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13 June 2019
Globalworth Real Estate Investments Limited
("Globalworth" or the "Company")
Adoption of new Group remuneration policy and termination of the existing Investment Manager plan
Following the announced delisting of Globalworth Poland and its 100% integration into the Globalworth group of companies (the "Group"), Globalworth, the leading office investor in Central and Eastern Europe, announces today the in principle adoption of a new Group-wide remuneration policy as well as the termination of the existing incentive fee arrangements (the "Plan") for Globalworth Investment Advisers Ltd ("GIAL" or the "Investment Manager"), a wholly-owned subsidiary of the Company.
New Group Remuneration Policy
The Board, following the recommendation of the Remuneration Committee (the "Committee"), and after discussions with the major shareholders, has today in principle approved the adoption of a new Group-wide remuneration policy applicable to the Investment Manager and senior employees of the Group with effect as of January 1st, 2019.
The key objectives of the new Group remuneration policy are to:
· strongly align Group employee and shareholder interests;
· underpin an effective pay-for-performance culture;
· support the retention, motivation and recruitment of talented people; and
· encourage Company shareholding ownership amongst Group employees.
In adopting the new Group remuneration policy, the following were considered:
· the Plan and its termination value of Euro 26.2 million in cash and 3,161,198 in shares to be issued at the price of Euro 9.10 (please refer below for further details);
· Input from major shareholders and management;
· the UK Corporate Governance Code (July 2018);
· the Investment Association Principles of Remuneration (November 2018); and
· advice from two independent third-party remuneration consultants.
The new Group remuneration policy is designed to achieve an appropriate balance between fixed and variable remuneration, and between variable remuneration based on short-term and longer-term performance. Fixed remuneration includes base salary and benefits. Variable remuneration includes an annual bonus, a significant portion of which will ordinarily be paid in deferred shares pursuant to a new deferred annual bonus plan ("DABP"), and performance share plan awards made under a new long-term incentive plan ("LTIP").
The new Group remuneration policy is intended to align with the strategy and business of the Group and reflects the importance of generating a growing and sustainable cash flow and achieving value creation through the active management of real estate assets, including those under development.
The principal objectives of the new Group remuneration policy are to attract, retain and motivate management of the quality required to run the Company successfully.
The Committee will oversee the implementation of this policy and will seek to ensure that the Investment Manager and senior employees are fairly rewarded for Globalworth's performance over the short and long term. A significant proportion of the potential total remuneration is therefore performance-related.
The following contains a summary of the key terms of the new Group remuneration policy, including the DABP and the LTIP. Please note that this is not an exhaustive summary.
Base salary
Base salaries will be reviewed annually with any increases taking effect from 1 January. The level of increases will take account of each senior employee's experience, service to the Company, external market benchmarks, and the importance of that person to the business. The performance of the Company, salary increases awarded to the workforce as a whole, and external indicators such as inflation will also be taken into account.
Annual bonus plan
The Investment Manager and selected senior employees will be eligible to participate in an annual bonus plan. The annual bonus plan for participants in the scheme will be paid through a combination of cash and deferred shares through the DABP.
Participation in the annual bonus plan from year to year will be at the sole discretion of the Committee, although the Investment Manager and most senior employees would be expected to participate each year. The maximum award will not exceed 150% of annual salary, target performance will not exceed 75% of annual salary and threshold performance will not exceed 37.5% of annual salary.
The new annual bonus plan currently provides that that 50% of any bonus earned will be in deferred Company shares under the DABP. Awards under the DABP will vest in three instalments on the first, second and third anniversaries of the date of grant. Participants will be entitled to receive dividend equivalents on the unvested shares until, and payable on or shortly after, they vest.
The Committee will set performance targets for the annual bonus at the start of each financial year to ensure performance measures and weightings are appropriate and support the business strategy. It is anticipated that the performance targets will be primarily based upon Key Performance Indicators ("KPIs"), although there may also be elements subject to other measures and factors at the discretion of the Committee.
Long-term Incentive Plan
The LTIP will provide the long-term incentive arrangement for the Investment Manager and selected senior employees (the "LTIP Participants").
Under the LTIP, it is intended that performance share awards will be granted on an annual basis either in the form of Company shares without cost to the LTIP participant or nil (or nominal) cost options to subscribe to Company shares.
