Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the registrant |X|
Filed by a party other than the registrant |_|
Check the appropriate box:
|X| Preliminary proxy statement |_| Confidential, for use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
|_| Definitive proxy statement
|_| Definitive additional materials
|_| Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
HEALTH AND RETIREMENT PROPERTIES TRUST
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) 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):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials:
|_| 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.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
HEALTH AND RETIREMENT PROPERTIES TRUST
400 Centre Street
Newton, Massachusetts 02158
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held May 12, 1998
To the Shareholders of Health and Retirement Properties Trust
Notice is hereby given that the Annual Meeting of Shareholders of Health
and Retirement Properties Trust (the "Company") will be held at 9:30 A.M. on
Tuesday, May 12, 1998, at State Street Bank and Trust Company, 225 Franklin
Street, 33rd Floor, Boston, Massachusetts, for the following purposes:
1. To elect one Trustee in Group III of the Company's Board of
Trustees.
2. To consider and act upon a proposal to amend the Company's
Declaration of Trust to change the Company's name to "HRPT
Properties Trust".
3. To consider and act upon such other matters as may properly
come before the meeting.
The Board of Trustees has fixed the close of business on March 23, 1998 as
the record date for determination of the shareholders entitled to notice of and
to vote at the meeting.
By Order of the Board of Trustees,
DAVID J. HEGARTY, Secretary
March ___, 1998
WHETHER OR NOT YOU EXPECT TO BE AT THE MEETING, PLEASE SIGN, DATE AND
RETURN YOUR PROXY IN THE ENVELOPE ENCLOSED HEREWITH.
<PAGE>
HEALTH AND RETIREMENT PROPERTIES TRUST
400 Centre Street
Newton, Massachusetts 02158
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
To Be Held on Tuesday, May 12, 1998
-------------------
INTRODUCTION
A Notice of the Annual Meeting of Shareholders (the "Meeting") of Health
and Retirement Properties Trust (the "Company") is set forth on the preceding
page, and there is enclosed herewith a form of proxy solicited by the Board of
Trustees of the Company. The cost of this solicitation will be borne by the
Company. In addition to solicitation by mail, the Trustees and officers of the
Company may solicit proxies personally or by telephone or telegram. This proxy
statement is being first sent to shareholders on or about March [31], 1998,
together with a copy of the Annual Report to Shareholders for the year ended
December 31, 1997 (including audited financial statements of the Company).
Only shareholders of record as of the close of business on March 23, 1998
(the "Record Date") are entitled to notice of and to vote at the Meeting and/or
any adjournment thereof. The outstanding stock of the Company on the Record Date
entitled to vote consisted of 104,522,605 common shares of beneficial interest,
$.01 par value per share (the "Common Shares"). The holders of the outstanding
Common Shares are entitled to one vote per Common Share.
All Common Shares represented by valid proxies received by the Company
prior to the Meeting will be counted for purposes of determining the presence of
a quorum and will be voted as specified in the proxies. If no specification is
made by the shareholder, the Common Shares will be voted FOR the proposal set
forth below. Each of the proposals set forth below requires the affirmative vote
of a majority of the Common Shares issued and outstanding. Abstentions and
broker non-votes are considered present for purposes of determining quorum. A
shareholder marking the proxy "Withhold" or "Abstain" will not be counted as
voting in favor of the particular proposal from which the shareholder has
elected to withhold voting authority or to abstain. If a broker indicates on a
proxy that it does not have discretionary authority with respect to certain
Common Shares to vote on a proposal, those Common Shares will not be counted as
voting in favor of such proposal. A shareholder giving a proxy has the power to
revoke it any time prior to its exercise by delivering to the Secretary of the
Company a written revocation or a duly executed proxy bearing a later date, or
by attending the Meeting and voting his or her Common Shares in person.
Item 1. Election of Trustee in Group III of the Board of Trustees.
The number of Trustees of the Company is currently fixed at five and the
Board of Trustees is currently 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 to three-year terms.
1
<PAGE>
The business of the Company is conducted under the general direction of the
Board of Trustees as provided by the Amended and Restated Declaration of Trust,
as amended (the "Declaration of Trust"), the Amended and Restated ByLaws of the
Company and the laws of the State of Maryland, the state of the Company's
organization on October 9, 1986.
