Shareholders' Equity

12 Months Ended

Dec. 31, 2013

Shareholders' Equity

Shareholders' Equity

Note 8. Shareholders' Equity

Share Awards:

        We have common shares available for issuance under the terms of our 2012 Equity Compensation Plan, or the 2012 Plan. The 2012 Plan was adopted in May 2012 and replaced our 2003 Incentive Share Award Plan, or the 2003 Plan. We awarded common shares to our officers and certain employees of RMR in 2013, 2012 and 2011 pursuant to both of these plans. We also awarded each of our Trustees 2,000 common shares in 2013 with an aggregate market value of $201 ($40 per Trustee) on the date of grant, 2,000 common shares in 2012 with an aggregate market value of $226 ($37 per Trustee) on the date of the grant, and 2,000 common shares in 2011 with an aggregate market value of $266 ($53 per Trustee) on the date of the grant, as part of their annual compensation. The common shares awarded to our Trustees vested immediately. The common shares awarded to our officers and certain employees of RMR vest in five equal annual installments beginning on the date of grant. We include the value of awarded shares in general and administrative expenses at the time the awards vest. See Note 12 for further information regarding grants of restricted shares we made to our officers and certain employees of RMR.

        A summary of shares granted and vested under the terms of our 2012 Plan and our 2003 Plan for the years ended December 31, 2013, 2012 and 2011, is as follows:

	Number of Shares			Weighted Average Grant Date Fair Value
Unvested shares at December 31, 2010		70,520		$	27.96
Granted in 2011		83,050			20.76
Vested in 2011		(49,955	)		20.79
Unvested shares at December 31, 2011		103,615			23.32
Granted in 2012		83,617			15.99
Vested in 2012		(71,244	)		15.75
Forfeited in 2012		(1,285	)		18.74
Unvested shares at December 31, 2012		114,703			19.39
Granted in 2013		83,450			23.29
Vested in 2013		(66,639	)		23.06
Forfeited in 2013		(600	)		22.49
Unvested shares at December 31, 2013		130,914			20.70

        The 130,914 unvested shares as of December 31, 2013 are scheduled to vest as follows: 47,868 shares in 2014, 40,593 shares in 2015, 27,843 shares in 2016 and 14,610 shares in 2017. As of December 31, 2013, the estimated future compensation expense for the unvested shares was $3,052 based on the closing share price of our common shares on December 31, 2013 of $23.31. The weighted average period over which the compensation expense will be recorded is approximately 22 months. During the years ended December 31, 2013, 2012 and 2011, we recorded $1,758, $1,179 and $1,139, respectively, of compensation expense related to our 2012 Plan and our 2003 Plan. In addition, during the period that SIR was our consolidated subsidiary, we recorded compensation expense related to SIR's equity compensation plan of $355 and $507 for the years ended December 31, 2013 and 2012, respectively.

        At December 31, 2013, 2,833,533 common shares remain available for issuance under the 2012 Plan.

        On January 28, 2014, we granted 2,000 common shares of beneficial interest, par value $0.01 per share, valued at $23.46 per share, the closing price of our common shares on the NYSE on that day, to each of two recently appointed Trustees as part of their annual compensation.

Share Issuance:

        On February 7, 2014, we issued 12,187 of our common shares to RMR as part of its compensation under our amended and restated business management agreement. See Note 12 for further information regarding this agreement.

Common Share Distributions:

        In January 2014, we declared a distribution of $0.25 per common share, or $29,597, which we paid on February 21, 2014 to shareholders of record on January 13, 2014. Cash distributions per common share paid by us in 2013, 2012 and 2011, were $1.00, $1.75 and $2.00, respectively. The characterization of our distributions paid in 2013, 2012 and 2011 was 0.00%, 61.72% and 65.90% ordinary income, respectively, 100.00%, 38.28% and 23.54% return of capital, respectively, 0.00%, 0.00% and 7.34% Internal Revenue Code section 1250 gain, respectively, and 0.00%, 0.00% and 3.22% capital gain, respectively. Our revolving credit facility agreement and term loan agreement contain a number of financial and other covenants, including a covenant which restricts our ability to make distributions under certain circumstances. See Note 13 for additional information regarding our revolving credit facility agreement and term loan agreement.

Preferred Shares:

        Each of our 15,180,000 series D cumulative convertible preferred shares accrue dividends of $1.625, or 6¹/2% per annum of the liquidation amount, payable in equal quarterly payments. Our series D preferred shares are convertible, at the holder's option, into our common shares at an initial conversion rate of 0.480775 common shares per series D preferred share, which is equivalent to an initial conversion price of $52.00 per common share, or 7,298,165 additional common shares at December 31, 2013. On or after November 20, 2011, if our common shares trade at or above the then applicable conversion price, we may, at our option, convert some or all of the series D preferred shares into common shares at the then applicable conversion rate. If a fundamental change occurs, which generally will be deemed to occur upon a change in control of us or a termination of trading of our common shares (or other equity securities into which our series D preferred shares are then convertible), holders of our series D preferred shares will have a special right to convert their series D preferred shares into a number of our common shares per $25.00 liquidation preference, plus accrued and unpaid distributions, divided by 98% of the average closing market price of our common shares for a specified period before such event is effective, unless we exercise our right to repurchase these series D preferred shares for cash, at a purchase price equal to 100% of their liquidation preference, plus accrued and unpaid distributions. The issuance of a large number of common shares as a result of the exercise of this conversion right after a fundamental change may have a dilutive effect on income from continuing operations attributable to CommonWealth REIT common shareholders per share for future periods.

        Each of our 11,000,000 series E preferred shares has a liquidation preference of $25.00 and requires dividends of $1.8125, or 7¹/4% per annum of the liquidation amount, payable in equal quarterly payments. The series E preferred shares are redeemable at our option for $25.00 each plus accrued and unpaid distributions at any time on or after May 15, 2016 or if a change of control occurs which results in our common shares (or the common securities of an acquiring or surviving entity) not being listed or quoted on the NYSE or certain other exchanges or quotation systems. Also, upon the occurrence of such a change of control, holders of series E preferred shares that we do not elect to redeem may at their option convert those series E preferred shares into our common shares (or certain alternative consideration) at a conversion rate generally based on their $25.00 liquidation preference per share, plus accrued and unpaid distributions, and the market price of our common shares at the time of conversion, subject to a cap.

        We have adopted a Shareholders Rights Plan pursuant to which a right to purchase securities is distributable to shareholders in certain circumstances. Each right entitles the holder to purchase or to receive securities or other assets of ours upon the occurrence of certain events. The rights expire and are redeemable at our option. We have determined to accelerate the expiration of the Shareholders Rights Plan, which currently is set to expire on October 17, 2014, to a date soon after resolution of the pending disputes with Related/Corvex.