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REIT CEO pay leveled off amid weak returns in 2018

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REIT CEO pay leveled off amid weak returns in 2018

Total compensation for chief executives at publicly traded real estate investment trusts plateaued in 2018, and pay for broader executive teams in the sector posted its smallest yearly increase in a decade.

The small increases — driven mostly by long-term incentives and equity grants, rather than salaries, which were roughly flat — coincided with REITs' underperformance of the broader market in 2018, according to FPL Associates, a consulting firm specializing in recruitment and compensation of corporate executives and board members across the real estate industry.

Across the 100 highest-paid CEOs of publicly traded REITs, total pay rose 2.1%, the smallest annual increase over the last 10 years, FPL found. Among those CEOs in the top 100 who were in their positions for both the 2017 and 2018 fiscal years, median pay increased by 6.1%.

For the four highest-paid "named executive officers" per company, total compensation rose 1.1% year over year, the lowest increase since 2008, when the metric fell by 16.2% amid the global financial crisis.

In a year of market volatility, "people hit the pause button a little bit," Jeremy Banoff, vice chairman of FPL, said in an interview.

"There's a lot of volatility in the market, as we all know," he said. While executive compensation in the sector is still at an all-time high, he added, "it just happens that the pace of the increases has really tapered off a little bit this most recent year."

Banoff noted that REITs have outperformed broader markets so far in 2019, which could lead compensation committees to reward top executives more generously this year if the current results hold up.

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The highest-paid REIT CEO for the year was John Kilroy of Kilroy Realty Corp., whose $43.6 million of total compensation represented a 281.7% increase over the prior year.

Kilroy Realty did not respond to requests for comment, but the company said in filings that, as part of a new employment agreement, Kilroy received awards of restricted stock units as an incentive to delay his retirement and "in recognition of the transformation" of the company under his leadership. The roughly $30 million in awards, which were booked as 2018 compensation for accounting purposes, are either time-based or performance-based and will be paid, in full or in part, over the next four years.

Kilroy was one of only two REITs to fail its 2019 say-on-pay vote, along with iStar Inc., FPL noted. The level of shareholder support for Kilroy's compensation of its named executive officers, 15.4%, is among the lowest among all corporations since say-on-pay became effective in the U.S. in 2011.

Hamid Moghadam of Prologis Inc., who received $28.2 million for the year, was the second-highest-paid REIT CEO. He and most of the other members of the top 10, including chief executives at American Tower Corp., SL Green Realty Corp., Welltower Inc. and Macerich Co., are perennial fixtures near the top of the highest-paid list. Debra Cafaro of Ventas Inc., who topped the 2017 CEO pay list for the sector, saw a 48.1% reduction in total compensation in part because the 2018 figure did not include non-recurring awards she received in 2017.

A newcomer to the top 10 list in 2018 was Edward Aldag, CEO of Medical Properties Trust Inc., who was the fifth-highest-earning chief executive for the year. Aldag took home $13.2 million in total compensation, for a 73.7% year-over-year increase.

Medical Properties said in a proxy filing that Aldag and the company's other named executive officers received a time-based equity award outside the annual compensation cycle, to recognize them for "extraordinary value created for stockholders during the year." Aldag's award, of about $3.4 million, vests over a three-year period. The company did not respond to requests for comment.

Several REIT CEOs — a higher number than usual, Banoff said — have adopted alternative pay structures. Beginning in 2019, Moghadam, at Prologis, will receive a $1 base salary, with the remainder, up to his previous base salary of $1 million, awarded in performance-based equity. Similarly, Vornado Realty Trust's CEO and the president of its New York division will receive 80% of their annual base salaries in the form of restricted units.

In the retail REIT subsector, Macerich CEO Thomas O'Hern, whose predecessor Arthur Coppola was the eighth-highest-paid REIT chief executive in 2018, volunteered to reduce his 2019 long-term incentive award by $2 million to fund an incentive bonus pool for other senior executives. For the second straight year, Taubman Centers Inc. CEO Robert Taubman forfeited his annual equity awards in 2018, along with all but 13% of his base salary, citing a focus on shareholder value and the long-term health of the business.

Uniti Group Inc. President and CEO Kenny Gunderman declined to accept more than half of his annual cash incentives for the 2018 fiscal year, opting to allocate the declined portion to employees other than executive officers.