DEF 14A 1 a16-5023_1def14a.htm DEF 14A

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934 (Amendment No.          )

 

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Definitive Proxy Statement

 

 

 

o

 

Definitive Additional Materials

 

 

 

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Soliciting Material under §240.14a-12

 

 

 

 

VENTAS, INC.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

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353 North Clark Street

Suite 3300

Chicago, Illinois 60654

(877) 483-6827

 

March 29, 2016

 

Dear Ventas Stockholder:

 

Please join me and the Board of Directors at our 2016 Annual Meeting of Stockholders, which will be held on Tuesday, May 10, 2016, at our headquarters in Chicago, Illinois. The business we will conduct at the meeting is described in the attached Notice of Annual Meeting of Stockholders and Proxy Statement.

 

We worked hard in 2015 to continue our commitment to stakeholders and once again delivered superior performance through our strong FFO and dividend growth, the continued expansion and success of our business, and the strength and character of our team. These core consistencies are what define Ventas and place us in the top tier of all companies. We welcome the opportunity to present you with the information contained in this Proxy Statement and we hope that, after you review it, you will vote at the meeting (either in person or by proxy) in accordance with our Board of Directors’ recommendations. Your vote is important to us and our business.

 

If you are voting by proxy, please submit your proxy as soon as possible to ensure your vote is recorded at the Annual Meeting. You may vote by telephone, over the Internet or – if you have requested paper copies of our proxy materials by mail – by signing, dating and returning the proxy card in the envelope provided.

 

Our Board of Directors greatly appreciates your investment and continued support.

 

Sincerely,

 

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Debra A. Cafaro

Chairman of the Board and Chief Executive Officer

 



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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

Tuesday, May 10, 2016

 

8:00 a.m., Local (Central) Time

 

James C. Tyree Auditorium, 353 North Clark Street, Chicago, Illinois 60654

 

We are pleased to invite you to join our Board of Directors and senior management for Ventas, Inc.’s 2016 Annual Meeting of Stockholders. The Annual Meeting will be held at 8:00 a.m. local (Central) time on Tuesday, May 10, 2016, in the James C. Tyree Auditorium, located at 353 North Clark Street, Chicago, Illinois 60654. The purposes of the meeting are:

 

1.

to elect the nine director nominees named in the Proxy Statement to serve until the 2017 Annual Meeting of Stockholders;

 

 

2.

to ratify the selection of KPMG LLP as our independent registered public accounting firm for the 2016 fiscal year;

 

 

3.

to hold an advisory vote to approve our executive compensation; and

 

 

4.

to transact such other business as may properly come before the meeting or any adjournments or postponements of the meeting.

 

The Proxy Statement following this Notice describes these matters in detail. We have not received notice of any other proposals to be presented at the Annual Meeting.

 

Our Board of Directors established March 14, 2016 as the record date for the Annual Meeting. Accordingly, holders of record of shares of our common stock as of the close of business on that date are entitled to vote at the Annual Meeting and any postponements or adjournments of the meeting. We will make available to our stockholders, for ten days prior to the Annual Meeting, a list of stockholders entitled to vote. That list will be available for inspection during normal business hours at our principal executive offices located at 353 North Clark Street, Suite 3300, Chicago, Illinois 60654, and it will also be available at the Annual Meeting.

 

Please vote your shares promptly by telephone, over the Internet or, if you have requested paper copies of our proxy materials by mail, by signing, dating and returning the proxy card in the envelope provided. Voting your shares prior to the Annual Meeting will not prevent you from changing your vote in person if you choose to attend the meeting.

 

By Order of the Board of Directors,

 

 

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T. Richard Riney

Executive Vice President, Chief Administrative Officer,

General Counsel and Ethics and Compliance Officer

 

March 29, 2016

Chicago, Illinois

 



Table of Contents

 

TABLE OF CONTENTS

 

 

Page

PROXY SUMMARY

1

2015 Performance

1

2015 Executive Compensation

4

2016 Annual Meeting of Stockholders

7

Proposals Requiring Your Vote

8

Electronic Document Delivery to Stockholders

9

Questions and Answers

9

ANNUAL MEETING INFORMATION

10

Quorum

10

Who Can Vote

10

How to Vote

10

OUR BOARD OF DIRECTORS

11

Criteria for Board Membership

11

Director Independence

12

Leadership Structure and Independent Presiding Director

13

Committees

13

Board and Committee Meetings

14

How to Communicate with Directors

14

AUDIT AND COMPLIANCE COMMITTEE

14

EXECUTIVE COMMITTEE

15

EXECUTIVE COMPENSATION COMMITTEE

15

INVESTMENT COMMITTEE

16

NOMINATING AND CORPORATE GOVERNANCE COMMITTEE

16

CORPORATE GOVERNANCE

17

Governance Policies

17

Transactions with Related Persons

17

Risk Management

17

Public Policy Matters

19

OUR EXECUTIVE OFFICERS

20

EXECUTIVE COMPENSATION

22

Compensation Committee Report

22

Compensation Discussion and Analysis

22

Executive Summary

22

Supplemental Compensation Table Reflecting our Retrospective Long-Term Incentive Plan

25

2015 Advisory Vote on Executive Compensation and Stockholder Outreach

27

Objectives of Our Compensation Program

29

Benchmarking and Comparable Companies

29

Compensation Mix

30

Elements of Our Compensation Program

31

Other Benefits and Perquisites

44

Severance Benefits

45

Tax Considerations

45

Minimum Share Ownership Guidelines for Executive Officers

45

Recoupment Policy

45

Anti-Hedging and Pledging Policy

46

Compensation Tables

47

2015 Summary Compensation Table

47

 



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Page

2015 Grants of Plan-Based Awards Table

48

2015 Outstanding Equity Awards at Fiscal Year-End Table

49

2015 Options Exercised and Stock Vested Table

50

Employment and Severance Agreements with Named Executive Officers

50

Potential Payments Upon Termination or Change of Control

55

NON-EMPLOYEE DIRECTOR COMPENSATION

58

Cash Compensation

58

Equity-Based Compensation

58

Review of Non-Employee Director Compensation

59

Minimum Share Ownership Guidelines for Non-Employee Directors

59

2015 Non-Employee Director Compensation Table

59

EQUITY COMPENSATION PLAN INFORMATION

60

SECURITIES OWNERSHIP

61

Directors, Director-Nominees and Executive Officers

61

Principal Stockholders

62

Section 16(a) Beneficial Ownership Reporting Compliance

63

PROPOSALS REQUIRING YOUR VOTE

63

Proposal 1: Election of Directors

63

Proposal 2: Ratification of the Selection of KPMG as Our Independent Registered Public Accounting Firm for Fiscal Year 2016

68

Proposal 3: Advisory Vote to Approve Our Executive Compensation

70

QUESTIONS AND ANSWERS; OTHER INFORMATION

73

Questions and Answers

73

Other Information

74

REQUIREMENTS FOR SUBMISSION OF STOCKHOLDER PROPOSALS, DIRECTOR NOMINATIONS AND OTHER BUSINESS

74

ADDITIONAL INFORMATION

75

ANNEX A: NON-GAAP FINANCIAL MEASURES RECONCILIATION

A-1

 



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PROXY STATEMENT

 

PROXY STATEMENT SUMMARY

 

We prepared the following summary to highlight important information you will find in this Proxy Statement regarding our 2015 performance and the matters to be considered at the 2016 Annual Meeting of Stockholders. As it is only a summary, please review our Annual Report on Form 10-K for the year ended December 31, 2015 (which we refer to as our “2015 Form 10-K”) and the other information contained in this Proxy Statement before you vote. This Proxy Statement and the materials accompanying it are first being sent to stockholders on or about March 29, 2016.

 

 

2015 Performance*

 

Financial and Operating Performance Highlights

 

In 2015, we made two key strategic decisions that have us well-positioned to continue delivering outstanding long-term value to our stockholders.  We completed the spin-off (“Spin-off”) of over $4 billion of our post-acute/skilled nursing facility portfolio into an independent, publicly traded pure-play REIT called Care Capital Properties, Inc. (“CCP”).  The Spin-off has been well-received by our stockholders and in 2016 we are already realizing the benefits of the strategic and forward-thinking actions we took in 2015.

 

In addition, we entered the hospital market through our investment in the real estate of Ardent Medical Services (“Ardent”), a top 10 investor-owned hospital company.  This was a long-term strategic initiative for us and provides a platform for future growth.

 

We achieved outstanding financial and operating results, including comparable normalized Funds From Operations (“FFO”) growth of 9%, after arithmetically adjusting to exclude the impact of the Spin-off. We also achieved record cash flow from operations of $1.4 billion.

 

For the period from January 1, 2000 through December 31, 2015 (the 16 completed fiscal years of our Chief Executive Officer’s tenure), we delivered compound annual total stockholder return (“TSR”) of over 26%, outperforming the S&P 500 index and the RMS index and ranking us first among our compensation peer group. For the one-year period ended December 31, 2015, our TSR placed us first among the three large-cap diversified healthcare REITs.

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__________

 

*      See Annex A for reconciliations of certain financial measures presented in this Proxy Statement to the most directly comparable measure computed in accordance with U.S generally accepted accounting principles (“GAAP”).

 

 

 

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Strategic Spin-off of CCP

 

We completed the Spin-off of most of our post-acute/skilled nursing facility portfolio to CCP.  The Spin-off was executed on a tax-efficient basis and has improved the quality of our portfolio, reliability of our cash flow and our relative equity multiple (among the large-cap diversified healthcare REITs).  Following the completion of the Spin-off, we have an outstanding portfolio consisting of nearly 1,300 properties, sector-leading private pay net operating income (“NOI”) composition and NOI contribution from top-tier operators. At the same time, we have maintained our diversification, scale, strong balance sheet and excellent dividend and cash flow growth.

 

Investment Highlights, Including Entry into Hospital Sector

 

We completed over $5 billion of attractive, accretive investments in seniors housing and healthcare assets. We entered the hospital market through our investment in $1.3 billion of real estate networks of sites in three key markets operated by Ardent, a top 10 investor-owned and well-capitalized hospital company. This transaction provided unlevered returns of over 8% and serves as a platform for future growth.

 

 

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Portfolio Highlights

 

We achieved industry-leading same-store cash flow growth of 3.8%. In 2015, our proceeds from asset sales and loan repayments exceeded $700 million.

 

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Balance Sheet and Liquidity Highlights

 

In 2015, we maintained our significant financial strength and flexibility and improved our attractive cost of capital through efficient and nimble issuance of debt and equity capital, including:

 

ü    the issuance of $2.8 billion in equity at an average price of over $76 per share (the majority of which was issued prior to the Spin-off);

 

ü    the issuance and sale of $1.6 billion aggregate principal amount of senior notes with a weighted average interest rate of 3.9% and a weighted average term of 13 years;

 

ü    the completion of a $900 million five-year term loan having a variable interest rate of LIBOR plus 97.5 basis points; and

 

ü    the reaffirmation of our BBB+ credit ratings.

 

These transactions strengthened our liquidity, lengthened and further staggered our debt maturities and lowered our effective annual interest rate. We ended the year with a strong balance sheet and liquidity position.

 

 

 

 

 

 

 

 

 

 

 

 

 

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2015 Executive Compensation

 

Our executive compensation programs are designed to attract, retain and motivate talented executives, to reward executives for the achievement of pre-established company and tailored individual goals consistent with our strategic plan and to link compensation to company performance. We compensate our executives primarily through base salary, annual cash incentive compensation and long-term equity incentive compensation. Our executive compensation philosophy emphasizes performance-based incentive compensation over fixed cash compensation, so that the vast majority of total direct compensation is variable and not guaranteed. In addition, a significant percentage of our incentive compensation is in the form of equity awards granted to reward past performance. Even though these equity awards are fully earned for performance that has already been achieved at the time of grant, a substantial portion of the awards vests over time to provide additional retention benefits and create greater alignment with stockholders. We believe this structure appropriately focuses our executive officers on the creation of long-term value and encourages prudent evaluation of risks.

 

 

 

 

 

 

 

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2015 Executive Compensation Decisions

 

In 2015, our compensation decisions once again reflected strong alignment between pay and performance. In determining the incentive compensation paid to our Named Executive Officers for 2015, our Executive Compensation Committee (the “Compensation Committee”) and, in the case of our Chief Executive Officer, the independent members of our Board of Directors (the “Board”) rigorously evaluated company and individual performance relative to the pre-established measures and goals under our annual cash and long-term equity incentive plans.  In 2015, we delivered excellent strategic, financial and operating performance, including industry-leading comparable FFO growth, same-store cash flow growth and fixed charge coverage.  However, along with the other two large-cap diversified healthcare REITs, we delivered total stockholder return in the bottom quartile among our 16-company peer group for the one- and three-year periods ended December 31, 2015, resulting in zero payout for the TSR metrics, which represent 35% of our long-term incentive plan.

 

Regarding qualitative performance criteria, our Compensation Committee and Board considered all of the factors established under our executive compensation program for 2015 (the “2015 Plan”) and other relevant factors and placed the greatest significance on our:

 

 

 

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ü

excellent strategic decision-making regarding the tax-efficient Spin-off and its outstanding execution;

 

 

 

 

ü

entry into the hospital market, a long-term strategic objective of the Company, with Ardent, a top 10 hospital company, including the simultaneous structuring and sale of the Ardent hospital operating company;

 

 

 

 

ü

closing of over $5 billion of accretive acquisitions;

 

 

 

 

ü

delivery of sector-leading same-store cash flow growth;

 

 

 

 

ü

improved relative equity multiple (among the large-cap diversified healthcare REITs) and issuance of $2.8 billion in equity capital at over $76 per share (the majority of which was issued prior to the Spin-off);

 

 

 

 

ü

generation and receipt of over $700 million in sales proceeds and loan repayments;

 

 

 

 

ü

enhanced investor messaging and outreach, including holding a very successful inaugural Investor Day;

 

 

 

 

ü

realignment of the executive management team following the Spin-off, with improved organizational efficiency and effectiveness; and

 

 

 

 

ü

successful issuance of long-term (13-year average) debt at attractive (under 4%) all-in pricing.

 

 

 

The graph below illustrates our long-term pay-for-performance alignment by comparing our Chief Executive Officer’s total direct compensation to our TSR performance (indexed to a 2010 base year) for each of the past five years.

 

 

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This graph differs from compensation reported in the 2015 Summary Compensation Table in that it aligns the value of long-term equity incentive awards with the performance year for which they were earned, rather than the year in which they were granted (e.g., long-term equity incentive awards granted in January 2016 for 2015 performance are shown in the graph as 2015 compensation), consistent with the manner in which our Compensation Committee and, in the case of our Chief Executive Officer, the independent members of our Board, evaluate compensation and pay-for-performance.

 

2015 Annual Cash Incentive Awards

 

For 2015, annual cash incentive awards were based on our performance with respect to pre-established company financial goals. For our Named Executive Officers (other than Mr. Lillibridge) the goals were normalized FFO per share, excluding non-cash items (50% of the target award opportunity), fixed charge coverage ratio at year end (15%), and the achievement of individual objectives tailored for each Named Executive Officer (35%).  For Mr. Lillibridge, the goals were normalized FFO per share, excluding non-cash items (27% of the target award opportunity), fixed charge coverage ratio at year end (8%), segment-specific objectives (40%) and the achievement of individual objectives (25%).

 

As further explained in the “Compensation Discussion and Analysis” section below, our performance in 2015 with respect to these metrics resulted in cash incentive awards granted to our Named Executive Officers between the target and maximum levels.

 

2015 Long-Term Equity Incentive Awards

 

For 2015, long-term equity incentive awards were based on our performance with respect to pre-established quantitative measures, specifically one- and three-year relative TSR and a risk management measure, net debt to adjusted pro forma EBITDA, at year end (which together accounted for 50% of the long-term equity incentive award opportunity), and a qualitative evaluation of our performance with respect to pre-established financial, operational and strategic objectives (which accounted for the remaining 50% of the long-term equity incentive award opportunity).

 

As further explained in the “Compensation Discussion and Analysis” section below, our performance in 2015 with respect to these metrics resulted in long-term equity incentive awards granted to our Named Executive Officers for 2015 performance that approximated the threshold level.

 

2015 Compensation Practices at a Glance

 

 

 

ü    DO provide executive officers with the opportunity to earn market-competitive compensation through a mix of cash and equity compensation, with a strong emphasis on performance-based incentive awards

 

û    DO NOT base incentive awards on a single performance measure, thereby discouraging unnecessary or excessive risk-taking

 

 

 

ü    DO have a robust peer selection process and benchmark executive compensation to target the median of our comparative group of peer companies

 

û    DO NOT provide guaranteed minimum payouts or uncapped award opportunities

 

 

 

ü    DO evaluate relative TSR when determining performance under incentive awards to enhance stockholder alignment

 

û    DO NOT have employment agreements with executive officers that provide single-trigger change of control benefits

 

 

 

ü    DO require executive officers and directors to own and retain shares of our common stock with significant value to further align interests with our stockholders

 

û    DO NOT permit new tax gross-up arrangements under our anti-tax gross-up policy and do not provide our Chief Executive Officer with tax gross-ups with respect to payments made in connection with a change of control

 

 

 

ü    DO enhance executive officer retention with time-based vesting schedules for equity incentive awards earned for prior-year performance

 

û    DO NOT permit liberal share recycling under our 2012 Incentive Plan

 

 

 

ü    DO enable Board to “claw back” incentive compensation in the event of a financial restatement pursuant to recoupment policy

 

û    DO NOT permit executive officers or directors to engage in derivative or other hedging transactions in our securities

 

 

 

ü    DO align pay and performance by linking a substantial portion of compensation to the achievement of pre-established performance measures that drive stockholder value

 

û    DO NOT provide executive officers with pension or retirement benefits other than pursuant to a broad-based 401(k) plan and do not provide executive officers with excessive perquisites or other personal benefits

 

 

 

 

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ü    DO maintain a Compensation Committee comprised solely of independent directors

 

û    DO NOT permit repricing of underwater stock options or granting of discounted stock options or SARs

 

 

 

ü    DO engage an independent compensation consultant to advise the Compensation Committee on executive compensation matters

 

û    DO NOT permit executive officers or directors to pledge or hold our securities in margin accounts without preapproval by the Audit Committee (no executive officer or director did so at any time during 2015)

 

 

 

2016 Annual Meeting of Stockholders

 

Voting and Meeting Information

 

You are entitled to vote at the 2016 Annual Meeting of Stockholders if you were a stockholder of record at the close of business on March 14, 2016, the record date for the meeting. On the record date, there were 336,206,400 shares of common stock issued and outstanding and entitled to vote at the meeting.

