Share-Based Compensation

2012 Equity Compensation Plan

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 former officers and certain employees of RMR pursuant to both of these plans. 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 New York Stock Exchange, or NYSE, on that day, to two of our former Trustees as part of their then annual compensation. We also awarded each of our former Trustees 2,000 common shares in 2013 with an aggregate market value of $0.2 million on the date of grant and 2,000 common shares in 2012 with an aggregate market value of $0.2 million on the date of the grant, as part of their annual compensation. The common shares awarded to our former Trustees vested immediately. We include the value of awarded shares in general and administrative expenses at the time the awards vest. See Note 19 for further information regarding grants of restricted shares we made to our former officers and certain employees of RMR.

A summary of shares granted and vested to our former Trustees, former officers and certain employees of RMR under the terms of our 2012 Plan and our 2003 Plan for the years ended December 31, 2014, 2013 and 2012, is as follows:



	Number of Shares		Weighted Average Grant Date Fair Value
Unvested shares at December 31, 2011	103,615		23.32
Granted	83,617		15.99
Vested	(71,244	)	15.75
Forfeited	(1,285	)	18.74
Unvested shares at December 31, 2012	114,703		19.39
Granted	83,450		23.29
Vested	(66,639	)	23.06
Forfeited	(600	)	22.49
Unvested shares at December 31, 2013	130,914		20.70
Granted	4,000		23.46
Vested	(134,914	)	25.79
Unvested shares at December 31, 2014	—		—

As a result of the removal of our former Trustees on March 25, 2014, the vesting of 130,914 common shares previously issued to our former officers and certain employees of RMR pursuant to our equity compensation plans accelerated in accordance with the terms of their governing share grants. During the year ended December 31, 2014, we recorded $3.4 million of compensation expense in general and administrative expense related to the vesting of these shares.

During the years ended December 31, 2014, 2013 and 2012, we recorded $3.4 million, $1.8 million and $1.2 million, respectively, of compensation expense for former Trustees, former officers and certain employees of RMR under the terms of 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 $0.4 million and $0.5 million for the years ended December 31, 2013 and 2012, respectively.

2012 Plan Amendment

On October 28, 2014, our Board of Trustees approved an amendment to the 2012 Plan (as amended, the Plan). This amendment permits us to issue RSUs. Additionally, on October 28, 2014, our Compensation Committee (Committee) approved new forms of Restricted Share and Restricted Share Unit Agreements to be used for grants of restricted common shares to members of the Board of Trustees, as well as grants of restricted common shares and restricted share units to officers and employees of the Company.

Recipients of the Company’s unvested restricted shares have the same voting rights as any other common share holder. During the period of restriction, the Company’s unvested restricted shareholders are eligible to receive dividend payments on their shares at the same rate and on the same date as any other common share holder.

On October 28, 2014, the Committee approved the one-time grant of restricted common shares and restricted share units to certain of the Company’s officers and employees and to Mr. Zell, the Chairman of our Board of Trustees. The Committee also approved the one-time grant of restricted common shares to our independent Trustees, a grant of restricted common shares to each independent Trustee as annual compensation for his or her service as a Trustee, and a pro-rata grant of fully vested common shares for five of our independent Trustees for their service from May 23, 2014 through July 31, 2014.

A summary of restricted share and RSU activity under the Plan for the year ended December 31, 2014 is as follows:



	Number of Restricted Shares		Weighted Average Grant Date Fair Value		Number of RSUs	Weighted Average Grant Date Fair Value
Outstanding at December 31, 2013	—		$	—	—	$	—
Granted	713,727		26.66		1,266,237	15.99
Vested	(3,545	)	26.66		—	—
Outstanding at December 31, 2014	710,182		$	—	1,266,237	$	—

The restricted shares are service based awards and vest over a four year period. The restricted shares were granted on October 28, 2014 and were valued using $26.66 per share, the closing price of our common shares on the NYSE on that day. The 710,182 unvested restricted shares as of December 31, 2014 are scheduled to vest as follows: 86,517 shares in 2015, 155,916 shares in 2016, 155,916 shares in 2017 and 311,833 shares in 2018. As of December 31, 2014, the estimated future compensation expense for the unvested restricted shares was $17.4 million. Compensation expense for the restricted share awards is being recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award. The weighted average period over which the compensation expense will be recorded for the restricted shares is approximately 3.5 years.

The RSUs are market based awards with a service condition and grant recipients may earn between 0% - 100% of the RSU grant based on the Company’s total shareholder return (TSR) relative to the TSR for the NAREIT Office Index for the period from October 28, 2014 - October 28, 2017. Following the end of the performance period on October 28, 2017, the number of earned awards will be determined. The earned awards vest in two tranches with 50% of the earned award vesting on October 28, 2017 and the remaining 50% of the earned award vesting on October 28, 2018 subject to the grant recipient’s continued employment. Dividends on the RSUs will be earned during the vesting period. To the extent that an award does not vest, the dividends will be forfeited. Compensation expense for the RSU awards was determined using a Monte Carlo simulation model and is being recognized ratably from the grant date to the vesting date of each tranche. As of December 31, 2014, the estimated future compensation expense for the unvested RSUs was $19.2 million. The weighted average period over which the compensation expense will be recorded for the RSUs is approximately 3.3 years.

The assumptions and fair values for the RSUs granted for the year ended December 31, 2014 is included in the following table on a per share basis.



	2014
Fair value of RSUs granted	$	15.99
Expected term (years)	4
Expected volatility	—
Expected dividend yield	1.88		%
Risk-free rate	0.84		%

During the year ended December 31, 2014, we recorded $2.6 million of compensation expense in general and administrative expense for grants to the Trustees and the Company's employees related to our Plan. At December 31, 2014, 849,569 common shares remain available for issuance under the Plan.