
Summary Compensation Table for 2011, 2010 and
2009
elsewhere in this proxy statement, or our named executive officers, as disclosed pursuant to
Item 402 of Regulation S-K in this proxy statement.
We
do not have any employees. Our manager, RMR, conducts our day to day operations on our behalf and provides services to us that otherwise would be provided by employees. Each of our
named executive officers is an employee of RMR and the officer's services are provided to us by RMR. RMR
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compensates
our named executive officers directly and in its sole discretion in connection with the officers' services rendered to RMR and to us. None of our named executive officers has an employment
agreement with us and we do not pay them salaries or bonuses, or provide them other compensation or benefits, except for the grants of shares under our share award plan described in the
Compensation Discussion and
Analysis
,
Compensation Tables
and narrative discussion in this proxy
statement.
We
make grants of shares under our share award plan to reward our named executive officers and to foster a continuing identity of interest between them and our shareholders. We award
shares under our share award plan to recognize our named executive officers' scope of responsibilities, reward demonstrated performance and leadership, motivate future performance, align the interests
of our executives with those of our other shareholders and motivate our executives to remain employees of our manager and to continue to provide services to us through the term of the awards. Our
award of shares under our share award plan is designed to reward executive performance that contributes to our success and increases shareholder value. We urge you to read the
Compensation Discussion and
Analysis
,
Compensation Tables
and narrative discussion in this proxy
statement.
We
are asking you to vote to approve the adoption of the following resolution:
RESOLVED:
That the shareholders of the Company approve, on a nonbinding, advisory basis, the compensation paid to the Company's named
executive
officers, as disclosed pursuant to Item 402 of Regulation S-K, including the
Compensation Discussion and Analysis
,
Compensation Tables
and
narrative discussion in this proxy statement.
The
affirmative vote of a majority of the votes cast will be necessary to approve proposal 4. The shareholder vote on proposal 4 is advisory and nonbinding, and serves only as a
recommendation to our Board.
PROPOSAL 5
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
On January 10, 2012, our Audit Committee voted to appoint Ernst & Young LLP as our independent registered public
accounting firm for the fiscal year ending December 31, 2012 (our fiscal year being a calendar year). Ernst & Young LLP acted as our independent registered public accounting firm
for 2010 and 2011. A representative of Ernst & Young LLP is expected to be present at the meeting, with the opportunity to make a statement if he or she desires to do so. This
representative will be available to respond to appropriate questions from shareholders who are present at the meeting. Proposal 5 is nonbinding. If the appointment is not ratified, our Audit Committee
will consider whether to appoint another independent registered public accounting firm in its discretion. If the appointment is ratified, our Audit Committee, in its discretion, may appoint a
different
independent registered public accounting firm at any time if it determines that such a change would be advisable.
9
The
fees for services provided by Ernst & Young LLP to us for the last two fiscal years were as follows:
|
|
|
|
|
|
|
|
|
|
2010
|
|
2011
|
|
Audit Fees
|
|
$
|
1,034,000
|
|
$
|
1,078,160
|
|
Audit Related Fees
|
|
|
64,000
|
|
|
567,000
|
|
Tax Fees
|
|
|
19,700
|
|
|
21,150
|
|
|
|
|
|
|
|
Subtotal
|
|
|
1,117,700
|
|
|
1,666,310
|
|
All Other Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fees
|
|
$
|
1,117,700
|
|
$
|
1,666,310
|
|
|
|
|
|
|
|
Our
Audit Committee has established policies and procedures that are intended to control the services provided by our independent registered public accounting firm and to monitor their
continuing independence. Under these policies, no services may be undertaken by our independent registered
public accounting firm unless the engagement is specifically approved by our Audit Committee or the services are included within a category that has been approved by our Audit Committee. The maximum
charge for services is established by our Audit Committee when the specific engagement or the category of services is approved. In certain circumstances, our management is required to notify our Audit
Committee when approved services are undertaken and the Committee or its Chair may approve amendments or modifications to the engagement or the maximum fees. Our Director of Internal Audit is
responsible to report to our Audit Committee regarding compliance with these policies and procedures.
Our
Audit Committee will not approve engagements of our independent registered public accounting firm to perform non-audit services for us if doing so will cause our
independent registered public accounting firm to cease to be independent within the meaning of applicable SEC or NYSE rules. In other circumstances, our Audit Committee considers, among other things,
whether our independent registered public accounting firm is able to provide the required services in a more or less effective and efficient manner than other available service providers and whether
the services are consistent with the Public Company Accounting Oversight Board Rules.
All
services for which we engaged our independent registered public accounting firm in 2010 and 2011 were approved by our Audit Committee. The total fees for audit and
non-audit services provided by Ernst & Young LLP in 2010 and 2011 are set forth above. The increase in audit related fees from 2010 to 2011 reflects fees associated with the
proposed initial public offering, or IPO, of our wholly owned subsidiary, Select Income REIT, or SIR. The tax fees charged by Ernst & Young LLP during 2010 and 2011 were for services
involved in reviewing our tax reporting and tax compliance procedures related to our income tax returns for the fiscal years ended December 31, 2009 and 2010, respectively. Our Audit Committee
approved the engagement of Ernst & Young LLP to provide these non-audit services because it determined that Ernst & Young LLP's providing these services would
not compromise its independence and that its familiarity with our record keeping and accounting systems would permit it to provide these services with equal or higher quality, more quickly and at a
lower cost than we could obtain these services from other providers.
The
affirmative vote of a majority of the votes cast will be necessary for the ratification of the appointment of Ernst & Young LLP as our independent registered public
accounting firm for the fiscal
10
year
ending December 31, 2012. The shareholder vote on proposal 5 is advisory and nonbinding and serves only as a recommendation to our Board.
Our Board recommends you vote "FOR" the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm
for the fiscal year ending December 31, 2012.
SOLICITATION OF PROXIES
Proxies may be solicited, without additional compensation, by our Trustees, officers and employees, and by RMR and its directors,
officers and employees by mail, telephone or other electronic means or in person. We are paying the costs of this solicitation, including the preparation, printing, mailing and website hosting of
proxy materials. We will request banks, brokers and other custodians, nominees and fiduciaries to forward proxy materials to the beneficial owners of our common shares and to obtain their voting
instructions. We will reimburse those firms for their expenses. In addition, we have retained Innisfree to assist in the solicitation of proxies for a fee of $15,000 plus reimbursement of expenses. We
have agreed to indemnify Innisfree against certain liabilities arising out of our agreement with Innisfree.
TRUSTEES AND EXECUTIVE OFFICERS
The following are the ages and recent principal occupations, as of February 26, 2012, of our nominees, Trustees and executive
officers. Unless otherwise specified, the business address of our nominees, Trustees and executive officers is c/o CommonWealth REIT, Two Newton Place, 255 Washington Street, Suite 300, Newton,
Massachusetts 02458.
Independent Trustee Nominee for a Term Expiring in 2015
WILLIAM A. LAMKIN, Age: 52
Mr. Lamkin has been one of our Independent Trustees since 2006. Mr. Lamkin has been a partner in Ackrell
Capital LLC, a San Francisco based investment bank, since 2003, and a partner in Ackrell & Company LLC, a San Francisco based investment advisory firm, since 2002. Previously, he
was employed as a financial consultant and as an investment banker, including as a Senior Vice President in the investment banking division of ABN AMRO, Incorporated. Prior to working as a financial
consultant and as an investment banker, Mr. Lamkin was a practicing attorney. Mr. Lamkin has served as an Independent Trustee of Hospitality Properties Trust, or HPT, since 2007.
Our
Board concluded that Mr. Lamkin is qualified to serve as one of our Independent Trustees based upon, among other things, his experience in and knowledge of the commercial real
estate and investment banking industries, his work on and with public company boards and board committees, his demonstrated management ability, his experience in capital raising and strategic business
transactions, his professional training, skills and expertise in, among other things, legal and finance matters, his institutional knowledge earned through service on our own Board for six years and
his qualifying as an Independent Trustee in accordance with the requirements of the NYSE, the SEC, our declaration of trust and our bylaws. Mr. Lamkin is an Independent Trustee in Group II and,
if elected at the meeting, his term will expire at our 2015 annual meeting of shareholders.
11
Managing Trustee Nominee for a Term Expiring in 2015
ADAM D. PORTNOY, Age: 41
Mr. Adam D. Portnoy has been one of our Managing Trustees since 2006 and our President since 2011. He also served as our
Executive Vice President from 2003 through 2006. Mr. Portnoy has been a Managing Trustee of HPT, Senior Housing Properties Trust, or SNH, and Government Properties Income Trust, or GOV, since
2007, 2007 and 2009, respectively. Mr. Portnoy has been an Interested Trustee of RMR Real Estate Income Fund, or RIF, and its predecessor funds since 2009. He was President of GOV from 2009
until 2011. Mr. Portnoy has been an executive officer of RMR since 2003 and currently is the President, Chief Executive Officer and a Director of RMR. Additionally, Mr. Portnoy is an
owner of RMR and of RMR Advisors, Inc., or RMR Advisors, an SEC registered investment advisor. Mr. Portnoy has been President and Director of RMR Advisors since 2007 and was a Vice
President prior to that time since 2003. He has also been President of RIF and its predecessor funds since 2007 and was President of RMR Funds Series Trust from its formation in 2007 until its
dissolution in 2009.
(1)
Prior to becoming President in 2007, Mr. Portnoy served as Vice President of certain of the closed end RMR Funds beginning in 2004. Prior to 2004,
Mr. Portnoy held various positions in the finance industry and public sector, including as a Senior Investment Officer of the International Finance Corporation (a member of The World Bank
Group) and Vice President of an investment bank. Mr. Portnoy is also currently Honorary Consul General of the Republic of Bulgaria to Massachusetts. Mr. Adam Portnoy is the son of
Mr. Barry Portnoy, our other Managing Trustee.
Our
Board concluded that Mr. Portnoy is qualified to serve as one of our Managing Trustees based upon, among other things, his extensive experience in and knowledge of the
commercial real estate industry and real estate investment trusts, or REITs, his leadership position with RMR, his public company director service, his demonstrated management ability, his experience
in investment banking, his government organization service, his institutional knowledge earned through service on our own Board for six years and in key leadership positions with our manager for eight
years and his qualifying as a Managing Trustee in accordance with the requirements of our declaration of trust and our bylaws. Mr. Adam Portnoy is a Managing Trustee in Group II and, if elected
at the meeting, his term will expire at our 2015 annual meeting of shareholders.
Independent Trustees Continuing in Office
PATRICK F. DONELAN, Age: 69
Mr. Donelan has been one of our Independent Trustees since 1998. Mr. Donelan has been principally a private investor
since 2003. Mr. Donelan was Non-Executive Chairman and a member of the advisory board from 2002 until 2003, and was Chairman and Chief Executive Officer from 2001 through 2002 of
eSecLending (Europe) Ltd., a London based privately owned company in the business of managing securities lending programs for institutional owners of publicly owned securities. Prior to its
acquisition by Dresdner Bank in 1995, Mr. Donelan was Chairman of Kleinwort Benson (North America) Inc., the U.S. based subsidiary of Kleinwort Benson Limited, a United Kingdom based
bank. At the time of his retirement in 2001, he was a Managing Director at Dresdner Kleinwort Wasserstein, a U.K. subsidiary of Dresdner Bank of Germany and had held senior management positions with
-
(1)
-
RIF,
its predecessor funds and RMR Funds Series Trust are collectively referred to herein as the "RMR Funds."
12
Dresdner
(or its predecessor) for many years. Mr. Donelan has also been an Independent Director of TravelCenters of America LLC, or TA, since 2007.
Our
Board concluded that Mr. Donelan is qualified to serve as one of our Independent Trustees based upon, among other things, his demonstrated leadership ability, his extensive
investment banking and commercial banking experience, his knowledge of the commercial real estate industry, his work on public company boards and board committees, his institutional knowledge gained
through service on our Board for 14 years and his qualifying as an Independent Trustee in accordance with the requirements of the NYSE, the SEC, our declaration of trust and our bylaws.
Mr. Donelan is an Independent Trustee in Group III, and his term expires at our 2013 annual meeting of shareholders.
FREDERICK N. ZEYTOONJIAN, Age: 76
Mr. Zeytoonjian has been one of our Independent Trustees since 1999. Mr. Zeytoonjian is the founder and has been Chairman
and Chief Executive Officer of Turf Products, LLC, one of the largest distributors of lawn care equipment in the United States, for over 40 years. Mr. Zeytoonjian also has been an
Independent Trustee of SNH since 2003.
Our
Board concluded that Mr. Zeytoonjian is qualified to serve as one of our Independent Trustees based upon, among other things, his demonstrated business leadership as a
successful entrepreneur for decades, his work on public company boards and board committees, his experience in and knowledge of commercial real estate, his financial background and his institutional
knowledge earned through service on our Board for 13 years and his qualifying as an Independent Trustee in accordance with the requirements of the NYSE, the SEC, our declaration of trust and
our bylaws. Mr. Zeytoonjian is an Independent Trustee in Group I, and his term expires at our 2014 annual meeting of shareholders.