 

Information regarding the meeting date and location is set forth below.

 

When: Tuesday, May 10, 2016, 8:00 a.m. local (Central) time

 

Where: James C. Tyree Auditorium, 353 North Clark Street, Chicago, Illinois 60654

 

You may vote at the Annual Meeting through any of the following methods:

 

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Vote by Telephone:  Call (800) 690-6903, 24 hours a day, seven days a week through May 9, 2016

 

 

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Vote on the Internet:  Visit www.proxyvote.com, 24 hours a day, seven days a week through May 9, 2016

 

 

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Vote by Mail:  Request, complete and return a copy of the proxy card in the postage-paid envelope provided

 

 

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Vote in Person:  Request, complete and deposit a copy of the proxy card or complete a ballot at the Annual Meeting

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Proposals Requiring Your Vote

 

Proposal 1 — Election of Directors (see page 60)

 

The following table provides summary information about our nine director-nominees, each of whom currently serves on our Board. Age is as of the date of the 2016 Annual Meeting. Directors are elected annually by a majority of votes cast in uncontested elections. Our Board recommends that you vote FOR each of the named director-nominees.

 

 

 

 

 

 

 

Name

Age

 

Director

 

since

Primary Position

Current

 

Committees**

Principal Skills

 

 

 

Melody C. Barnes*

52

2014

Co-Founder and Principal of MB Squared Solutions LLC and Chair, Aspen Institute Forum for Community Solutions

 

N

Public Policy, Government Relations, Strategic Planning, Leadership Development

 

 

 

Debra A. Cafaro

58

1999

Chairman and CEO of Ventas

E; I

Real Estate Industry, Corporate Finance, Mergers and Acquisitions, Capital Markets, Strategic Planning

 

 

 

Jay M. Gellert*

62

2001

President and CEO of Health Net, Inc.

C; I

Healthcare Industry, Mergers and Acquisitions, Strategic Planning, Government Relations, Executive Compensation

 

 

 

Richard I. Gilchrist*

70

2011

Senior Advisor to The Irvine Company and Chairman of TIER REIT, Inc.

 

C; N

Real Estate Industry, Mergers and Acquisitions, Strategic Planning, Executive Compensation, Corporate Governance

 

 

 

Matthew J. Lustig*

55

2011

Managing Partner of North America Investment Banking and Head of Real Estate, Gaming and Lodging at Lazard Frères & Co. LLC

 

E; I

Real Estate Industry, Corporate Finance, Mergers and Acquisitions, Capital Markets, Strategic Planning, International Transactions

 

 

 

Douglas M. Pasquale*

61

2011

Founder and CEO of Capstone Enterprises Corporation; former CEO of Nationwide Health Properties, Inc.

 

I

Real Estate Industry, Healthcare Industry, Corporate Finance, Mergers and Acquisitions, Strategic Planning

 

 

 

Robert D. Reed*

63

2008

Former Senior Vice President and Chief Financial Officer of Sutter Health

 

A; E

Healthcare Industry, Corporate Finance, Strategic Planning, Capital Intensive Operations, Pension Fund Investments

 

 

 

Glenn J. Rufrano*

 

66

2010

CEO of VEREIT, Inc.

A

Real Estate Industry, Corporate Finance, Strategic Planning, International Operations

 

 

 

James D. Shelton*

62

2008

Senior Advisor to CCMP Capital Advisors, LLC and Former Chairman of Omnicare, Inc.

E; N

Healthcare Industry, Mergers and Acquisitions, Strategic Planning, Capital Intensive Operations, Government Relations, Executive Compensation, Corporate Governance

 

 

 

 

 

 

 

*

Independent Director

 

 

 

 

 

 

 

 

**

Abbreviations: A = Audit and Compliance; C = Executive Compensation; E = Executive; I = Investment; N = Nominating and Corporate Governance.  Bold print indicates committee chair.

 

 

 

 

 

 

 

Proposal 2 — Ratification of the Selection of KPMG LLP as Our Independent Registered Public Accounting Firm for Fiscal Year 2016 (see page 65)

 

 

 

 

 

 

 

KPMG audited our financial statements for the year ended December 31, 2015 and has been our independent registered public accounting firm since July 2014. Our Board recommends that you vote FOR the ratification of the selection of KPMG LLP as our independent registered public accounting firm for fiscal year 2016.

 

 

 

 

 

 

 

Proposal 3 — Advisory Vote to Approve Our Executive Compensation (see page 67)

 

 

 

 

 

 

 

We submit an advisory vote to approve our executive compensation to our stockholders on an annual basis. Because your vote is advisory, it will not be binding on the Board or our Compensation Committee. However, your vote is important because it will be taken into account when making future decisions relating to executive compensation.

 

 

 

 

 

 

 

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Our executive compensation programs are designed to attract, retain and motivate talented executives, to reward executives for the achievement of pre-established Company and tailored individual goals consistent with our strategic plan and to link compensation to Company performance. We compensate our executives primarily through base salary, annual cash incentive compensation and long-term equity incentive compensation. Our executive compensation philosophy emphasizes performance-based incentive compensation over fixed cash compensation, so that the vast majority of total direct compensation is variable and not guaranteed. In addition, a significant percentage of incentive compensation is in the form of equity awards granted to reward past performance. Even though these equity awards are fully earned for performance that has already been achieved at the time of grant, a substantial portion of the awards vests over time to provide additional retention benefits and create greater alignment with stockholders. We believe this structure appropriately focuses our executive officers on the creation of long-term value and encourages prudent evaluation of risks.

 

Our Compensation Committee and, with respect to our Chief Executive Officer, the independent members of our Board have carefully evaluated our overall executive compensation program and believe that it is well designed to achieve our objectives of retaining talented executives and rewarding superior performance in the context of our business risk environment. By maintaining a performance- and achievement-oriented environment that provides the opportunity to earn market-competitive levels of compensation, we believe that our executive compensation program is structured optimally to support our goal to deliver sustained, superior returns to stockholders, and our exceptional long-term performance demonstrates the success of this program. For these reasons, our Board recommends that you vote FOR the approval, on an advisory basis, of our executive compensation.

 

Electronic Document Delivery to Stockholders

 

Instead of receiving future copies of our Notice of Annual Meeting, Proxy Statement and Annual Report by mail, stockholders of record and most beneficial owners may elect to receive an e-mail that will provide electronic links to these documents. Electronic document delivery saves us the cost of producing and mailing documents and will give you an electronic link to the proxy voting site. It is also more environmentally friendly.

 

We are making this Proxy Statement and the materials accompanying it available to our stockholders via the Internet, as permitted by Securities and Exchange Commission (“SEC”) rules. We will mail to stockholders a Notice of Internet Availability containing instructions on how to access our proxy materials and how to vote by proxy online. Starting on or about March 29, 2016, we will also mail this Proxy Statement and the materials accompanying it to stockholders who have requested paper copies. If you would like to receive a printed copy of our proxy materials by mail, you should follow the instructions for requesting those materials included in the Notice that we mail to you.

 

IMPORTANT NOTICE REGARDING INTERNET AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING TO BE HELD ON MAY 10, 2016:

 

This Proxy Statement, our 2015 Form 10-K and our 2015 Annual Report are available at

www.proxyvote.com.

 

Questions and Answers

 

More information about proxy voting, proxy materials and attending the Annual Meeting can be found in the “Questions and Answers” section of this Proxy Statement.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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ANNUAL MEETING INFORMATION

 

Quorum

 

The holders of a majority of the shares of our common stock outstanding as of the close of business on the record date for the Annual Meeting, March 14, 2016, must be present in person or represented by proxy to constitute a quorum to transact business at the Annual Meeting. Stockholders who abstain from voting and broker non-votes are counted for purposes of establishing a quorum. A broker non-vote occurs when a beneficial owner does not provide voting instructions to the beneficial owner’s broker or custodian with respect to a proposal on which the broker or custodian does not have discretionary authority to vote.

 

Who Can Vote

 

Only Ventas stockholders of record at the close of business on the record date are entitled to vote at the Annual Meeting. As of that date, 336,206,400 shares of our common stock, par value $0.25 per share, were outstanding. Each share of our common stock entitles the owner to one vote on each matter properly brought before the Annual Meeting. However, certain shares designated as “Excess Shares” (generally any shares owned by a beneficial owner in excess of 9.0% of our outstanding common stock) or as “Special Excess Shares” pursuant to our Amended and Restated Certificate of Incorporation, as amended (our “Charter”), may not be voted by the record owner of those shares and will be voted in accordance with Article IX of our Charter.

 

A list of all stockholders entitled to vote at the Annual Meeting will be available for inspection by any stockholder for any purpose reasonably related to the meeting at the Annual Meeting and during ordinary business hours for the ten days preceding the meeting at our principal executive offices located at 353 North Clark Street, Suite 3300, Chicago, Illinois 60654.

 

How to Vote

 

You may vote your shares in one of several ways, depending on how you own your shares:

 

Stockholders of Record

 

If you own shares registered in your name (a “stockholder of record”), you may:

 

GRAPHIC

 

Vote your shares by proxy by calling (800) 690-6903, 24 hours a day, seven days a week until 11:59 p.m. Eastern time on May 9, 2016. Please have your proxy card in hand when you call. The telephone voting system has easy-to-follow instructions and provides confirmation that the system has properly recorded your vote.

 

 

 

 

 

OR

 

 

 

GRAPHIC

 

Vote your shares by proxy via the website www.proxyvote.com, 24 hours a day, seven days a week until 11:59 p.m. Eastern time on May 9, 2016. Please have your proxy card in hand when you access the website. The website has easy-to-follow instructions and provides confirmation that the system has properly recorded your vote.

 

 

 

 

 

OR

 

 

 

GRAPHIC

 

If you have requested or receive paper copies of our proxy materials by mail, vote your shares by proxy by signing, dating and returning the proxy card in the postage-paid envelope provided. If you vote by telephone or over the Internet, you do not need to return your proxy card by mail.

 

 

 

 

 

OR

 

 

 

GRAPHIC

 

Vote your shares by attending the Annual Meeting in person and depositing your proxy card at the registration desk (if you have requested paper copies of our proxy materials by mail) or completing a ballot that will be distributed at the Annual Meeting.

 

Beneficial Owners

 

If you own shares registered in the name of a broker, bank or other custodian (a “beneficial owner”), follow the instructions provided by your broker, bank or custodian to instruct it how to vote your shares. If you want to vote your shares in person at the Annual Meeting, contact your broker, bank or custodian to obtain a legal proxy or broker’s proxy card that you should bring to the Annual Meeting to demonstrate your authority to vote.

 

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If you do not instruct your broker, bank or custodian how to vote, it will have discretionary authority, under current New York Stock Exchange (“NYSE”) rules, to vote your shares in its discretion on the ratification of the selection of KPMG LLP as our independent registered public accounting firm for fiscal year 2016 (Proposal 2). However, your broker, bank or custodian will not have discretionary authority to vote on the election of directors (Proposal 1) or the advisory vote to approve our executive compensation (Proposal 3) without instructions from you. As a result, if you do not provide instructions to your broker, bank or custodian, your shares will not be voted on Proposal 1 or Proposal 3.

 

Votes by Proxy

 

All shares that have been properly voted by proxy and not revoked will be voted at the Annual Meeting in accordance with the instructions contained in the proxy. Shares represented by proxy cards that are signed and returned, but do not contain any voting instructions will be voted consistent with the Board’s recommendations:

 

ü

 

FOR the election of all director-nominees named in this Proxy Statement (Proposal 1);

 

 

 

ü

 

FOR the ratification of the selection of KPMG LLP as our independent registered public accounting firm for fiscal year 2016 (Proposal 2);

 

 

 

ü

 

FOR the approval, on an advisory basis, of our executive compensation (Proposal 3); and

 

 

 

ü

 

In the discretion of the proxy holders, on such other business as may properly come before the Annual Meeting.

 

OUR BOARD OF DIRECTORS

 

Our Board provides guidance and oversight with respect to our financial and operating performance, strategic plans, key corporate policies and decisions and enterprise risk management. Among other matters, our Board considers and approves significant acquisitions, dispositions and other transactions and advises and counsels senior management on key financial and business objectives. Members of the Board monitor our progress with respect to these matters on a regular basis, including through presentations made at Board and committee meetings by our Chief Executive Officer, Chief Financial Officer, Chief Investment Officer and other members of senior management.

 

Criteria for Board Membership

 

Our Guidelines on Governance set forth the process by which our Nominating and Corporate Governance Committee (the “Nominating Committee”) identifies and evaluates nominees for Board membership. In accordance with this process, the Nominating Committee annually considers and recommends to the Board a slate of directors for election at the next annual meeting of stockholders. In selecting this slate, the Nominating Committee considers the following: incumbent directors who have indicated a willingness to continue to serve on our Board; candidates, if any, nominated by our stockholders; and other potential candidates identified by the Nominating Committee. Additionally, if at any time during the year a seat on the Board becomes vacant or a new seat is created, the Nominating Committee considers and recommends to the Board a candidate for appointment to fill the vacant or newly-created seat.

 

The Nominating Committee considers different perspectives, skill sets, education, ages, genders, ethnic origins and business experience in its annual nomination process. In general, the Nominating Committee seeks to include on our Board a complementary mix of individuals with diverse backgrounds, knowledge and viewpoints reflecting the broad set of challenges that the Board confronts without representing any particular interest group or constituency. The Nominating Committee regularly reviews the size and composition of the Board on a holistic basis, utilizing a rigorous matrix of identified skills, experiences and other criteria for maintaining an excellent, independent Board in light of our changing requirements and seeks nominees who, taken together as a group, possess the skills, diversity and expertise appropriate for an effective Board.

 

The Nominating Committee also monitors the average tenure of our Board members and seeks to achieve a variety of director tenures in order to benefit from long-tenured directors’ institutional knowledge and newly-elected directors’ fresh perspectives.  Following the completion of our Spin-off, the Nominating Committee and the Board has taken the opportunity to refresh the composition of the Board, with our two longest-tenured directors departing from the Board.

 

The Nominating Committee seeks to recommend candidates that have adequate time to devote to Board activities, recognizing that public company board of directors responsibilities command a significant portion of directors’

 

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time.  As a result, during March 2016, the Nominating Committee recommended, and the Board approved, an overboarding policy that prohibits directors from simultaneously serving on more than four public company boards other than the Company’s.

 

In evaluating potential director candidates, the Nominating Committee considers, among other factors, the experience, qualifications and attributes listed below and any additional characteristics that it believes one or more directors should possess, based on an assessment of the needs of our Board at that time. Our Guidelines on Governance provide that, in general, nominees for membership on the Board should:

 

ü

 

have demonstrated management or technical ability at high levels in successful organizations;

 

 

 

ü

 

have experience relevant to our operations, such as real estate, REITs, healthcare, finance or general management;

 

 

 

ü

 

be well-respected in their business and home communities;

 

 

 

ü

 

have time to devote to Board duties; and

 

 

 

ü

 

be independent from us and not related to our other directors or employees.

 

In addition, our directors are expected to be active participants in governing our enterprise, and our Nominating Committee looks for certain characteristics common to all Board members, including integrity, independence, leadership ability, constructive and collegial personal attributes, candor and the ability and willingness to evaluate, challenge and stimulate.

 

No single factor or group of factors is necessarily dispositive of whether a candidate will be recommended by our Nominating Committee. The Nominating Committee considers and applies these same standards in evaluating individuals recommended for nomination to our Board by our stockholders in accordance with the procedures described in this Proxy Statement under “Requirements for Submission of Stockholder Proposals, Director Nominations and Other Business.” Our Board’s satisfaction of these criteria is implemented and assessed through ongoing consideration of directors and nominees by the Nominating Committee and the Board, as well as the Board’s annual self-evaluation process. Based upon these activities, our Nominating Committee and our Board believe that the director-nominees named in this Proxy Statement satisfy these criteria.

 

We have from time to time retained search firms and other third parties to assist us in identifying potential candidates based on specific criteria that we provided to them, including the qualifications described above. We may retain search firms and other third parties on similar or other terms in the future.

 

Director Independence

 

Our Guidelines on Governance require that at least a majority of the members of our Board meet the criteria for independence under the rules and regulations of the NYSE. For a director to be considered independent under the NYSE’s listing standards, the director must satisfy certain bright-line tests, and the Board must affirmatively determine that the director has no direct or indirect material relationship with us. Not less than annually, our Board evaluates the independence of each non-management director on a case-by-case basis by considering any matters that could affect his or her ability to exercise independent judgment in carrying out the responsibilities of a director, including all transactions and relationships between that director, members of his or her family and organizations with which that director or family members have an affiliation, on the one hand, and us, our subsidiaries and our management, on the other hand. Any such matters are evaluated from the standpoint of both the director and the persons or organizations with which the director has an affiliation. Each director abstains from participating in the determination of his or her independence.

