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Section 1: DEF 14A (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

Filed by the Registrant ☒         Filed by a party other than the Registrant o

Check the appropriate box:

o Preliminary Proxy Statement
o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Material Pursuant to Section 240.14a-12

TIER REIT, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

No fee required.
o
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(1)
Title of each class of securities to which transaction applies:
 
 
 
 
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
 
 
 
 
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Fee paid previously with preliminary materials.
o
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
 
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NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS

TIME AND DATE:

10:00 a.m. local time on June 19, 2018

PLACE:

Bank of America Plaza
101 South Tryon Street, Suite 2500
Charlotte, North Carolina 28280

RECORD DATE:

You can vote if you are a stockholder of record as of the record date, which is the close of business on March 26, 2018.

ITEMS OF BUSINESS:

(1) To elect six individuals to serve on the board of directors until the next annual meeting of stockholders and until their respective successors are duly elected and qualify;
(2) To hold a non-binding, advisory vote on the compensation of our named executive officers;
(3) To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the 2018 fiscal year; and
(4) To transact such other business as may properly come before the annual meeting and any adjournments or postponements thereof.
YOUR VOTE IS IMPORTANT
Please follow the voting instructions in the notice regarding the availability of proxy materials that you receive.
IMPORTANT NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS:

The proxy statement, including a form of proxy, and our 2017 Annual Report are available online at www.tierreit.com/proxy. You may vote via the Internet by following the instructions provided in the notice regarding the availability of proxy materials.

Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it promptly in the postage-paid envelope provided.

Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.
If your shares are held in street name, you will receive voting instructions from your broker, bank or nominee.

ANNUAL REPORT:

Our 2017 Annual Report, which is not a part of the proxy soliciting material, has been made available to each of our stockholders of record as of the close of business on April 9, 2018.

PROXY VOTING:

Your vote is very important. We encourage you to read this proxy statement and submit your proxy as soon as possible, whether or not you plan to attend the annual meeting. Please follow the voting instructions in the notice of internet availability of proxy materials (the “Notice”) that you receive. You may submit your proxy for the annual meeting by using the Internet or, if you received printed copies of the proxy materials by mail in accordance with the instructions in the Notice, by using the telephone as set forth on the proxy card or by completing, signing, dating and returning the proxy card in the pre-addressed, postage-paid envelope provided with this proxy statement. If your shares of common stock are held in street name, you will receive instructions from your broker, bank or other nominee that you must follow in order to access the proxy materials and to have your shares of common stock voted.

By Order of the Board of Directors,


Telisa Webb Schelin
Chief Legal Officer, Executive Vice President & Secretary

April 9, 2018

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PROXY STATEMENT

TIER REIT, INC.
5950 Sherry Lane, Suite 700
Dallas, Texas 75225

2018 Annual Meeting of Stockholders to be Held on June 19, 2018

We are providing these proxy materials in connection with the solicitation by TIER REIT, Inc., a Maryland corporation (the “Company,” “we,” “our” or “us”), of proxies for use at the 2018 Annual Meeting of Stockholders to be held on Tuesday, June 19, 2018, at 10:00 a.m. local time at Bank of America Plaza, 101 South Tryon Street, Suite 2500, Charlotte, North Carolina 28280, and at any adjournments or postponements thereof for the purposes set forth in the accompanying Notice of 2018 Annual Meeting of Stockholders.

As permitted by the rules of the Securities and Exchange Commission (the “SEC”), our stockholders will receive a notice of internet availability of proxy materials (the “Notice”), which contains information on how to access this proxy statement and our 2017 Annual Report on the Internet, as well as instructions on how to vote. If you receive a Notice by mail, you will not receive a printed copy of the proxy materials in the mail unless you request a copy in the manner described in the Notice. The Notice and this proxy statement are first being made available to stockholders on or about April 9, 2018.

Annual Report

Our 2017 Annual Report (which includes a copy of our Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC) is being made available, together with this proxy statement, to our stockholders of record as of the close of business on March 26, 2018. Stockholders of record as of March 26, 2018 should follow the instructions in the Notice on how to access our 2017 Annual Report on the Internet.

Our Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC, may be accessed online through our website at www.tierreit.com or through the SEC’s website at www.sec.gov. In addition, you may request a copy of our Annual Report on Form 10-K by writing or telephoning us at the following address: 5950 Sherry Lane, Suite 700, Dallas, Texas 75225, (972) 483-2400.

Stockholders Entitled to Vote

Holders of our common stock as of the close of business on the record date are entitled to receive this notice and to vote their shares at the annual meeting. As of the record date, there were 47,920,140 shares of

our common stock outstanding. Each share of outstanding common stock is entitled to one vote on each matter properly brought before the annual meeting. There is no cumulative voting.

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HOW TO VOTE IF YOU ARE A STOCKHOLDER OF RECORD

HOW TO VOTE IF YOU ARE A STOCKHOLDER OF RECORD

Your vote is important. Please vote promptly.

Voting by Proxy for Shares Registered Directly
in the Name of the Stockholder

If you hold your shares of common stock in your own name as a holder of record with our transfer agent, you may instruct the proxy holders named in the proxy card how to vote your shares of common stock in one of the following ways:

Vote by Internet. You may vote via the Internet by following the instructions provided in the Notice or, if you received printed copies of the proxy materials, on your proxy card. The website for Internet voting is printed on the Notice and also on your proxy card. Please have your Notice or proxy card in hand. Internet voting is available 24 hours per day until 11:59 p.m., Eastern Time, on June 18, 2018. You will receive a series of instructions that will allow you to vote your shares of common stock. If you vote via the Internet, you do not need to return your proxy card.

Vote by Telephone. If you received printed copies of the materials in accordance with the instructions in the Notice, you also have the option to vote by telephone by calling the toll-free number listed on

your proxy card. Telephone voting is available 24 hours per day until 11:59 p.m., Eastern Time, on June 18, 2018. When you call, please have your proxy card in hand. You will receive a series of voice instructions that will allow you to vote your shares of common stock. If you did not receive printed materials and would like to vote by telephone, you must request printed or electronic copies of the proxy materials by following the instructions on your Notice. If you vote via telephone, you do not need to return your proxy card.

Vote by Mail. If you received printed copies of the proxy materials in accordance with the instructions in the Notice and would like to vote by mail, please mark, sign and date your proxy card and return it promptly in the postage-paid envelope provided. If you did not receive printed materials and would like to vote by mail, you must request printed copies of the proxy materials by following the instructions on your Notice.