Managing Trustee Continuing in Office
BARRY M. PORTNOY, Age: 66
Mr. Barry M. Portnoy has been one of our Managing Trustees since 1986. Mr. Portnoy has been a Managing Trustee of HPT,
SNH and GOV since 1995, 1999 and 2009, respectively. He has been a Managing Director of Five Star Quality Care, Inc., or Five Star, and of TA since 2001 and 2006, respectively.
Mr. Portnoy is an owner of RMR and of RMR Advisors. Mr. Portnoy has been an owner and a Director of RMR (and its predecessor) since its founding in 1986, a full time employee of RMR
since 1997, the Chairman of RMR since 1998 and a Director and Vice President of RMR Advisors since 2002. Mr. Portnoy has been an Interested Trustee of RIF and its predecessor funds since
shortly after their formation (the earliest of which was in 2002) and was an Interested Trustee of RMR Funds Series Trust from shortly after its formation in 2007 until its dissolution in 2009.
Mr. Portnoy practiced law for many years as a partner in, and chairman of, a law firm until 1997. Mr. Barry Portnoy is the father of Mr. Adam Portnoy, our other Managing Trustee
and President.
Our
Board concluded that Mr. Portnoy is qualified to serve as one of our Managing Trustees based upon, among other things, his demonstrated leadership capability, his extensive
experience in and knowledge of the commercial real estate industry and REITs, his leadership position with RMR, his extensive public company director service, his professional skills and expertise in,
among other things, legal and regulatory matters, his institutional knowledge earned through prior service on our Board and in key leadership positions with our manager and his qualifying as a
Managing Trustee in accordance
13
with
the requirements of our declaration of trust and our bylaws. Mr. Barry Portnoy is a Managing Trustee in Group I, and his term expires at our 2014 annual meeting of shareholders.
Executive Officers
ADAM D. PORTNOY
Mr. Portnoy has been our President since 2011, in addition to being one of our Managing Trustees and having other experience as
described above.
JOHN C. POPEO, Age: 51
Mr. Popeo has been our Treasurer and Chief Financial Officer since 1999 and Assistant Secretary since 2008, and served as
Secretary from 1999 to 2008. Mr. Popeo has also been Treasurer and an Executive Vice President of RMR since 1997 and 2008, respectively, and previously served as a Vice President of RMR from
1999 to 2006 and as a Senior Vice President from 2006 to 2008. Mr. Popeo served as Vice President of RMR Advisors from 2004 to 2009 and has served as Vice President of RIF and its predecessor
funds from shortly after their formation (the earliest of which was in 2002). Mr. Popeo is a certified public accountant.
DAVID M. LEPORE, Age: 51
Mr. Lepore has been our Chief Operating Officer since 2008 and Senior Vice President since 1998 and is primarily responsible for
the operations of our properties. Mr. Lepore has also been a Senior Vice President of RMR since 2006 and was a Vice President and served in other capacities prior to that time.
Mr. Lepore is a member of the Building Owners and Managers Association, the National Association of Industrial and Office Properties and is a certified real property administrator.
Except
as noted with regard to Mr. Barry Portnoy and Mr. Adam Portnoy, there are no family relationships among any of our Trustees or executive officers. Our executive
officers serve at the discretion of our Board.
RMR,
RMR Advisors, HPT, SNH, GOV, Five Star, TA and RIF may be considered to be affiliates of us. Each of RIF's predecessor funds and RMR Funds Series Trust may have been considered to
be affiliates of us. RMR is a privately owned company that provides management services to public and private companies, including us, HPT, SNH, GOV, Five Star and TA. HPT is a publicly traded REIT
that primarily owns hotels and travel centers. SNH is a publicly traded REIT that primarily owns senior living properties and medical office buildings. GOV is a publicly traded REIT that primarily
invests in properties that are majority leased to government tenants. Five Star is a publicly traded real estate based operating company in the healthcare and senior living services business. TA is a
publicly traded real estate based operating company in the travel center business. RIF and each of its predecessor funds is or was a closed end investment company registered under the Investment
Company Act of 1940, as amended, or the 1940 Act. RMR Funds Series Trust was an open end investment company registered under the 1940 Act prior to its dissolution in 2009.
14
BOARD OF TRUSTEES
Our business is conducted under the general direction of our Board as provided by our declaration of trust, our bylaws and the laws of
the State of Maryland, the state in which we were organized on October 9, 1986.
Three
of our Trustees, Patrick F. Donelan, William A. Lamkin and Frederick N. Zeytoonjian, are our Independent Trustees within the meaning of our declaration of trust and our bylaws. Two
of our Trustees, Adam D. Portnoy and Barry M. Portnoy, are our Managing Trustees within the meaning of our bylaws.
Our
declaration of trust and our bylaws require that a majority of our Board be Independent Trustees. In determining the status of those Trustees who qualify as Independent Trustees,
each year our Board affirmatively determines whether Trustees have a direct or indirect material relationship with us, including our subsidiaries, other than serving as our Trustees. When assessing a
Trustee's relationship with us, our 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.
Our
Board has determined that Messrs. Donelan, Lamkin and Zeytoonjian currently qualify as independent trustees under applicable NYSE rules and are Independent Trustees under our
declaration of trust and our bylaws. In making that determination with respect to Mr. Donelan, our Board considered Mr. Donelan's past employment with Dresdner Kleinwort Wasserstein, an
affiliate of which was the agent and a lender under our previous revolving bank credit facility. Such former relationship ended over six years ago and was with a large bank at which we did not account
for a material amount of revenues. Our Board also considered each of these three Trustees' service in other enterprises and
on the boards of other companies to which RMR and its affiliates provide management services. Our Board has concluded that none of these Trustees possessed or currently possesses any relationship that
could impair his judgment in connection with his duties and responsibilities as a Trustee or that could otherwise be a direct or indirect material relationship under applicable NYSE standards.
During
2011, our Board held seven meetings, our Audit Committee held seven meetings, our Compensation Committee held six meetings and our Nominating and Governance Committee held four
meetings. In addition, our ad hoc special committee formed in connection with our consideration of the sale of 13 additional medical office, clinic and biomedical, pharmaceutical and laboratory
buildings, or MOBs, to SNH held four meetings. During 2011, each Trustee attended 75% or more of the total number of meetings of our Board and any committee of which he was a member during the time in
which he served on our Board or such committee. All of our Trustees attended last year's annual meeting of shareholders.
Pursuant
to our Governance Guidelines, our Independent Trustees meet at least once each year without management. The presiding Trustee at these meetings is the Chair of our Audit
Committee, unless the Independent Trustees in attendance select another Independent Trustee to preside.
We
do not maintain directors' and officers' liability insurance for our Trustees and officers. Subject to certain limitations, our declaration of trust, our bylaws and separate
indemnification agreements require that we indemnify our Trustees and officers.
15
Board Leadership Structure
Our Board is comprised of both Independent Trustees and Managing Trustees, with a majority being Independent Trustees. Our Independent
Trustees are not employees or affiliates, as such term is defined in our declaration of trust, of RMR, do not have a material business or professional relationship with RMR or any other person or
entity that holds in excess of 9.8% of our issued and outstanding shares of beneficial interest, are not involved in our day to day activities, do not perform services for us except as Trustee and are
persons who qualify as independent under our
declaration of trust, our bylaws and the applicable rules of the NYSE and SEC. Our Managing Trustees are not Independent Trustees and have been employees of RMR or involved in our day to day
activities for at least one year. Our Board is composed of three Independent Trustees and two Managing Trustees. Our President is a member of our Board. Our Treasurer is not a member of our Board, but
he regularly attends Board meetings, as does our Director of Internal Audit. Other officers of RMR also sometimes attend Board meetings at the invitation of our Board.
Our
Audit, Compensation and Nominating and Governance Committees are comprised solely of our Independent Trustees, and an Independent Trustee serves as Chair of each such committee. Our
three standing committees have responsibilities related to our leadership and governance, including among other things: (1) our Audit Committee reviews our financial reports, oversees our
accounting and financial reporting processes, selects our independent accountants, determines the compensation paid to our independent accountants and assists our Board with its oversight of our
internal audit function and our compliance with legal and regulatory requirements; (2) our Compensation Committee annually evaluates the performance of our Director of Internal Audit and
approves the compensation we pay to him, determines any compensation that we directly pay to our President, reviews and approves any compensation that we directly pay to our Treasurer and any other
senior executive of ours who is also a senior executive of RMR, reviews our business and property management agreements with RMR, evaluates RMR's performance under those agreements and the expenses,
costs and compensation we pay under those agreements, approves those expenses, costs and compensation that we pay under those agreements, determines whether those agreements will be renewed, amended,
terminated or allowed to expire and administers all our equity compensation awards; and (3) our Nominating and Governance Committee considers nominees to serve on our Board, recommends to our
Board nominees for election to our Board, assesses our Board's performance and reviews and assesses our Board leadership structure and Governance Guidelines and recommends to the Board any changes it
determines appropriate. The Chairs of the Audit, Compensation and Nominating and Governance Committees set the agenda for their respective committee meetings, but committee members, our Managing
Trustees or members of our management may suggest agenda items to be considered by these committees.
We
do not have a Chairman of our Board or a lead Independent Trustee. The President, any Managing Trustee or any two Independent Trustees may call a special meeting. Our President and
Managing Trustee and our other Managing Trustee, in consultation with our Treasurer, set the agenda for our Board meetings, and any Independent Trustee may place an item on an agenda by providing
notice to our President and Managing Trustee, our other Managing Trustee or our Treasurer. Discussions at Board meetings are led by the Managing Trustee or Independent Trustee who is most
knowledgeable on a subject. Our Board is small, which facilitates informal discussions and communication from management to the Board and among Trustees. Our Independent Trustees meet to consider
Company business without the attendance of our Managing Trustees or our officers, and
16
they
meet separately with our officers, with our Director of Internal Audit and with our outside accountants. In such meetings of our Independent Trustees, the Chair of the Audit Committee presides
unless the Independent Trustees determine otherwise.
In
light of the size of our Board and the oversight provided by and involvement of our Independent Trustees and Board committees in the leadership of our Company, our Board considers
that our current leadership structure and conduct combines appropriate leadership with the ability to conduct our business efficiently and with appropriate care and attention.
Risk Oversight
Our Board oversees risk as part of its general oversight of our Company, and 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 our Company is conducted by RMR, and RMR implements risk management
in its activities. In discharging their oversight responsibilities, our Board and Board committees regularly review a wide range of reports provided to them by RMR and other service providers,
including reports on market and industry conditions, operating and compliance reports, financial reports, reports on risk management activities, regulatory and legislative updates that may impact us,
legal proceedings updates and reports on other business related matters, and discusses such matters among themselves and with representatives of RMR, counsel and our independent accountants. Our Audit
Committee, which meets at least quarterly and reports its findings to our Board, performs a lead role in helping our Board fulfill its responsibilities for oversight of our financial reporting,
internal audit function, risk management and our compliance with legal and regulatory requirements. Our Board and Audit Committee review periodic reports from our independent registered public
accounting firm regarding potential risks, including risks related to our internal controls. Our Audit Committee also annually reviews, approves and oversees an internal audit plan developed by our
Director of Internal Audit with the goal of helping our Company systematically evaluate the effectiveness of our risk management, control and governance processes, and periodically meets with our
Director of Internal Audit to review the results of our internal audits, and directs or recommends to the Board actions or changes it determines appropriate to enhance or improve the effectiveness of
our risk management. Our Compensation Committee also evaluates the performance of our Director of Internal Audit and RMR's performance under our business and property management agreements. Also, our
Compensation Committee and our Board consider the fact that we have a share grant program that requires share grants to vest over a period of years, rather than a stock option program such as is
employed by many other publicly owned companies. We believe that the use of share grants vesting over time rather than stock options
mitigates the incentives for our management to undertake undue risks and encourages our management to make longer term, less risk prone decisions.
While
a number of risk management functions are performed, it is not possible to identify all of the risks that may affect us 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 our Company to bear certain risks to achieve our
objectives. As a result of the foregoing and other factors, our Company's ability to manage risk is subject to substantial limitations.
17
BOARD COMMITTEES
We have a standing Audit Committee, Compensation Committee and Nominating and Governance Committee, each of which has a written
charter. Each of the above committees is currently comprised of Messrs. Donelan, Lamkin and Zeytoonjian, who are independent under applicable NYSE listing standards and each committee's
respective charter, and, in the case of our Audit Committee, the applicable independence requirements of the SEC. In 2011, we formed an ad hoc special committee comprised of Messrs. Donelan and
Lamkin, our Independent Trustees who were not also trustees of SNH, in connection with our consideration and negotiation of the sale of 13 MOBs to SNH, as more fully described below in the section
entitled
Related Person Transactions and Company Review of Such Transactions
. Our Audit Committee, Compensation Committee and Nominating and Governance
Committee are delegated the powers of our Board necessary to carry out their responsibilities.
