Related Party Arrangements

9 Months Ended

Mar. 31, 2015

4. Related Party Arrangements

Organizational and Offering Costs

Pursuant to an Expense Reimbursement Agreement (the “Expense Reimbursement Agreement”) among the Company, the Operating Partnership, the Advisor and SC Investment Advisors Pte. Ltd. (“SCIA”), the Advisor and SCIA have agreed that SCIA will pay all of the costs related to the organization of the Company and the organization of the QDII Investor (as defined in the Expense Reimbursement Agreement) and U.S. LP (as defined in the Expense Reimbursement Agreement) (collectively, the “Formation Costs”) incurred prior to August 15, 2014. The Expense Reimbursement Agreement further provides that SCIA and the Advisor will collectively pay all Formation Costs incurred after August 15, 2014. Pursuant to the Expense Reimbursement Agreement, the Operating Partnership will be obligated to reimburse all Formation Costs to SCIA and the Advisor following the Company’s initial issuance of shares of its common stock to the QDII Investor. In the event that the issuance of shares of the Company’s common stock to the QDII Investor does not occur, the Expense Reimbursement Agreement provides that the Company will have no reimbursement obligation with respect to the Formation Costs. As of March 31, 2015, the total contingent amount subject to reimbursement by the Company is $[0,000,000], provided, that, pursuant to the Expense Reimbursement Agreement, the amount of any reimbursement owed to SCIA will be reduced on a dollar-for-dollar basis by the amount of the placement fee received by SCIA, and further, any offering costs which have not been previously reimbursed to SCIA will be reimbursed by the Company in connection with the liquidation of the Company. The Company intends to amend the Expense Reimbursement Agreement to replace SCIA with PAG Real Estate Limited, the parent entity which owns 100% of SCIA.

Advisory Agreement

Pursuant to the terms of the Advisory Agreement the Company plans to enter into with the Advisor, the Advisor will manage the Company’s day-to-day operations and oversee the acquisition, management and disposition of the Company’s real estate portfolio, in accordance with the guidance of the Company’s Investment Committee.

Pursuant to the Advisory Agreement, the Operating Partnership will pay the Advisor an annual asset management fee (“Asset Management Fee”), if earned, calculated based upon the QDII Average Annual Return and the US L.P. Average Annual Return (each as defined below). The amount of the annual Asset Management Fee payable, if any, will be based on the QDII Average Annual Return and the US L.P. Average Annual Return as of the end of each Accrual Period (as defined below), as follows:

•

No Asset Management Fee is payable if either the QDII Average Annual Return or the US L.P. Average Annual Return for the Accrual Period is less than 2.0%;

•

An Asset Management Fee equal to 0.5% of the Company’s NAV as of the end of the Accrual Period is payable if both the QDII Average Annual Return and the US L.P. Average Annual Return for such Accrual Period is between 2.0% and 5.0%; and

•

An Asset Management Fee equal to 1.0% of the Company’s NAV as of the end of the Accrual Period is payable if both the QDII Average Annual Return and the US L.P. Average Annual Return for such Accrual Period is greater than or equal to 5.0%.

In the event that the QDII Average Annual Return and the US L.P. Average Annual Return for an Accrual Period differ to a degree which would result in the application of different Asset Management Fee calculations as described above (for example, if the QDII Average Annual Return for an Accrual Period is between 2.0% and 5.0% and the US L.P. Average Annual Return for such Accrual Period is greater than 5.0%), then the lesser of the Average Annual Return amounts will be used for all purposes to determine the amount of the Asset Management Fee payable for such Accrual Period.

The percentage of the Company’s NAV for a given Accrual Period set forth in the second and third bullet points above is referred to herein as the “Applicable Rate.”

As used above, “Accrual Period” means, (i) with respect to the QDII Average Annual Return, the period from the date that capital was invested in the Company by the QDII Investor (as defined in the Advisory Agreement) for shares of common stock through the last day of the most recent calendar year-end, and (ii) with respect to the US L.P. Average Annual Return, the period from the date that capital was invested in the Company by the US L.P. (as defined in the Advisory Agreement) for shares of common stock through the last day of the most recent calendar year-end.

As used above, “QDII Average Annual Return” means the average annual return of the QDII Investor, based on the increase in the Company’s NAV allocable to the capital contributions of the QDII Investor to the Company as of the end of the Accrual Period, plus the cumulative cash distributions paid to the QDII Investor by the Company during the Accrual Period, as adjusted for the estimated United States taxes associated with such distributions based upon the applicable tax rates associated with the ultimate beneficial holders of the Company’s common stock and gross of the portion of any Asset Management Fees paid to Pintar and the Advisor during the Accrual Period allocable to the QDII Investor.