Voting by Proxy for Shares Registered in Street Name

If your shares of common stock are held in street name, you will receive instructions from your broker,

bank or other nominee that you must follow in order to have your shares of common stock voted.

Voting in Person at the Meeting

If you are a stockholder of record and attend the annual meeting, you may vote in person at the meeting. If your shares of common stock are held in street name and you wish to vote in person at the

meeting, you will need to obtain a “legal proxy” from the broker, bank or other nominee that holds your shares of common stock of record prior to attending the meeting.

How Votes are Counted

All proxies that have been properly authorized and not revoked will be voted at the annual meeting. If you submit a proxy but do not indicate any voting instructions, the shares represented by that proxy will be voted: (1) FOR the election of each of the six director nominees named in Proposal One; (2) FOR the approval, on a non-binding advisory basis, of the compensation of our named executive officers as set

forth in Proposal Two; and (3) FOR the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the 2018 fiscal year as set forth in Proposal Three. With respect to any other business that may properly come before the stockholders for a vote at the annual meeting, your shares will be voted in the discretion of the holders of the proxy.

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HOW TO VOTE IF YOU ARE A STOCKHOLDER OF RECORD

Quorum Requirement and Required Vote

The presence, in person or by proxy, of the holders of a majority of the outstanding shares of common stock entitled to vote at the annual meeting is necessary to constitute a quorum for the transaction of business at the meeting. A stockholder may withhold his or her vote in the election of directors or abstain with respect to any other item submitted for stockholder approval. Broker non-votes are shares represented at the meeting held by brokers, as to which instructions have not been received from the beneficial owners or persons entitled to vote such shares and with respect to which, on a particular matter, the broker does not have discretionary voting power to vote such shares. Withheld votes, abstentions and broker non-votes will be counted as present and entitled to vote for purposes of determining the existence of a quorum.

With respect to Proposal One, directors are elected by a plurality of the votes cast. With respect to the approval, on a non-binding, advisory basis, of the

compensation of our named executive officers as set forth in Proposal Two and the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the 2018 fiscal year as set forth in Proposal Three, the affirmative vote of a majority of votes cast is required for approval. A majority of votes cast means that the number of shares voted FOR a proposal exceeds the number of votes cast AGAINST the proposal.

Any shares not voted (whether by abstention, broker non-vote or otherwise) will have no impact on the election of directors in Proposal One, the non-binding, advisory vote on the compensation of our named executive officers in Proposal Two, the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the 2018 fiscal year in Proposal Three, or any other business that may properly come before the stockholders for a vote at the annual meeting.

Revocation of Proxies

You can revoke your proxy at any time before it is voted by:

providing written notice of your revocation to the Company’s corporate secretary;
signing and submitting a new proxy card with a later date;
authorizing a new proxy by telephone or Internet (your latest telephone or Internet proxy will be counted); or
attending and voting your shares in person at the annual meeting, provided that attending the annual meeting will not revoke your proxy unless you specifically so request.

Information Regarding Tabulation of the Vote

Broadridge Financial Solutions, Inc. will tabulate all votes cast at the annual meeting and will act as the inspector of election at the annual meeting.

Proxy Solicitation

We will bear the entire cost of soliciting proxies, including the cost associated with preparing, assembling, printing and mailing this proxy statement, the proxy card and any additional solicitation material that we may provide to stockholders. Our officers and other employees may

solicit proxies, but they will not be paid additional compensation for doing so. Further, we may reimburse brokerage firms and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy and solicitation materials to the owners of our common stock.

Interest of Certain Persons in Matters to Be Acted On

Except as described below, no director, executive officer, person who has served as director or executive officer at any time since January 1, 2017, nominee for election as a director, associate of any

director or executive officer or any other person has any substantial interest, direct or indirect, through security holdings or otherwise, in any matter to be acted upon at the annual meeting.

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Other Matters

We are not aware of any other matter to be presented at the annual meeting. Generally, no business aside from the items discussed in this proxy statement may be transacted at the annual meeting. If other matters are properly presented at the annual meeting for consideration, the persons named in the proxy will have the discretion to vote on those matters for you.

Generally, any stockholder seeking to make a nomination or bring other business before the annual meeting must provide, among other things, written notice to our corporate secretary not later than the deadline for such proposals, which was previously disclosed to stockholders.

Electronic Delivery of Future Proxy Materials

If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy materials and annual reports electronically via e-mail or the Internet. To sign

up for electronic delivery, please follow the instructions on your Notice or proxy card to indicate that you agree to receive or access proxy materials electronically in future years.

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PROPOSAL ONE – ELECTION OF DIRECTORS

PROPOSAL ONE – ELECTION OF DIRECTORS

The board of directors currently consists of six members, five of whom (Richard I. Gilchrist, R. Kent Griffin, Jr., Thomas M. Herzog, Dennis J. Martin and Gregory J. Whyte) have been determined by the board of directors to be “independent” under the independence standards of the New York Stock Exchange (“NYSE”).

The board of directors has proposed the following six nominees for election as directors at the annual meeting, each of whom is a current member of the board of directors: Richard I. Gilchrist, Scott W. Fordham, R. Kent Griffin, Jr., Thomas M. Herzog, Dennis J. Martin and Gregory J. Whyte. The nominating committee recommended, and the board approved, these six individuals to serve as members of the board following the annual meeting. Each

nominee currently serves as a director and, if reelected as a director, will continue in office until his successor, if any, has been elected and qualified or until his earlier death, resignation or retirement.

The persons named in the proxy intend to vote the proxy for the election of each of the six nominees named in this proxy statement, unless you indicate that your vote should be withheld from any or all of the nominees. We expect each nominee named in this proxy statement for election as a director to be able to serve if elected. If any nominee is not able to serve, proxies will be voted in favor of the remainder of those nominated and may be voted for substitute nominees, unless the board chooses to reduce the number of directors serving on the board.

Vote Required

A plurality of the votes cast is required to elect each director.

The following provides information for each nominee, about the nominee’s principal occupation and

business, as well as the specific experience, qualifications, attributes and skills that led to the conclusion by the board that the nominee should serve as a director of the Company.

FOR

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR ALL” OF THE NOMINEES DESCRIBED BELOW TO BE ELECTED AS DIRECTORS.

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PROPOSAL ONE – ELECTION OF DIRECTORS


Richard I. Gilchrist, age 72
Chairman of the Board
   
Director since: June 2015
   
Other Current Reporting Company Directorships: Blackstone Real Estate Investment Trust; Spirit Realty Capital, Inc.; Ventas, Inc.
   