Our
Audit Committee was established in accordance with section 3(a)(58)(A) of the Exchange Act. The primary function of our Audit Committee is to assist our Board in fulfilling
its responsibilities for oversight of: (1) the integrity of our financial statements; (2) our compliance with legal and regulatory requirements; (3) our independent registered
public accounting firm's qualifications and independence; and (4) the performance of our internal audit function and independent registered public accounting firm. Our Board has determined that
Mr. Lamkin is our Audit Committee financial expert and is
"independent" as defined by the rules of the SEC and the NYSE. Our Board's determination that Mr. Lamkin is our Audit Committee financial expert was based upon: (i) his current position
as partner of Ackrell Capital LLC, an investment banking firm and (ii) his prior experience (a) as a financial consultant; (b) as a Senior Vice President in the investment
banking division of ABN AMRO, Incorporated; and (c) in various investment banking positions with Donaldson, Lufkin & Jenrette and PaineWebber and Kidder, Peabody, where his work included
real estate investment banking and project lease financing matters. Under its charter, our Audit Committee has the final authority and responsibility to select our independent registered public
accounting firm.
Our
Compensation Committee's primary responsibilities include: (1) reviewing the terms of RMR's business management and property management agreements with us, evaluating the
performance of RMR under these agreements and the expenses, costs and compensation we pay under these agreements, approving those expenses, costs and compensation that we are required to pay under
these agreements and making determinations regarding continuance of or changes to these agreements; (2) evaluating the performance of our President and determining and approving any
compensation, including any equity compensation, paid directly by us to our President; (3) evaluating the performance of our Director of Internal Audit and determining the compensation payable
to him and the costs of our internal audit function generally; (4) evaluating, approving and administering all of our equity compensation plans; (5) evaluating whether our executive
compensation programs encourage appropriate levels of risk taking by our executives; and (6) reviewing and considering the incentives and risks associated with our compensation policies and
practices.
The
responsibilities of our Nominating and Governance Committee include: (1) identification of individuals qualified to become members of our Board and recommending to our Board
the Trustee nominees for each annual meeting of shareholders or when Board vacancies occur; (2) development, and recommendation to our Board of governance guidelines; and (3) evaluation
of the performance of our Board.
18
The
charter of each of our standing committees 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.
Our
policy with respect to Board members' attendance at our annual meetings of shareholders can be found in our Governance Guidelines, the full text of which appears at our website at
www.cwhreit.com.
In addition to our Governance Guidelines, copies of the charters of our Audit, Compensation and Nominating and Governance Committees, as well as our Code of Business Conduct and Ethics, may be
obtained free of charge at our website, www.cwhreit.com, or by writing to our Secretary, CommonWealth REIT, Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458.
COMMUNICATIONS WITH TRUSTEES
Any shareholder or other interested person who desires to communicate with our Independent Trustees or any Trustees, individually or as
a group, may do so by filling out a report at our website, www.cwhreit.com, by calling our toll-free confidential message system at (866) 511-5038 or by writing to the
party for whom the communication is intended, c/o Director of Internal Audit, CommonWealth REIT, Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458. Our Director of
Internal Audit will then deliver any communication to the appropriate party or parties.
SELECTION OF CANDIDATES FOR TRUSTEES;
SHAREHOLDER RECOMMENDATIONS, NOMINATIONS AND OTHER PROPOSALS
Our Board has established Governance Guidelines which, together with our declaration of trust and our bylaws, set forth the
qualifications for service on our Board. Our Governance Guidelines may be changed from time to time by our Board upon the recommendation of our Nominating and Governance Committee. Our Board makes
nominations of persons to be elected by shareholders as Trustees. Our Board also elects Trustees to fill Board vacancies that may occur from time to time. In both these circumstances, our Board will
act upon recommendations made by our Nominating and Governance Committee.
In
considering candidates to serve as Trustees, our Nominating and Governance Committee seeks individuals who have qualities that the Committee believes will be effective in serving our
long term best interests. Among the characteristics that the Committee considers are the following: integrity, experience, achievements, judgment, intelligence, competence, personal character, ability
to make independent analytical inquiries, willingness to devote adequate time to Board duties, likelihood that a candidate will be able to serve on our Board for an extended period and other matters
that our Nominating and Governance Committee deems appropriate. While our Board does not have a specific diversity policy in connection with the selection of nominees for Trustee, due consideration is
given to
our Board's desire for an overall balance of diversity of perspectives, backgrounds and experiences. Our Board does not consider gender, sexual orientation, race, religion, ethnicity, national origin
or citizenship to be relevant considerations and does not discriminate on the basis of such criteria. When considering candidates, our Nominating and Governance Committee will also assist our Board in
determining the desired mix of experience, skills, attributes and other criteria that will strengthen our Board in a way that best serves the long term interests of our Company and complement the
experience, skills, attributes and qualifications of existing Trustees. Depending on whether the position to be filled is that of an Independent Trustee or a Managing Trustee, the qualifications of
the candidate
19
to
meet the criteria for each such category of Trustee is considered. In seeking candidates for Trustee who have not previously served as our Trustees, the Nominating and Governance Committee may use
the business, professional and personal contacts of its members, it may accept recommendations from other Board members and, if it considers it appropriate, the Nominating and Governance Committee may
engage a professional search firm. In addition to other criteria, our bylaws require that nominees submit any additional information required in connection with our license or regulation by state
insurance authorities.
In
2011, we did not pay any third party to identify or to assist in the evaluation of any candidate for election to our Board. We did not receive any shareholder recommendations or
nominations for our Board for the 2012 annual meeting of shareholders, except the nominations made by our Board and recommendations by our Nominating and Governance Committee, each of which includes
Board members who are shareholders of record.
Shareholder Recommendations for Nominees.
A responsibility of our Nominating and Governance Committee is to consider candidates for
election as
Trustees who are properly recommended by shareholders. To be considered by our Nominating and Governance Committee, a shareholder recommendation for a nominee must be made by such shareholder's
written notice to the Chair of our Nominating and Governance Committee and our Secretary, which notice should contain or be accompanied by the information and documents with respect to the recommended
nominee and recommending shareholder that the recommending shareholder believes to be relevant or helpful to our Nominating and Governance Committee's deliberations. Our Nominating and Governance
Committee may request additional information about the shareholder recommended nominee or about the shareholder recommending the nominee. Any recommended nominee will be considered by our Nominating
and Governance Committee in its discretion using the same criteria as other candidates considered by it.
The
preceding paragraph applies only to shareholder recommendations for nominees to our Nominating and Governance Committee. A shareholder nomination must be made in accordance with the
provisions of our bylaws, including the procedures discussed below, and applicable state and federal laws.
2013 Annual Meeting Deadlines for Shareholder Proposals Pursuant to Rule 14a-8 under the Exchange Act.
Shareholder proposals
intended to be presented pursuant to Rule 14a-8 under the Exchange Act at our 2013 annual meeting of shareholders must be received at our principal executive offices on or before
October 31, 2012, in order to be considered for inclusion in our proxy statement for our 2013 annual meeting of shareholders, provided that if we hold our 2013 annual meeting on a date that is
more than 30 days before or after May 8, 2013, shareholders must submit proposals for inclusion in our 2013 proxy statement within a reasonable time before we begin to print our proxy
materials. Under Rule 14a-8, we are not required to include shareholder proposals in our proxy materials unless conditions specified in the rule are met.
2013 Annual Meeting Deadlines for Shareholder Nominations and Shareholder Proposals not Made Pursuant to Rule 14a-8 under the Exchange
Act.
In order for one or more shareholders properly to propose a nominee for election to our Board or propose business outside of Rule 14a-8
under the Exchange Act, the shareholder(s) must comply in all respects with the advance notice and other provisions set forth in our bylaws, which currently include, among other things, requirements
as to the shareholder's timely delivery of advance notice, share ownership and submission of specified
20
information.
For example, to nominate a Trustee for election to our Board at our annual meeting, the shareholder(s) must, among other things: (1) at the date such shareholder gives its advance
notice, hold individually or in the aggregate at least 3% of our shares entitled to vote at the meeting on such election and must have held such shares continuously for at least three years and
continuously hold such shares through and including the time of the annual meeting (including any adjournment or postponement thereof); (2) be a shareholder of record at the time of giving
notice through and including the time of the annual meeting (including any adjournment or postponement thereof); (3) be entitled to make nominations and to vote at the meeting on such election;
(4) hold a certificate for all
shares of beneficial interest of the Company owned by such shareholder during all times described in clause (1); and (5) comply with the advance notice procedures as to such nomination.
The advance notice must set forth detailed specified information about the nominee and the nominee's affiliates and associates, the shareholder making the nomination and affiliates and associates of
that shareholder, and provide to the extent known by the shareholder giving the notice, the name and address of any other shareholder supporting the shareholder's nomination.
As
a further example, to propose other business to be considered by the shareholders at our annual meeting (other than the nomination of individuals for election to our Board), the
shareholder must: (1) have continuously held at least $2,000 in market value, or 1% of our shares entitled to vote at the meeting on the proposal for such business for at least one year from
the date the shareholder gives its advance notice and continuously hold such shares through and including the time of the annual meeting (including any adjournment or postponement thereof);
(2) be a shareholder of record at the time of giving notice through and including the time of the annual meeting (including any adjournment or postponement thereof); (3) be entitled to
propose such business and to vote at the meeting on the proposal for such business; (4) hold a certificate for all shares of beneficial interest of the Company owned by such shareholder during
all times described in clause (1); and (5) comply with the advance notice procedures as to such business. The advance notice must set forth a description of such business, the reasons
for proposing such business at the meeting and any material interest in such business of the shareholder, a description of all agreements, arrangements and understandings involving the shareholder in
connection with the proposal of such business and a representation that the shareholder intends to appear in person or by proxy at the meeting to bring the business before the meeting.
Our
bylaws require that shareholder nominations and proposals intended to be made outside of Rule 14a-8 under the Exchange Act at our 2013 annual meeting of
shareholders must be submitted, in accordance with the requirements of our bylaws, not later than 5:00 p.m. Eastern time on October 31, 2012 (which is also the date, after which,
shareholder nominations and proposals made outside of Rule 14a-8 under the Exchange Act would be considered "untimely" within the meaning of Rule 14a-4(c) under
the Exchange Act) and not earlier than October 1, 2012; provided, that, if our 2013 annual meeting is called for a date that is more than 30 days earlier or later than May 8,
2013, 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 (1) notice of the date of our 2013
annual meeting is mailed or otherwise made available or (2) public announcement of the date of our 2013 annual meeting is first made by us.
In
addition, at the same time as the submission of a shareholder nomination or proposal for consideration at a meeting of our shareholders that, if elected or approved and implemented by
us, would cause us to be in breach of any covenant in or in default under any debt instrument or
21
agreement
or other material agreement of ours or any subsidiary of ours, the shareholder must submit to our Secretary (i) evidence satisfactory to our Board of the lender's or contracting
party's willingness to waive the breach of covenant or default, or (ii) a detailed plan for repayment of the applicable indebtedness or curing the contractual breach or default and satisfying
any resulting damage, specifically identifying the actions to be taken or the source of funds, which plan must be satisfactory to our Board in its discretion, and evidence of the availability to us of
substitute credit or contractual arrangements similar to the credit or contractual arrangements which are implicated by the shareholder nomination or other proposal that are at least as favorable to
us, as determined by our Board in its discretion. Additionally, if (i) the submission of a shareholder nomination or proposal of other business to be considered at a shareholders meeting could
not be considered or, if elected or approved, implemented by us without our or any subsidiary of ours, or the proponent shareholder, the nominee, the holder of proxies or their respective affiliates
or associates filing with or otherwise notifying or obtaining the consent, approval or other action of any governmental or regulatory body, or a governmental action, or (ii) such shareholder's
ownership of our shares or any solicitation of proxies or votes or holding or exercising proxies by such shareholder, the nominee or their respective affiliates or associates would require
governmental action, then, at the same time as the submission of the shareholder nomination or proposal of other business, the proponent shareholder shall submit to our Secretary (x) evidence
satisfactory to our Board that any and all governmental action has been given or obtained, including, without limitation, such evidence as our Board may require so that any nominee may be determined
to satisfy any suitability or other requirements or (y) if such evidence was not obtainable from a governmental or regulatory body by such time despite the shareholder's diligent and best
efforts, a detailed plan for making or obtaining the governmental action prior to the election of the nominee or the implementation of the proposal for other business, which plan must be satisfactory
to our Board in its discretion.
The
foregoing description of the procedures for a shareholder to propose a nomination for election to our Board or other business for consideration at an annual meeting is only a summary
and is not a complete listing of all requirements. Copies of our bylaws, including the provisions that concern shareholder recommendations and the requirements for shareholder nominations and other
proposals, may be obtained by writing to our Secretary at CommonWealth REIT, Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458, or from the SEC's website at
www.sec.gov. Any shareholder considering making a nomination or other proposal should carefully review and comply with those provisions. Under our declaration of trust and our bylaws, a shareholder is
obligated to indemnify us for costs and expenses we incur arising from the shareholder's breach or failure to fully comply with any covenant, condition or provision of our declaration of trust or our
bylaws, including costs and expenses we may incur as a result of the shareholder's failure to comply with the requirements to make nominations and proposals.