Three of the Trustees, Bruce M. Gans, M.D., the Rev. Justinian Manning,
C.P. and Ralph J. Watts are the Company's "Independent Trustees;" that is,
Trustees who are not otherwise affiliated with the Company, REIT Management &
Research, Inc., a Delaware corporation which is the Company's investment advisor
("RMR"), or any other person or entity that holds in excess of 8.5% of the
issued and outstanding Common Shares of the Company. The Independent Trustees
also comprise the Company's Audit Committee. The Audit Committee meets with the
Company's independent auditors to discuss the procedures for conducting, and the
results of, audits of the Company's financial records, and recommends to the
Board of Trustees the hiring or retention of independent auditors. The Company
does not have a Compensation Committee or a Nominating Committee.
During 1997, the Board of Trustees held seven meetings. During 1997, each
Trustee attended 75% or more of the total number of meetings of the Board and
any Committee of which he was a member. The Audit Committee held two meetings
during 1997.
Each Independent Trustee receives an annual fee of $20,000 for services as
a Trustee, plus $500 for each meeting of the Board or Board Committee attended
by such Trustee. The Chairperson of the Audit Committee receives an additional
$2,000 annually; such position rotates annually among the Independent Trustees.
Each Independent Trustee also receives annual 500 Common Share grants under the
Company's 1992 Incentive Share Award Plan (the "Plan"). The Company reimburses
all Trustees for travel expenses incurred in connection with their duties as
Trustees of the Company. The Company has also agreed to pay any Independent
Trustee who brings a property to the attention of the Company a fee equal to one
percent of any investment made by the Company in the property. No fees have been
earned to date by any Independent Trustee with respect to any investments by the
Company.
The present Trustee in Group III is Ralph J. Watts. If re-elected, Mr.
Watts will hold office until the Company's 2001 Annual Meeting of Shareholders.
To be elected, each nominee for Trustee of the Company must receive the vote of
a majority of the Common Shares issued and outstanding. It is the intention of
the persons authorized by the enclosed proxy to nominate and elect Mr. Watts as
the Group III Trustee. HRPT Advisors, Inc. ("Advisors"), an affiliate of RMR
which has voting control over 3,912,138 Common Shares (approximately 3.7% of
Common Shares outstanding and entitled to vote at the Meeting), intends to vote
in favor of the election of Mr. Watts as the Group III Trustee. Mr. Watts'
principal occupation for the past five years and his age as of the Record Date
are as follows:
RALPH J. WATTS Age: 51
Mr. Watts is Chairman and CEO of Health Matrix LLC ("Health Matrix"), a
privately held company which develops, owns and operates outpatient cardiac
catheterization laboratories and is engaged in physician practice management.
Mr. Watts had been President and CEO of Cardiovascular Ventures, Inc.
("Cardiovascular"), the predecessor of Health Matrix, since 1992. Prior to
assuming his position with Cardiovascular, Mr. Watts was President and CEO of
Ramsay Health Care, Inc., a publicly owned company which owned and operated 18
hospitals in 13 states and had approximately 2,000 employees. Mr. Watts has
served on the Board as a Group III Trustee since October 1995 when he was
elected to fill a vacancy on the Board of Directors.
In addition to Mr. Watts, the following persons currently serve on the
Board of Trustees or serve as executive officers of the Company. Their principal
occupations for the last five years and their ages as of the Record Date, are as
follows:
BRUCE M. GANS, M.D. Age: 51
Dr. Gans has been a Professor and Chairman of the Department of Physical
Medicine and Rehabilitation at Wayne State University and a Senior Vice
President of the Detroit Medical Center since 1989. Dr. Gans is a Group I
Trustee; his term will expire at the 1999 Annual Meeting of Shareholders.