Richard I. Gilchrist, 72, has served as our non-executive chairman of the board since June 2015 and as an independent director since July 2014. Mr. Gilchrist has served as Senior Advisor to The Irvine Company (“Irvine”) since July 2011 and previously served as President of Irvine’s Investment Properties Group (“IPG”) from 2006 to July 2011. Irvine is a privately held company known as a best-of-class master planner and long-term owner, investor and operator of a large and diversified real estate portfolio. In his role as IPG President, Mr. Gilchrist guided Irvine’s office, retail, resort and apartment properties in Southern California and Silicon Valley, including development, marketing and management. Prior to joining Irvine, Mr. Gilchrist served as President and Co-Chief Executive Officer of Maguire Properties, Inc., where he oversaw significant growth in the company’s portfolio through acquisitions and development, and spearheaded its successful initial public offering in 2003. Before joining Maguire Properties, Mr. Gilchrist served as President and Chief Executive Officer of the privately held REIT, Commonwealth Atlantic Properties. Mr. Gilchrist currently serves as a member of the Whittier College Board of Trustees and the UCLA School of Law Board of Advisors. He previously served as Chairman of the Whittier College Board of Trustees and was also a co-founder and managing partner of CommonWealth Partners, LLC, an advisor and venture partner with the California Public Employees’ Retirement System, and a senior partner of Maguire Thomas Partners, a national real estate developer and operator. Mr. Gilchrist currently serves as the non-executive chairman of the board of Spirit Realty Capital, Inc. (NYSE: SRC) and as a director of Ventas, Inc. (NYSE: VTR) and Blackstone Real Estate Investment Trust (BREIT), a non-traded REIT sponsored by Blackstone, and has previously served as a director of BioMed Realty Trust, Inc. (formerly NYSE: BMR) (2007-2014) and Nationwide Health Properties, Inc. (formerly NYSE: NHP) (2008-2011).
Our board believes that Mr. Gilchrist’s professional experience and other board service make him well-qualified to serve on our board.

Scott W. Fordham, age 50
Chief Executive Officer
   
Director since: July 2014
   
   
Scott W. Fordham, 50, is our Chief Executive Officer and has been a director since July 2014. Mr. Fordham has over 25 years of experience in commercial real estate with an emphasis on strategy, transactions, corporate finance, and capital markets. In May 2008, Mr. Fordham joined the Company’s management team and has served as Chief Executive Officer since 2014. Mr. Fordham previously served as our President from February 2013 until February 2018. Prior to joining the Company, Mr. Fordham was an executive with Prentiss Properties Trust, a publicly-traded REIT, and its successor, Brandywine Realty Trust (NYSE: BDN), along with Apartment Investment and Management Company (NYSE: AIV). Mr. Fordham has a bachelor of business administration from Baylor University and is a member of the National Association of Real Estate Investment Trusts (NAREIT) and other professional and charitable organizations.
Our board believes that Mr. Fordham’s real estate knowledge and executive leadership experience make him well-suited to serve on our board.

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PROPOSAL ONE – ELECTION OF DIRECTORS


R. Kent Griffin, Jr., age 48
Independent Director
   
Director since: January 2017
   
   
R. Kent Griffin, Jr., 48, has served as an independent director since January 2017. Mr. Griffin served from 2008 to 2015 as President and Chief Operating Officer of BioMed Realty (formerly NYSE: BMR), a leading provider of real estate for the life science industry. Mr. Griffin joined BioMed Realty as Chief Financial Officer in 2006. Previously, Mr. Griffin worked as an investment banker for J.P. Morgan and Raymond James. Mr. Griffin also served in a variety of attest and advisory positions for Arthur Andersen as part of their real estate services group. Mr. Griffin is a Certified Public Accountant (inactive status), holds an MBA from the University of North Carolina at Chapel Hill, and holds a BSBA from Wake Forest University. Mr. Griffin is a member of the Board of Advisors for Pilot Mountain Ventures (investment funds). In addition to serving on the Board of Directors for Charleston Waterkeeper, Mr. Griffin is a member of the Board of Advisors for the Leonard W. Wood Center for Real Estate Studies and is on the Board of Visitors for the Wake Forest University School of Business.
Our board believes that Mr. Griffin’s extensive experience in real estate operations, corporate finance and capital markets make him well-suited to serve on our board.

Thomas M. Herzog, age 55
Independent Director
   
Director since: April 2015
   
Other Current Reporting Company Directorships: HCP, Inc.
   
Thomas M. Herzog, 55, has served as an independent director since April 2015. In June 2016, Mr. Herzog joined HCP, Inc. (NYSE:HCP), a fully-integrated REIT serving the U.S. healthcare industry, and was named Chief Executive Officer in January 2017. Previously, Mr. Herzog served as the Chief Financial Officer of UDR, Inc. (NYSE: UDR), a leading multifamily real estate investment trust, from January 2013 to June 2016; and at each of Amstar, a Denver-based real estate investment company, from 2011 to 2013; HCP, Inc. (NYSE: HCP), from 2009 to 2011; and Apartment Investment and Management Company (Aimco) (NYSE: AIV) from 2005 to 2009. Mr. Herzog also held the position of Chief Accounting Officer at Aimco from 2004 to 2005. Prior to joining Aimco, Mr. Herzog spent four years at GE Real Estate as an executive and ten years at the accounting firm Deloitte & Touche LLP.
Our board believes that Mr. Herzog’s extensive industry and executive experience make him well-suited to serve on our board.

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PROPOSAL ONE – ELECTION OF DIRECTORS


Dennis J. Martin, age 62
Independent Director
   
Director since: January 2016
   
   
Dennis J. Martin, 62, has served as an independent director since January 2016. Mr. Martin was the Chief Financial Officer of Carefree Communities, Inc., a privately-held real estate investment trust that owned and operated manufactured home communities and destination RV resorts, from March 2014 until the company’s sale in June 2016. From 2010 to 2013, Mr. Martin was the Chief Financial Officer of American Residential Communities, a privately-held operator of manufactured home communities. Previously, Mr. Martin served as a Senior Vice President of HCP, Inc. (NYSE: HCP), a fully integrated REIT serving the healthcare industry, from 2008 to 2010, and as a Senior Vice President of Apartment Investment and Management Company (Aimco) (NYSE: AIV) from 2004 to 2008. Mr. Martin held the positions of Vice President of Investor Relations and Senior Vice President Corporate Planning & Treasurer at ICG Communications Inc. from 1999 to 2002 and was employed for 18 years by Gulf Canada from 1981 to 1999, at the time one of Canada’s largest oil and gas companies, and held the position of Director Strategic Planning and Investor Relations for Gulf Canada and its 72%-owned subsidiary Gulf Indonesia. Mr. Martin currently serves as an independent director of Petro Motion, Inc., a private Canadian company in the oil services sector.
Our board believes that Mr. Martin’s extensive industry and executive experience qualify him to serve on our board.