22
COMPENSATION DISCUSSION AND ANALYSIS
Compensation Overview
We do not have any employees. None of our executive officers has an employment agreement with us or any agreement that becomes
effective upon his termination or a change in control of us. Our manager, RMR, provides services that otherwise would be provided by employees. RMR conducts our day to day operations on our behalf and
compensates our named executive officers, Messrs. Adam Portnoy, John Popeo and David Lepore, directly and in its sole discretion in connection with their services rendered to RMR and to us. We
do not pay our executive officers salaries or bonuses or provide other compensatory benefits except for the grants of shares under our share award plan discussed below. Although our Compensation
Committee reviews and approves our business management and property management agreements with RMR, it is not involved in compensation decisions made by RMR for its employees other than the employee
serving as our Director of Internal Audit. Our payments to RMR are described in
Related Person Transactions and Company Review of Such Transactions
in
this proxy statement.
In
September 2011, the Chair of our Compensation Committee met with our Managing Trustees and the chairs of the compensation committees of the other public REITs, the RMR Funds and the
operating companies for which RMR and its affiliates provide management services. RMR provides management services to: (1) HPT, a publicly traded REIT that primarily owns hotels and travel
centers; (2) SNH, a publicly traded REIT that primarily owns senior living properties and medical office buildings; (3) Five Star, a publicly traded real estate based operating company
in the healthcare and senior living services business; (4) TA, a publicly traded real estate based operating company in the travel center business; and (5) GOV, a publicly traded REIT
that primarily invests in properties that are majority leased to government tenants. The purpose of this meeting was, among other things, to discuss compensation philosophy and factors that may affect
compensation decisions, to consider the compensation payable by us to our Director of Internal Audit who provides services to us and to other
companies managed by RMR and its affiliates, to consider the allocation of internal audit and related services costs among us and other companies to which RMR or its affiliates provide internal audit
and related services, to provide a comparative understanding of potential share grants by us and the other affected companies and to hear and consider recommendations from our Managing Trustees
concerning potential share grants. The share grants made by the companies and other REITs managed by RMR and its affiliates are considered to be appropriately comparable because of the similarities
between certain services we require from our share grantees and the services provided to these other companies and, in particular, with respect to the other REITs managed by RMR. Subsequent to this
meeting, the members of our Compensation Committee held a meeting at which the Chair provided a report of the information discussed with the Managing Trustees and others, and made recommendations for
share grants to executive officers. Our Compensation Committee then discussed these recommendations and other factors, including the following factors for the 2011 share grants: (1) the value
of the proposed share grants; (2) the historical awards previously granted to each executive officer and the corresponding values at the time of the grants; (3) the recommendations by
RMR as presented by our Managing Trustees; (4) the value of share grants to executive officers providing comparable services at other REITs and companies managed by RMR; (5) changes, if
any, in the responsibilities assigned to, or assumed by, each executive officer during the past year and on a going forward basis; (6) the length of historical services to us by each executive
officer; (7) the responsibilities of each executive officer and the Committee's perception regarding the quality of the services provided by each executive officer
23
in
carrying out those responsibilities; and (8) our financial and operating performance in the past year and our perceived future prospects. Our Compensation Committee's starting premise each
year is to award our named executive officers the same number of shares as they were awarded in the prior year in an effort to meet recipients' expectations. Our Compensation Committee then considers
these multiple factors in determining whether to increase or decrease the amounts of the prior year's grants. There was no formulaic approach using these various factors in determining the number of
shares to award to each executive officer. The share amounts were determined on a subjective basis using the various factors at our Compensation Committee's sole discretion. Our executive officers
(other than Mr. Adam Portnoy) did not participate in these meetings and were not involved in determining or recommending the amount or form of executive compensation they receive from us. Our
current President, Mr. Adam Portnoy, in his capacity as our Managing Trustee and as president of RMR, participated in these meetings and in share grant recommendations. Our Compensation
Committee did not engage compensation consultants to participate in the determination or recommendation of the amount or form of executive compensation.
In
evaluating our compensation process for 2011, our Compensation Committee generally considered the results of the 2011 advisory vote of our shareholders on the compensation of the
executive officers named in our 2011 proxy statement. Our Compensation Committee noted that more than 96% of votes cast approved of the compensation of those executive officers as described in our
2011 proxy statement.
Our Compensation Committee considered these voting results as supportive of the committee's general executive compensation practices.
Analysis of Grants under Our Share Award Plan
Although we do not pay any cash compensation directly to our officers and have no employees, we have adopted a share award plan to
reward our executive officers and other RMR employees who provide services to us and to foster a continuing identity of interest between them and our shareholders. We award shares under our share
award plan to recognize our executive officers' scope of responsibilities, reward demonstrated performance and leadership, motivate future performance, align the interests of our executives with those
of our other shareholders and motivate the executives to remain employees of our manager and to continue to provide services to us through the term of the awards.
Under
its charter, our Compensation Committee evaluates, approves and administers our equity compensation plans, which currently consist solely of our share award plan providing for the
grants of our common shares. The Compensation Committee has historically determined to use grants of restricted common shares rather than stock options as equity compensation. Because the value of our
common shares may be determined in part by reference to its dividend yield relative to market interest rates rather than by its potential for capital appreciation, we believe a conventional stock
option plan might not provide appropriate incentives for management for a business like ours, but a share grant plan may create a better identity of interests between management and other
shareholders. Also, because we believe a stock option plan may encourage excessive short term risk taking, we have historically granted restricted shares rather than stock options.
Our
Compensation Committee uses comparative information about other REITs managed by RMR as additional data to help it determine whether it is awarding share amounts that it deems
reasonable based on the characteristics of those REITs and their respective officers. The Compensation Committee also considers the size and structure of the other REITs and other RMR managed
24
businesses,
and the experience, length of service and scope of duties and responsibilities of the officers at these other companies to assess the value of the share awards proposed for our officers in
light of the proposed awards for officers with comparable roles at the other companies. Our Compensation Committee reviewed the data regarding the other REITs and their officers to help it gauge the
reasonableness of the recommended 2011 awards together with the other factors discussed above, but the Compensation Committee did not undertake a detailed comparison of the named executive officers
across the REITs or other companies managed by RMR or assign weight to any particular characteristic of these other companies or their officers because our Compensation Committee determines the share
amounts in its sole discretion on a non-formulaic basis. In 2011, the Compensation Committee considered the foregoing factors and decided to increase the number of shares awarded to our
named executive officers in accordance with the recommendation of our Managing Trustees.
We
determine the fair market value of the shares granted based on the closing price of our common shares on the date of grant. The Compensation Committee has imposed, and may impose,
vesting and other conditions on the granted common shares because it believes that time based vesting encourages the recipients of the share awards to remain employed by RMR and to continue to provide
services to us. The Compensation Committee currently uses a vesting schedule under which one fifth of the shares vest immediately and the remaining shares vest in four equal, consecutive annual
installments commencing on the first anniversary of the date of grant. The Compensation Committee utilizes a four year time based vesting schedule to provide an incentive to provide services for a
long term and in consideration of the tax treatment of the share grants to us and to the recipients. In the event a recipient granted a share award ceases to perform duties for us or ceases to be an
officer or an employee of RMR or any company that RMR manages during the vesting period, we may repurchase for nominal consideration the common shares that have not yet vested. As with other issued
common shares, vested and unvested shares awarded under our share award plan are entitled to receive distributions that we make on our common shares.
Because
the schedule for consideration of share awards by our Compensation Committee and our Board is determined on a regular schedule (i.e., in September for our officers and
employees of RMR and at the first meeting of our Board after the annual meeting of shareholders for our Board members), the proximity of any grants to earnings announcements or other market events, if
any, is coincidental.
We
believe that our compensation philosophy and programs are designed to foster a business culture that aligns the interests of our executive officers with those of our shareholders. We
believe that the equity compensation of our executive officers is appropriate to the goal of providing shareholders dependable, long term returns.
COMPENSATION COMMITTEE REPORT
The undersigned members of the Compensation Committee have reviewed and discussed the Compensation Discussion and Analysis with our
management. Based upon this review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and
incorporated by reference into our Annual Report on Form 10-K for the year ended December 31, 2011.
25
COMPENSATION TABLES
The following tables provide: (1) summary 2011, 2010 and 2009 compensation information relating to our named executive officers;
(2) information with respect to share awards made to, or held by, our named executive officers during the periods or at the dates specified below; and (3) compensation information
relating to our Trustees for 2011. Our named executive officers consist of four individuals, our current President, our former President and Chief Investment Officer, our Treasurer and Chief Financial
Officer and our Chief Operating Officer and Senior Vice President, the compensation of whom is required to be reported in this proxy statement under the rules of the SEC. None of our named executive
officers are employed by us. Our manager, RMR, provides services that otherwise would be provided by employees and compensates our named executive officers directly and in RMR's sole discretion in
connection with their services rendered to RMR and to us. We do not pay our executive officers salaries or bonuses or provide other compensatory benefits except for the grants of shares under our
share award plan.
SUMMARY COMPENSATION TABLE FOR 2011, 2010 AND 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Principal Position
|
|
Year
|
|
Stock
Awards ($)
(1)
|
|
All Other
Compensation
($)
(2)
|
|
Total ($)
|
|
Adam D. Portnoy
(3)
|
|
|
2011
|
|
$
|
202,840
|
|
$
|
3,000
|
|
$
|
205,840
|
|
President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John A. Mannix
(3)
|
|
|
2011
|
|
$
|
149,700
|
|
$
|
14,725
|
|
$
|
164,425
|
|
Former President and Chief Investment Officer
|
|
|
2010
|
|
$
|
102,375
|
|
$
|
11,182
|
|
$
|
113,557
|
|
|
|
|
2009
|
|
$
|
97,760
|
|
$
|
8,664
|
|
$
|
106,424
|
|
John C. Popeo
|
|
|
2011
|
|
$
|
149,700
|
|
$
|
14,725
|
|
$
|
164,425
|
|
Treasurer and Chief Financial Officer
|
|
|
2010
|
|
$
|
102,375
|
|
$
|
11,182
|
|
$
|
113,557
|
|
|
|
|
2009
|
|
$
|
97,760
|
|
$
|
8,664
|
|
$
|
106,424
|
|
David M. Lepore
|
|
|
2011
|
|
$
|
149,700
|
|
$
|
14,725
|
|
$
|
164,425
|
|
Chief Operating Officer and Senior Vice President
|
|
|
2010
|
|
$
|
102,375
|
|
$
|
11,182
|
|
$
|
113,557
|
|
-
(1)
-
Represents
the grant date fair value of shares granted in 2011, 2010 and 2009, as applicable, compiled in accordance with FASB Accounting Standards
Codification Topic 718, "CompensationStock Compensation," or ASC 718. No assumptions are used in this calculation.
-
(2)
-
Consists
of distributions in each year on unvested shares.
-
(3)
-
Effective
January 10, 2011, Mr. Mannix resigned his position as our President and Chief Investment Officer and Mr. Adam Portnoy was
appointed our President. Mr. Mannix remains an Executive Vice President of RMR, and has temporarily relocated to oversee our and RMR's business investments in Australia. Mr. Adam Portnoy
continues his position as Managing Trustee. Mr. Adam Portnoy's compensation for 2011 attributable to his services as a Managing Trustee, which consisted of a stock award with a value of
$53,140, is included above and is also included in the
Trustee Compensation for 2011
table below.
26
GRANTS OF PLAN BASED AWARDS FOR 2011
(Shares granted in 2011, including vested and unvested grants)
|
|
|
|
|
|
|
|
|
|
Name
|
|
Grant Date
|
|
All Other Stock Awards:
Number of Shares of
Stock or Units (#)
|
|
Grant Date Fair
Value of Stock and
Option Awards
(1)
|
|
Adam D. Portnoy
(2)(3)
|
|
|
9/16/11
|
|
7,500 Common Shares
|
|
$
|
149,700
|
|
John A. Mannix
(3)
|
|
|
9/16/11
|
|
7,500 Common Shares
|
|
$
|
149,700
|
|
John C. Popeo
|
|
|
9/16/11
|
|
7,500 Common Shares
|
|
$
|
149,700
|
|
David M. Lepore
|
|
|
9/16/11
|
|
7,500 Common Shares
|
|
$
|
149,700
|
|
-
(1)
-
Represents
the value based upon the closing price on the date of grant, which is also the grant date fair value under ASC 718. No assumptions are used in
this calculation.
-
(2)
-
The
value of shares granted to Mr. Adam Portnoy as compensation for his services as Managing Trustee in 2011 is set forth in the
Trustee Compensation for 2011
table below.
-
(3)
-
Effective
January 10, 2011, Mr. Mannix resigned his position as our President and Chief Investment Officer and Mr. Adam Portnoy was
appointed our President. Mr. Mannix remains an Executive Vice President of RMR, and has temporarily relocated to oversee our and RMR's business investments in Australia.
Share
awards granted by us to executive officers in 2011 provide that one fifth of each award vests on the grant date and one fifth vests on each of the next four anniversaries of the
grant date. In the event a recipient granted a share award ceases to perform duties for us or ceases to be an officer or an employee of RMR or any company that RMR manages during the vesting period,
we may repurchase the common shares that have not yet vested for nominal consideration. Holders of vested and unvested shares awarded under our share award plan are eligible to receive distributions
that we make on our shares on the same terms as other holders of our common shares.