2
<PAGE>
REV. JUSTINIAN MANNING, C.P. Age: 71
The Reverend Justinian Manning, C.P., has been, since September 1990, the
pastor of St. Gabriel's parish in Brighton, Massachusetts. He is also on the
Board of Directors of Charlesview, a low and moderate income housing program. He
is past Treasurer and a former Director of St. Paul's Benevolent, Educational
and Missionary Institute, a New Jersey corporation, which oversees foundations
in Massachusetts, Connecticut, New York, Pennsylvania, Maryland and Florida and
the Institute's Overseas Missions. He was formerly on the Board of Directors of
St. Paul's Monastery Manor, in Pittsburgh, Pennsylvania, a congregate housing
facility. He belonged to the Provincial Council of the Passionist Provincialate
and is the former Director of Consolidation for the Community. The Reverend
Manning is a Group II Trustee; his term will expire at the 2000 Annual Meeting
of Shareholders.
GERARD M. MARTIN Age: 63
Mr. Martin is a Managing Trustee of the Company. Mr. Martin is a private
investor in real estate and has been a Trustee of HRP since its organization in
1986. From 1985 until the merger of Greenery Rehabilitation Group, Inc.
("Greenery") into Horizon Healthcare Corporation ("HHC") in February 1994, he
served as the Chief Executive Officer and Chairman of the Board of Directors of
Greenery. Mr. Martin served as a Director of HHC until his resignation in July
1996. Mr. Martin has been active in the health care and real estate industries
for more than 25 years as a manager, developer and builder. Mr. Martin is also a
Director and 50% shareholder of each of RMR, Advisors, Connecticut Subacute
Corporation ("CSC") and Connecticut Subacute Corporation II ("CSCII"), a
Director and 331/3% shareholder of each of Vermont Subacute Corporation ("VSC")
and New Hampshire Subacute Corporation ("NHSC") and a Managing Trustee of
Hospitality Properties Trust ("HPT"). Mr. Martin is as a Group II Trustee; his
term will expire at the 2000 Annual Meeting of Shareholders.
BARRY M. PORTNOY Age: 52
Barry M. Portnoy has been a Trustee of the Company since its organization
in 1986. Mr. Portnoy served as a Director of HHC until his resignation in July
1996. Mr. Portnoy is a Director and 50% shareholder of RMR, Advisors, CSC and
CSCII, a Director and 331/3% shareholder of each of VSC and NHSC and a Managing
Trustee of HPT. Mr. Portnoy is an attorney and was a partner of the law firm of
Sullivan & Worcester LLP, counsel to the Company, from 1978 through March 31,
1997. Mr. Portnoy is a Group I Trustee; his term will expire at the 1999 Annual
Meeting of Shareholders.
DAVID J. HEGARTY Age: 41
David J. Hegarty, a certified public accountant, joined the Company in July
1987 as Treasurer, became Executive Vice President in July 1993 and became the
President and Chief Operating Officer of the Company in April 1994. Mr. Hegarty
has also been the Secretary of the Company since 1987. In April 1994, he also
became a Director and the President and Chief Operating Officer of Advisors. In
December 1997, Mr. Hegarty became the President and Chief Operating Officer of
RMR. From 1985 to 1987, Mr. Hegarty was an audit manager with Ernst & Young LLP,
the Company's independent auditors.
AJAY SAINI Age: 38
In April 1995, Ajay Saini, a certified public accountant, became the
Treasurer of the Company and in August 1995 also become Chief Financial Officer.
He has been Vice President and Chief Accounting Officer of Advisors since July
1993, and prior to that he served as Controller of Advisors since June 1990. In
April 1995, he became Treasurer of Advisors. In December 1997, Mr. Saini became
a Vice President of RMR. Prior to joining Advisors, Mr. Saini was employed by
Ernst & Young LLP, the Company's independent auditors.
3
<PAGE>
There are no family relationships among any Trustees and current executive
officers of the Company. However, Adam D. Portnoy, who served as Vice President
of the Company prior to his resignation in January 1997, is the son of Barry M.
Portnoy. Executive officers serve at the will of the Board of Trustees.
Item 2. Proposal to Amend the Company's Declaration of Trust to Change the Name
of the Company to "HRPT Properties Trust".