Gregory J. Whyte, age 57
Independent Director
   
Director since: February 2017
   
   
Gregory J. Whyte, 57, has served as an independent director since February 2017. Mr. Whyte has been involved extensively in the REIT and publicly-traded real estate securities industry since 1987, as both an equity research analyst and, more recently, in investment banking. From 2007 until 2016, Mr. Whyte was Senior Advisor in the Real Estate Leisure and Lodging Investment Banking group at UBS Securities. Prior to that, he was a Managing Director, Global Head of Real Estate Equity Research at Morgan Stanley from 1991 to 2006, and was consistently named to the annual Institutional Investor All-America Research Team and Greenwich Associates Research Poll. From 1988 to 1990 Mr. Whyte was a senior research analyst at Lehman Brothers; and for UAL Merchant Bank in South Africa from 1984 to 1987. He received a Bachelor of Commerce, Business Finance from the University of Natal in 1982, and an Honours Degree, Advanced Business Finance from the University of Natal in 1983. He has been a member of NAREIT since 1988.
Our board believes that Mr. Whyte’s extensive REIT industry knowledge and experience make him well-suited to serve on our board.

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GOVERNANCE AND BOARD MATTERS

GOVERNANCE AND BOARD MATTERS

Independence

Our charter and the rules of the NYSE require a majority of the members of our board of directors to qualify as “independent.” Our charter defines an “independent director” as a director who satisfies the independence requirements under the rules and regulations of the NYSE as in effect from time to time. To qualify under the NYSE independence standards, in addition to satisfying certain bright-line criteria, the board of directors must affirmatively determine that a director has no material relationship with us, either directly or as a partner, stockholder or officer of an organization that has a relationship with us.

Consistent with the NYSE independence standards, our board has reviewed all relevant transactions or relationships between each director and nominee, or any of their family members, and the Company, our management team and our independent registered public accounting firm. The board has concluded that each of Richard I. Gilchrist, R. Kent Griffin, Jr., Thomas M. Herzog, Dennis J. Martin and Gregory J. Whyte, a majority of the members of our board, is “independent” under the independence standards of the NYSE.

Board Leadership Structure and Risk Oversight

We have a bifurcated chairman of the board and executive leadership arrangement. Mr. Gilchrist serves as our non-executive chairman of the board, and Mr. Fordham is our chief executive officer. Our board believes that having separate persons serving in the roles of chairman of the board and chief executive officer enables Mr. Fordham, as chief executive officer, to focus his efforts on setting our strategic direction as well as to provide day-to-day leadership and allows Mr. Gilchrist the opportunity to lead the board and facilitate communication among directors and management. Accordingly, we believe this structure is presently the best governance model for the Company and our stockholders.

Each board member is kept apprised of our business and developments impacting our business, and each director has complete and open access to our executive officers and management team.

The board of directors oversees risk through (1) its review and discussion of regular periodic reports made to the board and its committees by our management team, including reports and studies on existing market conditions, leasing activity and property operating data, as well as actual and projected financial results, and various other matters relating to our business, (2) the approval by the board of directors of all material transactions, including, among others, financing transactions and acquisitions and dispositions of properties, and (3) regular periodic reports from our independent registered public accounting firm and other outside consultants regarding various areas of potential risk, including, among others, those relating to the qualification of the Company as a REIT for tax purposes and our internal control over financial reporting.

Meetings of the Board of Directors and Committees

During 2017, the board met six times and acted by unanimous written consent four times. Each of our incumbent directors who served as directors during 2017 attended at least 75% of the aggregate number of meetings of the board and the meetings of the committees on which he served. We encourage our directors to attend our annual meeting of stockholders. In 2017, Messrs. Fordham, Gilchrist, Griffin, Herzog, Martin and Whyte attended the annual meeting of stockholders.

The board of directors has established three permanent committees: the audit committee, the

compensation committee and the nominating committee. Each member of our audit committee (Messrs. Griffin, Martin and Whyte), compensation committee (Messrs. Gilchrist, Griffin and Herzog) and nominating committee (Messrs. Gilchrist, Martin and Herzog) has been determined by the board to be “independent” under the independence standards of the NYSE. In addition, each member of the audit committee has been determined to be “independent” under the rules of the SEC. Each committee has adopted a written charter approved by the board of directors, which can be found on our website at

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GOVERNANCE AND BOARD MATTERS

www.tierreit.com. During 2017, the audit committee met four times, the compensation committee met five times and acted by unanimous written consent three times, and the nominating committee met two times and acted by unanimous written consent one time.

Audit Committee. The audit committee’s primary functions are to evaluate and approve the services and fees of our independent registered public accounting firm, to periodically review the independent registered public accounting firm’s independence, to review the Company’s major financial risk exposures and the steps taken to monitor and minimize those exposures, and to assist our board of directors in fulfilling its oversight responsibilities by reviewing the financial information to be provided to the stockholders and others, the system of internal control that management has established and the audit and financial reporting process. Mr. Martin is the chairman of the audit committee, and our board of directors has determined that each of Messrs. Martin and Griffin is an “audit committee financial expert,” as defined by the rules of the SEC.

Compensation Committee. The compensation committee assists the board of directors in discharging its responsibility in all matters of compensation practices, including any salary, bonus and other forms of compensation that we may pay to our executive officers and our directors. In addition to establishing the compensation for our executive officers and making recommendations regarding the compensation of the non-employee directors, the primary duties of the committee include approving all stock option grants, restricted stock awards, restricted stock unit awards, warrants, stock appreciation rights and other current or deferred compensation payable with respect to the current or future value of our shares of common stock. The compensation committee is also charged with overseeing our executive compensation policies and our equity compensation programs. Mr. Griffin is the chairman of the compensation committee.