As used above, “US L.P. Average Annual Return” means the average annual return of the US L.P., based on the increase in the Company’s NAV allocable to the capital contributions of the US L.P. to the Company as of the end of the Accrual Period, plus the cumulative cash distributions paid to the US L.P. by the Company during the Accrual Period, as adjusted for the estimated United States taxes associated with such distributions based upon the applicable tax rates associated with the ultimate beneficial holders of the Company’s common stock and gross of the portion of any Asset Management Fees paid to Pintar and the Advisor during the Accrual Period allocable to the US L.P..

If, upon the liquidation of the Company and the Operating Partnership, both the QDII Average Annual Return and the US L.P. Average Annual Return for the period (the “Holding Period”) from the date of issuance of shares of the Company’s common stock to the QDII Investor and the US L.P. through the completion of the liquidation, as calculated based on the Liquidation NAV (as defined below) is greater than 2.0% and less than 5.0%, the Operating Partnership will pay the Advisor a fee (“Asset Management Catch-Up Fee”) equal to, for each calendar year (or such other applicable period) during the Holding Period: (x) the difference, if any, between 0.5% and the Applicable Rate for such calendar year (or such other applicable period), multiplied by (y) the Liquidation NAV.

If, upon the liquidation of the Company and the Operating Partnership, both the QDII Average Annual Return and the US L.P. Average Annual Return for the Holding Period, as calculated based on the Liquidation NAV, is equal to or greater than 5.0%, the Operating Partnership will pay the Advisor an Asset Management Catch-Up Fee equal to, for each calendar year (or such other applicable period) during the Holding Period: (x) the difference, if any, between 1.0% and the Applicable Rate for such calendar year (or such other applicable period), multiplied by (y) the Liquidation NAV (as defined below).

In the event that the QDII Average Annual Return and the US L.P. Average Annual Return for the Holding Period differ to a degree which would result in the application of different Asset Management Catch-Up Fee calculations as described above (for example, if the QDII Average Annual Return for the Holding Period is between 2.0% and 5.0% and the US L.P. Average Annual Return for the Holding Period is greater than 5.0%), then the lesser average annual return amount will be used for all purposes to determine the amount of the Asset Management Catch-Up Fee payable.

As used above, “Liquidation NAV” means the Company’s net asset value, determined pursuant to the valuation guidelines adopted by the Company’s board of directors, based on the net value received upon liquidation of the Company’s investments rather than appraised value of the investments after satisfaction of all liabilities.

Pursuant to the Advisory Agreement, the Company will pay directly or reimburse the Advisor for all of the expenses paid or incurred by the Advisor or its affiliates in connection with the services the Advisor provides to the Company pursuant to the Advisory Agreement. Expense reimbursements to the Advisor pursuant to the Advisory Agreement will be made in cash on a monthly basis following the end of each month. The Company’s reimbursement obligations pursuant to the Advisory Agreement are not subject to any dollar limitation.

The initial term of the Advisory Agreement will be for one year. Thereafter, the Advisory Agreement will be renewed automatically each year for unlimited number of successive one-year periods. Both the Company and the Advisor may elect not to renew the Advisory Agreement upon written notice delivered 90 days prior to the expiration of the initial term or any renewal term. The Advisor may terminate the Advisory Agreement effective upon at least 30 days’ prior written notice to the Company in the event that the Company defaults in the performance or observance of any material term, condition or covenant contained in the Advisory Agreement and such default continues for a period of 30 days after written notice thereof specifying such default and requesting that the default be remedied in such 30-day period. The Advisory Agreement may be terminated by the Company upon at least 30 days’ prior written notice to the Advisor for “Cause” (as defined below).

“Cause” is defined in the Advisory Agreement to mean (i) fraud, criminal conduct, willful misconduct, or material breach of a fiduciary duty by the Advisor, (ii) a material breach of the Advisory Agreement by the Advisor, which breach shall continue for a period of 30 days after written notice thereof specifying the breach and requesting that the breach be remedied in the 30-day period (iii) upon the commencement of any proceeding relating to the Advisor’s bankruptcy or insolvency, or (iv) upon the dissolution of the Advisor.

In the event the Advisory Agreement is terminated or not renewed by the Company other than for cause, notwithstanding such termination or nonrenewal, the Advisor will remain entitled to continue to receive annual Asset Management Fees and the Asset Management Catch-Up Fee, if earned under the terms of the Advisory Agreement, pursuant to the terms of the Advisory Agreement.

- Definition

The entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.

+ References+ Details

OPC Residential Properties Trust, Inc. 10-Q