 

Based on its most recent review, the Board has affirmatively determined that each of the following directors has no direct or indirect material relationship with us and qualifies as independent under the NYSE’s listing standards: Melody C. Barnes, Douglas Crocker II, Jay M. Gellert, Richard I. Gilchrist, Matthew J. Lustig, Douglas M. Pasquale, Robert D. Reed, Glenn J. Rufrano and James D. Shelton. Ms. Cafaro is not considered independent under the NYSE listing standards due to her employment as our Chief Executive Officer.

 

In evaluating the independence of Mr. Pasquale, the Board considered his employment with us following our acquisition of Nationwide Health Properties, Inc. (“NHP”) in July 2011. Prior to the acquisition, Mr. Pasquale was Chief Executive Officer of NHP, and he served as Senior Advisor to our Chief Executive Officer from July 1, 2011 through December 31, 2011 to facilitate the integration of NHP with our company. Under the NYSE listing standards, Mr.

 

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Pasquale’s former employment relationship with us ceased to impair his independence on January 1, 2015. The Board believes that this former employment relationship will not affect Mr. Pasquale’s ability to exercise independent judgment in carrying out his responsibilities as a member of our Board.

 

In evaluating the independence of Mr. Reed, the Board considered our ownership of two medical office buildings (“MOBs”) that are 100% leased by Sutter Health and generated approximately $6.5 million of rent in 2015. The Board also considered our $170 million development project affiliated with Sutter Health in which Sutter Health is a tenant. Until his retirement on January 1, 2015, Mr. Reed served as Senior Vice President and Chief Financial Officer of Sutter Health, which has annual revenues in excess of $9 billion. The Board believes that these business transactions are not considered to be material and this former employment relationship will not affect Mr. Reed’s ability to exercise independent judgment in carrying out his responsibilities as a member of our Board. See also “Corporate Governance—Transactions with Related Persons.”

 

Leadership Structure and Independent Presiding Director

 

Our Board recognizes that one of its key responsibilities is to evaluate and determine its optimal leadership structure so as to provide effective oversight of management and a fully engaged, high-functioning Board. The Board understands that no single approach to Board leadership is universally accepted and that the appropriate leadership structure may vary based on a company’s size, industry, operations, history and culture. Consistent with this understanding, our Board, led by our Nominating Committee, annually assesses its leadership structure in light of our operating and governance environment at the time to achieve the optimal model for us and for our stockholders. Following its most recent review, the Board has determined that our existing leadership structure—under which our Chief Executive Officer also serves as Chairman of the Board and a Presiding Director assumes specific responsibilities on behalf of the independent directors—is effective, provides the appropriate balance of authority between those persons charged with overseeing our company and those who manage it on a day-to-day basis and achieves the optimal governance model for us and for our stockholders.

 

Under our Fourth Amended and Restated By-Laws, as amended (our “By-Laws”), and our Guidelines on Governance, our Board has discretion to determine whether to separate or combine the roles of Chief Executive Officer and Chairman of the Board as part of its leadership structure evaluation. Ms. Cafaro has served in both capacities since 2003, and our Board continues to believe that her combined role is most advantageous to us and our stockholders. Ms. Cafaro possesses extensive knowledge of the issues, opportunities and risks facing us, our business and our industry and has consistently demonstrated the vision and leadership necessary to focus the Board’s time and attention on the most critical matters and to facilitate constructive dialogue among Board members on strategic issues. Moreover, the combined roles enable decisive leadership, clear accountability and consistent communication of our message and strategy to all of our stakeholders. These leadership attributes are uniquely important to our company given the value to our business of opportunistic capital markets execution, our history of rapid and significant growth, and our culture of proactive engagement and risk management.

 

In connection with Ms. Cafaro’s service as our Chief Executive Officer and Chairman of the Board, our Guidelines on Governance require that the independent members of our Board annually select one independent director to serve as Presiding Director, whose specific responsibilities include, among other things, presiding at all meetings of our Board at which the Chairman is not present, including executive sessions and all other meetings of the independent directors. The Presiding Director also serves as liaison between the Chairman and the independent directors, approves information sent to the Board and approves Board meeting agendas and meeting schedules to assure that there is sufficient time for discussion of all agenda items. The Presiding Director has authority to call meetings of the independent directors and, if requested by major stockholders, ensures that he or she is available for consultation and direct communication with stockholders. In addition, the Presiding Director reviews with our General Counsel potential conflicts of interest and has such other duties as may be assigned from time to time by the independent directors or the Board. Although the Presiding Director is elected on an annual basis, the Board generally expects that he or she will serve for more than one year. Douglas Crocker II, a well-respected and recognized leader in the real estate industry, has served as our Presiding Director since 2003.

 

Committees

 

Our Board has five standing committees that perform certain delegated functions for the Board: the Audit and Compliance Committee (the “Audit Committee”); the Compensation Committee; the Executive Committee; the Investment Committee; and the Nominating Committee. Each of the Audit, Compensation and Nominating Committees operates under a written charter that is available in the Corporate Governance section of our website at  www.ventasreit.com/investor-relations/corporate-governance . We also provide copies of the Audit, Compensation and

 

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Nominating Committee charters, without charge, upon request to our Corporate Secretary at Ventas, Inc., 353 North Clark Street, Suite 3300, Chicago, Illinois 60654. Information on our website is not a part of this Proxy Statement. Additional details regarding the five standing committees of our Board are described below.

 

Board and Committee Meetings

 

Our Board held a total of eight meetings during 2015. Evidencing a strong commitment to our company, each director attended at least 75% of the total meetings of the Board and the committees on which he or she served that were held during 2015. The table below provides current membership and 2015 meeting information for each of our Board committees:

 

Name

Audit
Committee

Compensation
Committee

Executive
Committee

Investment
Committee

Nominating
Committee

 

 

 

 

 

 

Melody C. Barnes*

 

 

 

 

Member

Debra A. Cafaro

 

 

Member

Member

 

Douglas Crocker II*

Member

Member

Member

Chair

 

Jay M. Gellert*

 

Chair

 

Member

 

Richard I. Gilchrist*

 

Member

 

 

Member

Matthew J. Lustig*

 

 

Member

Member

 

Douglas M. Pasquale*

 

 

 

Member

 

Robert D. Reed*

Chair

 

Member

 

 

Glenn J. Rufrano*

Member

 

 

 

 

James D. Shelton*

 

 

Chair

 

Chair

Total Meetings in 2015

4

6

0

3

3

 

* Independent Director

 

 Presiding Director

 

Our independent directors meet in executive session, outside the presence of management, at each regularly scheduled quarterly Board meeting and at other times as necessary or desirable. The Presiding Director (currently Mr. Crocker) chairs all regularly scheduled executive sessions of the Board and all other meetings of the independent directors. Members of our Audit, Compensation and Nominating Committees also meet in executive session, outside the presence of management, at each regularly scheduled committee meeting and at other times as necessary or desirable.

 

We strongly encourage, but do not require, directors to attend our annual meetings of stockholders. All eleven of our directors who were nominated for reelection at our 2015 Annual Meeting of Stockholders attended that meeting.

 

How to Communicate with Directors

 

Stockholders and other parties interested in communicating directly with our Board or any director on Board-related issues may do so by writing to Board of Directors, c/o Corporate Secretary, Ventas, Inc., 353 North Clark Street, Suite 3300, Chicago, Illinois 60654, or by submitting an e-mail to bod@ventasreit.com. Additionally, stockholders and other parties interested in communicating directly with the Presiding Director of the Board or with the independent directors as a group may do so by writing to Presiding Director, Ventas, Inc., 353 North Clark Street, Suite 3300, Chicago, Illinois 60654, or by sending an e-mail to independentbod@ventasreit.com. Communications addressed to our Board or individual members of the Board are screened by our Corporate Secretary for appropriateness before distributing to the Board, or to any individual director or directors, as applicable.

 

AUDIT AND COMPLIANCE COMMITTEE

 

Our Audit Committee assists our Board in fulfilling its responsibilities relating to our accounting and financial reporting practices, including oversight of the quality and integrity of our financial statements; our compliance with legal and regulatory requirements; the qualifications, independence and performance of our independent registered public accounting firm and the performance of our internal audit function.

 

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The Audit Committee maintains free and open communication with the Board, our independent registered public accounting firm, our internal auditor and our financial and accounting management. Our Audit Committee meets separately in executive session, outside the presence of management, with each of our independent registered public accounting firm and our internal auditor at each regularly scheduled meeting and at other times as necessary or desirable.

 

Our Board has determined that each member of the Audit Committee is independent and satisfies the independence standards of the Sarbanes-Oxley Act of 2002 and related rules and regulations of the SEC and the NYSE listing standards, including the additional independence requirements for audit committee members. The Board has also determined that each member of the Audit Committee is financially literate and qualifies as an “audit committee financial expert” for purposes of the SEC’s rules.

 

The Nominating Committee recognizes that Audit Committee members must have adequate time to devote to Audit Committee activities, given that such responsibilities command a significant portion of directors’ time. As a result, during March 2016, the Nominating Committee recommended, and the Board approved, a policy prohibiting Audit Committee members from simultaneously serving on more than two public company audit committees other than the Company’s. The policy grandfathers public company audit committees for which directors are serving as of the policy adoption date.

 

EXECUTIVE COMMITTEE

 

Our Board has delegated to our Executive Committee the power to direct the management of our business and affairs in emergency situations during intervals between meetings of the Board, except for matters specifically reserved for our Board and its other committees. The Executive Committee exercises its delegated authority only under extraordinary circumstances and has not held a meeting since 2002.

 

EXECUTIVE COMPENSATION COMMITTEE

 

Our Compensation Committee has primary responsibility for the design, review, approval and administration of all aspects of our executive compensation program. The Compensation Committee reviews the performance of, and makes all compensation decisions for, each of our executive officers other than our Chief Executive Officer. Our Compensation Committee also reviews the performance of, and makes compensation recommendations to the independent members of our Board for, our Chief Executive Officer.

 

The Compensation Committee meets throughout the year to review our compensation philosophy and its continued alignment with our business strategy and to consider and approve our executive compensation program for the subsequent year. With the assistance of a nationally-recognized, independent compensation consultant, the Compensation Committee discusses changes, if any, to the program structure, assesses the appropriate peer companies for benchmarking purposes, sets base salaries and incentive award opportunities, establishes the applicable performance measures and related goals under our incentive plans, evaluates performance in relation to the established measures and goals and determines annual cash and long-term equity incentive awards for our executive officers.

 

Our executive officers provide support to our Compensation Committee by coordinating meeting logistics, preparing and disseminating relevant financial and other information regarding us and the companies in our compensation peer group as a supplement to the comparative market data prepared by our independent compensation consultant and making recommendations with respect to performance measures and related goals. Our Chief Executive Officer attends meetings at the Compensation Committee’s request and recommends to the Compensation Committee compensation changes affecting our other executive officers. However, our Chief Executive Officer plays no role in setting her own compensation. At various times, our General Counsel and Corporate Secretary, our Assistant General Counsel, Corporate & Securities and our Chief Human Resources Officer may also attend meetings at the Compensation Committee’s request to act as secretary and record the minutes of the meetings, provide updates on legal developments and make presentations regarding certain organizational matters. Our Compensation Committee meets separately in executive session, without management present, at each regularly scheduled meeting and at other times as necessary or desirable.

 

The Compensation Committee meets during the first quarter of each year, typically in January, to review the achievement of pre-established performance goals for the prior year, to determine the appropriate annual cash and long-term equity incentive awards for executive officers based on that prior-year performance and, as appropriate, to approve grants of equity awards to our executive officers. Our executive officers provide support to our Compensation Committee in this process, and the Chief Executive Officer makes incentive award recommendations with respect to the other executive officers.

 

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Our Board has determined that each member of the Compensation Committee is independent and satisfies the independence standards of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the related NYSE listing standards, including the additional independence requirements for compensation committee members. The Board has also determined that each member of the Compensation Committee meets the additional requirements for “outside directors” set forth in Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), and “non-employee directors” set forth in Rule 16b-3 under the Exchange Act.

 

Compensation Committee Interlocks and Insider Participation

 

During the year ended December 31, 2015, Messrs. Crocker, Gellert and Gilchrist served on our Compensation Committee. No member of the Compensation Committee is, or has been, employed by us or our subsidiaries or is an employee of any entity for which any of our executive officers serves on the board of directors.

 

Independent Compensation Consultant

 

Under its charter, our Compensation Committee has authority to retain, and approve the terms of engagement and fees paid to, compensation consultants, outside counsel and other advisors that the Compensation Committee deems appropriate, in its sole discretion, to assist it in discharging its duties. Any compensation consultant engaged by our Compensation Committee reports to the Compensation Committee and receives no fees from us that are unrelated to its role as advisor to our Board and its committees. Our Compensation Committee meets regularly with the compensation consultant without management present. Although a compensation consultant may periodically interact with company employees to gather and review information related to our executive compensation program, this work is done at the direction and subject to the oversight of the Compensation Committee. Under the Compensation Committee charter, any compensation consultant retained by our Compensation Committee must be independent, as determined annually by the Compensation Committee in its reasonable business judgment, considering the specific independence factors set forth in Rule 10C-1 under the Exchange Act and all other relevant facts and circumstances.

 

Pearl Meyer (“PM”) has served as our Compensation Committee’s independent compensation consultant since 2006. In 2015, our Compensation Committee retained PM to advise it and the independent members of our Board, as applicable, on matters related to our executive compensation levels and program design for 2015. Our Compensation Committee reviews the scope of work provided by PM on an annual basis and, in connection with PM’s engagement in 2015, determined that PM met the independence criteria under the Compensation Committee charter. PM did not perform any consulting services unrelated to executive compensation for us during the year ended December 31, 2015, and PM’s work for the Board and its committees has raised no conflict of interest.

 

INVESTMENT COMMITTEE

 

The function of our Investment Committee is to review and approve proposed acquisitions and dispositions of properties and other investments meeting applicable criteria, in accordance with our Amended and Restated Investment and Divestiture Approval Policy.

 

NOMINATING AND CORPORATE GOVERNANCE COMMITTEE

 

Our Nominating Committee oversees our corporate policies and other corporate governance matters, as well as matters relating to the practices and procedures of our Board, including the following: identifying, selecting and recommending to the Board qualified director-nominees; making recommendations to the Board regarding its committee structure and composition; reviewing and making recommendations to the Board regarding non-employee director compensation; overseeing an annual evaluation of the Board and its committees; developing and recommending to the Board a set of corporate governance guidelines and the corporate code of ethics; and generally advising the Board on corporate governance and related matters.

 

Our Board has determined that each member of the Nominating Committee is independent and satisfies the NYSE listing standards.

 

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CORPORATE GOVERNANCE

 

Governance Policies

 

Our Guidelines on Governance reflect the fundamental corporate governance principles by which our Board and its committees operate. These guidelines set forth general practices the Board and its committees follow with respect to structure, function, organization, composition and conduct. These guidelines are reviewed at least annually by the Nominating Committee and are updated periodically in response to changing regulatory requirements, evolving corporate governance practices, input from our stockholders and otherwise as circumstances warrant.

 

Our Global Code of Ethics and Business Conduct sets forth the legal and ethical standards for conducting our business to which our directors, officers and employees, including our Chief Executive Officer, our Chief Financial Officer, and the directors, officers and employees of our subsidiaries must adhere. Our Global Code of Ethics and Business Conduct covers all significant areas of professional conduct, including employment practices, conflicts of interest, unfair or unethical use of corporate opportunities, protection of confidential information and other company assets, compliance with applicable laws and regulations, political activities and other public policy matters, and proper and timely reporting of financial results. See also “Public Policy Matters.”

 

Our Guidelines on Governance and our Global Code of Ethics and Business Conduct are available in the Corporate Governance section of our website at www.ventasreit.com/investor-relations/corporate-governance. We also provide copies of our Guidelines on Governance and our Global Code of Ethics and Business Conduct, without charge, upon request to our Corporate Secretary at Ventas, Inc., 353 North Clark Street, Suite 3300, Chicago, Illinois 60654. Waivers from, and amendments to, our Global Code of Ethics and Business Conduct that apply to our Chief Executive Officer, Chief Financial Officer or persons performing similar functions will be timely posted on our website at www.ventasreit.com. The information on our website is not a part of this Proxy Statement.

 

Transactions with Related Persons

 

Our written Policy on Transactions with Related Persons requires that any transaction involving us in which any of our directors, officers or employees (or their immediate family members) has a direct or indirect material interest be approved or ratified by the Audit Committee or the disinterested members of our Board. Our Global Code of Ethics and Business Conduct requires our directors, officers and employees to disclose in writing to our General Counsel any existing or proposed transaction in which he or she has a personal interest, or in which there is or might appear to be a conflict of interest by reason of his or her connection to another business organization. Our General Counsel reviews these matters with the Presiding Director to determine whether the transaction raises a conflict of interest that warrants review and approval by the Audit Committee or the disinterested members of the Board. In determining whether to approve or ratify a transaction, the Audit Committee or disinterested members of the Board consider all relevant facts and circumstances available to them and other factors they deem appropriate.

 

Transactions with Sutter Health

 

We own two newly developed MOBs that are 100% leased by Sutter Health under long-term triple-net leases. In 2015, Sutter Health paid us aggregate annual rent of approximately $6.5 million, which is less than one-tenth of one percent (0.1%) of Sutter Health’s 2015 consolidated gross revenues.  We also are engaged in a $170 million development project affiliated with Sutter Health in which Sutter Health is a tenant.  Mr. Reed, who served as Senior Vice President and Chief Financial Officer of Sutter Health until his retirement on January 1, 2015, has served as a member of our Board since March 2008. We believe the terms of the leases and development project with Sutter Health are no less favorable to us than those available from an unaffiliated party.