Nominating Committee. The nominating committee is responsible for recommending nominees to serve on our board of directors and overseeing the applicable corporate governance guidelines and policies of the Company, particularly as these policies relate to the selection of persons to serve on the board. The

nominating committee considers all nominees recommended by stockholders if submitted to the committee in accordance with the procedures specified in Section 2.13 of our bylaws. Generally, this requires that the stockholder send certain information about the nominee to our corporate secretary between 90 and 120 days prior to the first anniversary of the mailing of notice for the annual meeting held in the prior year. The process for evaluating candidates recommended by our stockholders pursuant to Section 2.13 of our bylaws is no different than the process for evaluating other candidates considered by the nominating committee. Because our directors perform a critical role in guiding our strategic direction and oversee our management, board candidates must demonstrate broad-based business and professional skills and experiences, a global business and social perspective, concern for the long-term interests of our stockholders, and personal integrity and judgment. In addition, directors must have time available to devote to board activities and to enhance their knowledge of our industry.

The nominating committee is responsible for assessing the appropriate mix of skills and characteristics required of board members in the context of the perceived needs of the board at a given point in time. The committee periodically reviews and recommends any updates to these criteria as deemed necessary. As stated in the nominating committee charter, diversity in personal background, race, gender, age and nationality for the board as a whole is taken into account in considering individual candidates. While the nominating committee does not have a specific formal policy regarding board diversity, it does view diversity expansively and has determined that it is desirable for the board to have a variety of different viewpoints. The composition, skills and needs of the board change over time and will be considered in determining desirable candidates. The nominating committee also evaluates the qualifications of each director candidate against these criteria in making its recommendation to the board concerning nominations for election or reelection as a director. The nominating committee has affirmatively determined it is important to add additional diversity to the board before the 2019 annual meeting and has already begun taking steps to identify board candidates. Mr. Gilchrist is the chairman of the nominating committee.

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GOVERNANCE AND BOARD MATTERS

Executive Sessions of Non-Management Directors

Our non-management directors meet regularly in separate executive sessions without management

participation. The executive sessions are chaired by Mr. Gilchrist, our chairman of the board.

Communication with Directors

We have established procedures for stockholders and other interested parties to communicate directly with our board of directors. These parties may contact the board by mail at: Chairman of the TIER REIT, Inc. Audit

Committee, 6125 Luther Lane, #105, Dallas, Texas 75225. The chairman of the audit committee receives all communications made by this means and relays all communications to the board of directors.

Code of Business Conduct Policy

Our board of directors has adopted a Code of Business Conduct Policy that, along with the charters adopted by the audit, compensation and nominating committees as well as other Company policies and procedures, including our Corporate Governance Guidelines, provides the framework for our corporate governance. The policy describes ethical and legal principles and applies to all of the Company’s employees, as well as all of the Company’s officers, directors and contract personnel. A complete copy of

the policy can be found at www.tierreit.com. Printed copies are available to any stockholder without charge by writing to us at: Corporate Secretary, 5950 Sherry Lane, Suite 700, Dallas, Texas 75225. We intend to disclose on our website any amendment to, or waiver of, any provision of this policy applicable to our principal executive officer, principal financial officer, principal accounting officer, controller or persons performing similar functions that would otherwise be required to be disclosed under the rules of the SEC.

Corporate Governance Guidelines

Our board of directors has adopted Corporate Governance Guidelines that address certain matters relating to corporate governance and set forth procedures by which the board carries out certain of its responsibilities. A complete copy of the Corporate

Governance Guidelines can be found at www.tierreit.com. Printed copies are available to any stockholder without charge by writing to us at: Corporate Secretary, 5950 Sherry Lane, Suite 700, Dallas, Texas 75225.

Compensation Committee Interlocks and Insider Participation

No member of our compensation committee during 2017, Richard I. Gilchrist, R. Kent Griffin, Jr. or Thomas M. Herzog, served as an officer or employee of the Company or any of our subsidiaries during the fiscal year ended December 31, 2017, or formerly served as an officer of the Company or any of our subsidiaries.

In addition, during the fiscal year ended December 31, 2017, none of our executive officers served as a member of a board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires each director and officer and each person beneficially owning more than 10% of a registered security of the Company to file initial statements of beneficial ownership (Form 3) and statements of changes in beneficial ownership (Forms 4 and 5) of common stock of the Company with the SEC. Officers, directors and greater than 10% beneficial owners are required by SEC rules to furnish the Company with copies of all

these forms they file. Based solely on a review of the copies of such forms furnished to the Company during and with respect to the fiscal year ended December 31, 2017, or written representations that no additional forms were required, other than one Form 4 for each of Messrs. Reister and Whyte, we believe that our officers, directors, and greater than 10% beneficial owners complied with these filing requirements and filed on a timely basis in 2017.

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GOVERNANCE AND BOARD MATTERS

Other Governance Matters

On April 2, 2018, our board of directors approved an amendment to our bylaws to permit stockholders that meet certain ownership requirements to submit binding proposals to amend our bylaws. Prior to the approval of this amendment, as permitted under Maryland law and consistent with the bylaws of many other REITs incorporated in Maryland, our stockholders did not have the right to amend our bylaws. Our board’s decision to adopt this amendment to our bylaws was the result of extensive discussions that took into consideration many factors, including feedback from investor outreach and our commitment to strong corporate governance practices.

The amendment to our bylaws permits our stockholders to amend our bylaws, except for provisions related to indemnification of directors and officers and amendments, by the affirmative vote of the holders of a majority of the outstanding shares of our common stock pursuant to a binding proposal submitted by a stockholder, or a group of up to 15 stockholders, who have held at least 3% of the Company’s common stock for at least one year.

Policy Concerning Hedging and Pledging Transactions

We have a policy that provides that our directors, officers and employees are prohibited from engaging in short sales and derivative transactions with respect to Company securities and purchasing Company securities on margin. In addition, our directors,

officers and employees are prohibited under our policy from pledging Company securities as collateral for a loan unless such a pledge is specifically approved in writing by the Company. No such pre-approvals have been granted.

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OWNERSHIP OF EQUITY SECURITIES

OWNERSHIP OF EQUITY SECURITIES

The following table sets forth information as of March 1, 2018, regarding the beneficial ownership of our common stock by each person known by us to own more than 5% of the outstanding shares of our common stock, each of our directors and director nominees, each named executive officer, and our directors and executive officers as a group. The percentage of beneficial ownership is calculated based on 47,920,140 shares of common stock outstanding as of March 1, 2018.

