Item 5.02 Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On December 3, 2021, the Compensation and Management Development Committee (the
"Committee") of the Board of Directors of UDR, Inc. (the "Company") approved,
and on December 5, 2021 the Board of Directors approved, a performance-based
supplemental equity award (the "Award") for the Company's Chairman and Chief
Executive Officer, Thomas W. Toomey, which will be earned only upon the
achievement of absolute common stock price hurdles over a four-year measurement
period commencing December 5, 2022.
Background
The Committee believes that the Award is important to retain Mr. Toomey, and to
incentivize and reward Mr. Toomey for continued long-term stockholder value
creation.
In approving the Award, the Committee, with the advice of the Committee's
independent compensation consultant, Ferguson Partners Consulting L.P.,
recognized the potential for continued strong growth in the value of the
Company's shares of common stock. The Committee believes that it is important to
create appropriate incentives for Mr. Toomey to continue to grow the value of
the Company over the long term as well as to recognize Mr. Toomey's outstanding
performance and successful track record with the Company. During his tenure with
the Company, Mr. Toomey has been instrumental in repositioning the Company's
portfolio, including the acquisition and disposition of approximately $21.2
billion in multifamily communities and development of approximately $4.5 billion
in multifamily communities, which has led to an above average annual return of
13.7% for the Company's stockholders. In addition, during his tenure with the
Company, the enterprise value of the Company has increased by approximately
$20.9 billion, an increase of 454%, and its market capitalization has increased
by approximately $16.3 billion, an increase of 1,299% (through December 3,
2021). In addition, the total stockholder return ("TSR") of the Company has
exceeded that of each of the FTSE Nareit Equity Apartments Index (by 386%), the
FTSE Nareit Equity REITs Index (by 607%), and the S&P 500 (by 1,080%) during Mr.
Toomey's tenure (through October 31, 2021). In addition, Mr. Toomey has been an
industry leader serving as the former Global Chairman, and a current Trustee,
Governor and Board member of the Urban Land Institute, a current member of the
National Multi Housing Council (NMHC), and a current member of The Real Estate
Roundtable.
Aligned with Shareholders
The Award that has been approved by the Committee and the Board of Directors is
aligned with the interests of the Company's stockholders. The principal
objective of the award is to link Mr. Toomey's long-term compensation
opportunity with significant long-term stockholder value creation. The Award
requires significant stock price appreciation in order for Mr. Toomey to earn
some or all of the Award, consistent with the Company's
overall pay-for-performance approach to executive compensation.
The Award is structured to motivate extraordinary long-term performance, is
entirely at risk, and correlates directly with the creation of long-term value
for the Company's stockholders. As a result, the Committee believes that the
Award is directly aligned with the interests of the Company's stockholders. The
Committee also believes that, because the maximum number of shares available
under the Award, assuming it vests in full and is converted into common stock of
the Company, represents less than 0.1% of the shares outstanding as of the date
of grant, the dilutive effect on the Company's stockholders is reasonable given
the increase in stockholder value that would be represented by achievement of
the stock price hurdles. If all of the common stock price hurdles were achieved
during the performance period and Mr. Toomey would earn the entire Award, the
Company will have created approximately $8.7 billion in stockholder value, while
the total value of the Award would be less than 0.2% of that overall increase in
stockholder value.
Terms of the Award
Mr. Toomey was awarded Class 2 Performance LTIP Units with a value of $7,000,000
based on the closing price on December 6, 2021 (the trading day following the
grant date, which was not a trading day) as reported on the New York Stock
Exchange for a share of the Company's common stock. The Class 2 Performance LTIP
Units are granted at maximum, and will be earned only to the extent that the
pre-established common stock price hurdles are achieved during the performance
period. The Class 2 Performance LTIP Units will to the extent earned vest,
subject to Mr. Toomey's continuing employment, on the fifth anniversary of the
date of grant. The common stock price hurdles will be measured based on the
closing price of the Company's common stock, which must be maintained at or
above the common stock price hurdle for 20 consecutive trading days during the
period beginning December 5, 2022 and ending on December 5, 2026. These Class 2
Performance LTIP Units were awarded under the Company's Amended and Restated
1999 Long-Term Incentive Plan (the "1999 Plan"). Class 2 Performance LTIP Units
structurally encourage long-term holding by the recipient, further aligning the
interests of Mr. Toomey with the creation of stockholder value over a long-term
timeframe.