 

Risk Management

 

Management has primary responsibility for identifying and managing our exposure to risk, subject to active oversight by our Board of the processes we establish to assess, monitor and mitigate that exposure. The Board, directly and through its committees, routinely discusses with management our significant enterprise risks and reviews the guidelines, policies and procedures we have in place to address those risks, such as our approval process for acquisitions, dispositions and other investments. At Board and committee meetings, directors engage in comprehensive analyses and dialogue regarding specific areas of risk following receipt of written materials and in-depth presentations from management and third-party experts, including an enhanced annual enterprise risk management process and presentation to the Board to better identify risks, owners and mitigants. This process enables our Board to focus on the

 

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strategic, financial, operational, legal, regulatory and other risks that are most significant to us and our business in terms of likelihood and potential impact and ensures that our enterprise risks are well understood, mitigated to the extent reasonable and consistent with the Board’s view of our risk profile and risk tolerance.

 

In addition to the overall risk oversight function administered directly by our Board, each of our Audit, Compensation, Nominating and Investment Committees exercises its own oversight related to the risks associated with the particular responsibilities of that committee:

 

ü

 

Our Audit Committee reviews financial, accounting and internal control risks and the mechanisms through which we assess and manage risk, in accordance with NYSE requirements, and has certain responsibilities with respect to our compliance programs, such as our Global Code of Ethics and Business Conduct, our Global Anti-Corruption Policy and our Investigations Policy.

 

 

 

ü

 

Our Compensation Committee, as discussed in greater detail below, evaluates whether our compensation policies and practices, as they relate to both executive officers and employees generally, encourage excessive risk-taking.

 

 

 

ü

 

Our Nominating Committee focuses on risks related to corporate governance, board effectiveness and succession planning.

 

 

 

ü

 

Our Investment Committee is responsible for overseeing certain transaction-related risks, including the review of transactions in excess of certain thresholds, with existing tenants, operators, borrowers or managers, or that involve investments in non-core assets.

 

The chairs of these committees report on such matters to the full Board at each regularly scheduled Board meeting and other times as appropriate. Our Board believes that this division of responsibilities is the most effective approach for identifying and addressing risk, and through Ms. Cafaro’s combined role as Chief Executive Officer and Chairman, our Board leadership structure appropriately supports the Board’s role in risk oversight by facilitating prompt attention by the Board and its committees to the significant enterprise risks identified by management in our day-to-day operations.

 

Compensation Risk Assessment

 

As part of its risk oversight role, our Compensation Committee annually considers whether our compensation policies and practices for all employees, including our executive officers, create risks that are reasonably likely to have a material adverse effect on our company. In conducting its risk assessment in 2016, the Compensation Committee reviewed a report prepared by management regarding our existing compensation plans and programs, including our severance and change-in-control arrangements, in the context of our business risk environment. In its review, the Compensation Committee noted several design features of our compensation programs that reduce the likelihood of excessive risk-taking, including, but not limited to, the following:

 

ü

 

a balanced mix of cash and equity compensation with a strong emphasis on performance-based incentive awards;

 

 

 

ü

 

multiple performance measures selected in the context of our business strategy and often in tension with each other, for example, goals which promote FFO growth and maintaining a strong balance sheet;

 

 

 

ü

 

regular review of comparative compensation data to maintain competitive compensation levels in light of our industry, size and performance;

 

 

 

ü

 

incentive award opportunities that do not provide minimum guaranteed payouts, are based on a range of performance outcomes and plotted along a continuum, and have capped payouts, subject in all cases to the Compensation Committee’s and, in the case of our Chief Executive Officer, the independent Board members’ overall assessment of performance;

 

 

 

ü

 

equity compensation weighted more heavily towards restricted stock than stock options to provide greater incentive to create and preserve long-term stockholder value;

 

 

 

ü

 

equity incentive awards granted for prior-year performance with multi-year vesting schedules to enhance retention;

 

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ü

 

minimum stock ownership guidelines that align executive officers with long-term stockholder interests; and

 

 

 

ü

 

prohibitions on engaging in derivative and other hedging transactions in our securities and restrictions on holding our securities in margin accounts or otherwise pledging our securities to secure loans.

 

Based on its evaluation, the Compensation Committee has determined, in its reasonable business judgment, that our compensation practices and policies for all employees do not create risks that are reasonably likely to have a material adverse effect on our company and instead promote behaviors that support long-term sustainability and creation of stockholder value.

 

Public Policy Matters

 

We are committed to ethical business conduct and expect our directors, officers and employees to act with integrity and to conduct themselves and our business in a way that protects our reputation for fairness and honesty. Consistent with these principles, our Global Code of Ethics and Business Conduct, our Global Anti-Corruption Policy and our Political Contribution, Expenditure and Activity Policy (adopted March 2016), we have established the policies and practices described below with respect to political contributions and other public policy matters.

 

Political Contributions and Expenditures

 

We do not use corporate funds or resources for direct contributions to political candidates, parties or campaigns, other than occasional de minimis use of our property, such as using a conference room. Corporate resources include non-financial donations, such as the use of our property in a political campaign or our employees’ use of work time and telephones to solicit for a political cause or candidate.

 

Promotion of Company Interests

 

We do not have a political action committee. However, we may advocate a position, express a view or take other appropriate action with respect to legislative or political matters affecting our company or our interests. We may also ask our employees to make personal contact with governmental officials or to write letters to present our position on specific issues. Any such advocacy is done in compliance with applicable laws and regulations.

 

Political Activities by Company Personnel

 

We believe that our directors, officers and employees have rights and responsibilities to participate in political activities as citizens, including voting in elections, keeping informed on political matters, serving on civic bodies and contributing financially to, and participating in the campaigns of, the political candidates of their choice. Accordingly, our directors, officers and employees are not constrained from engaging in political activities, making political contributions, expressing political views or taking action on any political or legislative matter, so long as they are acting in their individual capacity, on their own time and at their own expense. Directors, officers and employees acting in their individual capacity must not give the impression that they are speaking on our behalf or representing our company in such activities.

 

Relationships with Government Officials

 

Our directors, officers and employees may not maintain any relationship or take any action with respect to public officials that could impugn our integrity or reputation. In particular, our directors, officers and employees may not offer, promise or give anything of value, including payments, entertainment and gifts, to any government official, employee, agent or other intermediary of the United States government or any domestic or foreign government.

 

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OUR EXECUTIVE OFFICERS

 

Set forth below is certain biographical information about our executive officers. Ages shown for all executive officers are as of the date of the Annual Meeting.

 

Name and Position

 

Age

 

Business Experience

Debra A. Cafaro

Chairman and Chief Executive Officer

 

GRAPHIC

 

 

58

 

Ms. Cafaro’s biographical information is set forth in this Proxy Statement under “Proposals Requiring Your Vote—Proposal 1: Election of Directors.”

John D. Cobb

Executive Vice President and Chief Investment Officer

 

GRAPHIC

 

 

44

 

Mr. Cobb has been our Executive Vice President, Chief Investment Officer since March 2013, after serving as our Senior Vice President, Chief Investment Officer from 2010 to March 2013. Prior to that, Mr. Cobb was a President and Chief Executive Officer of Senior Lifestyle Corporation, where he led the strategic direction of a 9,000+ unit retirement company with over 3,400 employees. Prior to that, he held various positions with GE Healthcare Financial Services, a division of General Electric Capital Corporation, which is a subsidiary of General Electric Corporation, with the last being Senior Managing Director, where he led a team focused on debt and equity investments in healthcare real estate totaling over $9 billion. Mr. Cobb has served as a member of the Board of Directors of the National Investment Center for the Seniors Housing & Care Industry. He is currently a member of the Executive Board of the American Seniors Housing Association.

Todd W. Lillibridge

Executive Vice President, Medical Property Operations; President and Chief Executive Officer, Lillibridge Healthcare Services, Inc.

 

GRAPHIC

 

 

60

 

Mr. Lillibridge has been our Executive Vice President, Medical Property Operations since July 2010. Mr. Lillibridge also serves as President and Chief Executive Officer of our subsidiary, Lillibridge Healthcare Services, Inc. (“Lillibridge”), where he is responsible for the strategic focus, vision and overall leadership of our MOB operations. Prior to joining Lillibridge’s predecessor in 1982, and subsequently establishing Lillibridge & Company, Mr. Lillibridge was employed by Baird & Warner, Inc. of Chicago, Illinois, serving in the real estate finance group and the development division. He is a member of the Economic Club of Chicago and the World Presidents’ Organization of Chicago. Mr. Lillibridge is a member of the board of directors of Ardent Health Services, member of the Rush University Medical Center Facilities Committee and a member of Pacific Medical Buildings Healthcare Real Estate Board.

 

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Robert F. Probst

Executive Vice President and Chief Financial Officer

 

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48

 

Mr. Probst has been our Executive Vice President and Chief Financial Officer since October 2014 and previously served as our Acting Chief Accounting Officer from October 2014 to September 2015. Prior to joining us, Mr. Probst served as senior vice president and chief financial officer of Beam Inc., a global spirits distributor, from its inception as an independent, S&P 500 company in October 2011 to its sale to Suntory Holdings Limited in May 2014.  Prior to that, he served as senior vice president and chief financial officer of Beam Global Spirits & Wine, Inc., playing a key role in establishing the former unit of Fortune Brands, Inc. as a standalone publicly-traded company. Mr. Probst serves on the boards of the Chicago Botanic Garden and Camp Kesem, as well as the advisory board of the Duke University Financial Economics program.

T. Richard Riney

Executive Vice President, Chief Administrative Officer, General Counsel and Ethics and Compliance Officer

 

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58

 

Mr. Riney has been our Executive Vice President and General Counsel since 1998, was named our Chief Administrative Officer in 2007, has served as our Corporate Secretary since August 2015 and previously served as our Corporate Secretary from 1998 to 2012. Mr. Riney also serves as our Ethics and Compliance Officer. From 1996 to 1998, he served as Transactions Counsel for our predecessor, Vencor, Inc. Prior to that, Mr. Riney practiced law with the law firm of Hirn, Reed & Harper, where his areas of concentration were real estate and corporate finance. Mr. Riney serves on the Centre College President’s Advisory Council. He is admitted to the Bar in Kentucky and is a member of the National Association of Real Estate Investment Trusts (“NAREIT”).

 

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EXECUTIVE COMPENSATION

 

Compensation Committee Report

 

The Compensation Committee has reviewed and discussed with management the following Compensation Discussion and Analysis and, based on such review and discussion, has recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference into the 2015 Form 10-K.

 

COMPENSATION COMMITTEE

 

Jay M. Gellert, Chair

Douglas Crocker II

Richard I. Gilchrist

 

Compensation Discussion and Analysis

 

This Compensation Discussion and Analysis (“CD&A”) provides a detailed description of our executive compensation philosophy, objectives and programs, the compensation decisions made under those programs and the factors considered by our Compensation Committee and, in the case of our Chief Executive Officer, the independent members of our Board in making those decisions. The CD&A focuses on the compensation of our Named Executive Officers for 2015, who were:

 

Name

 

Title

 

 

Debra A. Cafaro

 

Chairman and Chief Executive Officer

 

Robert F. Probst

 

Executive Vice President and Chief Financial Officer

 

Todd W. Lillibridge

 

 

Executive Vice President, Medical Property Operations; President and Chief Executive Officer, Lillibridge Healthcare Services, Inc.

 

 

T. Richard Riney

 

 

Executive Vice President, Chief Administrative Officer, General Counsel and Ethics and Compliance Officer

 

 

John D. Cobb

 

Executive Vice President and Chief Investment Officer

 

As in previous years, we awarded compensation to our Named Executive Officers for 2015 based on compensation policies that closely link compensation to performance. These policies, in planned combination, generate rewards for achievement of high-level company and individual performance and discourage excessive short-term risk taking. We believe this balance is essential to align management with the long-term interests of our stockholders.

 

Executive Summary

 

Our executive compensation programs are designed to attract, retain and motivate talented executives, to reward executives for the achievement of pre-established company and tailored individual goals consistent with our strategic plan and to link compensation to company performance. We compensate our executives primarily through base salary, annual cash incentive compensation and long-term equity incentive compensation. Our executive compensation philosophy emphasizes performance-based incentive compensation over fixed cash compensation, so that the vast majority of total direct compensation is variable and not guaranteed. A significant percentage of incentive compensation is in the form of equity awards granted to reward past performance. Even though these equity awards are fully earned for performance that has already been achieved at the time of grant, a substantial portion of the awards vests over time to provide additional retention benefits and create greater alignment with stockholders. We believe this structure appropriately focuses our executive officers on the creation of long-term value and encourages prudent evaluation of risks.

 

2015 Performance

 

Our Compensation Committee and, in the case of our Chief Executive Officer, the independent members of our Board view performance for compensatory purposes in two primary ways: (1) strategic, financial and operating performance, including results against our growth targets, and (2) returns to stockholders over time, both on an absolute basis and relative to other companies, including S&P 500 companies, large-cap REITs and our compensation peer group (see “Benchmarking and Comparable Companies”).

 

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Strategic, Financial and Operating Performance.  We delivered exceptional strategic, financial and operating performance in 2015. Our 2015 strategic, financial and operating performance highlights included the following:

 

ü

excellent strategic decision-making regarding the tax-efficient Spin-off and its outstanding execution;

ü

entry into the hospital market, a long-term strategic objective of the Company, with Ardent, a top 10 hospital company, including the simultaneous structuring and sale of the Ardent hospital operating company;

ü

closing of over $5 billion of accretive acquisitions;

ü

commitment of $350 million to capital projects, including ground up development of a Class A MOB in downtown San Francisco and two luxury ground up seniors housing developments in San Francisco and Palm Beach County, and multiple redevelopment projects with our top operators;

ü

delivery of sector-leading same-store cash flow growth;

ü

improved relative equity multiple (among the large-cap diversified healthcare REITs) and issuance of $2.8 billion in equity capital at over $76 per share (the majority of which was issued prior to the Spin-off);

ü

generation and receipt of over $700 million in sales proceeds and loan repayments;

ü

enhanced investor messaging and outreach, including holding a very successful inaugural Investor Day;

ü

realignment of the executive management team following the Spin-off, with improved organizational efficiency and effectiveness;

ü

issuance of long-term (13-year average) debt at attractive (under 4%) all-in pricing; and

ü

reaffirmation of our BBB+ credit ratings.

 

The Spin-off has been well-received by our stockholders and in 2016 we are already realizing the benefits of the strategic and forward-thinking actions we took in 2015.

 

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GRAPHIC

 

The 2015 compensation decisions made by our Compensation Committee and, in the case of our Chief Executive Officer, the independent members of our Board reflected our level of achievement overall with respect to the pre-established measures and goals under our annual cash and long-term equity incentive plans and the individual performance and contributions of our Named Executive Officers to our strong financial and operating performance during the year.

 

Returns to Stockholders.  Our long history of delivering sustained, superior returns to stockholders continued in 2015 with the following:

 

ü

For the period from January 1, 2000 through December 31, 2015 (the 16 completed fiscal years of our Chief Executive Officer’s tenure), we delivered compound annual TSR of over 26%, outperforming the S&P 500 index and the RMS index and ranking us first among our compensation peer group.

ü

We increased our regular quarterly dividend by 12% on a combined Company and CCP basis following the Spin-off.

ü

We made a tax-free distribution to our stockholders of CCP shares, valued at $8.51 per share of our common stock.

ü

We ranked first among the large-cap diversified healthcare REITs in our peer group as to our one-year TSR of -5.55% and we ranked second as to our three-year compound annual TSR of 4.5%.

 

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2015 Executive Compensation

 

In 2015, our compensation decisions once again reflected strong alignment between pay and performance. In determining the incentive compensation paid to our Named Executive Officers for 2015, our Compensation Committee and, in the case of our Chief Executive Officer, the independent members of our Board rigorously evaluated company and individual performance relative to the pre-established measures and goals under our annual cash and long-term equity incentive plans.  In 2015, we delivered excellent strategic, financial and operating performance, including industry-leading comparable normalized FFO growth, same-store cash flow growth and fixed charge coverage.  However, along with the other two large-cap diversified healthcare REITs, we delivered total stockholder return in the bottom quartile among our 16-company peer group for the one and three year periods ended December 31, 2015. This resulted in zero payout for the relative TSR metrics, which represent 35% of the weighting under our long-term incentive plan.

 

Our Compensation Committee and Board considered all of the factors established under the 2015 Plan and has discretion to consider other relevant factors, although it places the greatest significance on the achievements noted in the “2015 Performance” section above.

 

The table below sets forth total direct compensation (base salary + annual cash incentive award + long-term equity incentive award) of each of our Named Executive Officers for 2015, 2014 and 2013 (except for Mr. Cobb, who first became a Named Executive Officer in 2015 and Mr. Probst, who commenced his employment with us in 2014), consistent with the manner in which our Compensation Committee and, in the case of our Chief Executive Officer, the independent members of our Board evaluate executive compensation and pay-for-performance alignment.

 

SUPPLEMENTAL COMPENSATION TABLE REFLECTING OUR RETROSPECTIVE LONG-TERM INCENTIVE PLAN

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-Term Equity Incentive Award

 

 

 

Name

Performance
Year

Salary

Annual Cash
Incentive Award

Restricted Stock
(1)

Stock Options
(1)

Total Direct
Compensation
(2)

Year-Over-
Year
Change

(3)

 

Debra A. Cafaro

2015

$ 1,075,000

$ 3,569,000

$ 2,918,592

$ 1,945,750

$9,508,342

(14)%

 

 

2014

1,050,000

3,780,000

4,353,197

1,865,572

11,048,769

 

 

 

2013

1,000,000

2,974,001

3,622,819

1,552,506

9,149,326

 

 

Robert F. Probst (4)

2015

575,000

1,337,249

791,466

527,653

3,231,368

(10)%

 

 

2014

103,973

323,438

300,512

128,813

856,736

 

 

Todd W. Lillibridge

2015

479,900

738,801

572,272

381,520

2,172,493

(18)%

 

 

2014

461,400

1,004,929

837,455

358,902

2,662,686

 

 

 

2013

412,000

844,600

611,688

262,132

2,130,420

 

 

T. Richard Riney

2015

525,600

1,185,570

699,808

466,553

2,877,531

(2)%

 

 

2014

500,580

1,126,305

908,587

389,378

2,924,850

 

 

 

2013

463,500

957,128

688,134

294,894

2,403,656

 

 

John D. Cobb (5)

2015

525,000

1,230,154

730,522

487,020

2,972,696

N/A

 

(1)

 

Amounts shown represent the full grant date fair value, calculated pursuant to Financial Accounting Standards Board (“FASB”) guidance relating to fair value provisions for share-based payments, of the restricted stock and stock option portions of each Named Executive Officer’s long-term equity incentive award.