Annual awards will be determined by reference to that number of shares which equals in value to a maximum of 100% of salary for employees who are not a director of the Company and 150% of salary for directors of the Company.
Awards will vest three years from the date of grant of the award (or upon the assessment of performance conditions if later) subject to the LTIP participant's continued service and the extent to which the performance conditions specified for the awards are satisfied. The Committee has the discretion in certain circumstances to grant and/or settle an award in cash.
Performance conditions applying to the first awards will be based 50% on relative Total Shareholder Return ("TSR") and 50% on growth in Total Accounting Return per share ("TAR") (defined as the growth in the Company's EPRA Net Asset Value per share and dividend distributions per share paid over the three-year LTIP performance period). The achievement of a threshold level of performance will result in vesting of 25% of the maximum award. Full vesting will occur for equalling or exceeding the maximum performance target. A target level of performance may also be set between the threshold and maximum performance targets. The level of vesting for the achievement of target performance would take account of the difficulty of achieving target performance. Straight-line vesting will take place for performance between threshold, target, and maximum.
Dividend equivalents will be paid in relation to shares which vest until the normal vesting date or, if there is one, until the end of the holding period.
Holding periods
The terms of the LTIP will include that LTIP participants will ordinarily be required to retain their net of tax number of vested shares (if any) delivered from performance share awards made under the LTIP for at least two years from the time of vesting of the relevant performance share award. Where such holding period terms apply, the Committee shall retain discretion to allow the relevant participants to sell, transfer, assign or dispose of some or all of such shares before the end of the holding period, subject to such additional terms and conditions (if any) that the Committee may specify.
Recovery and withholding provisions
Recovery and withholding provisions will apply in respect of awards granted under the DABP and the LTIP. This may be operated at the discretion of the Committee in certain circumstances including where there has been a material misstatement of accounts, an error in assessing any applicable performance condition, or in the event of serious misconduct on the part of the LTIP or the DABP participant.
Leaving the Company
The default treatment for any unvested awards under the DABP and the LTIP is that any outstanding awards lapse on cessation of employment. However, in certain circumstances as prescribed in the rules of the DABP and the LTIP, or at the discretion of the Committee, "good leaver" status may apply. In the DABP and LTIP rules there are certain "default" good leaver provisions such as death, injury, disability, and retirement.
Where good leaver status applies:
• awards under the DABP will ordinarily vest on the normal vesting dates (or on the date of cessation of employment if the Committee determines); and
• awards under the LTIP will ordinarily vest on the normal vesting date, subject to the satisfaction of the relevant performance criteria (if any) and, ordinarily, on a time pro-rata basis, with the balance of the awards lapsing.
In addition, the DABP and LTIP rules provide for early vesting (subject to time and KPI achievement pro-rating) of the awards in case of corporate events at the Company level such as change of control, delisting, and voluntary winding up.
Local jurisdiction adjustments
The implementation of the DABP and the LTIP will be adjusted to take into account certain legal and tax considerations across the different jurisdictions relevant for the Group and the participants.
Plan Termination
The Board, following the recommendation of the Committee and the agreement of the Investment Manager and its preference shareholders, has decided to terminate the existing incentive fee arrangements of the Investment Manager, taking account the following:
· the LTF (as defined below) component of the Plan is uncapped, with 75% vesting by December 2019 and 100% by December 2022;
· feedback from major shareholders and other existing and potential new investors;
· the Plan is no longer appropriate in light of the rapid growth and change in the size and shareholding structure of the Company and its current positioning as a blue-print REIT-like investor;
· changing regulatory and governance environment and intense scrutiny around such plans;
· the implementation of the new Group remuneration policy described above;
· the termination value being at a significant discount to what the Investment Manager could potentially have received under the Plan until its final vesting date, as assessed by independent remuneration consultants based on management's business plan projections; and
· proceeds of the Plan termination will be shared among a group of senior and other employees.
Background to the Plan
The Admission document of the Company when it listed on the AIM market of the London Stock Exchange in July 2013 (the "IPO") allowed for the implementation of a management plan based on total shareholder returns in line with remuneration plans of various fast-growing companies on AIM and other stock exchanges at the time. As a result of the rapid expansion of Globalworth in Romania, the Company implemented the Plan following its approval at an extraordinary general meeting of shareholders ("EGM") on November 25 2016[1].