The Board of Trustees has proposed that the Company's Declaration of Trust
be amended to change the name of the Company to "HRPT Properties Trust". The
Trustees believe that this proposed new name retains the Company's heritage and
symbol, HRPT, while reflecting the growing diversification of the Company's
investments from an emphasis on retirement housing, nursing homes and assisted
living facilities to a broader focus on commercial real estate generally,
including healthcare related real estate and office buildings.
The affirmative vote of the holders of a majority of the issued and
outstanding Common Shares of the Company is required to authorize this proposed
amendment. The Board of Trustees has approved and recommends that the
shareholders vote FOR the adoption of the amendment described in Item 2.
OTHER INFORMATION
Compensation of Executive Officers
The Company does not have any employees; services which otherwise would be
provided by employees were performed by Advisors prior to January 1, 1998 and
thereafter have been performed by RMR. Payments by the Company to Advisors and
RMR are described in "Certain Relationships and Related Transactions."
The following table provides summary compensation information for certain
employees of Advisors who performed the duties of executive officers for the
Company during 1997:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation(1) Long-Term Compensation
---------------------------------------- --------------------------------------------------------
Restricted Securities
Other Annual Stock Underlying LTIP All Other
Name and Principal Position Year Salary Bonus Compensation Awards(2) Options/SARs Payouts Compensation
--------------------------- ---- ------ ----- ------------ --------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David J. Hegarty.............. 1997 None None None $ 55,688 None None None
President & Chief Operating 1996 None None None $ 51,750 None None None
Officer (chief executive 1995 None None None $ 46,125 None None None
officer)
Ajay Saini.................... 1997 None None None $ 37,125 None None None
Treasurer & Chief Financial 1996 None None None $ 34,500 None None None
Officer 1995 None None None $ 30,750 None None None
Adam D. Portnoy............... 1997 None None None None None None None
Vice President(3) 1996 None None None $ 25,875 None None None
- ------------------------
<FN>
(1) Except with respect to incentive share awards, the Company has not paid and has no current plans to pay compensation to its
executive officers. Advisors, which conducted the day-to-day operations of the Company during 1997, compensated Messrs. Hegarty
and Saini and Mr. Adam Portnoy in connection with their services to Advisors and to the Company.
(2) All incentive share awards have been granted pursuant to the Plan and, except as described below in Note 3, provide that one
third of each annual incentive share award vests immediately upon grant and one third vests on each of the first and second
anniversaries of the grant. In the event any executive officer who has been granted an incentive share award ceases to perform
the duties of an executive officer of the Company during the vesting period of such award, that executive officer will only be
entitled to receive the number of Common Shares which have vested up to the date of his departure. At December 31, 1997, the
aggregate 17,000 and, 8,000 Common Shares granted as annual incentive share awards under the Plan to Messrs. Hegarty and Saini,
respectively, had a value of $341,06 and, $160,500 respectively, based upon a $20.0625 per share closing price for the Common
Shares as reported on the New York
4
<PAGE>
Stock Exchange on that date. Common Shares are entitled to dividends as declared by the Company. The dollar amounts shown
represent the number of restricted Common Shares which have vested or continue to be subject to vesting multiplied by the
closing price for the Common Shares on the New York Stock Exchange on the date of grant.
(3) Mr. Adam Portnoy served as Vice President until January of 1997. The 1,500 Common Shares held by him under the Plan became
fully vested and were sold by him in 1997.
</FN>
</TABLE>
Compensation Committee Interlocks and Insider Participation
The Company does not have a standing Compensation Committee; rather, a
committee comprised of the Company's Independent Trustees (Dr. Gans, the Rev.
Manning and Mr. Watts) makes recommendations for grants of Common Shares under
the Plan, and such recommendations are acted upon by the full Board of Trustees
(Dr. Gans, the Rev. Manning and Messrs. Watts, Martin and Portnoy). Barry M.
Portnoy, a member of the Board of Trustees, is a former partner in the firm of
Sullivan & Worcester LLP, counsel to the Company.
Performance Graph -- Comparison of Cumulative Total Return
The graph below shows, for the years indicated, the Company's cumulative
total shareholder return on its Common Shares (assuming a $100 investment on
December 31, 1992) as compared with (a) the Standard & Poor's 500 Index and (b)
the National Association of Real Estate Investment Trust, Inc.'s index of all
tax-qualified real estate investment trusts listed on the New York Stock
Exchange, the American Stock Exchange and the NASDAQ/National Market System
(NAREIT). The comparison assumes all dividends are reinvested and, in the case
of HRP, that the reinvestment occurred on the dividend payment date.
