RMR-Managed REITs Acquire Nearly Half of RMR Management

NEWTON, MA—Four locally-based real estate investment trusts have collectively acquired nearly half of the company that manages their respective properties—Reit Management & Research LLC.

In conjunction with their investments, Senior Housing Properties Trust, Hospitality Properties Trust, Select Income REIT and Government Properties Income Trust have amended their management agreements with RMR and extended their respective management deals for 20 years. The four REITs as well as RMR are headquartered at Two Newton Place in Newton, MA, according to their websites.

The purchase price paid by each REIT for its respective ownership in RMR was paid to the historical owners of RMR by delivery of restricted common shares of each REIT, which are subject to 10-year lock up agreements, valued at the volume weighted average trading prices for each REITs' common shares during the 20-trading days prior to the acquisition, and cash.

Senior Housing Property Trust has paid $60.8 million in restricted common shares and cash totaling $60.8 million for an ownership stake in RMR of 17%. Hospitality Property Trust shelled out $57.8 million in shares and stock for a 16.2% stake in RMR. Select Income REIT and Government Properties Income Trust paid $36.5 million and $17.7 million respectively for a 10.2% and 5.0% interest in RMR. The four REITS collectively acquired a 48.4% stake in RMR. Historical owners of RMR have a 51.6% share of the company.

The REITs' ownership in RMR is held indirectly through a new holding company of RMR doing business as RMR INC. Pursuant to the agreements, the REITs have agreed to distribute approximately half of their newly acquired RMR shares to their shareholders as a special dividend, and RMR INC has agreed to facilitate this by filing a registration statement with the Securities and Exchange Commission to register the RMR INC. shares to be distributed and by seeking a listing of those shares on a national stock exchange upon the registration statement being declared effective by the SEC, the company reports. The REITs expect to distribute those shares before year's end.

It is expected that upon completion of the anticipated distribution of RMR INC. shares to the REITs' shareholders and listing of those shares, approximately 24.2% economic ownership in RMR will be publicly traded. The remaining RMR INC. shares held by the REITs which are not distributed to the REITs' shareholders will be unregistered, but these RMR INC. shares will not be subject to any lock up provisions and the REITs will have certain registration rights for the RMR INC. shares that they retain.

As of March 31, RMR had total real estate assets under management of approximately $22 billion, and the total management fee revenues of RMR were approximately $200 million for the 12 months ended March 31, 2015. As of March 31, 2015, RMR managed more than 1,000 properties in 48 states, Washington, DC, Puerto Rico, Canada and Australia. RMR currently has approximately 400 employees in 25 offices located throughout the United States.

In addition to managing the REITs, RMR provides management services to other publicly traded and private businesses, including: TravelCenters of America, LLC, an operator of travel centers, some of which are owned by HPT; Five Star Quality Care, Inc., an operator of senior living communities, some of which are owned by SNH; Sonesta International Hotels Corporation, a privately owned manager and franchisor of hotels in the U.S., Latin America and the Middle East, some of which are owned by HPT; as well as other privately held businesses. Also, a subsidiary of RMR, RMR Advisors LLC, is an SEC registered investment advisor that manages a mutual fund, which invests in securities of unaffiliated real estate companies.

Some prior actions by the RMR-managed REITs have been criticized in the past. Lakewood Capital Management, a large shareholder of Select Income REIT, had been critical of several transactions, characterizing the deals as self-serving, according to a published report.

Morgan Stanley & Co. LLC acted as financial advisor to a joint special committee of independent trustees of the REITs in connection with the transactions. In addition: Centerview Partners LLC acted as financial advisor to a Special Committee of SNH's Independent Trustees; Houlihan Lokey Capital, Inc. acted as financial advisor to a special committee of HPT's Independent Trustees; FBR Capital Markets & Co. acted as financial advisor to a special committee of SIR's independent trustees; and Reynolds Advisory Partners, LLC acted as financial advisor to a special committee of GOV's independent trustees.