 

 

 

(2)

 

Total direct compensation consists of base salary, annual cash incentive awards and long-term equity incentive awards, and therefore excludes amounts shown in the “All Other Compensation” column of the 2015 Summary Compensation Table.

 

 

 

(3)

 

Mr. Probst’s year-over-year change percentage is based on annualized 2014 compensation figures because he commenced employment with us in October 2014.

 

 

 

(4)

 

Upon his commencement of employment in 2014, Mr. Probst received a $1 million, one-time restricted stock award for retention purposes, but this amount is excluded from 2014 total direct compensation because the award was part of a recruitment package and unrelated to 2014 performance. The award will vest in full on the third anniversary of the date of grant.

 

 

 

(5)

 

During 2015, Mr. Cobb received a $1 million, one-time restricted stock award for retention purposes, but this amount is excluded from 2015 total direct compensation because this award was not related solely to performance in a single year. The award vests in three equal annual installments beginning on the date of grant. The Board does not view this award as a continuing feature of our executive compensation program.

 

This table differs from compensation reported in the 2015 Summary Compensation Table in that it reflects the value of our Named Executive Officers’ long-term equity incentive awards in the performance year for which they were

 

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earned, rather than the year in which they were granted (e.g., long-term equity incentive awards granted in January 2016 for 2015 performance are shown in the table above as 2015 compensation). While compensation reported in the 2015 Summary Compensation Table is useful, the SEC’s disclosure rules do not take into account the retrospective nature of our executive compensation program and therefore create a one-year lag between the value of our Named Executive Officers’ long-term equity incentive awards and the performance year for which they were earned (e.g., long-term equity incentive awards granted in January 2016 for 2015 performance will not be shown in the Summary Compensation Table until our 2017 Proxy Statement as 2016 compensation). The amounts disclosed in the table above reflect final, fully-earned awards based on past performance measured against pre-established quantitative and qualitative performance criteria, meaning that these amounts are not subject to change based on future performance. This table supplements, and does not replace, the 2015 Summary Compensation Table.

 

2015 Base Salary.  Following a review of compensation data for peers with substantially similar roles and responsibilities (as described below under “Benchmarking and Comparable Companies”), each of our Named Executive Officers (other than Mr. Probst) received an increase in base salary for 2015 to remain near the market median.

 

2015 Annual Cash Incentive Awards.  Cash incentive awards granted to our Named Executive Officers for 2015 performance were earned between the target and maximum levels, ranging from 68% to 100% of their respective maximum award opportunities (or from 103% to 166% of their respective target award opportunities) based on our performance with respect to pre-established company financial measures, as further described below in the “Annual Cash Incentive Compensation — Opportunities, Measures and Actual Performance” section.

 

2015 Long-Term Equity Incentive Awards, Granted in 2016.   Long-term equity incentive awards granted in the form of restricted stock and stock options to our Named Executive Officers in 2016 for 2015 performance approximated the threshold level, ranging from 53% to 61% of their respective maximum award opportunities (or from 72% to 77% of their respective target award opportunities), based on our performance with respect to pre-established quantitative measures, as further described below in the “Long-Term Equity Incentive Compensation — Opportunities, Measures and Performance” section.

 

Pay-for-Performance Alignment

 

The graph below illustrates our long-term pay-for-performance alignment by comparing our Chief Executive Officer’s total direct compensation to our TSR performance (indexed to a 2010 base year) for each of the past five years.

 

GRAPHIC

 

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This graph differs from compensation reported in the 2015 Summary Compensation Table in that it aligns the value of long-term equity incentive awards with the performance year for which they were earned, rather than the year in which they were granted (e.g., long-term equity incentive awards granted in January 2016 for 2015 performance are shown in the graph above as 2015 compensation), consistent with the manner in which our Compensation Committee and, with respect to our Chief Executive Officer, the independent members of our Board evaluate compensation and pay-for-performance (as disclosed in the supplemental table above).

 

Compensation Policies and Practices—Good Governance

 

Consistent with our commitment to strong corporate governance and responsiveness to our stockholders, in 2015 our Board maintained the following compensation policies and practices to drive performance and serve our stockholders’ long-term interests:

 

ü

The structure of our executive compensation program includes a balanced mix of cash and equity compensation with a strong emphasis on performance-based incentive awards that contain a blend of metrics promoting responsible growth and risk management.

 

 

ü

Our Named Executive Officers’ incentive award opportunities are capped, and the value of their awards is determined based on the Compensation Committee’s or the independent Board members’ assessment of performance with respect to multiple performance measures, including relative TSR, that promote stockholder value.

 

 

ü

The long-term equity incentive awards earned by our Named Executive Officers for prior-year performance have time-based vesting schedules to enhance retention and alignment with long-term stockholder value.

 

 

ü

The competitiveness of our executive compensation program is assessed by comparison to the median of a group of peer companies that are comparable to us in terms of enterprise value, market capitalization and total assets.

 

 

ü

Our Compensation Committee is comprised solely of independent directors and annually engages an independent compensation consultant to advise on matters related to our executive compensation program.

 

 

ü

Our employment agreements with executive officers do not provide single-trigger change of control benefits, and we prohibit new tax gross-up arrangements under our anti-tax gross-up policy.

 

 

ü

We maintain meaningful stock ownership guidelines for our executive officers and non-employee directors that promote a long-term stockholder perspective.

 

 

ü

Our Compensation Committee annually reviews and assesses the potential risks of our compensation policies and practices for all employees.

 

 

ü

Our recoupment policy enables our Board to “claw back” incentive compensation in the event of a financial restatement.

 

 

ü

Our executive officers receive limited perquisites and other personal benefits that are not otherwise generally available to all of our employees.

 

 

ü

Our Securities Trading Policy and Procedures prohibits our executive officers and directors from engaging in derivative and other hedging transactions in our securities and restricts our executive officers and directors from holding our securities in margin accounts or otherwise pledging our securities to secure loans without the prior approval of the Audit Committee (no executive officer or director pledged or held our securities in margin accounts at any time during 2015).

 

2015 Advisory Vote on Executive Compensation and Stockholder Outreach

 

We submit an advisory vote to approve our executive compensation to our stockholders on an annual basis. At our 2015 Annual Meeting of Stockholders, holders of approximately 94.9% of the shares represented at the meeting voted to approve, on an advisory basis, our executive compensation. We believe the continued support for our compensation program in 2015 reflects:

 

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ü

the strong alignment between our executive pay and performance over long time periods;

 

 

ü

the quantitative alignment between our executive pay and performance, as measured by stockholder advisory groups; and

 

 

ü

our broad and consistent stockholder outreach efforts.

 

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During 2015, we conducted broad investor outreach programs on two separate occasions.  In connection with our 2015 Annual Meeting of Stockholders, we continued our engagement in a broad outreach program to discuss our executive compensation practices with institutional investors that held more than 54% of the outstanding shares of our common stock. Because we value open and constructive dialogue with our stockholders, we formally invited our 25 largest stockholders to provide feedback about our executive compensation philosophy and programs, as well as our corporate governance practices.

 

Also, beginning in the fourth quarter of 2015, together with the Chair of our Compensation Committee, we reached out to 27 of our largest stockholders (holding more than 60% of our outstanding shares of common stock) to discuss our executive compensation program and invited such stockholders to provide us with feedback on our executive compensation program and corporate governance practices. Based on these discussions and the strong support of our stockholders at our 2015 Annual Meeting of Stockholders, we learned that our stockholders:

 

ü

generally approve of the overall structure of our executive compensation program and diversity of goals, particularly our use of balanced metrics of growth, risk management and capital structure to mitigate risk and promote responsible, sustained long-term growth. Several stockholders added that they would support a decision by the Company to move to a forward-looking, long-term equity incentive compensation structure;

 

 

ü

generally approve of our implementation of the executive compensation program, the factors considered and the decisions made under the program;

 

 

ü

generally approve of our proxy disclosures regarding our executive compensation program and corporate governance best practices;

 

 

ü

generally support our pay-for-performance alignment; and

 

 

ü

generally endorse our corporate governance practices.

 

Our Compensation Committee and, in the case of our Chief Executive Officer, the independent members of our Board have also continued to evaluate our overall executive compensation program and believe that it is well designed to achieve our objectives of attracting, retaining and motivating talented executives and rewarding superior performance in the context of our business risk environment. Based on strong alignment between our executive pay and performance, the strong support of our stockholders at our 2015 Annual Meeting of Stockholders and the positive feedback we have received from our largest stockholders, our executive compensation program has not changed significantly from that described in our 2015 Proxy Statement.

 

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Objectives of Our Compensation Program

 

We recognize that effective compensation strategies are critical to recruiting, incentivizing and retaining key employees who contribute to our long-term success and thereby create value for our stockholders. Accordingly, our compensation program is designed to achieve the following primary objectives:

 

ü

attract, retain and motivate talented executives;

 

 

ü

reward performance that meets or exceeds pre-established company and tailored individual goals consistent with our strategic plan, while maintaining alignment with stockholders;

 

 

ü

provide balanced incentives that discourage excessive risk-taking;

 

 

ü

retain sufficient flexibility to permit our executive officers to manage risk and adjust appropriately to meet rapidly changing market and business conditions;

 

 

ü

evaluate performance by balancing consideration of those measures that management can directly and significantly influence with market forces that management cannot control (such as monetary policy and interest rate expectations), but that impact stockholder value;

 

 

ü

encourage executives to become and remain long-term stockholders of our company; and

 

 

ü

maintain compensation and corporate governance practices that support our goal to deliver sustained, superior returns to stockholders.

 

We align the interests of our executive officers and stockholders by maintaining a performance- and achievement-oriented environment that provides executives with the opportunity to earn market-competitive levels of cash and equity compensation for strong performance measured against key strategic, financial and operating goals that create long-term stockholder value.

 

Benchmarking and Comparable Companies

 

Our Compensation Committee retained PM as its independent compensation consultant to advise it and, in the case of our Chief Executive Officer, the independent members of our Board on matters related to our Named Executive Officers’ compensation levels and program design for 2015. Our Compensation Committee has reviewed PM’s independence and determined that PM met the independence criteria under the Compensation Committee charter and that PM’s engagement raised no conflict of interest.

 

For 2015 benchmarking purposes, PM provided our Compensation Committee and, in the case of our Chief Executive Officer, the independent members of our Board with comparative market data on compensation practices and programs based on its analysis of a group of peer companies (the “Comparable Companies”) and provided guidance on compensation trends and best practices. Using this market data, PM advised the Compensation Committee and the independent members of our Board and made recommendations with respect to program design and setting base salaries and incentive award opportunity levels for our executive officers for 2015.

 

In determining 2015 compensation targets for our Named Executive Officers, our Compensation Committee, in consultation with PM, considered the competitive positioning of our executive compensation levels relative to compensation data for the Comparable Companies with respect to the following components of pay: base salary; total annual compensation (base salary plus annual incentive awards); long-term equity incentives (annualized expected value of long-term equity incentive awards) and total direct compensation (base salary plus annual incentive awards and annualized expected value of long-term equity incentive awards). Consistent with our compensation philosophy, our Compensation Committee targeted the median of the Comparable Companies for each of these components. Our 2015 executive compensation program was designed to deliver compensation levels above or below these targets if performance exceeded or failed to achieve the goals established for the annual cash and long-term equity incentive awards. We believe this methodology is appropriate for our operating style and reflects the need to attract, retain and stretch top executive talent.

 

The group of Comparable Companies consists of large-cap REITs in different sectors (such as office, retail and lodging), but otherwise similar to us in terms of FFO and generally falling within a range of 40% to 250% of our enterprise value, market capitalization and total assets. Because these companies’ values may rise or fall based on underlying trends that are different from those affecting healthcare real estate, our total returns may vary significantly from theirs. Our

 

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Compensation Committee annually reviews the Comparable Companies to ensure that their size and operations remain comparable to ours and may change the composition of the group from time to time as appropriate. In August 2014, the Compensation Committee approved the 15 companies identified below as the appropriate Comparable Companies for 2015 compensation purposes. These companies are the same companies used by the Compensation Committee for 2014 compensation purposes. The Comparable Companies reported compensation data for executive positions with responsibilities similar in breadth and scope to those of our executive officers, and we believe these companies generally competed with us for executive talent and stockholder investment in 2015.

 

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Compensation Mix

 

Our executive compensation philosophy promotes a compensation mix that emphasizes variable pay and long-term stockholder value. We believe that an emphasis on incentive compensation creates greater alignment with the interests of our stockholders, ensures that our business strategy is executed by decision-makers in a manner that focuses on the creation of long-term value rather than only short-term results, and encourages prudent evaluation of risks. Accordingly, our compensation structure is designed such that a significant portion of Named Executive Officers’ total direct compensation is in the form of equity awards granted based on past performance that vest over time. Even though these equity awards are fully earned for performance that has already been achieved at the time of grant, the vesting schedule is designed to provide additional retention benefits and create greater alignment with stockholders.

 

The following charts illustrate each Named Executive Officer’s base salary, target annual cash incentive compensation and target long-term equity incentive compensation as a percentage of his or her target total direct compensation for 2015. Ms. Cafaro’s target total direct compensation reflects a heavier weight on long-term equity incentive compensation because our Compensation Committee and the independent members of our Board believe that, due to her leadership role as our Chief Executive Officer, her compensation structure should reflect even greater alignment with our stockholders.

 

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GRAPHIC

 

Elements of Our Compensation Program

 

For 2015, the compensation provided to our executive officers consisted of the same elements generally available to our non-executive officers: base salary; annual cash incentive compensation; long-term equity incentive compensation; and other perquisites and benefits. The overall structure of our executive compensation program has not changed significantly over the past several years due to the positive feedback we have received from our stockholders during that time.

 

Base Salary

 

The base salary payable to each Named Executive Officer provides a fixed component of compensation that reflects the executive’s position and responsibilities. Base salary is generally targeted to approximate the competitive market median of the Comparable Companies, but may deviate from this target based on an individual’s sustained performance, contributions, leadership, experience, expertise and specific roles within our company as compared to the benchmark data. Our Compensation Committee reviews base salaries annually and may make adjustments to better match competitive market levels or to recognize an executive’s professional growth and development or increased responsibilities. The Compensation Committee also considers the success of each executive officer in developing and executing our strategic plans, exercising leadership and creating stockholder value.

 

In determining 2015 base salaries for our Named Executive Officers, our Compensation Committee analyzed base salary information of the Comparable Companies contained in a report prepared by PM. Although the Compensation Committee periodically considers information from REIT industry and other compensation surveys, it places primary emphasis on publicly-available data from the Comparable Companies’ proxy statements and other SEC filings, which is more detailed by individual executive officer position than the data typically provided in compensation surveys.

 

For 2015, our Compensation Committee and, in the case of the Chief Executive Officer, the independent members of our Board approved the following base salary increases for our Named Executive Officers:

 

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Base Salary

Year-Over-Year

 

 

 

 

 

2015

2014

% Change

 

 

 

 

Debra A. Cafaro

 

$ 1,075,000

 

$ 1,050,000

 

2.4%

 

Robert F. Probst

 

575,000

 

575,000

 

0%

 

Todd W. Lillibridge

 

479,900

 

461,400

 

4.0%

 

T. Richard Riney

 

525,600

 

500,580

 

5.0%

 

John D. Cobb

 

525,000

 

500,000

 

5.0%

 

 

With these increases, each Named Executive Officer’s 2015 base salary was positioned at or slightly below the market median for the Comparable Companies except for Ms. Cafaro, whose base salary ranked approximately 13% above the median, which the Compensation Committee considers to be within the competitive range given Ms. Cafaro’s consistent, excellent performance and tenure. Mr. Probst’s initial base salary set in connection with his October 27, 2014 hire date did not require an adjustment to remain market-competitive.

 

For 2016, our Compensation Committee and, in the case of the Chief Executive Officer, the independent members of our Board approved the following base salary levels for our Named Executive Officers:

 

 

 

 

 

Base Salary

Year-Over-Year

 

 

 

 

 

2016

2015

% Change

 

 

 

 

 

 

 

 

Debra A. Cafaro

 

1,075,000

 

1,075,000

 

0%

 

Robert F. Probst

 

592,000

 

575,000

 

3.0%

 

Todd W. Lillibridge

 

494,000

 

479,900

 

2.9%

 

T. Richard Riney

 

541,000

 

525,600

 

2.9%

 

John D. Cobb

 

541,000

 

525,000

 

3.0%

 

 

At these levels, each Named Executive Officer’s 2015 base salary was positioned approximately at the market median for the Comparable Companies except for Ms. Cafaro, whose base salary ranked approximately 13% above the median, which the Compensation Committee considers to be within the competitive range given Ms. Cafaro’s consistent, excellent performance and tenure. The Compensation Committee did not adjust Ms. Cafaro’s base salary in 2016.

 

Annual Cash Incentive Compensation — Opportunities, Measures and Actual Performance

 

We provide our Named Executive Officers with an annual opportunity to earn cash incentive awards for the achievement of pre-established company financial goals and tailored individual objectives. At the beginning of each performance year, our Compensation Committee and, in the case of our Chief Executive Officer, the independent members of our Board approve specific performance measures, goals and weightings and an award opportunity range (expressed as multiples of base salary and corresponding to threshold, target and maximum levels of performance) for each Named Executive Officer.

