Healthcare Trust Revises Advisory Agreement
February 21, 2017 | by James Sprow | Blue Vault
On February 17, 2017, Healthcare Trust, Inc. (the “Company’) entered into the Second Amended and Restated Advisory Agreement with Healthcare Trust Operating Partnership, L.P. and the Company’s advisor, Healthcare Trust Advisors, LLC, (the “Advisor”). The board of directors retained independent legal counsel, Arnold & Porter Kaye Scholer LLP, and an independent financial advisor, BMO Capital Markets, to assist in the process. The goal of the process was to enhance alignment of the compensation paid by the Company to the Advisor with the Company’s strategy of increasing its asset base and repositioning certain of its assets. In exchange for the Advisor changing the asset management fee structure and eliminating certain fees that it could have earned, which the board believes will generate significant savings, the Company agreed to, among other things, changes in the term of the original agreement and amounts to be paid to the Advisor, in certain cases, if the Advisory Agreement is terminated prior to the expiration of the initial term.
The Advisor did not receive any upfront payment in return for the amendment. The Advisory Agreement: (i) eliminates any acquisition, financing coordination or annual subordinated performance fees or real estate commissions payable to the Advisor; (ii) aligns the monthly asset management fee payable to the Advisor with equity raised consistent with market standard while reducing the monthly asset management fee from (x) 0.0625% multiplied by the lesser of the cost or the fair market value of the Company’s assets to (y) $1.65 million plus one-twelfth of 1.25% of the cumulative net proceeds of any equity (including convertible debt) raised subsequent to the effective date of the Advisory Agreement; (iii) provides for a quarterly variable management/incentive fee equal to (x) 15% of the applicable quarter’s Core Earnings (as defined in the Advisory Agreement) per share in excess of $0.375 per share plus (y) 10% of the applicable quarter’s Core Earnings per share in excess of $0.47 per share; (iv) extends the initial term until February 2027, subject to the ability to terminate at any time for cause or good reason; and (v) provides for a termination right in connection with a change of control or a transition to self-management, subject to the payment of a change of control fee or transition fee. The change of control fee would be equal to the product of (a) four and (b) the “Subject Fees” in the fiscal quarter immediately prior to the change of control event. The Subject Fees are equal to the sum of (i) four multiplied by the monthly asset management fee plus (ii) four multiplied by the actual variable management/incentive fee plus (iii) without duplication, the annual increase in the monthly asset management fee resulting from the cumulative net proceeds of any equity raised subsequent to the effective date of the Advisory Agreement. The transition fee would be equal to (a) $15.0 million plus (b) the product of four multiplied by the Subject Fees, but no more than an amount equal to 4.5 multiplied by the Subject Fees. The Advisor may assign the Advisory Agreement to any party with expertise in commercial real estate which has, together with its affiliates, over $100.0 million in assets under management.
The Advisor and Property Manager are under common control with AR Global Investments, LLC (the successor business to AR Capital, LLC, “AR Global”), the parent of the Company’s sponsor, American Realty Capital VII, LLC (the “Sponsor”), as a result of which they are related parties, and each have received or will receive compensation, fees and expense reimbursements from the Company for services related to managing its business. The Advisor, Healthcare Trust Special Limited Partnership, LLC (the “Special Limited Partner”) and Property Manager also have received or will receive compensation, fees and expense reimbursements related to the investment and management of the Company’s assets.
On April 7, 2016, the board approved an estimate of per share net asset value (“NAV”) of $22.27 as of December 31, 2015. Subsequent valuations will occur periodically, at the discretion of the Board, provided that such estimates will be made at least annually. Prior to the NAV pricing date, the Company offered shares pursuant to the DRIP at $23.75 per share, which was 95% of the initial offering price of shares of common stock in the IPO. Effective April 7, 2016, the Company began offering shares pursuant to the DRIP at the then-current NAV approved by the board.
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