Class 2 Performance LTIP Units are a class of partnership interests in the
Company's operating partnership, United Dominion Realty, L.P. (the "Operating
Partnership"). Class 2 Performance LTIP Units are not economically equivalent to
a share of the Company's common stock at grant. In order for Class 2 Performance
LTIP Units to have value to the holder, the price of the Company's common stock
on the date of conversion of the Class 2 Performance LTIP Unit has to exceed the
price of the Company's common stock as of the date of grant. Once vested, Class
2 Performance LTIP Units are convertible to Class 2 LTIP Units. Class 2 LTIP
Units are convertible into OP Units of the Operating Partnership, provided that
the Class 2 LTIP Unit has been outstanding for 2 years from the date of grant.
OP Units are, subject to the terms of the partnership agreement for the
Operating Partnership, redeemable for the Company's common stock.
Consistent with the treatment of other equity awards under the 1999 Plan, upon a
Class 2 Performance LTIP Unit holder's death or disability during his or her
employment, all restrictions on outstanding awards shall lapse. In the event of
a change of control of the Company, a Class 2 Performance LTIP Unit will vest
only if the holder's employment or other service relationship with the Company
is terminated by the Company without cause, or by the holder for good reason, in
each case on or within 12 months following the date of a change of control.
Further, all restrictions on outstanding awards that have been earned shall
lapse upon the Company's termination of the holder's employment without cause or
the holder's termination of employment for good reason. Otherwise, vesting of
Class 2 Performance LTIP Units shall cease upon the date that the holder's
employment is terminated for any other reason. Holders of Class 2 Performance
LTIP Units have the same voting rights as limited partners holding OP Units in
the Operating Partnership, with such units voting together as a single class
with the holders of OP Units and having one vote per unit, and holders of such
units shall not be entitled to approve, vote on or consent to any other matter.
The specified amount of the Class 2 Performance LTIP Units awarded to Mr. Toomey
will be earned, and then vest on the fifth anniversary of the date of grant,
only if the corresponding common stock price hurdles set forth in the following
table are achieved, and the Company's common stock closing price is maintained
at or above that common stock price hurdle for 20 consecutive trading days
during the period beginning December 5, 2022 and ending on December 5, 2026.
Stock Price Number of
Hurdle Units Earned
$60.00 195,883
$62.50 195,883
$67.50 195,883
$75.00 195,883
Total 783,532
Forward-Looking Statements
Certain statements made in this Current Report on Form 8-K may constitute
"forward-looking statements." Words such as "expects," "intends," "believes,"
"anticipates," "plans," "likely," "will," "seeks," "estimates" and variations of
such words and similar expressions are intended to identify such forward-looking
statements. Forward-looking statements, by their nature, involve estimates,
projections, goals, forecasts and assumptions and are subject to risks and
uncertainties that could cause actual results or outcomes to differ materially
from those expressed in a forward-looking statement, due to a number of factors,
which include, but are not limited to, the impact of the COVID-19 pandemic and
measures intended to prevent its spread or address its effects, unfavorable
changes in the apartment market, changing economic conditions, the impact of
inflation/deflation on rental rates and property operating expenses,
expectations concerning availability of capital and the stabilization of the
capital markets, the impact of competition and competitive pricing,
acquisitions, developments and redevelopments not achieving anticipated results,
delays in completing developments, redevelopments and lease-ups on schedule,
expectations on job growth, home affordability and demand/supply ratio for
multifamily housing, expectations concerning development and redevelopment
activities, expectations on occupancy levels and rental rates, expectations
concerning the joint ventures with third parties, expectations that technology
will help grow net operating income, expectations on annualized net operating
income and other risk factors discussed in documents filed by the Company with
the SEC from time to time, including the Company's Annual Report on Form 10-K
and the Company's Quarterly Reports on Form 10-Q. Actual results may differ
materially from those described in the forward-looking statements. These
forward-looking statements and such risks, uncertainties and other factors speak
only as of the date of this Form 8-K, and the Company expressly disclaims any
obligation or undertaking to update or revise any forward-looking statement
contained herein, to reflect any change in the Company's expectations with
regard thereto, or any other change in events, conditions or circumstances on
which any such statement is based, except to the extent otherwise required under
the U.S. securities laws.
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