27
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END FOR 2011
(Shares granted in 2011 and prior years, which have not yet vested)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
Name
|
|
Year
Granted
|
|
Number of Shares or Units
of Stock That Have Not
Vested (#)
(1)
|
|
Market Value of Shares
or Units of Stock That
Have Not Vested ($)
(2)
|
|
Adam D. Portnoy
(3)(4)
|
|
|
2011
|
|
|
6,000
|
|
$
|
99,840
|
|
John A. Mannix
(4)
|
|
|
2011
|
|
|
6,000
|
|
$
|
99,840
|
|
|
|
|
2010
|
|
|
2,250
|
|
$
|
37,440
|
|
|
|
|
2009
|
|
|
1,300
|
|
$
|
21,632
|
|
|
|
|
2008
|
|
|
550
|
|
$
|
9,152
|
|
John C. Popeo
|
|
|
2011
|
|
|
6,000
|
|
$
|
99,840
|
|
|
|
|
2010
|
|
|
2,250
|
|
$
|
37,440
|
|
|
|
|
2009
|
|
|
1,300
|
|
$
|
21,632
|
|
|
|
|
2008
|
|
|
550
|
|
$
|
9,152
|
|
David M. Lepore
|
|
|
2011
|
|
|
6,000
|
|
$
|
99,840
|
|
|
|
|
2010
|
|
|
2,250
|
|
$
|
37,440
|
|
|
|
|
2009
|
|
|
1,300
|
|
$
|
21,632
|
|
|
|
|
2008
|
|
|
550
|
|
$
|
9,152
|
|
-
(1)
-
Share
awards granted by us to our executive officers provide that one fifth of each award vests on the grant date and one fifth vests on each of the next
four anniversaries of the grant date. The shares granted in 2011 were granted on September 16, 2011; the shares granted in 2010 were granted on September 17, 2010; the shares granted in
2009 were granted on September 18, 2009; and the shares granted in 2008 were granted on September 22, 2008. At our option, in the event a recipient granted a share award ceases to
perform duties for us or ceases to be an officer or an employee of RMR or any company that RMR manages during the vesting period, the recipient shall forfeit or we may repurchase all or a portion of
the shares that have not yet vested.
-
(2)
-
Represents
the value based upon the closing price of our shares on December 30, 2011.
-
(3)
-
Shares
granted to Mr. Adam Portnoy as compensation for his services as Managing Trustee vested at the time of grant, and the value of such shares is
set forth in the
Trustee Compensation for 2011
table below.
-
(4)
-
Effective
January 10, 2011, Mr. Mannix resigned his position as our President and Chief Investment Officer and Mr. Adam Portnoy was
appointed our President. Mr. Mannix remains an Executive Vice President of RMR, and has temporarily relocated to oversee our and RMR's business investments in Australia.
28
STOCK VESTED FOR 2011
(Share grants that vested in 2011, including shares granted in prior years)
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
Name
|
|
Number of Shares
Acquired on Vesting (#)
|
|
Value Realized on
Vesting ($)
(1)
|
|
Adam D. Portnoy
(2)
(3)
|
|
|
1,500
|
|
$
|
29,940
|
|
John A. Mannix
(3)
|
|
|
3,850
|
|
$
|
74,610
|
|
John C. Popeo
|
|
|
3,850
|
|
$
|
74,610
|
|
David M. Lepore
|
|
|
3,850
|
|
$
|
74,610
|
|
-
(1)
-
Represents
the value based upon the closing price on the 2011 dates of vesting of grants made in 2011 and prior years.
-
(2)
-
Shares
granted to Mr. Adam Portnoy as compensation for his services as Managing Trustee vested at the time of grant, and the value of such shares is
set forth in the
Trustee Compensation for 2011
table below.
-
(3)
-
Effective
January 10, 2011, Mr. Mannix resigned his position as our President and Chief Investment Officer and Mr. Adam Portnoy was
appointed our President. Mr. Mannix remains an Executive Vice President of RMR, and has temporarily relocated to oversee our and RMR's business investments in Australia.
TRUSTEE COMPENSATION FOR 2011
(2011 compensation; all share grants to Trustees vest at the time of grant)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Fees Earned or
Paid in Cash ($)
|
|
Stock
Awards ($)
(1)
|
|
All Other
Compensation ($)
|
|
Total ($)
|
|
Patrick F. Donelan
|
|
$
|
50,750
|
|
$
|
53,140
|
|
|
|
|
$
|
103,890
|
|
William A. Lamkin
|
|
$
|
60,750
|
|
$
|
53,140
|
|
|
|
|
$
|
113,890
|
|
Adam D. Portnoy
(2)
|
|
$
|
|
|
$
|
53,140
|
|
|
|
|
$
|
53,140
|
|
Barry M. Portnoy
(2)
|
|
$
|
|
|
$
|
53,140
|
|
|
|
|
$
|
53,140
|
|
Frederick N. Zeytoonjian
|
|
$
|
48,500
|
|
$
|
53,140
|
|
|
|
|
$
|
101,640
|
|
-
(1)
-
Represents
the value based upon the closing price of our shares on the date of grant. This is also the compensation cost recognized by us for financial
reporting purposes pursuant to ASC 718. No assumptions are used in this calculation.
-
(2)
-
Our
Managing Trustees do not receive cash compensation for their services as Trustees. The compensation of Mr. Adam Portnoy for his services as
President is described above.
Each
Independent Trustee receives an annual fee of $30,000 for services as a Trustee, plus a fee of $750 for each meeting attended. Up to two $750 fees are paid if a Board meeting and
one or more Board committee meetings are held on the same date. The chairpersons of our Audit Committee, Compensation Committee and Nominating and Governance Committee receive an additional $10,000,
$5,000 and $5,000, respectively, each year. Under our Governance Guidelines, each Trustee is required to maintain the necessary level of expertise to perform his or her responsibilities as Trustee and
we
29
reimburse
each Trustee for the out of pocket costs he or she incurs from attending continuing education programs. In 2011, Mr. Lamkin received $5,000 for serving as the chair of our ad hoc
special committee that was formed in connection with our consideration and negotiation of the sale of 13 MOBs to SNH. In addition, each Trustee received a grant of 2,000 of our common shares in
2011. We generally reimburse all our Trustees for travel expenses incurred in connection with their duties as Trustees.
Our
Board believes it is important to align the interests of Trustees with those of our shareholders and for Trustees to hold equity ownership positions in our Company. Accordingly, our
Board believes that a portion of each Trustee's compensation should be paid in shares. In determining the amount and composition of such compensation, our Board considers the compensation of trustees
and directors of other comparable enterprises, both with respect to size and industry, including the compensation of trustees and directors of other companies managed by RMR.
In
2011, our Board reviewed the compensation paid to our Trustees and determined both the amount of such compensation and the allocation of such compensation between equity based awards
and cash. Our Managing Trustees do not receive any cash compensation for their services as Trustees, but they do receive common share grants equal to the share grants awarded to our Independent
Trustees.
AUDIT COMMITTEE REPORT
In the course of our oversight of the Company's financial reporting process, we have: (1) reviewed and discussed with management
the audited financial statements for the year ended December 31, 2011; (2) discussed with Ernst & Young LLP, the Company's independent registered public accounting firm,
the matters required to be discussed by the Statement on Auditing Standards No. 61, as amended (AICPA,
Professional Standards
, Vol. 1, AU
section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T; (3) received the written disclosures and the letter from the independent registered public
accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant's communications with the audit committee concerning
independence; (4) discussed with the independent registered public accounting firm its independence; and (5) considered whether the provision of non-audit services by the
independent registered public accounting firm is compatible with maintaining its independence and concluded that it is compatible at this time.
Based
on the foregoing review and discussions, the Audit Committee recommended to the Board that the audited financial statements be included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2011, for filing with the SEC.
|
|
|
|
|
AUDIT COMMITTEE
|
|
|
William A. Lamkin, Chairman
|
|
|
Patrick F. Donelan
|
|
|
Frederick N. Zeytoonjian
|
30
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Unless otherwise indicated, the information set forth below is as of February 17, 2012. The following table sets forth
information regarding the beneficial ownership of our common shares (not including any fractional shares that may be beneficially owned by such persons) by: (1) each person or entity known to
us to be the beneficial owner of more than 5% of our outstanding common shares; (2) each of our Trustees, nominees and the persons listed in the
Compensation
Tables
in this proxy statement; and (3) our Trustees and executive officers as a group. Unless otherwise indicated, we believe that each owner named below has sole
voting and investment power for all our common shares shown to be beneficially owned by that person or entity. As of the date first set forth in this paragraph, we do not know of any outstanding
rights to acquire our shares of the type specified in Rule 13d-3(d)(1) under the Exchange Act.
|
|
|
|
|
|
Name and Address of Beneficial Owner
(1)
|
|
Amount and Nature of
Beneficial Ownership
(2)
|
|
Percent of
Share Class
(2)
|
Beneficial Owners of More Than 5% of Our Common Shares
|
|
|
|
|
|
The Vanguard Group, Inc.
(3)
|
|
|
7,597,884
|
|
9.1%
|
Security Capital Research & Management Incorporated
(4)
|
|
|
7,579,052
|
|
9.1%
|
BlackRock, Inc.
(5)
|
|
|
4,866,968
|
|
5.8%
|
Trustees, Nominees and Executive Officers
|
|
|
|
|
|
Barry M. Portnoy
(6)
|
|
|
208,789
|
|
*
|
John A. Mannix
|
|
|
35,474
|
|
*
|
Adam D. Portnoy
(6)
|
|
|
29,099
|
|
*
|
John C. Popeo
|
|
|
26,000
|
|
*
|
David M. Lepore
|
|
|
25,500
|
|
*
|
Frederick N. Zeytoonjian
(6)(7)
|
|
|
8,967
|
|
*
|
Patrick F. Donelan
|
|
|
8,312
|
|
*
|
William A. Lamkin
|
|
|
6,812
|
|
*
|
All Trustees and executive officers as a group (seven persons)
(6)
|
|
|
313,479
|
|
*
|
-
*
-
Less
than 1% of our common shares.
-
(1)
-
Unless
otherwise indicated, the address of each identified person or entity is: c/o CommonWealth REIT, Two Newton Place, 255 Washington Street,
Suite 300, Newton, Massachusetts 02458.
-
(2)
-
Our
declaration of trust and bylaws place restrictions on the ability of any person or group to acquire beneficial ownership of more than 9.8% of any class
of our shares. The percentages indicated are based upon the number of shares shown divided by the 83,721,736 of our common shares outstanding as of February 17, 2012.
-
(3)
-
This
information is as of December 31, 2011, and is based on a Schedule 13G/A filed with the SEC on February 7, 2012, by The Vanguard
Group, Inc., or Vanguard. According to the Schedule 13G/A filed by Vanguard, the address of Vanguard is 100 Vanguard Boulevard, Malvern, Pennsylvania 19355. In the Schedule 13G/A
filed by Vanguard, Vanguard reports having sole voting power over 58,123 shares, sole dispositive power over 7,539,761 shares and shared dispositive power over 58,123 shares. Additionally, the
Schedule 13G/A filed by Vanguard reports that Vanguard Fiduciary Trust Company, a wholly owned subsidiary of Vanguard, is the beneficial owner of 58,123 shares as a result of its serving as
investment manager of collective trust accounts,
31
and
that Vanguard Fiduciary Trust Company directs the voting of those shares. In addition, Vanguard Specialized FundsVanguard REIT Index Fund, or Vanguard REIT Index Fund, also filed a
Schedule 13G/A with the SEC on January 26, 2012, reporting beneficial ownership of 3,635,814 of our shares and that it has sole voting power over those shares. According to the
Schedule 13G/A filed by Vanguard REIT Index Fund, the address of Vanguard REIT Index Fund is 100 Vanguard Boulevard, Malvern, Pennsylvania 19355. Vanguard has confirmed that the 3,635,814 of
our shares reported as beneficially owned by Vanguard REIT Index Fund as of December 31, 2011 in its Schedule 13G/A are included in the 7,597,884 of our shares reported as beneficially
owned by Vanguard in its Schedule 13G/A.
-
(4)
-
This
information is as of December 31, 2011, and is based on a Schedule 13G/A filed with the SEC on February 13, 2012, by Security
Capital Research & Management Incorporated. According to the Schedule 13G/A filed by Security Capital Research & Management Incorporated, the address of Security Capital
Research & Management Incorporated is 10 South Dearborn Street, Suite 1400, Chicago, Illinois 60603. In the Schedule 13G/A filed by Security Capital Research & Management
Incorporated, Security Capital Research & Management Incorporated reports sole voting power over 4,773,429 shares and beneficial ownership of and sole dispositive power over 7,579,052 shares.
According to that same Schedule 13G/A, Security Capital Research & Management Incorporated reported beneficial ownership of 8.3% of our common shares outstanding. However, based on 83,721,736
of our common shares outstanding on February 17, 2012, Security Capital Research & Management Incorporated's actual percentage of beneficial ownership is 9.1%.
-
(5)
-
This
information is as of December 31, 2011, and is based solely on a Schedule 13G/A filed with the SEC on February 13, 2012, by
BlackRock, Inc. Based on the information provided in that Schedule 13G/A, the address of BlackRock, Inc. is 40 East 52nd Street, New York, New York 10022, and
BlackRock, Inc., which reports beneficial ownership of and sole voting and dispositive power over 4,866,968 shares, is the parent holding company or control person for certain subsidiaries that
have acquired our shares and that are listed in that Schedule 13G/A.