 

Cash incentive awards granted to our Named Executive Officers for 2015 performance were earned between the target and maximum levels, ranging from 68% to 100% of their respective maximum award opportunities (or from 103% to 166% of their respective target award opportunities). We exceeded maximum performance with respect to both company financial measures described below that together accounted for 65% of the award opportunity (or 35% in the case of Mr. Lillibridge). Performance with respect to MOB operations financial metrics, which accounted for 40% of Mr. Lillibridge’s 2015 annual cash incentive award opportunity, ranged from below threshold to between target and maximum, resulting in an overall payout below threshold. With respect to the tailored individual objectives that accounted for the remaining 35% of the award opportunity (or 25% in the case of Mr. Lillibridge), our Compensation Committee and, in the case of our Chief Executive Officer, the independent members of our Board determined that each Named Executive Officer achieved between target and maximum performance, depending on his or her unique contributions to our success.

 

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GRAPHIC

 

2015 Award Opportunities.  In December 2014, our Compensation Committee and, in the case of our Chief Executive Officer, the independent members of our Board approved the 2015 annual cash incentive award opportunities for our Named Executive Officers shown in the charts above, which were unchanged from 2014.  In connection with additions to the duties and responsibilities of Messrs. Probst, Riney and Cobb following the completion of the Spin-off, the Compensation Committee approved increases, effective on a prorated basis for 2015 commencing August 17, 2015, to such Named Executive Officers’ annual incentive award opportunities by 25 basis points at each of the threshold (from 100% to 125%), target (from 150% to 175%) and maximum (from 225% to 250%) levels.  In making such adjustments, the Committee took into account (i) these Named Executive Officers’ increased responsibilities, (ii) cost savings of over $4 million in annual direct compensation costs (on a target basis), even after taking into account the adjustments made to the annual and long-term incentive award opportunities for Messrs. Probst, Riney and Cobb, as a result of the realignment of our executive team, pursuant to which two of our senior executives exited the Company (and were not replaced) following the Spin-off to work at CCP and (iii) the fact that our Named Executive Officers other than the Chief Executive Officer, as a group, were positioned at or slightly below the aggregate market median for target total direct compensation, even after taking into account the adjustments made to the annual and long-term incentive award opportunities for Messrs. Probst, Riney and Cobb. The annual incentive award opportunities for Messrs. Probst, Riney and Cobb shown in the chart above reflect a blended rate of their pre- and post-Spin-off annual incentive award opportunities.

 

Ms. Cafaro’s annual cash incentive opportunity structure has greater leverage and a wider range of outcomes than the structures of our other Named Executive Officers in support of the view that the Chief Executive Officer’s compensation should be more strongly aligned with stockholders than our other executive officers.

 

Performance Measures and Results.  Below is a summary of the annual cash incentive plan measures and goals approved by our Compensation Committee and, in the case of our Chief Executive Officer, the independent members of our Board, the relative weighting for each performance measure, the reasons why we consider each performance measure to be an important component of our pay-for-performance philosophy, and our results with respect

 

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to those measures.  The goals disclosed below were arithmetically adjusted as required by our 2015 Plan by taking the year-to-date results as of the date of the Spin-off and eliminating the projected results of the properties transferred to CCP for the post-Spin-off period and associated impacts.  These adjusted goals were reviewed and approved by our Compensation Committee and, in the case of our Chief Executive Officer, the independent members of our Board. Consistent with our compensation philosophy, the 2015 annual cash incentive plan measures and goals were determined taking into consideration our strategic plan and were designed to be challenging, but also to discourage excessive risk-taking. Although these performance measures focus on shorter-term results, they have a counterbalancing effect on each other. They incentivize our Named Executive Officers to effectively meet rapidly changing market and business conditions and make appropriate business adjustments that benefit the long-term interests of our stockholders.

 

In the first quarter of the year following the performance year, each Named Executive Officer’s performance is carefully evaluated with respect to the applicable pre-established measures and goals to determine the earned value of the individual’s annual cash incentive award, if any, within the established award opportunity range. For 2015, we exceeded maximum performance with respect to each of the company-wide financial measures, as summarized below.

 

GRAPHIC

 

 

 

 

Normalized FFO Per Share (Cash)

Normalized FFO per share, excluding non-cash items,

for the year ended December 31, 2015

 

Weighting: 50% (27% for Mr. Lillibridge)

 

Goals:*

 

 

 

 

 

 

Pre-Spin

 

 

Post-Spin

 

 

 

 

Threshold

 

$4.56

 

$4.26

 

 

Target

 

 

$4.65

 

 

$4.34

 

 

Maximum

 

 

$4.74

 

 

$4.42

 

 

* These goals were arithmetically adjusted as required by our Plan, effective on the date of our Spin-off in August 2015, in order to exclude the impact of the Spin-off, consistent with the Company’s public disclosure and the models approved by the Board when it approved the Spin-off.

 

Why does this measure matter?  FFO is a common measure of operating performance for REITs because it excludes, among other items, the effect of gains and losses from real estate sales and real estate depreciation and amortization to allow investors, analysts and management to compare operating performance among companies and across time periods on a consistent basis. A REIT’s FFO can have a significant impact on the trading price of its common stock and, therefore, its TSR. Normalized FFO is the main measure the Company uses in its publicly reported earnings

 

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and is defined as FFO excluding certain items, such as non-cash income tax items, deal costs and expenses, and gains and losses from marking the value of derivative instruments to market. The maximum performance goal on a pre-Spin-off basis represented a 6% increase over 2014 normalized FFO per share (and a 12% increase over the 2014 maximum goal), which the Committee believes is appropriately challenging. In setting the threshold, target and maximum performance levels, the Committee considers the Company’s business model, growth rates of peers, size, and the asset classes in which it operates, as well as the desired tradeoffs between growth in FFO per share and maintaining a low risk profile through sound investments. With respect to growth rates of peers, on average over the past five years, our growth in normalized FFO per diluted share has been well above the peer group median, which is consistent with actual payouts at above target levels.

 

Result:  Exceeded Maximum Performance Goal. Our year-over-year normalized FFO per diluted share was $4.47.  The variance between our actual results and our pre-established goals was largely due to actions led by our Named Executive Officers, including completing more accretive acquisitions, generating more income from active asset management, creating organizational efficiencies and managing our balance sheet actively.

 

Fixed Charge Coverage (Year End)

Fixed charge coverage ratio as of December 31, 2015

 

Weighting: 15% (8% for Mr. Lillibridge)

 

Goals:

 

 

Threshold

 

 

3.50x

 

 

Target

 

 

3.75x

 

 

Maximum

 

 

4.00x

 

 

Why does this measure matter?  Fixed charge coverage ratio reflects the strength of our balance sheet and our ability to generate sufficient cash flow to meet our debt obligations and continue to pay or increase our dividend. A strong ratio of EBITDA-generation compared to fixed payment obligations—one element of our comprehensive risk management program—is especially important for REITs, which are dividend-paying and required to distribute to stockholders a substantial portion of their annual taxable net income. By maintaining a high fixed charge coverage ratio, we are able to preserve and enhance stockholder value.  Even if our EBITDA declines in times of economic cycles or other impacts to our cash flows, high fixed charge coverage of cash flow to fixed obligations should enable us to generate sufficient free cash flow to meet our fixed obligations such as principal and interest payments and at the same time be able to maintain and even increase our dividend, which is an important component of our value proposition (total return) to stockholders.  Strong fixed charge coverage also enables us to maintain a strong BBB or better credit rating, which enhances our cost of capital (a critical component of our continued investment strategy) and provides us with more consistent access to the debt capital markets even during periods of capital market disruption. On average over the past three years (since fixed charge coverage has been used as an annual incentive measure), we have performed well above the peer group median with respect to this metric, which is consistent with actual payouts at above target levels.

 

Result:  Exceeded Maximum Performance Goal. As of December 31, 2015, our fixed charge coverage ratio was 4.5x. The variance between our actual results and our pre-established goals was largely due to actions led by our Named Executive Officers, including generation of higher than projected EBITDA coupled with efficient capital markets execution.  Our cash flow in 2015 reached a record high—with Cash Flow from Operations growing 11% year-over-year from 2014 to 2015—despite spinning off a portion of our cash flow to CCP in August 2015.

 

 

 

 

Lillibridge Financial Performance (Year End)

HCT Property MOB Cash NOI, Same-Store Cash NOI, Same-Store Occupancy and Tenant Retention

for the year ended December 31, 2015

 

Weighting: 40% (for Mr. Lillibridge only)

 

Goals:*

 

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Measure

 

Achievement

 

Goal

 

Weighting

 

 

 

 

 

 

HCT Property MOB Cash NOI

Threshold

-1.0%

25%

Target

0.0%

 

Maximum

1.0%

 

Same-Store MOB Cash NOI(based on a specific definition and pool of assets)

Threshold

2.3%

40%

Target

2.8%

 

Maximum

3.3%

 

Same-Store Occupancy
(based on a specific pool of assets)

Threshold

91.1%

20%

Target

91.7%

 

Maximum

92.6%

 

Tenant Retention
(based on definition in place on January 1, 2015)

Threshold

 

74%

 

15%

 

Target

78%

 

Maximum

82%

 

 

* These goals were established for certain pools of assets and used certain definitions in place on January 1, 2015; they may differ from same-store pools of assets based on asset sales and intended sales, and or market definitions. Target for HCT NOI was based on MOB underwritten NOI for the HCT acquisition, with target equaling $79.1 million.

 

Why do these measures matter?  Ensuring that the Company attained cash NOI from the HCT acquisition was important to evaluate the successful execution and integration of the HCT assets, approximately half of which were MOBs.  Same-Store Occupancy and Same-Store Cash Flow growth are important measures of the MOB business’s ability to generate internal organic growth and maximize the productivity of these assets.  Tenant retention is important because retaining tenants is impactful in maintaining an improving occupancy and is generally an economical way to produce consistent improving cash flows from the assets.

 

Result:  Below Threshold on a Combined Basis. As of December 31, 2015, Lillibridge achieved (i) 0.54% HCT Property MOB Cash NOI, which was between the target and maximum levels, (ii) Same-Store Cash NOI of less than 2%, which was below the threshold level, (iii) Same-Store Occupancy of 91.2%, which was slightly above the threshold level and (iv) Tenant Retention of 70-72%, which was below the threshold level.

 

 

 

 

Individual Performance

Individual performance under management

objectives established for each Named Executive Officer

 

Weighting: 35% (25% for Mr. Lillibridge)

 

Goals:

 

Individual objectives relate to areas of special emphasis within the executive’s particular responsibilities and duties, such as achieving certain cost, NOI or revenue targets, or achieving other extraordinary or unusual accomplishments or contributions, in light of our business risk environment.

 

Why does this measure matter?  A review of each Named Executive Officer’s annual accomplishments enables our Compensation Committee and, in the case of our Chief Executive Officer, the independent members of our Board to evaluate the specific contributions of the Named Executive Officer to our success and more closely link pay to performance.

 

Result:  Between Target and Maximum Performance. Each of our Named Executive Officers achieved between target and maximum performance with respect to his or her tailored individual objectives.  Though our Chief Executive Officer achieved maximum performance of her individual goals, the independent members of our Board exercised negative discretion respecting her payout on this individual performance component to decrease her annual incentive award in order to create alignment with stockholders through a meaningful reduction in her compensation compared to 2014. The significant accomplishments considered by our Compensation Committee and the independent

 

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members of our Board in determining the individual performance component of our Named Executive Officers’ 2015 annual cash incentive awards are summarized below.

 

 

 

 

 

Name

Accomplishments

 

 

Debra A. Cafaro

ü   Drove outstanding financial and operating results consistent with plan, including strong growth of normalized FFO per share on a comparable basis and superior enterprise wide same-store cash flow growth, while managing balance sheet, reputational and investment risk.

 

 

 

ü   Spearheaded and oversaw complex, value-creating Spin-off strategy and execution.

 

 

 

ü   Elevated and refined investor and customer focus to drive growth and value creation, including through new initiatives and inaugural Investor Day.

 

 

 

ü   Spearheaded and oversaw completion of more than $5 billion of accretive, attractive investments, including entry into large, attractive and consolidating hospital space with Ardent, a top 10 investor-owned hospital company.

 

 

 

ü   Oversaw expert and opportunistic capital raises, including the issuance of $2.8 billion in equity capital at over $76 per share (the majority of which was issued prior to the Spin-off) and the issuance and sale of $1.6 billion aggregate principal amount of senior notes with a weighted average interest rate of 3.9% and a weighted average term of 13 years.

 

 

 

ü   Re-shaped and elevated organization through personnel decisions, increased efficiency and effectiveness and continued focus on inspiring and caring leadership.

 

 

 

ü   Re-aligned a strong, efficient and effective executive leadership team.

 

 

 

ü   With CFO and CIO, developed and executed forward looking strategic plan to create value in light of current and future market conditions.

 

 

 

ü   Enhanced Ventas reputation with industry, customers, investors and communities.

 

 

 

ü   Energized Ventas brand recognition through engagement with organizations, events and media, creating extended visibility for our company in the healthcare, corporate (including sustainability) and philanthropic communities.

 

 

 

ü   Earned exceptional leadership recognition from Harvard Business review (top 100 CEOs globally), Modern Healthcare (top 100 people in Healthcare, top 25 women in Healthcare), and Institutional Investor REIT “All America” management teams; keynote speaking (e.g., Chicago Booth), NIC inaugural “NIC Talks” presenter on Public Policy.

 

 

 

 

Robert F. Probst

ü   Assumed leadership of SHOP business, bringing new operational and strategic perspective to SHOP business, while establishing key relationships with operators and industry participants.

 

 

 

ü   Led financial and accounting aspects of the Spin-off.

 

 

 

ü   Completed strategic reorganization of Finance and Accounting teams to enhance efficiency and team integration.

 

 

 

ü   Enhanced investor relations and communications and played a key role in the Company’s inaugural Investor Day.

 

 

 

ü   Refined Company strategy and analyzed strategic opportunities in key markets.

 

 

 

 

Todd W. Lillibridge

ü   Managed the majority of our growing MOB portfolio while controlling operating costs and corporate headcount.

 

 

 

ü   Achieved new leasing targets, including 2015 year-end MOB occupancy rate of 92.6%.

 

 

 

ü   Completed segmentation exercise to identify opportunities and optimize human and capital allocation.

 

 

 

ü   Participated in Ardent transaction and serving on Ardent operating company board of directors.

 

 

 

ü   Enhanced quality of organization.

 

 

 

ü   Served as sponsor/mentor on Company-wide customer outreach initiative.

 

 

 

ü   Launched comprehensive Client Relationship Management Plan and customer focused training program to improve segment performance.

 

 

T. Richard Riney

ü   Managed legal negotiations, documentation and due diligence for the Spin-off and the closing of more than $5 billion of investments in 2015.

 

 

 

ü   Assumed leadership of our triple-net lease business following the completion of the Spin-off.

 

 

 

ü   Led the reorganization of the Legal department.

 

 

 

ü   Enhanced enterprise risk management processes and Board reporting procedures.

 

 

 

ü   Continued to focus on Company-wide integrity initiatives.

 

 

 

ü   Led customer outreach efforts to drive lasting relationships and value creation.

 

 

 

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John D. Cobb

ü   Led team through closing of over $5 billion of investments in 2015.

 

 

 

ü   Added responsibility for redevelopment and development activities, committing $350 million of capital to new projects.

 

 

 

ü   Played a key role in sourcing and completing Ardent transaction (acquisition and structuring and sale of creditworthy Ardent operating company), serving as a platform for future growth.

 

 

 

ü   Conducted extensive investor outreach, including through our inaugural Investor Day and other investor events.

 

 

 

ü   Enhanced M&A sourcing, processes and collaboration.

 

Earned Awards.  Based on the performance summarized above (including the negative discretion exercised by the independent members of our Board, which decreased our Chief Executive Officer’s annual incentive award), in January 2016, our Compensation Committee and, in the case of our Chief Executive Officer, the independent members of our Board approved 2015 cash incentive awards between the target and maximum levels, ranging from 68% to 100% of the Named Executive Officers’ respective maximum award opportunities (or from 103% to 166% of their respective target award opportunities). The dollar value of each Named Executive Officer’s award is set forth in the “Non-Equity Incentive Plan Compensation” column of the 2015 Summary Compensation Table.

 

2016 Award Opportunities.  In December 2015, our Compensation Committee and, in the case of our Chief Executive Officer, the independent members of our Board approved the 2016 annual cash incentive award opportunities for our Named Executive Officers.  The 2016 annual cash incentive award opportunities for Ms. Cafaro and Messrs. Probst, Riney and Cobb remained unchanged from 2015 opportunities on a post-Spin-off basis.  Mr. Lillibridge received an increase to his annual cash incentive award opportunity by 25 basis points at each of the threshold (from 100% to 125%), target (from 150% to 175%) and maximum (from 225% to 250%) levels, effective as of January 1, 2016.

 

Long-Term Equity Incentive Compensation — Opportunities, Measures and Performance

 

Our Compensation Committee believes that a substantial portion of each Named Executive Officer’s compensation should be in the form of long-term equity incentive compensation. While the annual cash incentive plan rewards management actions that positively impact short-and mid-term performance, equity incentive awards encourage management to create and sustain stockholder value over longer periods because their value is directly attributable to changes in the price of our common stock over time. In addition, equity awards promote management retention because their full value cannot be realized until vesting occurs, which generally requires continued employment for multiple years. At the beginning of each performance year, our Compensation Committee and, in the case of our Chief Executive Officer, the independent members of our Board approve specific performance measures, goals and weightings and an award opportunity range (expressed as multiples of base salary and corresponding to threshold, target and maximum levels of performance) for each Named Executive Officer.