Measurement Period
--------------------
(Fiscal Year Covered) HRP NAREIT S&P 500 Index
1992 100 100 100
1993 131 119 110
1994 130 120 111
1995 172 141 153
1996 221 192 188
1997 249 228 251
5
<PAGE>
Executive Compensation Report
Health and Retirement Properties Trust (the "Company") developed and
implemented its 1992 Incentive Share Award Plan (the "Plan") in May 1992 in
recognition of the following circumstances. First, the Company's Common Shares
are primarily a yield vehicle for shareholders and do not appreciate in value in
the same manner as other equity securities. Therefore, a conventional stock
option plan would not provide appropriate incentives for the Company's
management. Second, because the executive officers of the Company are employees
of its investment advisor and not of the Company, and receive their salary
compensation from its advisor, the Trustees wished to establish a vehicle which
would, among other things, (a) foster a continuing identity of interest between
management of the Company and its shareholders, and (b) recognize that the
Company's executive officers perform certain duties on behalf of the Company,
primarily with regard to shareholder relations and investor communications,
which fall outside of the services covered by the investment advisory contract
between the Company and its advisor. In granting incentive share awards, the
Trustees consider factors such as the amount and terms of restricted Common
Shares previously granted to executive officers and the amount of time spent and
complexity of the duties performed by executive officers on behalf of the
Company, speaking at Company conferences, road shows and making additional
presentations, interfacing with analysts and preparing and distributing
shareholder reports, materials, statements and other information. The Trustees
may impose vesting restrictions or other conditions on the granted Common
Shares, which may further promote continuity of management.
In 1997, David J. Hegarty, President and Chief Operating Officer of the
Company, received a grant of 3,000 Common Shares under the Plan, 1,000 Common
Shares of which vested immediately upon grant and 1,000 of which will vest on
each of the first and second anniversaries of the date of grant. In 1997, Mr.
Saini, Treasurer and Chief Financial Officer of the Company, received a grant of
2,000 Common Shares under the Plan, 6661/3 of which vested immediately upon
grant, 6661/3 of which will vest on the first anniversary of the grant and
6661/3 of which will vest on the second anniversary thereof. In January 1997,
Adam D. Portnoy resigned his position with the Company and the Board of Trustees
voted to accelerate fully the vesting of the Common Shares which had been
awarded in 1996. The determination of the number of Common Shares granted to
Messrs. Hegarty and Saini and the acceleration of the vesting schedule for Mr.
Portnoy's Common Shares were not specifically based on an estimate of the
Company's performance, but instead was based on the relationship of the fair
market value of the Common Shares so granted, on the number of Common Shares
previously granted to each such individual, and on the Board's opinion as to the
value of the "outside" services to the Company, as discussed above, performed by
these officers.
BOARD OF TRUSTEES
Bruce M. Gans, M.D.
Rev. Justinian Manning, C.P.
Gerard M. Martin
Barry M. Portnoy
Ralph J. Watts
6
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information with respect to the
beneficial ownership of the Common Shares by each beneficial owner known to the
Company to hold more than 5% of the Common Shares, each Trustee and officer, and
all officers and Trustees of the Company as a group, as of the Record Date. The
address of each of the Trustees and current officers of the Company is c/o
Health and Retirement Properties Trust, 400 Centre Street, Newton, Massachusetts
02158.
<TABLE>
<CAPTION>
Beneficial Ownership
----------------------------
Number
Name and Address(1) of Shares Percent
------------------- --------- -------
<S> <C> <C>
Bruce M. Gans................................................. 1,000 *
David J. Hegarty(2)........................................... 17,000 *
Rev. Justinian Manning, C.P................................... 3,000 *
Gerard M. Martin(3)........................................... 3,912,138 3.7%
Barry M. Portnoy(3)........................................... 3,912,138 3.7%
Ajay Saini(4)................................................. 8,515 *
Ralph J. Watts................................................ 1,050 *
All executive officers and Trustees as a group (7 persons)
(2)(3)(4)).................................................... 3,942,703 3.7%
- ----------
<FN>
* Less than 1% of the Company's outstanding Common Shares.