-
(6)
-
SNH
beneficially owns 250,000 of our common shares. RMR is the manager of SNH, and Messrs. Barry Portnoy and Adam Portnoy own all of the outstanding
shares of Reit Management & Research Trust, or RMR Trust, the sole member of RMR. RMR and Messrs. Barry Portnoy and Adam Portnoy, in their respective positions as the Chairman and a
director of RMR and the Chairman, majority beneficial owner and a trustee of RMR Trust and as the President and Chief Executive Officer and a director of RMR, and the President and Chief Executive
Officer, a beneficial owner and a trustee of RMR Trust, may be deemed to have beneficial ownership of the common shares owned by SNH; however, each disclaims beneficial ownership of these shares.
Under applicable regulatory definitions, Mr. Zeytoonjian, who is an Independent Trustee of SNH, may also be deemed to have beneficial ownership of the common shares owned by SNH; however,
Mr. Zeytoonjian disclaims beneficial ownership of such shares. None of the 250,000 shares beneficially owned by SNH are included in the shares listed as beneficially owned by
Messrs. Barry Portnoy, Adam Portnoy or Zeytoonjian in the above table.
-
(7)
-
Includes
3,324 common shares owned by Mr. Zeytoonjian's wife. Mr. Zeytoonjian disclaims beneficial ownership of these shares, except to the
extent of his pecuniary interest in the shares.
32
RELATED PERSON TRANSACTIONS AND COMPANY REVIEW OF SUCH TRANSACTIONS
We have adopted written Governance Guidelines that address, among other things, the consideration and approval of any related person
transactions. Under these Governance Guidelines, we may not enter into any transaction in which any Trustee or executive officer, any member of the immediate family of any Trustee or executive officer
or any other related person, has or will have a direct or indirect material interest unless that transaction has been disclosed or made known to our Board and our Board reviews, authorizes 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 shall be reviewed, authorized and approved or ratified by both (1) the affirmative vote of a majority of our entire Board and (2) the affirmative
vote of a majority of our Independent Trustees. The Governance Guidelines further provide that, in determining whether to approve or ratify a transaction, our Board, or disinterested Trustees or
Independent Trustees, as the case may be, shall act in accordance with any applicable provisions of our declaration of trust, consider all of the relevant facts and circumstances and approve only
those transactions that are fair and reasonable to us. All related person transactions described below were reviewed and approved or ratified by a majority of the disinterested Trustees or otherwise
in accordance with our policies described above. In the case of transactions with us by RMR employees (other than our Trustees and executive officers) subject to our Code of Business Conduct and
Ethics, the employee must seek approval from an executive officer who has no interest in the matter for which approval is being requested.
We
have no employees. Personnel and various services we require to operate our business are provided to us by RMR. We have two agreements with RMR to provide management and
administrative services
to us: (1) a business management agreement and (2) a property management agreement. One of our Managing Trustees, Mr. Barry Portnoy, is Chairman, majority owner and an employee of
RMR. Our other Managing Trustee, Mr. Adam Portnoy, who is also our President, is the son of Mr. Barry Portnoy, an owner, President and Chief Executive Officer, and a Director of RMR.
Each of our other executive officers is also an officer of RMR. Additionally, Mr. Barry Portnoy's son-in-law, who is Mr. Adam Portnoy's
brother-in-law, is an officer of RMR. RMR has approximately 740 employees and provides management services to other companies in addition to us.
Our
Board has given our Compensation Committee, which is comprised exclusively of our Independent Trustees, authority to act on our behalf with respect to our management agreements with
RMR. The charter of our Compensation Committee requires the Committee annually to review the terms of these agreements, evaluate RMR's performance under the agreements and renew, amend, terminate or
allow to expire the management agreements.
On
November 1, 2011, we and RMR entered into an amended and restated business management agreement, or the business management agreement. The business management agreement
provides for compensation to RMR at an annual rate equal to 0.7% of the average historical cost of our real estate investments, as described in the business management agreement, located in the United
States, Puerto Rico or Canada, for the first $250.0 million of such investments, and 0.5% thereafter, and 1.0% of the average historical cost of our real estate investments located outside the
United States, Puerto Rico and Canada. In addition, RMR receives an incentive fee equal to 15% of the product of (i) the weighted average of our common shares outstanding on a fully diluted
basis during such fiscal year and (ii) the excess if any of FFO Per Share, as defined in the business management agreement, for such fiscal year over the FFO Per Share for the preceding fiscal
year. The incentive fee is paid in our
33
common
shares and in any year shall not exceed $0.04 multiplied by the weighted average number of our common shares outstanding on a fully diluted basis during such fiscal year. Our investment in GOV,
which is described below, is not counted for purposes of determining the business management fees payable by us to RMR.
In
determining the fees payable by us to RMR under the business management agreement, the average invested capital of any assets we have acquired or may in the future acquire from
another REIT to which RMR provides business management or property management services, or an RMR Managed REIT, will be equal to the applicable selling RMR Managed REIT's historical costs for those
properties, determined in the manner specified in the business management agreement, rather than our acquisition costs for those properties. The business management agreement also provides that, with
certain exceptions, if we determine to offer for sale or other disposition any real property that, at such time, is of a type within the investment focus of another RMR Managed REIT, we will first
offer that property for purchase or disposition to that RMR Managed REIT and negotiate in good faith for such purchase or disposition.
The
property management agreement provides for management fees equal to 3.0% of gross collected rents and construction supervision fees equal to 5.0% of construction costs. However, with
respect to our investments in Australia, RMR has agreed to waive half of the fees payable by us under the property management agreement and half of the business management fees related to real estate
investments located outside of the United States, Puerto Rico and Canada, so long as our business and property management agreement with MacarthurCook Fund Management Limited with respect to those
investments is in effect and we or any of our subsidiaries are paying fees under that agreement.
The
aggregate business management and property management fees earned by RMR for 2011 were $69.5 million. In addition, MacarthurCook Fund Management Limited earned
$1.9 million in 2011 with respect to our Australian properties, which amount is equal to the fees waived by RMR and excluded from the amounts earned by RMR during 2011. No incentive fees were
earned by RMR in 2011 because the FFO Per Share for fiscal year 2011 did not exceed the FFO Per Share for fiscal year 2010.
RMR
also provides internal audit services to us in return for our pro rata share of the total internal audit costs incurred by RMR for us and other publicly owned companies managed by
RMR and its affiliates, which amounts are subject to determination by our Compensation Committee. Our Audit Committee appoints our Director of Internal Audit. Our pro rata share of RMR's costs of
providing this internal audit function was approximately $240,000 for 2011. These allocated costs are in addition to the business and property management fees we paid to RMR. We are generally
responsible for all of our operating expenses, including certain expenses incurred by RMR on our behalf. We are not responsible for payment of RMR's employment, office or administration expenses
incurred to provide management services to us, except for the employment and related expenses of RMR employees who provide on-site property management services and our pro rata share of
the staff employed by RMR who perform our internal audit function.
Both
the business management agreement and the property management agreement automatically renew for successive one year terms unless we or RMR give notice of non-renewal
before the end of an applicable term. We or RMR may terminate either agreement upon 60 days prior written notice. RMR may also terminate the property management agreement upon five business
days notice if we undergo a change of control, as defined in the property management agreement. The current terms for
34
these
agreements expire on December 31, 2012, and will be subject to automatic renewal unless earlier terminated.
Under
our business management agreement with RMR, we acknowledge that RMR manages other businesses, which include HPT, SNH, GOV, Five Star, TA and Sonesta International Hotels
Corporation, and will not be required to present us with opportunities to invest in properties that are primarily of a type that are within the investment focus of another business now or in the
future managed by RMR. Each of the business management agreement and the property management agreement also includes arbitration provisions for the resolution of certain disputes, claims and
controversies.
RMR
also leases from us approximately 24,000 square feet of office space for eight regional offices. We earned approximately $566,000 in rental income from RMR in 2011, which we believe
is commercially reasonable rent for this office space.
Pursuant
to our business management agreement, RMR may from time to time negotiate on our behalf with certain third party vendors and suppliers for the procurement of services to us. As
part of this arrangement, we may enter agreements with RMR and other companies to which RMR provides management services for the purpose of obtaining more favorable terms with such vendors and
suppliers.
As
part of our annual restricted share grants under our share award plan, we typically grant restricted shares to certain employees of RMR, some of whom are our executive officers, in
their capacities as RMR employees or executive officers of us. In 2011, we granted a total of 73,050 restricted shares with an aggregate value of $1.5 million to such persons in such
capacities, based upon the closing price of our common shares on the NYSE on the date of grant. One fifth of those restricted shares vested on the grant date and one fifth vests on each of the next
four anniversaries of the grant date. These share grants to RMR employees are in addition to the fees we pay to RMR.
SNH
was formerly our 100% owned subsidiary. It was spun off to our shareholders in 1999. At the time of SNH's spin off, we and SNH entered into a transaction agreement pursuant to which,
among other things, we and SNH agreed that so long as we own 10% or more of SNH's common shares, we
and SNH engage the same manager or we and SNH have any common managing trustees: (1) we will not make any investment in senior apartments, congregate communities, assisted living properties,
nursing homes or other healthcare properties, but excluding medical office properties, medical clinics and clinical laboratory buildings, without the prior approval of a majority of SNH's independent
trustees, and (2) SNH will not make any investment in office buildings, warehouses or malls, including medical office properties and clinical laboratory buildings without the prior approval of
a majority of our Independent Trustees.
In
May 2008, concurrently with our agreements to sell 47 MOBs to SNH for $562.0 million, we and SNH entered into an amendment to the transaction agreement to permit SNH, rather
than us, to invest in MOBs. At the same time, we granted SNH a right of first refusal to purchase up to 45 additional identified properties that we owned and that were leased to tenants in medical
related businesses in the event that we determined to sell such properties, including an indirect sale as a result of a change of control of us or our subsidiaries which owned those properties.
Between
November 2010 and January 2011, we sold to SNH 27 properties (approximately 2.8 million square feet), which were majority leased as MOBs, for an aggregate sale price of
35
$470.0 million,
excluding closing costs. We recognized net gains totaling approximately $168.3 million from these sales. On September 30, 2011, we sold to SNH 13 additional
properties (approximately 1.3 million square feet), which were located in eight states and majority leased as MOBs, for an aggregate sale price of $167.0 million, excluding closing
costs, and we recognized net gains totaling $7.8 million from these sales. Certain of the properties included in these sales were subject to SNH's right of first refusal referred to above. In
connection with our September 2011 sale of 13 properties to SNH, we and SNH terminated the existing SNH right of first refusal, as substantially all of the properties that were subject to that right
of first refusal had been purchased by SNH. Our sale agreements with SNH include arbitration provisions for the resolution of certain disputes, claims and controversies.
As
of February 27, 2012, SNH owned 250,000 of our common shares. Both we and SNH are managed by RMR; Mr. Barry Portnoy and Mr. Adam Portnoy are Managing Trustees of
both us and SNH; and Frederick N. Zeytoonjian is an Independent Trustee of both us and SNH. Also, all of our and SNH's officers are employees of RMR. Accordingly, the sale and amendment agreements
between us and SNH described above were negotiated and approved by special committees of each company's board of
trustees comprised solely of Independent Trustees who were not also Independent Trustees of the other company.
GOV
was formerly our 100% owned subsidiary. In June 2009, GOV completed an initial public offering pursuant to which GOV ceased to be a majority owned subsidiary of ours. In connection
with this offering, we and GOV entered a transaction agreement, which governs our separation from and relationship with GOV. Pursuant to this transaction agreement, among other things, we and GOV
agreed that, so long as we own in excess of 10% of GOV's outstanding common shares, we and GOV engage the same manager or we and GOV have any common managing trustees: (1) we will not acquire
ownership of properties that are majority leased to government tenants, unless a majority of GOV's independent trustees who are not also our Trustees have determined not to make the acquisition;
(2) GOV will not acquire ownership of office or industrial properties that are not majority leased to government tenants, unless a majority of our Independent Trustees who are not also GOV's
trustees have determined not to make the acquisition; and (3) GOV will have a right of first refusal to purchase any property owned by us that we determine to divest if the property is then
majority leased to government tenants, which right of first refusal will also apply in the event of an indirect sale of any such properties resulting from a change of control of us. The provisions
described in (1) and (2) do not prevent GOV from continuing to own and lease its current properties or properties otherwise acquired by GOV that cease to be majority leased to government
tenants following the termination of government tenancies; and, similarly, the provisions described in (1) and (2) also do not prohibit us from leasing our current or future properties
to government tenants. We and GOV also agreed that certain disputes, claims and controversies arising under the transaction agreement may be referred to binding arbitration proceedings.
We
are GOV's largest shareholder and as of February 27, 2012, we owned 9,950,000 common shares of GOV, which represented approximately 21.1% of GOV's outstanding common shares.
Both we and GOV are managed by RMR, Mr. Barry Portnoy and Mr. Adam Portnoy are Managing Trustees of both us and GOV and Mr. Adam Portnoy is our President and was the President of
GOV from its formation in 2009 until January 2011 when he became our President. Also, all of our officers and GOV's officers are officers of RMR.