 

Unlike other companies that grant equity awards on a prospective basis prior to performance (which is then earned at a higher or lower level based on future performance), our long-term equity incentive plan is retrospective in nature, such that equity awards are granted following the satisfaction of specified performance goals and represent final payouts/value. Similar to our annual cash incentive awards, the grant and value of our long-term equity incentive awards are approved at the beginning of each fiscal year and determined solely by performance achieved through the preceding fiscal year. If the threshold performance has not been achieved with respect to a performance goal for a particular performance period, the portion of the long-term equity incentive awards based on that performance goal is not granted for that period. Therefore, at the time of their grant, our long-term equity incentive awards have been fully earned and are not subject to additional performance-based vesting requirements or upward or downward adjustments in amount. Although these awards do vest over multiple years to provide additional retention benefits and create greater alignment with stockholders, our Compensation Committee and, in the case of our Chief Executive Officer, the independent members of our Board believe that the imposition of additional future performance-based vesting requirements would be inequitable and hinder the competitiveness of our executive compensation program. Because of the retrospective nature of our long-term equity incentive plan and the SEC’s disclosure rules, the 2015 long-term equity incentive awards granted to our Named Executive Officers do not appear in the 2015 Summary Compensation Table, but will be reflected in next year’s Summary Compensation Table as restricted stock and stock option awards granted in 2016.

 

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2016 Awards Earned Based on 2015 Performance

 

GRAPHIC

 

Award Opportunities. In December 2014, our Compensation Committee and, in the case of our Chief Executive Officer, the independent members of our Board approved the 2015 long-term equity incentive award opportunities for our Named Executive Officers shown in the charts above. Messrs. Probst’s, Lillibridge’s, Riney’s and Cobb’s threshold, target and maximum long-term equity incentive award opportunities, as multiples of their respective base salaries, were increased from 2014 (from 175% to 200%, 250% to 275% and 325% to 350%, respectively) to position their target total direct compensation closer to the market median for the Comparable Companies. In connection with additions to the duties and responsibilities of Messrs. Probst, Riney and Cobb following the completion of the Spin-off, the Compensation Committee approved increases to such Named Executive Officers’ long-term equity incentive award opportunities by 75 basis points at each of the threshold (from 200% to 275%), target (from 275% to 350%) and maximum (from 350% to 425%) levels, effective as of August 17, 2015.  In making such adjustments, the Committee took into account (i) these Named Executive Officers’ increased responsibilities, (ii) cost savings of over $4 million in annual direct compensation costs (on a target basis), even after taking into account the adjustments made to the annual and long-term incentive award opportunities for Messrs. Probst, Riney and Cobb, as a result of the realignment of our executive team, pursuant to which two of our senior executives exited the Company (and were not replaced) following the Spin-off to work at CCP and (iii) the fact that our Named Executive Officers other than the Chief Executive Officer, as a group, were positioned at or slightly below the aggregate market median for target total direct compensation, even after taking into account the adjustments made to the annual and long-term incentive award opportunities for Messrs. Probst, Riney and Cobb. The long-term equity incentive award opportunities for Messrs. Probst, Riney and Cobb shown in the charts above reflect a blended rate of their pre- and post-Spin-off long-term equity incentive award opportunities and payouts to those three executives in 2016 were made based upon a prorated pre- and post-Spin-off structure.

 

Ms. Cafaro’s threshold and maximum long-term equity incentive award opportunities, as multiples of her base salary, also were increased in December 2014 for 2015 (from 3.60x and 7.50x, respectively) to position her target total direct compensation closer to the market median for the Comparable Companies, to position her maximum award

 

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opportunity closer to the 75th percentile for the Comparable Companies and to provide a more similar range of upside and downside opportunity around target.  Ms. Cafaro’s target award opportunity remained unchanged.

 

At the target levels shown above, each Named Executive Officer’s 2015 target total direct compensation was positioned near or slightly below the market median of the Comparable Companies. Ms. Cafaro’s long-term equity incentive structure has greater leverage and a wider range of outcomes than the structures of our other Named Executive Officers in support of the view that our Chief Executive Officer’s compensation should be even more closely aligned with stockholders than our other executive officers.

 

Performance Goals and Level of Attainment. Below is a summary of the 2015 long-term equity incentive plan measures and goals approved by our Compensation Committee and, in the case of our Chief Executive Officer, the independent members of our Board, for 2015, the relative weighting for each performance measure, the reasons we consider each performance measure to be an important component of our pay-for-performance philosophy, and our results with respect to those measures and goals. The net debt to EBITDA goal disclosed below was arithmetically adjusted as required by our 2015 Plan by taking the year-to-date results as of the date of the Spin-off and accounting for the impact of the Spin-off.  These revised goals were approved by our Compensation Committee and, in the case of our Chief Executive Officer, the independent members of our Board.  Although our Compensation Committee and, in the case of our Chief Executive Officer, the independent members of our Board retain discretion to determine overall performance under the qualitative portion of our long-term equity incentive plan, many of the specific performance factors are evaluated based on objective, quantifiable measures. Our Compensation Committee and the independent members of our Board believe that this 50/50 split between formulaic measures and a qualitative evaluation of performance, and the ability to use their discretion in assessing each Named Executive Officer’s contribution to our success in preserving long-term stockholder value within acceptable risk levels, provides the appropriate incentive structure and balance to drive long-term stockholder value and discourage excessive risk-taking. For future performance periods, they will continue to evaluate our long-term equity incentive plan in the context of our overall executive compensation program, our business needs and feedback from our stockholders.

 

In the first quarter of the year following the performance year, each Named Executive Officer’s performance is carefully evaluated with respect to the applicable pre-established measures and goals in the context of the macroeconomic environment and conditions in the healthcare REIT industry to determine the earned value of the individual’s long-term equity incentive award, if any, within the established award opportunity range.

 

GRAPHIC

 

 

One-Year Relative TSR

Our TSR for the one-year period ended December 31, 2015

relative to the TSR of the Comparable Companies (which operate in various sectors) for the same period

 

Weighting: 15%

 

Goals:

 

 

 

Threshold

25th percentile

 

 

 

 

Target

50th percentile

 

 

 

 

Maximum

80th percentile

 

 

 

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Why does this measure matter?  TSR is the most direct measure of our creation and preservation of stockholder value. By relying on a relative measure of our TSR performance, our Board mitigates the impact of broader market or industry trends that do not directly reflect our actual performance.

 

Result:  Below Threshold Performance. For the year ended December 31, 2015, our TSR of -5.55% ranked us 13th among the Comparable Companies, or at the 19th percentile, resulting in zero payouts.

 

Three-Year Relative TSR

Our TSR for the three-year period ended December 31, 2015

relative to the TSR of the Comparable Companies for the same period

 

Weighting: 20%

 

Goals:

 

 

 

 

Threshold

25th percentile

 

 

 

 

Target

50th percentile

 

 

 

 

Maximum

80th percentile

 

 

 

Why does this measure matter?  Same as for one-year TSR, but we place greater weight on three-year TSR performance to reflect our focus on long-term stockholder value and mitigate the impact of temporary fluctuations in our stock price that are not present over longer time periods.

 

Result:  Below Threshold Performance. For the three-year period ended December 31, 2015, our compound annual TSR of 4.5% ranked us 14th among the Comparable Companies, or at the 13th percentile, resulting in zero payouts.

 

 

 

 

Net Debt to EBITDA (Year End)

Net debt to adjusted pro forma EBITDA as of December 31, 2015

 

Weighting: 15%

 

Goals:*

 

 

 

 

 

Pre-Spin

Post-Spin

 

 

 

 

 

 

 

Threshold

6.00x

6.30x

 

 

 

 

 

 

Target

5.80x

6.10x

 

 

 

 

 

 

Maximum

5.60x

5.90x

 

 

 

 

* These goals were arithmetically adjusted as required by our Plan, effective on the date of our Spin-off in August 2015 in order to exclude the impact of the Spin-off consistent with the Company’s public disclosure and the models approved by the Board when it approved the Spin-off.  In order to create the optimal total return from our stockholders from the Spin-off, we and our advisors believed that CCP, as a pure-play skilled nursing REIT that would pursue an external growth strategy, should have lower leverage than the Company; as a direct result of the fact that CCP had lower leverage than the Company as of the date of the Spin-off, the Company’s leverage by definition would increase as of the same date.

 

Why does this measure matter?  Net debt to adjusted pro forma EBITDA reflects the strength of our balance sheet and our ability to generate sufficient cash flow earnings to meet our debt obligations. Our commitment to financial strength and flexibility—of which net debt to adjusted pro forma EBITDA is a key measure and an important element of our comprehensive risk management program—is especially important for REITs, which are required to distribute to stockholders a substantial portion of their annual taxable net income. By maintaining such financial strength, we are able to preserve and enhance stockholder value. First, during recessionary economic cycles or other impacts to our EBITDA, a strong net debt to adjusted pro forma EBITDA enables us to weather downturns and continue to meet our debt obligations without impairing stockholder capital through dilutive equity offerings or distressed asset sales.  In addition, this financial strength enables us to create stockholder value by enabling us to be opportunistic as we continue to execute on our acquisition and investment strategy. It also enables us to maintain a strong BBB or better credit rating, which enhances our cost of capital (a critical component of our continued investment strategy) and provides us with more consistent

 

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access to the debt capital markets even during periods of capital market disruption.  This measure is balanced with our normalized FFO/share growth metric to incent prudent growth while managing risk.  Over the past three years (since net debt to EBITDA has been used as a long-term incentive measure), our performance has varied compared to the peer group median, which is consistent with actual payouts both above and below target.

 

Result:  Target Performance. As of December 31, 2015, our net debt to adjusted pro forma EBITDA was 6.1x.

 

 

Qualitative Evaluation of Specified Objectives

Qualitative evaluation of specified financial, operational and strategic objectives

subject to the Compensation Committee’s and independent Board members’ discretion

 

Weighting: 50%

 

2015 Performance Factors:

 

Individual Performance

Effective Execution of Spin-Off

Same-Store Cash Flow Growth

Value Creating Investments

Effective Balance Sheet Management and Efficient Capital Markets Execution

Value Creating Refinancings and/or Asset Dispositions

Enterprise Risk Management

Organizational Efficiency and Effectiveness

Values, Reputation and Industry Leadership

Enhanced Investor Messaging and Communication

 

 

Why do these measures matter? Focus areas are selected to drive long-term stockholder value and discourage excessive risk-taking with the ability to recognize individual contributions.

 

Result:  Between Target and Maximum Performance. Our Compensation Committee and, in the case of our Chief Executive Officer, the independent members of our Board evaluated our performance with respect to the specified objectives and other factors described below.  After adjustments to reflect individual contributions, our Compensation Committee and, in the case of our Chief Executive Officer, the independent members of our Board determined that each Named Executive Officer achieved between target and maximum performance under the qualitative portion of our 2015 long-term equity incentive plan.

 

In their qualitative evaluation, our Compensation Committee and the independent members of our Board did not assign a specific weight to any single factor, but recognized that we delivered excellent strategic and operating performance, including industry-leading FFO growth, same-store cash flow growth and fixed charge coverage.  Our Compensation Committee and Board considered all of the factors established under the 2015 Plan and other relevant factors and placed the greatest significance on our:

 

ü                            excellent strategic decision-making regarding the tax-efficient Spin-off and its outstanding execution;

 

ü                            entry into the hospital market, a long-term strategic objective of the Company, with Ardent, a top 10 investor-owned hospital company, including the simultaneous structuring and sale of the Ardent hospital operating company;

 

ü                            closing of over $5 billion of accretive acquisitions;

 

ü                            commitment of $350 million to capital projects, including ground up development of a Class A MOB in downtown San Francisco and two luxury ground up seniors housing developments in San Francisco and

 

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Palm Beach County, and multiple redevelopment projects with our top operators;

 

ü                            delivery of sector-leading same-store cash flow growth;

 

ü                            improved relative equity multiple (among the large-cap diversified healthcare REITs) and issuance of $2.8 billion in equity capital at over $76 per share (the majority of which was issued prior to the Spin-off);

 

ü                            generation and receipt of over $700 million in sales proceeds and loan repayments;

 

ü                            enhanced investor messaging and outreach, including holding a very successful inaugural Investor Day;

 

ü                            realignment of the executive management team following the Spin-off, with improved organizational efficiency and effectiveness; and

 

ü                            successful issuance of long-term (13-year average) debt at attractive (under 4%) all-in pricing.

 

Though our Chief Executive Officer achieved maximum performance relative to her impact on achievement of the Company’s non-quantitative goals, the independent members of our Board exercised negative discretion respecting her payout on these non-quantitative goals to decrease her long-term equity incentive award in order to create alignment with stockholders through a meaningful reduction in her compensation compared to 2014.

 

Award Amounts. Based on the performance summarized above, in January 2016, our Compensation Committee and, in the case of our Chief Executive Officer, the independent members of our Board approved 2015 long-term equity incentive awards at approximately the threshold level, ranging from 53% to 61% of the Named Executive Officers’ respective maximum award opportunities (or from 72% to 77% of their respective target award opportunities).

 

Ms. Cafaro’s 2015 long-term equity incentive award represented 53% of her maximum award opportunity, compared to her long-term equity incentive awards for the prior five years, which averaged 85% of her maximum award opportunity. Reflecting strong stockholder alignment and our emphasis on pay-for-performance, the negative discretion exercised by the independent members of the Board with respect to Ms. Cafaro’s long-term equity incentive award as described above and our TSR performance had a significant impact on our Named Executive Officers’ 2015 long-term equity incentive awards made in 2016. TSR constituted 35% of the award opportunity (or 70% of the quantitative performance measures) and resulted in zero payouts, thus substantially lowering the total long-term equity incentive award payouts for our Named Executive Officers.

 

Form of Awards. The long-term incentive compensation granted to our Named Executive Officers for 2015 consisted of equity awards in the form of stock options (40%) and shares of restricted stock (60%) granted pursuant to our 2012 Incentive Plan. Our Compensation Committee believes that restricted stock, which is the most prevalent form of long-term equity incentive compensation among the Comparable Companies, provides a strong incentive to create and preserve long-term stockholder value and, therefore, granted the 2015 long-term equity incentive awards 60% in the form of restricted stock. The shares of restricted stock granted to our Named Executive Officers in January 2016 for 2015 performance vest in three equal annual installments, with the first installment vesting on the date of grant. Shares of restricted stock are granted to our Named Executive Officers (other than the Chief Executive Officer) on the date that our Compensation Committee meets to review our performance and determine the value of the long-term equity incentive awards. Shares of restricted stock are granted to our Chief Executive Officer on the date that the independent members of our Board meet to review and approve the Compensation Committee’s recommendations with respect to the value of the Chief Executive Officer’s long-term equity incentive award. Typically, these meetings of our Compensation Committee and the independent members of our Board are held on the same day.

 

The Compensation Committee also decided to increase the emphasis on improving the Company’s TSR in a balanced way by increasing the portion of long-term equity incentive awards granted in the form of stock options to 40% (from 30% previously).  This mix of equity awards continues to encourage appropriate risk management while creating greater alignment with stockholders.  The stock options will be granted to our Named Executive Officers in four equal installments during 2016 to address the potential volatility of using a single, annual grant date and will vest in three equal installments as follows:

 

 Grant Date

 

 

First Vesting Date

 

 

Second Vesting Date

 

 

Third Vesting Date

 

 

January 27, 2016

 

 

 January 27, 2016

 

 

January 27, 2017

 

 

January 27, 2018

 

 

May 4, 2016

 

 

          May 4, 2016

 

 

January 27, 2017

 

 

January 27, 2018

 

 

August 3, 2016

 

 

     August 3, 2016

 

 

January 27, 2017

 

 

January 27, 2018

 

 

November 2, 2016

 

 

November 2, 2016

 

 

January 27, 2017

 

 

January 27, 2018

 

 

 

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The stock options have a ten-year term, and the stock option exercise price is the closing price of our common stock on each of the grant dates.

 

2015 Awards Earned Based on 2014 Performance

 

Award Opportunities. In December 2013, our Compensation Committee and, in the case of our Chief Executive Officer, the independent members of our Board approved the 2014 long-term equity incentive award opportunities for our Named Executive Officers other than Mr. Probst, whose 2014 long-term equity incentive award opportunities were determined by our Compensation Committee in connection with his hiring. Messrs. Cobb’s, Lillibridge’s and Riney’s threshold, target and maximum long-term equity incentive award opportunities, as multiples of their respective base salaries, were increased from 2013 (from 1.00x to 1.75x, 2.00x to 2.50x and 3.00x to 3.25x, respectively) to position their target total direct compensation closer to the market median for the Comparable Companies and to provide a similar range of upside and downside opportunity around target. Ms. Cafaro’s threshold and target long-term equity incentive award opportunities, as multiples of her base salary, also were increased from 2013 (from 2.25x to 3.80x and 4.50x to 6.00x, respectively) to position her target total direct compensation closer to the market median for the Comparable Companies and to provide a more similar range of upside and downside opportunity around target. Ms. Cafaro’s maximum award opportunity remained unchanged.

 

At the target levels shown above, each Named Executive Officer’s 2014 target total direct compensation was positioned near or slightly below the market median of the Comparable Companies. Ms. Cafaro’s long-term equity incentive structures have greater leverage and a wider range of outcomes than the structures of our other Named Executive Officers in support of the view that our Chief Executive Officer’s compensation should be even more closely aligned with stockholders than our other executive officers.