Name and Address of Beneficial Owner(1)
Amount and Nature of
Beneficial Ownership(2)
Percentage of Class(2)
Directors, Director Nominees and Named Executive Officers
Richard I. Gilchrist(3)
 
8,632
 
 
 
*
R. Kent Griffin, Jr. (3)
 
28,601
 
 
 
*
Thomas M. Herzog(4)
 
49,561
 
 
 
*
Dennis J. Martin(3)
 
5,011
 
 
 
*
Gregory J. Whyte(3)
 
816
 
 
 
*
Scott W. Fordham(5)
 
239,467
 
 
 
*
Dallas E. Lucas(6)
 
101,678
 
 
 
*
William J. Reister(7)
 
87,786
 
 
 
*
Telisa Webb Schelin(8)
 
76,700
 
 
 
*
James E. Sharp(9)
 
49,160
 
 
 
*
All current directors and executive officers as a group (10 persons)
 
647,412
 
 
1.4
%
5% Stockholders
 
 
 
 
 
 
The Vanguard Group(10)
 
5,999,104
 
 
12.5
%
Blackrock, Inc.(11)
 
4,219,774
 
 
8.8
%
Vanguard Specialized Funds – Vanguard REIT Index Fund(12)
 
3,220,352
 
 
6.7
%
* Less than 1%.
(1) The address of Ms. Schelin and each of Messrs. Gilchrist, Griffin, Herzog, Martin, Whyte, Fordham, Lucas, Reister and Sharp is c/o TIER REIT, Inc., 5950 Sherry Lane, Suite 700, Dallas, Texas 75225.
(2) Beneficial ownership is determined in accordance with the SEC rules that deem shares to be beneficially owned by any person or group who has or shares voting and investment power with respect to such shares. For purposes of calculating the percentage beneficially owned, the number of shares of common stock deemed outstanding consists of: (1) shares of common stock issuable pursuant to options held by the respective person that may be exercised within 60 days following March 1, 2018 and (2) restricted stock units convertible into shares of common stock upon certain events or at specified future dates within 60 days following March 1, 2018.
(3) Does not include 3,551 unvested restricted stock units.
(4) Includes 42,300 shares of common stock owned by Mr. Herzog through a family trust; does not include 3,551 unvested restricted stock units.
(5) Includes 75,321 shares of restricted stock and 2,600 shares of common stock owned by Mr. Fordham’s spouse; does not include 139,573 restricted stock units.
(6) Includes 39,091 shares of restricted stock; does not include 75,694 restricted stock units.
(7) Includes 24,846 shares of restricted stock; does not include 46,871 restricted stock units.
(8) Includes 22,790 shares of restricted stock; does not include 44,564 restricted stock units.
(9) Includes 25,338 shares of restricted stock; does not include 31,106 restricted stock units.
(10) Information regarding The Vanguard Group is based solely on a Schedule 13G/A filed by The Vanguard Group with the SEC on February 9, 2018. The Vanguard Group reported sole voting power with respect to 109,827 of such shares, shared voting power with respect to 61,403 of such shares, sole dispositive power with respect to 5,888,429 of such shares and shared investment power with respect to 110,675 of such shares. The address of The Vanguard Group is 100 Vanguard Blvd., Malvern, Pennsylvania 19355.

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OWNERSHIP OF EQUITY SECURITIES

(11) Information regarding Blackrock, Inc. is based solely on a Schedule 13G/A filed by Blackrock, Inc. with the SEC on January 23, 2018. Blackrock, Inc. reported sole voting power with respect to 4,099,712 of such shares and sole dispositive power with respect to all of such shares. The address of Blackrock, Inc. is 55 East 52nd Street, New York, New York 10055.
(12) Information regarding Vanguard Specialized Funds - Vanguard REIT Index Fund is based solely on a Schedule 13G/A filed by Vanguard Specialized Funds - Vanguard REIT Index Fund with the SEC on February 2, 2018. The address of Vanguard Specialized Funds - Vanguard REIT Index Fund is 100 Vanguard Blvd., Malvern, Pennsylvania 19355.

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AUDIT COMMITTEE REPORT

AUDIT COMMITTEE REPORT

Management is responsible for the financial reporting process, including the system of internal control, and for the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Our independent registered public accounting firm is responsible for auditing those financial statements and expressing an opinion as to their conformity with GAAP. The audit committee’s responsibility is to oversee and review these processes. We are not, however, professionally engaged in the practice of accounting or auditing, and do not provide any expert or other special assurance as to such financial statements concerning compliance with the laws, regulations or GAAP or as to the independence of the registered public accounting firm. The audit committee relies, without independent verification, on the information provided to us and on the representations made by management and the independent registered public accountants.

In this context, the audit committee has met and held discussions with management and Deloitte & Touche LLP, the Company’s independent registered public accounting firm, regarding the fair presentation of the Company’s results. The audit committee has discussed significant accounting policies applied by the Company in its financial statements, as well as alternative treatments. Management represented to the audit committee that the Company’s consolidated financial statements were prepared in accordance with GAAP, and the audit committee has reviewed and discussed the consolidated audited financial statements with management and the Company’s independent registered public accounting firm. The audit committee also discussed with the independent registered public accounting firm the matters required to be discussed by the Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard No. 1301.

In addition, the audit committee has discussed with the independent registered public accounting firm its independence from the Company and its management, including the matters in the written disclosures and the letter provided to the audit committee by the independent registered public accounting firm, as required by applicable requirements of the PCAOB. The audit committee has concluded that the independent registered public accounting firm is independent from the Company.

The audit committee discussed with the Company’s independent registered public accounting firm the overall scope and plans for its audit. The audit committee meets with the independent registered public accounting firm, with and without management present, to discuss the results of its examination, the evaluation of the Company’s internal controls, and the overall quality of the Company’s financial reporting. The audit committee also has reviewed and discussed the audited financial statements with management.

In reliance on the reviews and discussions referred to above, the audit committee recommended to the board of directors, and the board approved, that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, for filing with the SEC. In addition, the audit committee has selected, and the board of directors has ratified the selection of, the Company’s independent registered public accounting firm. The following independent directors, who constitute the audit committee, provide the foregoing report.

AUDIT COMMITTEE:

Dennis J. Martin, Chairman
R. Kent Griffin, Jr.
Gregory J. Whyte

The foregoing report shall not constitute “soliciting material” and shall not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933, as amended, or under the Exchange Act, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under either Act.

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COMPENSATION COMMITTEE REPORT

COMPENSATION COMMITTEE REPORT

The compensation committee has certain duties and powers as described in its charter. The compensation committee is currently comprised of the three independent directors named at the end of this report, each of whom is “independent” under the independence standards of the NYSE. The compensation committee has furnished the following report on executive compensation for the fiscal year ended December 31, 2017.