(1) The address of each of the named persons is c/o Health and Retirement Properties Trust, 400 Centre Street, Newton, MA 02158.
(2) Includes 3,000 Common Shares awarded under the 1992 Incentive Share Award Plan which have not yet vested.
(3) Advisors, which is wholly owned by Messrs. Martin and Portnoy, owns 1,134,372 Common Shares directly. Solely in its capacity as
voting trustee of a voting trust agreement, Advisors exercises voting control over 1,000,000 Common Shares owned by AMS
Properties, Inc. ("AMSP") and pledged to the Company to secure the obligations of Paragon Health Network, Inc. and its
affiliates to the Company. Advisors also exercises voting control as proxy over 1,777,766 Common Shares owned by affiliates of
Mr. Jeff Chapple, including Berlin C.C., Inc., St. Johnsbury C.C., Inc., Rochester C.C., Inc., Springfield C.C., Inc.,
Bennington C.C., Inc., Burlington, C.C., Inc., The L.P. Corporation and American Health Care, Inc. Neither Mr. Martin nor Mr.
Portnoy owns any Common Shares directly.
(4) Includes 2,000 Common Shares awarded under the 1992 Incentive Share Award Plan which have not yet vested, 500 Common Shares in
Mr. Saini's IRA account and approximately 15 Common Shares held by Mr. Saini's minor daughter.
</FN>
</TABLE>
7
<PAGE>
Certain Relationships and Related Transactions
Messrs. Martin and Portnoy are principal shareholders of CSC, CSCII, NHSC
and VSC (collectively the "Subacute Entities"). The Subacute Entities are
borrowers/mortgagors or lessees of the Company. The Company has extended a $4
million line of credit to CSC until June 30, 1998. At December 31, 1997, there
was $2.4 million outstanding under this agreement. The lease and loan
transactions with the Subacute Entities are based on market terms and are
generally similar to the Company's lease and mortgage agreements with
unaffiliated companies. The former president of the Company is the president of
the Subacute Entities. Rent and interest paid to the Company by the Subacute
Entities was $13.6 million in 1997.
Effective January 1, 1998, the Company entered into two agreements with
RMR, an advisory agreement (the "New Advisory Agreement") under which RMR
provides investment management and administrative services to the Company, and a
property management agreement (the "New Property Management Agreement") under
which RMR provides property management services for the Company's multi-tenant,
government-leased and other office buildings. Prior to January 1, 1998, the
Company had an agreement (the "Old Advisory Agreement") with Advisors under
which Advisors provided investment and administrative services to the Company.
Advisors and RMR are owned by Messrs. Martin and Portnoy. The Old Advisory
Agreement provided, and the New Advisory Agreement provides, for an annual base
advisory fee equal to 0.70% of the Company's Average Invested Capital, as
defined in the Advisory Agreements, up to $250 million, and 0.50% of Average
Invested Capital equal to or exceeding $250 million; and an annual incentive
fee, calculated on the basis of 15% of the increase in funds from operations
from the prior year on a fully diluted basis, but no more than $.01/fully
diluted Common Share outstanding. All incentive fees which may be earned by RMR
will be paid in Common Shares. The base advisory fee paid to Advisors for fiscal
year 1997 was $8.6 million, of which approximately $471,500 was attributable to
investments in the Subacute Entities. The incentive fee award for fiscal year
1997 was $1.0 million, paid by the issuance of approximately 52,316 Common
Shares, having a market value at December 31, 1997 of $1.0 million. During 1997,
Advisors received $1.6 million in dividends on its owned Common Shares.