 

Results and Award Amounts. Long-term equity incentive awards granted generally in the form of restricted stock (70% of award) and stock options (30% of award) to our Named Executive Officers in 2015 for 2014 performance ranged from 59% to 92% of their respective maximum award opportunities (or from 89% to 112% of their respective target award opportunities). We achieved between threshold and target performance with respect to the quantitative measures described below that together accounted for 50% of the award opportunity. In regard to the qualitative evaluation of our performance with respect to the financial, operational and strategic objectives described below that accounted for the remaining 50% of the award opportunity, we achieved near maximum performance overall based on our strong financial and operational results. After adjustments to reflect individual contributions, our Compensation Committee and, in the case of our Chief Executive Officer, the independent members of our Board determined that each Named Executive Officer achieved between target and maximum performance under the qualitative portion of our 2014 long-term equity incentive plan.  The restricted stock and stock option awards vest in equal one-third annual installments beginning on the date of grant.

 

2017 Awards Earned Based on 2016 Performance

 

In December 2015, our Compensation Committee and, in the case of our Chief Executive Officer, the independent members of our Board approved the 2016 long-term equity incentive award opportunities for our Named Executive Officers.  The 2016 long-term equity incentive award opportunities for Ms. Cafaro and Messrs. Probst, Riney and Cobb remained unchanged from their opportunities as of the end of 2015.  Mr. Lillibridge received an increase to his long-term equity incentive award opportunity by 75 basis points at each of the threshold (from 200% to 275%), target (from 275% to 350%) and maximum (from 350% to 425%) levels, effective as of January 1, 2016.

 

Other Benefits and Perquisites

 

Our executive compensation program focuses on the elements described above, with extremely limited provision of perquisites. Our Named Executive Officers are generally eligible to participate in the same benefit programs that we offer to other employees, which in 2015, included the following:

 

ü                            health, dental and vision insurance (of which we paid 90% of the premium in 2015);

 

ü                            short-term disability, long-term disability and life insurance coverage (at no cost to the employee); and

 

ü                            participation in a 401(k) plan (to which we made matching contributions up to 3.5% of the employee’s base salary, up to the federal limit, in 2015).

 

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We believe these benefits are competitive with overall market practices. In addition, we provide certain limited perquisites and other benefits to attract and retain superior employees for key positions. The only perquisites and benefits provided to our Named Executive Officers in 2015 that were not otherwise available to all employees consisted of supplemental disability and life insurance coverage, including reimbursement for taxes relating to that life insurance coverage, for Ms. Cafaro and reimbursement for the cost of parking for Mr. Lillibridge until July 1, 2015, when Mr. Lillibridge’s employment agreement with us expired and was replaced with an Employee Protection and Noncompetition Agreement, which no longer included this perquisite. Our Compensation Committee periodically reviews the perquisites and other personal benefits provided to each Named Executive Officer and has determined that they are consistent with current market practice. Except for the eligibility to participate in, and our matching contributions to, the 401(k) plan, as described above, we do not provide our Named Executive Officers with any retirement benefits.

 

Severance Benefits

 

Our Named Executive Officers are entitled to receive severance benefits under existing agreements upon certain qualifying terminations of employment (subject to any required payment delay pursuant to Section 409A of the Code). Generally, these severance arrangements support executive retention and continuity of management and provide replacement income if an executive is terminated involuntarily other than for cause.

 

None of our executive officers is entitled to severance benefits solely upon a change of control of our company. Moreover, our Chief Executive Officer is not entitled to any tax gross-ups with respect to payments made in connection with a change of control. Although a long-standing legacy arrangement with Mr. Riney provides a tax gross-up with respect to payments made in connection with a change of control, no such gross-up payment would have been payable to him under the scenarios and assumptions presented under “Potential Payments Upon Termination or Change of Control” in this Proxy Statement. At the time we entered into this arrangement with Mr. Riney, our Compensation Committee considered the potential severance benefits, including any potential tax gross-up, to be necessary to attract and retain Mr. Riney and, based on the market compensation analyses of the Compensation Committee’s independent compensation consultant, to be consistent with then-current competitive market practices. Our previous employment agreement with Mr. Lillibridge, which expired on July 1, 2015, and our current Employee Protection and Non-Competition Agreements with Messrs. Probst, Lillibridge and Cobb, do not provide for any tax gross-up payments in connection with a change of control.

 

In 2013, consistent with our commitment to strong corporate governance and responsiveness to our stockholders, our Board adopted a policy against tax gross-up arrangements, which formalized our existing practice of not entering into new tax gross-up arrangements with our executive officers.

 

Tax Considerations

 

Section 162(m) of the Code places a limit of $1 million on the amount of compensation that we may deduct in any year with respect to each Named Executive Officer other than our Chief Financial Officer, unless the compensation is performance-based compensation and meets certain other requirements, as described in Section 162(m) and the related regulations. Although we consider the impact of Section 162(m), as well as other tax and accounting consequences, when developing and implementing our executive compensation programs, our Compensation Committee retains flexibility to make compensation decisions that do not meet the requirements for deductibility under Section 162(m) when it considers it appropriate or necessary to do so. In addition, due to ambiguities and uncertainties as to the interpretation and application of Section 162(m) of the Code, no assurances can be given that compensation would satisfy the requirements for deductibility under Section 162(m), even if intended to do so. Accordingly, our Compensation Committee may approve compensation that exceeds the $1 million limit or does not otherwise meet the requirements of Section 162(m).

 

Minimum Share Ownership Guidelines for Executive Officers

 

Our minimum share ownership guidelines require each executive officer to maintain a minimum equity investment in our company based upon a multiple (five times, in the case of the Chief Executive Officer, and three times, in the case of all other executive officers) of his or her base salary at the time his or her compliance with the guidelines is evaluated. Each executive officer must achieve the minimum equity investment within five years from the date he or she first becomes subject to the guidelines and, until that time, must retain at least 60% of the shares of our common stock granted to the executive officer or purchased by the executive officer through the exercise of stock options. The independent members of our Board annually review each executive officer’s compliance with the guidelines as of July 1. All of our executive officers (other than Mr. Probst, who is still subject to the transition period) are currently in compliance with the minimum share ownership guidelines. Except as described above, our minimum share ownership guidelines and our 2012 Incentive Plan do not specify a minimum holding period for stock options, restricted stock or other equity grants.

 

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Recoupment Policy

 

The Board has adopted a Policy for Recoupment of Incentive Compensation that allows us to recapture amounts paid to our executive officers under certain circumstances. Under this policy, our Compensation Committee may require an executive officer to repay all or a portion of any excess cash or equity incentive compensation he or she received during the preceding three-year period if the incentive compensation was based on achieving certain financial results that were later required to be restated due to our material noncompliance with any financial reporting requirement.

 

Following the SEC’s adoption of final rules regarding executive compensation recoupment policies pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, we will review our recoupment policy and make any changes necessary to comply with the final rules.

 

Anti-Hedging and Pledging Policy

 

Our Securities Trading Policy and Procedures prohibits our directors, executive officers and employees from engaging in derivative and other hedging transactions in our securities and restricts our executive officers and directors from holding our securities in margin accounts or otherwise pledging our securities to secure loans without the approval of our Audit Committee. No executive officer or director pledged or held our securities in margin accounts at any time during 2015.

 

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Compensation Tables

 

2015 Summary Compensation Table (see also the Supplemental Compensation Table Reflecting our Retrospective Long-Term Incentive Plan above)

 

The following table sets forth the compensation awarded or paid to, or earned by, each of our Named Executive Officers during 2015, 2014 and 2013 (except for Mr. Cobb, who was not a Named Executive Officer in 2014 or 2013), which includes equity incentive awards granted in each such year that were earned for performance in 2014, 2013 and 2012, respectively (for supplemental information regarding the total direct compensation earned by our Named Executive Officers for 2015 performance, see “Compensation Discussion and Analysis—Executive Summary” above):

 

Name and Principal Position

Year

Salary

($)

Stock Awards

(1)

($)

Option

Awards(1)

($)

Non-Equity

Incentive Plan

Compensation

(2)

($)

All Other

Compensation

(3)

($)

Total

($)

 

 

 

 

 

 

 

 

Debra A. Cafaro

Chairman of the Board and Chief Executive Officer 

2015

$1,075,000

$ 4,353,197

$ 1,865,572

$ 3,569,000

$60,941

$10,923,710

2014

1,050,000

3,622,819

1,552,506

3,780,000

60,518

10,065,843

2013

1,000,000

4,157,941

1,781,999

2,974,001

46,040

9,959,981

Robert F. Probst

Executive Vice President and Chief Financial Officer

2015

575,000

300,512

128,823

1,337,249

9,379

2,350,963

2014

103,973

999,946

323,438

1,485

1,428,842

 

 

 

 

 

 

 

Todd W. Lillibridge

Executive Vice President, Medical Property Operations; President and Chief Executive Officer, Lillibridge Healthcare Services, Inc.

2015

479,900

837,455

358,902

738,801

11,059

2,426,117

2014

461,400

611,688

262,132

1,004,929

14,580

2,354,729

2013

412,000

638,334

273,598

844,600

31,495

2,200,027

 

 

 

 

 

 

 

 

 

 

 

 

 

 

T. Richard Riney

Executive Vice President, Chief Administrative Officer, General Counsel and Ethics and Compliance Officer

2015

525,600

908,587

389,378

1,185,570

9,379

3,018,514

2014

500,580

688,134

294,894

1,126,305

9,672

2,619,585

2013

463,500

850,497

364,494

957,128

9,497

2,645,116

 

 

 

 

 

 

 

John D. Cobb

Executive Vice President and Chief Investment Officer

2015

525,000

1,907,422

388,927

1,230,154

9,379

4,060,882

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

The amounts shown in the Stock Awards and Option Awards columns reflect the full grant date fair value of the restricted stock and stock options granted to our Named Executive Officers in 2015, 2014 and 2013 for performance in 2014, 2013 and 2012, respectively, calculated pursuant to FASB guidance relating to fair value provisions for share-based payments. See Note 12 of the Notes to Consolidated Financial Statements included in the 2015 Form 10-K for a discussion of the relevant assumptions used in calculating grant date fair value. For further information on these awards, see the 2015 Grants of Plan-Based Awards Table and 2015 Outstanding Equity Awards at Fiscal Year-End Table in this Proxy Statement. In accordance with SEC rules, restricted stock and stock options granted in 2016 to our Named Executive Officers for 2015 performance are not shown in the 2015 Summary Compensation Table but will be shown in the 2016 Summary Compensable Table.

 

 

(2)

The amounts shown in the Non-Equity Incentive Plan Compensation column reflect annual cash incentive awards earned by our Named Executive Officers for performance in 2015, 2014 and 2013.  Our Compensation Committee approved increased annual cash incentive opportunities for Messrs. Probst, Riney and Cobb, effective as of the date of the Spin-off, in connection with the increased responsibilities assigned to such individuals following the completion of the Spin-off.  The 2015 payments disclosed above for Messrs. Probst, Riney and Cobb reflect blended rates, with 229/365ths of the payments based on pre-Spin-off opportunities and 136/365ths of the payments based on post-Spin-off opportunities.

 

 

(3)

The amounts shown in the All Other Compensation column for 2015 include supplemental disability insurance premiums (in the amount of $46,848) and supplemental life insurance premiums paid on behalf of Ms. Cafaro; group term life insurance premiums paid on behalf of our Named Executive Officers; reimbursement for the payment of taxes relating to such group term life insurance for Ms. Cafaro (in the amount of $1,303); our matching contributions to the Named Executive Officers’ 401(k) plan accounts (in the amount of $9,275 for each Named Executive Officer); and reimbursement for the cost of parking for a portion of 2015 for Mr. Lillibridge.

 

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2015 Grants of Plan-Based Awards Table

 

The following table provides additional information relating to grants of plan-based awards made to our Named Executive Officers during 2015:

 

 

 

 

Estimated Possible Payouts Under
Non-Equity Incentive Plan Awards

All Other
Stock Awards:
Number of
Shares of
Stock or

All Other Option
Awards:
Number of
Securities
Underlying

Exercise
or Base
Price of
Option

Grant Date
Fair Value
of Stock
and
Option

Name

Grant
Date

Threshold
($)

Target
($)

Maximum
($)

Units(1)
(#)

Options(2)
(#)

Awards(3)
($/Sh)

Awards(4)
($)

Debra A. Cafaro

—      

(5)

$ 1,290,000

$2,150,000

$ 3,870,000

$       —

$         —

$     —

$            —

1/21/2015

(6)

55,568

4,353,197

1/21/2015

(6)

317,941

78.34

1,865,572

Robert F. Probst

—      

(5)

628,562

916,062

1,347,312

1/21/2015

(6)

3,836

300,512

1/21/2015

(6)

21,953

78.34

128,813

Todd W. Lillibridge

—      

(5)

479,900

719,850

1,079,775

1/21/2015

(6)

10,690

837,455

1/21/2015

(6)

61,166

78.34

358,902

T. Richard Riney

—      

(5)

574,560

837,360

1,231,560

1/21/2015

(6)

11,598

908,587

1/21/2015

(6)

66,360

78.34

389,378

John D. Cobb

—      

(5)

573,904

836,404

1,181,250

1/21/2015

(6)(7)

24,348

1,907,422

1/21/2015

(6)

66,283

78.34

388,927

 

(1)

Except as described in footnote 7 below, the amounts shown reflect shares of restricted stock granted to our Named Executive Officers which were earned based solely on 2014 performance. These shares have an additional time-based vesting requirement and vest in three equal annual installments, with the first installment vesting on the date of grant.

 

 

(2)

The amounts shown reflect stock options which were earned based solely on 2014 performance. These options have an additional time-based vesting requirement and vest in three equal annual installments, with the first installment vesting on the date of grant.

 

 

(3)

The stock option exercise price equals the closing price of our common stock on the date of grant.

 

 

(4)

The amounts shown reflect the full grant date fair value of the awards calculated pursuant to FASB guidance regarding fair value provisions for share-based payments. See Note 12 of the Notes to Consolidated Financial Statements included in our 2015 Form 10-K for a discussion of the relevant assumptions used in calculating grant date fair value.

 

 

(5)

The amounts shown represent each Named Executive Officer’s threshold, target and maximum annual cash incentive opportunities for performance in 2015. These opportunities were approved by our Compensation Committee and, in the case of our Chief Executive Officer, by the independent members of our Board in December 2014. Our Compensation Committee also approved increased annual cash incentive opportunities for Messrs. Probst, Riney and Cobb, effective as of the date of the Spin-off, in connection with the increased responsibilities assigned to such individuals following the completion of the Spin-off. The amounts disclosed above for Messrs. Probst, Riney and Cobb reflect a blended rate of their award opportunities, with 229/365ths based on pre-Spin-off figures and 136/365ths based on post-Spin-off figures. The actual amount of each Named Executive Officer’s award is based on the achievement of certain performance measures as discussed in our CD&A. The annual cash incentive awards earned by our Named Executive Officers for performance in 2015 were paid during the first quarter of 2016. Such earned awards are shown in the “Non-Equity Incentive Plan Compensation” column of the 2015 Summary Compensation Table.

 

 

(6)

The amounts shown in the table above reflect the actual long-term equity incentive awards granted as restricted stock and stock options to our Named Executive Officers in January 2015, which amounts were determined based solely on 2014 performance against predetermined quantitative and qualitative goals. As provided in the “2015 Outstanding Equity Awards at Fiscal Year-End Table” below, these awards were arithmetically adjusted as of August 17, 2015, the effective date of the Spin-off, in order to exclude the impact of the Spin-off. The range of long-term equity incentive awards that could have been earned in January 2015 based on 2014 performance is as follows:

 

 

 

 

 

 

 

 

 

 

 

2014 LTI Range

 

 

 

 

Threshold ($)

Target ($)

Maximum ($)

 

 

 

 

 

 

 

 

Ms. Cafaro

3,990,000

6,300,000

7,875,000

 

 

Mr. Probst

   251,563

   359,375

   467,188

 

 

Mr. Lillibridge

   807,450

1,153,500

1,499,550

 

 

Mr. Riney

   876,015

1,251,450

1,626,885

 

 

Mr. Cobb

   875,000

1,250,000

1,625,000

 

 

 

For additional information, please see the “Elements of our Compensation Program—Long-Term Equity Incentive Compensation – Opportunities, Measures and Performance—2015 Awards Earned Based on 2014 Performance” section in the Compensation Discussion and Analysis above.

 

 

(7)

Mr. Cobb’s restricted stock award for 2015 includes a special retention grant equal to 12,764 shares. The award vests in three equal annual installments, with the first installment vesting on the date of grant.

 

48



Table of Contents

 

2015 Outstanding Equity Awards at Fiscal Year-End Table

 

The following table sets forth information regarding equity-based awards granted to our Named Executive Officers that were outstanding at December 31, 2015:

 

 

Option Awards (1)

 

Stock Awards (1)

 

 

Number of Securities
Underlying Unexercised
Options Exercisable
(#)

Number of Securities
Underlying Unexercised
Options Unexercisable(2)
(#)

Option Exercise
Price
($)

Option Expiration Date

Number of Shares or
Units That Have Not
Vested (2)
(#)

Market Value of Shares or
Units That Have Not
Vested(3)

($)

 

 

 

 

 

 

 

 

Debra A. Cafaro

203,587

 

 

$ 37.51

 

1/20/2020

 

 

$             —

 

 

204,248

 

 

45.00

 

1/24/2021

 

 

 

 

216,906

 

 

46.88

 

1/18/2022

 

 

 

 

208,802

 

 

55.50

 

1/23/2023

 

 

 

 

281,171

 

140,585

 

51.85

 

1/29/2024

 

 

 

 

125,921

 

251,837

 

65.94

 

1/21/2025

 

 

 

 

 

 

 

 

103,647

 

5,848,800

 

Robert F. Probst

8,695

 

17,388

 

65.94

 

1/21/2025

 

 

 

 

 

 

 

 

20,665

 

1,166,126

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Todd W. Lillibridge

9,459

 

 

45.03