The compensation committee has reviewed and discussed with management the Compensation Discussion and Analysis section contained in this proxy statement (the “CD&A”). Based on this review and the committee’s discussions, the compensation committee has recommended and approved the CD&A included in this proxy statement on Schedule 14A.

COMPENSATION COMMITTEE:

R. Kent Griffin, Jr., Chairman
Richard I. Gilchrist
Thomas M. Herzog

The foregoing report shall not constitute “soliciting material” and shall not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933, as amended, or under the Exchange Act, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under either Act.

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EXECUTIVE OFFICERS

EXECUTIVE OFFICERS

The following individuals serve as our executive officers. Our executive officers are elected annually by our board of directors, and each of these executive officers will continue in office until his or her successor has been elected and qualified or until his or her earlier death, resignation or removal. The biography of our chief executive officer, Mr. Fordham, who is also a member of our board, is set forth above.

Dallas E. Lucas, 56, is our president and chief operating officer. Mr. Lucas previously served as our chief financial officer and treasurer from May 2014 until February 2018. Prior to joining the Company in May 2014, Mr. Lucas served as chief financial officer of Intrawest ULC (“Intrawest”) from July 2012 to October 2013. Intrawest is a developer and operator of destination resorts. Prior to joining Intrawest, Mr. Lucas was a founding partner of Pacshore Partners, a Los Angeles-based real estate investment company. He also served as chief executive officer and president and as a director of Pacific Office Properties Trust, Inc., a publicly traded REIT, from September 2007 to August 2009. He served as executive vice president and chief financial officer of Maguire Properties, Inc., a publicly traded REIT, from July 2002 to March 2007, and he served as chief financial officer and vice president and as a director of NorthStar Capital Investment Corp. from August 1998 to July 2002. From December 1993 to August 1998, he served as senior vice president and chief financial officer of Crescent Real Estate Equities Inc., a publicly traded REIT. He began his career as an auditor with Arthur Andersen & Company in 1984 until joining Crescent in 1993. Mr. Lucas has a bachelor of business administration in accounting from the University of Oklahoma.

William J. Reister, 57, is our chief investment officer and executive vice president and previously served as our senior vice president - capital markets. Mr. Reister has over 30 years of experience in the commercial real estate industry, including investment management, finance, acquisitions, dispositions, leasing, property management, accounting and reporting. In November 2009, Mr. Reister joined the Company’s management team to focus exclusively on our finance and investment management matters. From 1996 to 2008, Mr. Reister was a senior officer with Prentiss Properties Trust and its successor, Brandywine Realty Trust, a publicly traded REIT (NYSE: BDN). During his tenure with Prentiss, he was responsible for

acquisition, disposition, leasing, asset management and operations activities of its portfolio of office properties located in Dallas, Austin, Houston, Denver and Southern California. Prior to this role, Mr. Reister was a senior corporate finance officer responsible for portfolio level acquisitions and financing. Mr. Reister was also a member of the executive team that formed Prentiss upon its successful initial public offering, which was the culmination of investments of Prentiss Properties Realty Advisors (PPRA), of which Mr. Reister was a founding officer. PPRA raised the institutional capital that was invested in what became the core portfolio of Prentiss. Prior to these activities, Mr. Reister was the senior operations controller for Prentiss Properties Limited, a corporate controller for Cadillac Fairview and a senior auditor for PricewaterhouseCoopers LLP. Mr. Reister has a bachelor of business administration in accounting from the University of Texas at Austin and is a former certified public accountant.

Telisa Webb Schelin, 45, is our chief legal officer, executive vice president and secretary. Ms. Schelin is responsible for all legal aspects of the company, including corporate governance, public company reporting, securities offerings, mergers and acquisitions, lease and contract administration, risk management, litigation management, human resources, employment and benefits matters, and finance, real estate and commercial business transactions. Ms. Schelin has 20 years of experience in corporate, securities and regulatory matters. She joined the Company’s management team in February 2008, after serving as assistant general counsel of an associated company since September 2005. Prior to that, she was in private practice with Gardere Wynne Sewell LLP, where she advised clients on a wide variety of corporate and securities matters. Ms. Schelin is licensed to practice law in Texas and Oklahoma and has a juris doctor with highest honors and a bachelor of arts in political science from the University of Tulsa.

James E. Sharp, 45, is our chief financial officer and treasurer. Mr. Sharp previously served as our chief accounting officer from October 2010 until May 2017 and our executive vice president – capital markets from May 2017 until February 2018. Prior to joining the Company in October 2010, he worked as an auditor in public accounting with Ernst & Young LLP, serving primarily public and private real estate companies,

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EXECUTIVE OFFICERS

including various REITs, homebuilders, and real estate investment companies, and he held an accounting and finance role with Terrabrook, a national master planned community developer with a portfolio of over 50 residential communities in 20 states. Mr. Sharp has more than 20 years of

experience in finance and accounting related to public and private real estate companies. Mr. Sharp is a certified public accountant and has a bachelor of business administration in accounting from the University of Texas at Austin.

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COMPENSATION DISCUSSION AND ANALYSIS

COMPENSATION DISCUSSION AND ANALYSIS

Overview

We strive to provide a competitive total compensation package to our named executive officers through a combination of base salary, annual cash incentive compensation, long-term equity incentive compensation and broad-based benefits programs. This Compensation Discussion and Analysis explains our compensation philosophy, objectives, and practices with respect to our chief executive officer, our president and chief operating officer, and the other three most highly-compensated executive officers as of the end of 2017 as determined in accordance with applicable SEC rules, who are

collectively referred to as our named executive officers or, in this section, our executives. Our executives are as follows: Scott W. Fordham, chief executive officer; Dallas E. Lucas, president and chief operating officer (formerly our chief financial officer and treasurer until February 15, 2018); William J. Reister, chief investment officer and executive vice president; Telisa Webb Schelin, chief legal officer, executive vice president and secretary; and James E. Sharp, chief financial officer and treasurer (formerly our executive vice president–capital markets until February 15, 2018).