Advisors is the general partner of M&P Partners Limited Partnership
("M&P"), a partnership which is owned by Advisors and Messrs. Martin and Portnoy
and which prior to January 1, 1998 provided management services for the
Company's multi-tenant, government-leased and other office buildings under
separate property management agreements which were consolidated into a master
property management agreement in late 1997 (the "Old Property Agreements"). The
Company paid $2.4 million in management fees to M&P in 1997. Fees paid to M&P
under the Old Property Management Agreements and which will be paid to RMR under
the New Property Management Agreement are based on a formula (generally 3% of
gross collected rents as an annual management fee and 5% of construction costs
as a construction management fee) relating to the buildings under its
management. No construction management fee was collected by M&P during 1997.
Effective January 1, 1998, the Company entered into a parking operation
management agreement (the "Parking Management Agreement") pursuant to which
Garage Management, Inc.("GMI"), a Delaware corporation owned by Messrs. Martin
and Portnoy, provides parking management services for garages associated with
certain of the Company's properties. Prior to January 1, 1998, M&P provided
these services under the Old Property Agreements. Under the Parking Management
Agreement, the Company has agreed to pay GMI a monthly management fee of 3% of
gross monthly parking receipts.
Messrs. Martin and Portnoy each has material interests in the transactions
between the Company and each of the Subacute Entities, RMR, Advisors, M&P and
GMI. To the extent that the terms of the Company's investments in properties
owned or leased by the Subacute Entities have been negotiated among related
parties, they have not been determined on an arm's-length basis. Investment
terms, however, have been based upon independent appraisals of the properties,
where available, but the Company has historically placed a greater emphasis on
what it believes to be more determinative factors such as cash flow available
for rent and debt service. All existing business relationships between the
Company, on the one hand, and RMR, Advisors, M&P, the Subacute Entities, GMI
and/or their affiliates, on the other hand, have been approved by, and, unless
and until any such company no longer has relationships with the Company or
8
<PAGE>
its affiliates which are the same or similar to those described above, all such
future relationships will be submitted for approval by, majority vote of the
Independent Trustees. For a portion of 1997, Mr. Portnoy was a partner in the
firm of Sullivan & Worcester LLP, counsel to the Company and to HPT, RMR,
Advisors, M&P, the Subacute Entities, GMI and affiliates of each of the
foregoing, and received payments from the firm during 1997 as a partner and in
respect of his retirement from that firm.
Certain Litigation.
As previously disclosed, in early 1995 the Company commenced an action in
Florida state court to collect on a secured indemnity agreement from a former
tenant and mortgagor, together with certain related parties (collectively, the
"Former Tenant"). In May 1995 the Former Tenant filed a counterclaim and
third-party complaint against the Company and others including Messrs. Martin
and Portnoy, Advisors and Sullivan & Worcester LLP, seeking, among other things,
to set aside the indemnity agreement and to recover substantial damages. After a
Massachusetts state court ordered the dispute to arbitration and a Florida court
stayed further proceedings pending arbitration, the Former Tenant brought a
separate action against the Company in the Federal District Court in
Massachusetts and realleged many of the same allegations made in the
counterclaims and third-party complaints previously brought by them in response
to the Company's original action, and adding allegations of violations of
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder and violations of 18 U.S.C. ss. 1962 (RICO). In September
1996, the Federal Court in Massachusetts ordered the case brought by the Former
Tenant dismissed and all disputes between the Former Tenant and the Company
referred to arbitration. The arbitration is proceeding. The amounts of damages
claimed by the Former Tenant and creditors or assignees of the Former Tenant are
material. The Company is pursuing its indemnity claims against the Former Tenant
and is defending the claims of the Former Tenant in the arbitration proceedings.
The Company intends to defend itself in related actions brought and which may be
brought, to attempt to consolidate these cases in the pending arbitration
proceeding or otherwise to pursue such claims and rights which it may have. The
outcome of these pending claims and proceedings cannot be predicted.
The Declaration of Trust provides that Trustees, officers, employees and
agents of the Company shall be indemnified by the Company against any losses,
judgments, liabilities, expenses and amounts paid in settlement of any claims
asserted against them by reason of their status, provided that such claims were
not the result of willful misfeasance, bad faith, gross negligence or reckless
disregard of duty. Were Messrs. Martin and Portnoy to be held liable in the
proceedings described above, they may therefore have a claim for indemnification
from the Company.