36
Our
Independent Trustees also serve as directors or trustees of other public companies to which RMR provides management services. Mr. Barry Portnoy serves as a managing director
or managing trustee of those companies, including SNH, GOV, HPT, Five Star and TA, and Mr. Adam Portnoy serves as a managing trustee of some of those companies, including SNH, GOV and HPT. We
understand that the other companies to which RMR provides management services also have certain other relationships
with each other, including business and property management agreements and lease arrangements. In addition, officers of RMR serve as officers of those companies. We understand that further information
regarding those relationships is provided in the applicable periodic reports and proxy statements filed by those other companies with the SEC.
On
December 22, 2011, our wholly owned subsidiary, SIR, filed a registration statement with the SEC for an IPO of common shares as a REIT that is focused on owning and investing
in net leased, single tenant properties. If the SIR registration statement becomes effective and the IPO is completed, we expect to continue to own a majority of SIR's common shares after the
completion of the offering and because of our retained majority interest in SIR, we expect SIR will remain one of our consolidated subsidiaries. On February 16, 2012, we transferred 251
properties (approximately 21.4 million rentable square feet) to SIR, including substantially all of our commercial and industrial properties located in Oahu, Hawaii and 23 suburban office and
industrial properties located throughout the mainland U.S. In exchange for our contribution of 251 properties to SIR, we received 22,000,000 SIR common shares and a $400.0 million demand
promissory note, or the Demand Note. We expect that SIR would use net proceeds of its proposed IPO to repay in part amounts outstanding under the Demand Note. Upon completion of the IPO, SIR expects
to enter into a $500.0 million bank facility with a group of commercial banks. Upon completion of the IPO, SIR intends to borrow under the bank facility to repay the balance of the Demand Note
and reimburse us for the costs we incurred in organizing SIR, establishing its bank facility and preparing for its IPO. There can be no assurance that SIR will be successful in completing its share
offering and establishing the bank facility or that it will have the funds to repay the Demand Note or to reimburse us for the costs we incurred in organizing SIR.
In
order to govern the separation of SIR from us, upon completion of the IPO, we intend to enter into a transaction agreement with SIR. We expect that the transaction agreement will
provide, among other things, that (1) the current assets and liabilities of the properties to be transferred to SIR will, as of the time of the closing of the IPO of SIR's common shares, be
settled between us and SIR so that we will retain all pre-closing current assets and liabilities and SIR will assume all post-closing current assets and liabilities and
(2) SIR will indemnify us with respect to any liability relating to any property transferred to it by us, including any liability which relates to periods prior to SIR's formation.
Our
two Managing Trustees, Mr. Barry Portnoy and Mr. Adam Portnoy, are also trustees of SIR, and Mr. John Popeo, our Treasurer and Chief Financial Officer, also
serves as the Treasurer and Chief Financial Officer of SIR. In addition, if the IPO is completed, it is currently expected that Mr. William Lamkin, one of our Independent Trustees, will serve
as an independent trustee of SIR.
If
the SIR IPO is completed, we also expect that RMR will provide business and property management services to SIR. We expect that SIR will enter into management agreements with RMR that
are on terms that are substantially similar to our management agreements with RMR. Accordingly, our management fees to RMR may be reduced by the amount of the management fees that would have
otherwise been payable by us with respect to properties contributed by us to SIR. The SIR IPO will not occur unless, among other things, the SEC has declared the registration statement to be
37
effective
and underwriters have agreed to purchase and distribute the shares proposed to be offered by SIR. In addition, we may determine in our discretion, due to market conditions or otherwise, not
to proceed with the SIR IPO. Accordingly, there can be no assurance that the IPO will occur.
We,
RMR, SNH, GOV, HPT, Five Star and TA each currently own approximately 14.29% of AIC, an Indiana insurance company. All of our Trustees, all of the trustees and directors of the other
publicly held AIC shareholders and nearly all of the directors of RMR currently serve on the board of directors of AIC. RMR provides management and administrative services to AIC pursuant to a
management and administrative services agreement with AIC. Our Governance Guidelines provide that any material transaction between us and AIC shall be reviewed, authorized and approved or ratified by
both the affirmative vote of a majority of our entire Board and the affirmative vote of a majority of our Independent Trustees. The shareholders agreement that we, the other shareholders of AIC and
AIC are parties to includes arbitration provisions for the resolution of certain disputes, claims and controversies.
As
of February 27, 2012, we have invested $5.2 million in AIC since its formation in November 2008. We may invest additional amounts in AIC in the future if the expansion
of this insurance business requires additional capital, but we are not obligated to do so. For 2011, we recognized income of $139,000 related to our investment in AIC. In June 2010, we and the other
shareholders of AIC purchased property insurance providing $500.0 million of coverage pursuant to an insurance program arranged by AIC and with respect to which AIC is a reinsurer of certain
coverage amounts. This program was modified and extended in June 2011 for a one year term. Our annual premiums for this property insurance of approximately $6.7 million was paid in 2011. We are
currently investigating the possibilities to expand our insurance relationships with AIC to include other types of insurance. By participating in this insurance business with RMR and the other
companies to which RMR provides management services, we expect that we may benefit financially by possibly reducing our insurance expenses or by realizing our pro rata share of any profits of this
insurance business.
The
foregoing descriptions of our agreements with RMR, SNH, GOV, SIR and AIC 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 our annual report to shareholders and our Annual Report on Form 10-K filed with the SEC, in each case for the year ended
December 31, 2011. In
addition, copies of certain of those agreements are filed with the SEC and may be obtained from the SEC's website at www.sec.gov.
We
believe that our agreements with RMR, SNH, GOV, SIR and AIC are on commercially reasonable terms. We also believe that our relationships with RMR, SNH, GOV, SIR and AIC and their
affiliated and related persons and entities benefit us, and, in fact, provide us with competitive advantages in operating and growing our business.
38
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our Compensation Committee is currently comprised of Messrs. Donelan, Lamkin and Zeytoonjian. None of the members of our
Compensation Committee is, or has been, an officer or employee of our Company. None of our executive officers serves on the board of directors (or related governing body) or compensation committee of
another entity that has an executive officer who serves on our Board or Compensation Committee. Members of our Compensation Committee serve as independent trustees or independent directors and
compensation committee members of other public companies managed by or affiliated with RMR.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires that our Trustees, executive officers and persons who own more than 10% of a
registered class of our equity securities file reports of ownership and changes in ownership of securities with the SEC and the NYSE. Our executive officers, Trustees and greater than 10% shareholders
are required to furnish us with copies of all forms they file pursuant to Section 16(a). Based solely on a review of the copies of these reports furnished to us or written representations made
to us that no such reports were required, we believe that, during 2011, all filing requirements under Section 16(a) of the Exchange Act applicable to our executive officers, Trustees and
persons who own more than 10% of a registered class of our equity securities were timely met.
HOUSEHOLDING OF ANNUAL MEETING MATERIALS
Some banks, brokers and other record holders of our common shares may participate in the practice of "householding" proxy statements,
annual reports and notices of internet availability of those documents. This means that, unless shareholders give contrary instructions, only one copy of our proxy statement, annual report or notice
of internet availability may be sent to multiple shareholders in each household. We will promptly deliver a separate copy of any of those documents to you if you write to us at Investor Relations,
CommonWealth REIT, Two Newton Place,
255 Washington Street, Suite 300, Newton, Massachusetts 02458, or call us at (617) 796-8222. If you want to receive separate copies of our proxy statement, annual report or
notice of internet availability 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 record
holder, or you may contact us at the above address or telephone number.
OTHER MATTERS
At this time, we know of no other matters that will be brought before the meeting. If, however, other matters properly come before the
meeting or any postponement or adjournment thereof, the persons named in the proxy will vote the proxy in accordance with their discretion on such matters to the maximum extent that they are permitted
to do so by applicable law.
February 28,
2012
39
IMPORTANT
If your shares are held in your own name, please complete a proxy over the internet or by telephone in the
manner provided on the website indicated in the Notice of Internet Availability that you received in the mail; alternatively, please request, complete and return a proxy card today. If your shares are
held in "street name," you should provide instructions to your broker, bank, nominee or the other institution holding your shares on how to vote your shares. You may provide instructions to your
broker, bank, nominee or other institution over the internet or by telephone if your broker, bank, nominee or other institution offers these options, or you may return a proxy card to your broker,
bank, nominee or other institution and contact the person responsible for your account to ensure that a proxy is voted on your behalf.
If you have any questions or need assistance in voting your shares, please call the firm assisting us in the solicitation of proxies:
Innisfree M&A Incorporated
501 Madison Avenue, 20th Floor
New York, New York 10022
Brokers and Banks Call Collect at (212) 750-5833
Shareholders Call Toll-Free at (877) 825-8971
40
APPENDIX A
COMMONWEALTH REIT
2012 EQUITY COMPENSATION PLAN
CommonWealth REIT (the "Company") hereby adopts the CommonWealth REIT 2012 Equity Compensation Plan (the "Plan"); effective as of the
Effective Date (as defined in Section VIII).
-
I.
-
PURPOSE
The
Plan is intended to advance the interests of the Company and its subsidiaries by providing a means of rewarding selected officers and Trustees of the Company, employees of the
Manager, and others rendering valuable services to the Company, its subsidiaries or to the Manager, through grants of the Company's Shares.
-
II.
-
DEFINITIONS
Terms
that are capitalized in the text of the Plan have the meanings set forth below:
-
(a)
-
"Board"
means the Board of Trustees of the Company.
-
(b)
-
"Company"
means CommonWealth REIT, a Maryland real estate investment trust.
-
(c)
-
"Exchange
Act" means the Securities Exchange Act of 1934, as amended.
-
(d)
-
"Key
Person" means an employee, consultant, advisor, Trustee, officer or other person providing services to the Company, to a subsidiary of the Company, or
to the Manager.
-
(e)
-
"Manager"
means a person or entity providing management or administrative services to the Company.
-
(f)
-
"Participant"
means a person to whom Shares have been granted, or any other person who becomes owner of the shares by reason of such person's death or
incapacity.
-
(g)
-
"Plan"
means this CommonWealth REIT 2012 Equity Compensation Plan, as it may be amended from time to time.
-
(h)
-
"Securities
Act" means the Securities Act of 1933, as amended.
-
(i)
-
"Share
Agreement" means an agreement between the Company and a Participant regarding Shares issued to the Participant pursuant to the Plan.
-
(j)
-
"Shares"
means the Company's common shares of beneficial interest, par value $0.01 per share.
-
(k)
-
"Trustee"
means a member of the Board.
-
III.
-
SHARES
SUBJECT TO THE PLAN
Subject
to the provisions of Article VII, the maximum number of Shares which may be granted under the Plan following the Effective Date is 3,000,000, subject to adjustment as set
forth herein. If any Shares subject to an award under the Plan are forfeited, cancelled, repurchased or surrendered, the Shares with respect to such award shall, to the extent of any such forfeiture,
cancellation, repurchase or surrender, again be available for awards under the Plan.
Subject
to the terms of any Share Agreement, a holder of Shares granted under the Plan, whether or not vested, shall have all of the rights of a shareholder of the Company, including the
right to vote the shares and the right to receive any distributions, unless the Board shall otherwise determine. Certificates representing Shares may be imprinted with a legend to the effect that the
Shares
represented
may not be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of except in accordance with the terms of the Securities Act and the applicable Share Agreement, if
any. In addition, the Company may hold the certificates representing Shares pending lapse of any applicable vesting, forfeiture, repurchase, transfer or similar restrictions.
-
IV.
-
METHOD
OF GRANTING SHARES
Grants
of Shares to any Key Person shall be made by action of the Board, which shall have the sole discretion to select persons to whom Shares are to be granted, the amount and timing of
each such grant, the extent, if any, to which vesting restrictions or other conditions (which may include repurchase rights) shall apply to the award and all other terms and conditions of any award
(which terms and conditions need not be the same as between recipients or awards). If a person to whom such a grant of Shares has been made fails to execute and deliver to the Company a Share
Agreement within ten (10) days after it is submitted to him or her, the grant of Shares related to such Share Agreement may be cancelled by the Company, acting by the Board, at its option and
in its discretion without further notice to the Participant. No Trustee or officer of the Company may be granted more than 1,000,000 Shares under the Plan after the Effective Date. Nothing in this
Section IV shall prevent the Board from delegating its authority to make grants to a committee pursuant to Section V.
-
V.
-
ADMINISTRATION
OF THE PLAN
The
Plan shall be administered by the Board or, in the discretion of the Board, a committee designated by the Board and composed of at least two (2) members of the Board. All
references in the Plan to the Board shall be understood to refer to such committee or the Board, whichever shall be administering the Plan from time to time. All questions of interpretation and
application of the Plan and of grants of Shares shall be determined by the Board in its sole discretion and the Board shall have the authority to do all things necessary to carry out the purposes of
the Plan, and its determinations shall be final and binding upon all persons, including the Company and all Participants. Without limiting the generality of the foregoing, the Board is authorized to
(i) adopt and approve from time to time the forms and, subject to the terms of the Plan, the terms and conditions of any Share Agreement; (ii) make adjustments to awards in response to
changes in applicable laws, regulations, or accounting principles; and (iii) prescribe, amend and rescind rules and regulations relating to the Plan. If it determines to do so, the Board may
grant shares under this Plan which are not subject to vesting, forfeiture, repurchase and transfer restrictions.