The core financial element of the Plan is the Long Term Fee ("LTF") which can be paid to the Investment Manager (and subsequently its preference shareholders, which includes the Company's executive directors, by way of dividend distribution by GIAL) assuming the Company's shareholders have achieved certain IRR thresholds since the IPO, without limiting the upside as to the amount of the fees that the Investment Manager could end up receiving. The Plan, which was providing incentive fees paid to the Investment Manager also from the sale of Company assets from July 2013, would be substantially (75%) vested within 2019 and had a final vesting date on 31 December 2022.
At the time of its approval in November 2016, the Board was comfortable that the Plan, and in particular the LTF structure, was appropriate for the nature of the Company and its shareholder structure. In particular, it ensured alignment of interest between the Investment Manager and the Company's shareholders, its payout being based on achieving certain real return thresholds for the Company's shareholders, mainly from selling and trading on assets and developments.
Since the IPO in 2013 the Company has grown significantly in size and operations and its shareholder base has also substantially evolved and became more institutional, resulting in a blue-print REIT-like company with landmark assets and blue-chip tenants. Globalworth has become a development and asset management powerhouse in the region and with technology disrupting the real estate industry globally, it aspires to be the most technologically advanced platform in the CEE office market. In addition to our ongoing development projects in Romania and our multiple asset management initiatives across both our core markets (whose full value upside has yet to be reflected in our financials), the Board believes that the addition of technology has the potential to bring additional value to the Company's portfolio by integrating and working together in creating a strong community with some 200,000 people entering and passing through the Company's buildings daily in Poland and Romania. The Company aims to be able to extract such intrinsic value from its asset base in the near term.
Termination of the Plan
Following all of the above and in light of the exceptional growth of the Company, discussions have been ongoing since 2018 with the Company's major shareholders, as well as other key shareholders and new investors regarding the Plan, which were focused around the potential uncapped remuneration to the Investment Manager as the Company continues to grow. The Plan is effectively in its sixth year and the Company has grown from a size of Euro 53 million in July 2013 to over Euro 2.7 billion of assets today[2] and has become the leading office investor and landlord in the CEE region.
In order to ensure that Globalworth is fully aligned with best practice for a blue print REIT-like listed real estate company and the interests of its shareholders, and in response to a number of regulatory and governance changes and intense scrutiny around such plans in the listed real estate as well as broader UK and European public markets the Committee conducted a detailed analysis of the potential termination of the Plan today, rather than in the future with an uncapped liability to the Company's shareholders should the LTF's related conditions be met.
Taking also into account the fact that the Plan would become substantially (75%) vested this year, the Committee was given the task of determining a reasonable and fair value for all stakeholders to terminate the Plan today and, realising only part of the potential upside for the Investment Manager, while at the same time putting the Group as a whole in line with the listed real estate industry going forward and position it as a first class professional REIT-like company in Europe with outstanding corporate governance.
As also stated in the Company's 2018 annual financial statements, the Committee has completed its analysis, which involved third-party independent consultants and experts on remuneration plans for public real estate companies, and has presented its findings to the Board. The Board, having considered the recommendation of the Committee and following lengthy discussions with the Committee and the Investment Manager, as well as all the aforementioned matters, concerns and facts, has come to the conclusion that, as also determined by the consultant reports received, at termination of the Plan, the LTF-related liability could be significantly higher than if it was to be terminated today. It has therefore decided that it is in the best interests of the Company and its shareholders to restructure the remuneration policy of the Group (as detailed above) and at the same time to terminate the Plan.
The consultant reports received used a variety of valuation methodologies, which included running thousands of "Monte Carlo" simulations and exit scenarios around management's business plan projections and resulted in net present values of up to Euro 103 million. Following lengthy and detailed discussions and negotiations, and with the new Group remuneration policy becoming effective concurrently with the Plan termination, the Investment Manager has accepted a substantial discount to the amount it could have received in the future should the Plan have remained in place.