COMPLIANCE WITH SECTION 16(a) OF EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Trustees and executive officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership of securities with the Securities and
Exchange Commission and the New York Stock Exchange. Executive officers,
Trustees and greater than 10% shareholders are required to furnish the Company
with copies of all forms they file pursuant to Section 16(a). Based solely on
review of the copies of such reports furnished to the Company or written
representations that no other reports were required, the Company believes that,
during the 1997 fiscal year, all filing requirements applicable to its executive
officers, Trustees and greater than 10% shareholders were complied with.
AUDITORS
The Company is not required to submit the selection of its auditor to a
vote of shareholders. The Company's independent auditor since its organization
in 1986 has been Ernst & Young LLP or its predecessors.
A representative of Ernst & Young LLP is expected to be present at the
Meeting, with the opportunity to make a statement if desired, and is expected to
be available to respond to appropriate questions from shareholders who are
present at the Meeting.
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SHAREHOLDER PROPOSALS
The Company's 1999 Annual Meeting is presently expected to be held on or
about May 11, 1999. Proposals of shareholders intended to be presented at the
1999 Annual Meeting and nominations for Trustee must be received not later than
March 3, 1999 and not earlier than January 12, 1999 for inclusion in the
Company's proxy statement and proxy for that meeting.
The Company's Bylaws establish an advance notice procedure with regard to
the nomination, other than by the Board, of candidates for election as Trustees
(the "Nomination Procedure"). The Nomination Procedure provides that only
persons who are nominated by or at the direction of the Board of Trustees, or by
a shareholder of record on the date of the giving of the notice described below
and on the record date for determination of shareholders entitled to vote upon
such nomination who has given timely prior written notice to the Secretary of
the Company prior to the meeting at which Trustees are to be elected, will be
eligible for election as Trustees. To be timely, notice of a shareholder's
nominee in the case of an annual meeting, must be received by the Company not
less than 70 days nor more than 120 days prior to the anniversary date of the
immediately preceding annual meeting (i.e. not later than March 3, 1999, nor
earlier than January 12, 1999, with respect to the 1999 Annual Meeting of
Shareholders).
OTHER MATTERS
As of this time, the Board of Trustees knows of no other matters to be
brought before the Meeting. However, if other matters properly come before the
Meeting or any adjournment thereof, and if discretionary authority to vote with
respect thereto has been conferred by the enclosed proxy, the persons named in
the proxy will vote the proxy in accordance with their best judgment as to such
matters.
By Order of the Board of Trustees
DAVID J. HEGARTY, Secretary
Newton, Massachusetts
March ___, 1998
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[FRONT]
HEALTH AND RETIREMENT PROPERTIES TRUST
400 Centre Street, Newton, Massachusetts 02158
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned hereby appoints DAVID J. HEGARTY, GERARD M. MARTIN and
BARRY M. PORTNOY, and each of them, as Proxies of the undersigned, each with the
power to appoint his substitute, and hereby authorizes a majority of them, or
any one if only one be present, to represent and to vote, as designated below,
all the Common Shares of Beneficial Interest of Health and Retirement Properties
Trust held of record by the undersigned or with respect to which the undersigned
is entitled to vote or act, at the Annual Meeting of Shareholders to be held on
May 12, 1998 or any adjournment or postponement thereof.
This proxy when properly executed will be voted in the manner directed here by
the undersigned shareholders. If no direction is made, this proxy will be voted
FOR Proposals 1 and 2.
PLEASE VOTE, DATE, AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN ENCLOSED
ENVELOPE.
NOTE: Please sign exactly as name(s) appear(s) hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
Address Change/Comments:
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
[REVERSE]
|X| PLEASE MARK VOTES AS IN THIS EXAMPLE
1) Election of Trustee in Group III:
For Withhold
/ / / /
Ralph J. Watts
2) Amendment to the Company's Declaration of Trust to Change the Name of the
Company to "HRPT Properties Trust".
For Against Abstain
/ / / / / /
3) In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
Mark box at right if an address change or comment has been / /
noted on the reverse side of this card.
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RECORD DATE SHARES:
Please be sure to sign and date this Proxy. DATE: ________________
- --------------------------------- -------------------------------
Shareholder Sign Here Co-owner Sign Here
12