For
so long as Section 16 of the Exchange Act is applicable to the Company, each member of any committee designated to administer the Plan shall qualify as a
"non-employee director" within the meaning of Rule 16b-3 under the Exchange Act and, in the event that the Board determines to grant awards under the Plan which
constitute "qualified performance-based compensation for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended from time to time (the "Code"), each member of any committee
designated to administer the Plan shall qualify as an "outside director" within the meaning of Section 162 of the Code and the regulations thereunder.
With
respect to persons subject to Section 16 of the Exchange Act ("Insiders") with respect to the Company, transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successor under the Exchange Act.
A-2
-
VI.
-
ELIGIBLE
PERSONS
The
persons eligible to receive grants of Shares shall be those persons selected by the Board in its discretion from among Key Persons who contribute to the business of the Company and
its subsidiaries.
-
VII.
-
CHANGES
IN CAPITAL STRUCTURE
In
the event of any stock dividend or other similar distribution (whether in the form of stock or other securities), stock split or combination of shares (including a reverse stock
split), conversion, reorganization, consolidation, split-up, spin-off, combination, merger, exchange of stock, extraordinary cash dividend or other similar transaction or
event, the Board shall
make adjustments to the maximum number of Shares that may be issued under the Plan under Article III and Article IV and shall also make appropriate adjustments to the number and kind of
shares of stock, securities or other property (including cash) subject to awards then outstanding under the Plan affected by such change and to the other terms and conditions of such awards. No
fractional Shares shall be issued pursuant to any such adjustment, and any fractions resulting from any such adjustment shall be eliminated in each case by rounding downward to the nearest whole
Share.
-
VIII.
-
EFFECTIVE
DATE, DURATION, AMENDMENT AND TERMINATION OF PLAN;
EFFECT ON PRIOR PLAN
The
Plan shall be effective at the close of business on May 8, 2012 (the "Effective Date"), subject to its approval by the Company's shareholders. Shares may be granted under the
Plan from time to time until the close of business on the tenth anniversary of the Effective Date. Awards outstanding at Plan termination shall remain in effect according to their terms and the
provisions of the Plan. The Board hereafter may at any time amend or terminate the terms of an award or the Plan in any respect, provided that (without limiting Article VII hereof) the Board
may not, without the affected Participant's consent, amend or terminate the terms of an award or the Plan so as to affect adversely the Participant's rights under an outstanding award. Any amendments
to the Plan shall be conditioned upon shareholder approval only to the extent, if any, such approval is required by applicable law or listing requirement. Upon the approval of the Plan, no further
awards shall be made under the HRPT Properties Trust 2003 Incentive Share Award Plan (the "Prior Plan"). Awards granted under the Prior Plan before the Effective Date shall continue to be governed by
the terms of the Prior Plan and any applicable Share Agreement.
-
IX.
-
MISCELLANEOUS
-
A.
-
Nonassignability
of Shares. Shares subject to a Share Agreement shall not be assignable or transferable by a Participant except in accordance with the terms
of the applicable Share Agreement or as may be permitted by the Board.
-
B.
-
No
Guarantee of Employment. Neither the award of Shares nor a Share Agreement shall give any person the right to continue in the employment or service of, or
to continue to act as an officer or, Trustee of, or to serve in any other capacity with, the Company, any subsidiary or the Manager.
-
C.
-
Tax
Withholding; Section 409A. To the extent required by law, the Company shall withhold or cause to be withheld income and other taxes incurred by a
Participant by reason of a grant of Shares, and as a condition to the receipt of any grant such a Participant shall agree that if the amount payable to him by the Company in the ordinary course is
insufficient to pay such
A-3
taxes,
he or she shall upon request of the Company pay to the Company an amount sufficient to satisfy its tax withholding obligations. It is intended that awards granted under the Plan be exempt from
the application Section 409A of the Internal Revenue Code of 1986 and the Plan and such awards shall be construed in accordance with that intention.
-
D.
-
Conditions
to Issuance. The issuance of Shares under the Plan is subject to compliance with (1) the laws, rules and regulations of all public agencies
and authorities applicable to the issuance and distribution of Shares and (2) the listing rules of any stock exchange or national market system on which the Shares are listed.
-
E.
-
No
Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan. The Board shall determine whether cash, other Awards, or other
property shall be issued or paid in lieu of such fractional Shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated.
-
F.
-
Governing
Law. The Plan shall be governed by and construed and enforced in accordance with the laws of the State of Maryland applicable to contracts made and
to be performed therein, without reference to the conflicts of law principles thereof.
A-4
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TO VOTE, MARK
BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR
RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY
WHEN SIGNED AND DATED. Signature (Joint Owners) Date Date Signature [PLEASE
SIGN WITHIN BOX] AUTHORIZE YOUR PROXY BY INTERNET - www.proxyvote.com Use the
Internet to transmit your voting instructions and for electronic delivery of
information up until 11:59 P.M. Eastern Time on May 7, 2012. Have your proxy
card in hand when you access the web site and follow the instructions to
obtain your records and to create an electronic voting instruction form.
AUTHORIZE YOUR PROXY BY PHONE - 1-800-690-6903 Use any touch-tone telephone
to transmit your voting instructions up until 11:59 P.M. Eastern Time on May
7, 2012. Have your proxy card in hand when you call and then follow the
instructions. AUTHORIZE YOUR PROXY BY MAIL Mark, sign and date your proxy
card and return it in the postage-paid envelope we have provided or return it
to CommonWealth REIT, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
ELECTRONIC DELIVERY OF FUTURE SHAREHOLDER COMMUNICATIONS If you would like to
reduce the costs incurred by CommonWealth REIT in mailing proxy materials,
you can consent to receiving all future proxy statements, proxy cards and
annual reports electronically by e-mail or over the Internet. To sign up for
electronic delivery, please follow the instructions above to vote using the
Internet and, when prompted, indicate that you agree to receive or access
shareholder communications electronically in future years. COMMONWEALTH REIT
TWO NEWTON PLACE 255 WASHINGTON STREET, SUITE 300 NEWTON, MA 02458
M41458-P20338 COMMONWEALTH REIT Our Board of Trustees Recommends You Vote
"FOR" the Nominees for Trustee in Proposals 1 and 2 and
"FOR" Proposals 3, 4 and 5. 3. To approve the adoption of the
CommonWealth REIT 2012 Equity Compensation Plan. 1. To elect the nominee
named in our proxy statement to our Board of Trustees as the Independent
Trustee in Group II. Against For Against Withhold For Abstain Nominee:
William A. Lamkin Our Board recommends you vote FOR proposal 3. Our Board
recommends you vote FOR proposal 1. 2. To elect the nominee named in our
proxy statement to our Board of Trustees as the Managing Trustee in Group II.
4. To approve a nonbinding advisory resolution on our executive compensation.
For Against Withhold Against For Abstain Nominee: Adam D. Portnoy Our Board
recommends you vote FOR proposal 2. Our Board recommends you vote FOR
proposal 4. 5. To ratify the appointment of Ernst & Young LLP as our
independent registered public accounting firm for the fiscal year ending
December 31, 2012. For Against Abstain Our Board recommends you vote FOR
proposal 5. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR,
IF NO DIRECTION IS GIVEN, WILL BE VOTED "FOR" THE NOMINEES FOR
TRUSTEE IN PROPOSALS 1 AND 2 AND "FOR" PROPOSALS 3, 4 AND 5. TO THE
MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, THE PROXIES, IN THEIR DISCRETION,
ARE AUTHORIZED TO VOTE AND OTHERWISE REPRESENT THE UNDERSIGNED ON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR AT ANY POSTPONEMENT OR
ADJOURNMENT THEREOF. For address changes, please check this box and write
them on the back where indicated. (NOTE: Please sign exactly as your name(s) appear(s)
hereon. All holders must sign. When signing as attorney, executor,
administrator or other fiduciary, please give full title as such. Joint
owners should each sign personally. If a corporation, please sign in full
corporate name by authorized officer, indicating title. If a partnership,
please sign in partnership name by authorized person, indicating title.)
|
|
COMMONWEALTH
REIT ANNUAL MEETING OF SHAREHOLDERS May 8, 2012, 9:30 a.m. Two Newton Place,
255 Washington Street, Suite 100 Newton, Massachusetts 02458 Directions to
Two Newton Place, 255 Washington Street, Suite 100, Newton, MA From the East:
Take the Massachusetts Turnpike (I-90) West to Exit 17 (Newton/Watertown).
After exiting, stay in the right lane and bear to your right toward Galen Street
in Watertown. Two Newton Place will be on your right. Public parking is
available nearby. From the West: Take the Massachusetts Turnpike (I-90) East
to Exit 17 (Newton/Watertown). After exiting, continue straight toward
Washington Street. After the second set of lights, bear left onto Washington
Street, cross over I-90 to continue straight toward Galen Street in
Watertown. Two Newton Place will be on your right. Public parking is
available nearby. M41459-P20338 COMMONWEALTH REIT Two Newton Place, 255
Washington Street, Suite 300 Newton, MA 02458-2076 Important Notice Regarding
Internet Availability of Proxy Materials: The proxy materials for the
CommonWealth REIT annual meeting of shareholders, including our annual report
and proxy statement, are available over the Internet. To view the proxy
materials or vote online or by telephone, please follow the instructions on
the Notice Regarding the Availability of Proxy Materials. This proxy is
solicited on behalf of the Board of Trustees of CommonWealth REIT. The
undersigned shareholder of CommonWealth REIT, a Maryland real estate
investment trust, or the company, hereby appoints Barry M. Portnoy, Jennifer
B. Clark and John C. Popeo, or any of them, as proxies for the undersigned,
with full power of substitution in each of them, to attend the annual meeting
of shareholders of the company to be held at Two Newton Place, 255 Washington
Street, Suite 100, Newton, Massachusetts 02458 on May 8, 2012, at 9:30 a.m.
local time, and any postponement or adjournment thereof, to cast on behalf of
the undersigned all the votes that the undersigned is entitled to cast at the
meeting and otherwise to represent the undersigned at the meeting with all
powers possessed by the undersigned if personally present at the meeting. The
undersigned hereby acknowledges receipt of the notice of annual meeting of
shareholders and of the accompanying proxy statement, each of which is
incorporated herein by reference, and revokes any proxy heretofore given with
respect to the meeting. THE VOTES ENTITLED TO BE CAST BY THE UNDERSIGNED WILL
BE CAST AS INSTRUCTED ON THE REVERSE SIDE HEREOF. IF THIS PROXY IS EXECUTED,
BUT NO INSTRUCTION IS GIVEN, THE VOTES ENTITLED TO BE CAST BY THE UNDERSIGNED
WILL BE CAST "FOR" THE NOMINEES FOR TRUSTEE IN PROPOSALS 1 AND 2
AND "FOR" PROPOSALS 3, 4 AND 5. ADDITIONALLY, TO THE MAXIMUM EXTENT
PERMITTED BY APPLICABLE LAW, THE VOTES ENTITLED TO BE CAST BY THE UNDERSIGNED
WILL BE CAST BY THE PROXIES, IN THEIR DISCRETION, ON ANY OTHER MATTER THAT
MAY PROPERLY COME BEFORE THE MEETING OR ANY POSTPONEMENT OR ADJOURNMENT
THEREOF. See reverse for voting instructions. Proxy Address Changes: (If you
noted any Address Changes above, please mark corresponding box on the reverse
side.)
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QuickLinks
INTRODUCTION
PROPOSALS 1 AND 2 ELECTION OF TRUSTEES
PROPOSAL 3 ADOPTION OF THE COMMONWEALTH REIT 2012 EQUITY COMPENSATION PLAN
PROPOSAL 4 ADVISORY APPROVAL RELATING TO EXECUTIVE COMPENSATION
PROPOSAL 5 RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
SOLICITATION OF PROXIES
TRUSTEES AND EXECUTIVE OFFICERS
BOARD OF TRUSTEES
BOARD COMMITTEES
COMMUNICATIONS WITH TRUSTEES
SELECTION OF CANDIDATES FOR TRUSTEES; SHAREHOLDER RECOMMENDATIONS, NOMINATIONS AND OTHER PROPOSALS
COMPENSATION DISCUSSION AND ANALYSIS
COMPENSATION COMMITTEE REPORT
COMPENSATION TABLES
SUMMARY COMPENSATION TABLE FOR 2011, 2010 AND 2009
GRANTS OF PLAN BASED AWARDS FOR 2011 (Shares granted in 2011, including vested and unvested grants)
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END FOR 2011 (Shares granted in 2011 and prior years, which have not yet vested)
STOCK VESTED FOR 2011 (Share grants that vested in 2011, including shares granted in prior years)
TRUSTEE COMPENSATION FOR 2011 (2011 compensation; all share grants to Trustees vest at the time of grant)
AUDIT COMMITTEE REPORT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
RELATED PERSON TRANSACTIONS AND COMPANY REVIEW OF SUCH TRANSACTIONS
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
HOUSEHOLDING OF ANNUAL MEETING MATERIALS
OTHER MATTERS
IMPORTANT
APPENDIX A COMMONWEALTH REIT 2012 EQUITY COMPENSATION PLAN
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