Plan termination value
The recommendation of the Committee, which the Board has approved, is that the fair termination value of the Plan is Euro 55 million. This settlement is considered as a fair and comprehensive resolution to this matter which has been scrutinised in significant detail over the last 12-18 months by all stakeholders, and the Board believes that it is to the benefit of the shareholders and the Company as a whole to terminate the Plan at this valuation value.
At the same time the Board has authorised the Investment Manager to distribute or allocate this amount in the following manner to certain of its preference shareholders (which comprises the Company's executive directors and other members of senior management) and other employees of the Group with the following key parameters:
· cash element: Euro 26.2 million; and
· Company shares element: 3,161,198 shares to be issued at the price of Euro 9.10, which is the same price as the Company's most recently concluded equity capital raise in April 2019.
o Of these shares, GIAL has been authorised to distribute to the Company's two executive directors who are also its preference shareholders: 2,604,396 shares, with Ioannis Papalekas to receive 1,890,110 shares and Dimitris Raptis to receive 714,286 shares. The Company shares to be issued (other than the ones distributed to Ioannis Papalekas) will be subject to a three-year lock-up with equal annual releases.
In addition to other Group employees, the most senior employees who will receive an allocation from the Plan termination payment include:
Name |
Position |
Andreas Papadopoulos |
CFO |
Stamatis Sapkas |
Deputy Chief Investment Officer |
Andrew Cox |
Head of Investor Relations |
Spyros Anargyros |
Group Treasurer |
Rashid Mukhtar |
Group Financial Controller |
Alexandros Hadjivassiliou |
CEO-Globalworth Cyprus |
Nicola Marrin |
Group Head of Compliance |
Dimitris Pergamalis |
Head of Construction and Development-Romania |
Adrian Danoiu |
COO-Romania |
Ema Iftimie |
Head of Leasing-Romania |
Gabriel Udroiu |
Head of Property Compliance-Romania |
Valentin Neagu |
Head of Asset Management-Romania |
Catalin Tirziu |
Head of Legal-Romania |
Alex Zahiu |
Head of Compliance and Procurement-Romania |
Georgiana Oltenescu |
Head of Marketing-Romania |
Artur Apostol |
COO-Globalworth Poland |
Rafal Pomorski |
CFO-Globalworth Poland |
Judyta Sawicka |
Head of Legal- Globalworth Poland |
Karol Klin |
Head of Leasing-Globalworth Poland |
Tomasz Jelinowski |
Head of Finance-Globalworth Poland |
It has also been agreed that should certain employees wish to receive the cash element in shares instead of cash, they would be entitled to do so.
The formal completion of the Plan termination is expected to take place in the next few weeks.
For further information visit www.globalworth.com or contact:
Enquiries
Andrew Cox Tel: +44 20 3026 4027
Head of Investor Relations & Corporate Development
Jefferies (Joint Broker) Tel: +44 20 7029 8000
Stuart Klein
Panmure Gordon (Nominated Adviser and Joint Broker) Tel: +44 20 7886 2500
Alina Vaskina/Justin Gulston
Milbourne (Public Relations) Tel: +44 7903 802545
Tim Draper
About Globalworth / Note to Editors:
Globalworth is a listed real estate company active in Central and Eastern Europe, quoted on the AIM-segment of the London Stock Exchange. It has become the pre-eminent office investor in the CEE real estate market through its market-leading positions both in Romania and in Poland, where the Company currently has a 99.6% shareholding in Globalworth Poland, a pure-play Polish real estate platform listed on the Warsaw Stock Exchange. Globalworth acquires, develops and directly manages high-quality office and logistics/light-industrial real estate assets in prime locations, generating rental income from high quality tenants from around the globe. Managed by nearly 200 professionals across Romania and Poland, the combined value of its portfolio is over €2.5 billion, as at 31 December 2018 and proforma for subsequent acquisitions. Over 90% of the portfolio is in income-producing assets, predominately in the office sector, and leased to a diversified array of some 650 national and multinational corporates. In Romania, Globalworth is present in Bucharest, Timisoara and Pitesti, while in Poland its assets span Warsaw, Wroclaw, Lodz, Krakow, Gdansk and Katowice. For more information, please visit www.globalworth.com and follow us on Facebook, Instagram and LinkedIn.