Executive Summary

2017 was another strong year for the Company and its stockholders. As a result of the continued execution of our strategic plan, which guides us in our path to value creation and growth, we completed our strengthening phase, in which we sold properties located outside of our target growth markets and utilized the proceeds to solidify our balance sheet. In addition to accomplishing a variety of critical financial and operating metrics during 2017, which are discussed

further in “–Annual Cash Incentive Compensation” below, the Company’s significant achievements also included:

Delivering the highest total stockholder return of any public office REIT for 2017 of 22%, which outperformed the SNL U.S. REIT Equity Index by approximately 163%;


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Disposing of assets outside of our target markets, including the exit from five non-target markets and generation of gross proceeds of approximately $390.6 million;
Reducing our total markets from 13 to eight, and in turn, realizing over 92% of fourth quarter 2017 net operating income from our target markets;
Continuing full dividend coverage in 2017; and
Embarking on an investor relations program throughout the year to communicate our strategy to a broader audience of institutional investors, resulting in an increase in our institutional ownership from 48% at December 31, 2016, to over 62% at December 31, 2017.

In determining the compensation of our executives, our compensation committee made a comprehensive assessment of our 2017 corporate performance and the personal performance of each of our executives. In light of our significant success in executing our key 2017 objectives and the level of achievement of our objective corporate performance measures and personal performance measures discussed under “–Annual Cash Incentive Compensation” below, our

compensation committee approved for each executive a level and mix of pay that it believes reflect our strong pay for performance philosophy.

As discussed under “–Annual Cash Incentive Compensation” below, we considered our successful achievement of certain 2017 objective corporate performance measures and each executive’s role in the significant success we had in achieving our key 2017 objectives in determining annual cash incentive compensation. For example, as a result of such successes, our compensation committee awarded each executive between 147% and 150% of the established percentages of the executive’s target attributable to the combined objective and personal performance measures in determining cash incentive compensation.

The compensation paid to our executives in light of 2017 performance was generally in line with 2016 primarily as a result of our success in executing on both our 2016 and 2017 key objectives, our corporate performance based on certain objective measures, and the personal performance of our executives as discussed under “–Annual Cash Incentive Compensation.”

Overview of Compensation Philosophy & Objectives

We seek to maintain a total compensation package that we believe provides fair, reasonable, and competitive compensation for our executives while also permitting us the flexibility to differentiate actual pay based on the level of corporate organizational and individual performance. We place significant emphasis on annual and long-term, performance-based incentive compensation, including cash and equity-based incentives, which are designed to reward our executives based on the achievement of corporate and individual goals.

The compensation programs for our executives are designed to achieve the following objectives:

attract and retain top talent to ensure that we have high caliber executives;
create and maintain a performance-driven organization by providing upside compensation opportunity for outstanding performance and downside compensation risk in the event of performance below expectations;
align the interests of our executives and stockholders by motivating executives to achieve key corporate goals and objectives that should enhance stockholder value;
encourage teamwork and cooperation while recognizing individual contributions by linking variable compensation to both corporate and individual performance based on responsibilities and ability to influence financial and organizational results;
provide flexibility and allow for discretion in applying our compensation principles in order to appropriately reflect individual circumstances as well as changing business conditions and priorities; and
motivate our executives to manage our business to meet and appropriately balance our short- and long-term objectives, and reward them for meeting these objectives.

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COMPENSATION DISCUSSION AND ANALYSIS

We believe our compensation programs are effectively designed and work in alignment with the interests of our stockholders and include a number of best practices, such as:

The employment agreements with our executives contain “clawback” provisions that require them to reimburse us for incentive-based

compensation received to the extent their intentional misconduct results in the Company being required to file an accounting restatement.

The majority of the total compensation during 2017 for our chief executive officer and other named executive officers was performance-based and at risk:


Determination of Executive Compensation

Our executive compensation programs are administered by the compensation committee of our board of directors. The members of the compensation committee are: R. Kent Griffin, Jr. (Chair), Richard I. Gilchrist and Thomas M. Herzog, each of whom is an independent director.

The compensation committee sets the overall compensation strategy and compensation policies for our executives and directors. The compensation committee has the authority to determine the form and amount of compensation appropriate to achieve our strategic objectives, including salary and incentive compensation. The compensation committee will review its compensation strategy annually to confirm that it supports our objectives and stockholders’ interests and that our executives are being rewarded in a manner that is consistent with our strategy.

The compensation committee is responsible for, among other things:

evaluating the annual performance of the executives in light of corporate goals and objectives and determining their compensation, including annual base salary, annual cash incentive compensation, and long-term equity incentive compensation;
approving and issuing equity incentive awards;
reviewing and approving all benefit and compensation plans pertaining to our executives (other than those available to our employees generally); and
advising on board compensation.

As it has done for the past several years, the compensation committee engaged the services of FPL Associates, L.P. (“FPL Associates”), a nationally recognized compensation consulting firm specializing in the real estate industry, to assist in determining competitive executive compensation levels and the programs to implement as part of our 2017 executive compensation program. As part of FPL Associates’ engagement, the compensation committee directed FPL Associates to, among other things, provide competitive market compensation data and make recommendations for pay levels for each component of our executive compensation. In connection with their 2017 engagement, the committee determined that FPL Associates was an independent compensation consultant. During 2017, we paid FPL Associates approximately $60,000 in consulting fees, which included work performed for 2016 and 2017.

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COMPENSATION DISCUSSION AND ANALYSIS

It was favorably noted by the compensation committee that our stockholders approved our executive compensation program at the 2017 annual meeting. Holders of approximately 23.8 million

shares of our common stock, or approximately 93.6% of the votes cast, voted FOR the advisory vote on executive compensation.

Competitive Benchmark Assessment

A key factor in determining levels of base and incentive compensation is the pay practices of our peer group, which consists of two groups: (1) publicly traded REITs with portfolios that are substantially comparable in asset type and/or portfolio location to the Company and (2) other publicly traded REITs that are substantially comparable in size to the Company. We use two peer groups because we compete most

directly with other office REITs for human capital, investments dollars, etc., but because we are one of the smaller office REITs, we know it is important to also factor in companies of comparable size. As part of its 2017 engagement, FPL Associates provided competitive market compensation data for peer groups that consisted of the following:

Asset-Based Peer Group
Brandywine Realty Trust
Highwoods Properties, Inc.
Columbia Property Trust, Inc.
Kilroy Realty Corporation
Corporate Office Properties Trust
Mack-Cali Realty Corporation
Cousins Properties Incorporated
Piedmont Office Realty Trust, Inc.
Size-Based Peer Group
CareTrust REIT, Inc.
Hersha Hospitality Trust
Cedar Realty Trust, Inc.
Independence Realty Trust, Inc.
Easterly Government Properties, Inc.
Ramco-Gershenson Properties Trust
First Potomac Realty Trust
Summit Properties, Inc.
Franklin Street Properties Corporation
Terreno Realty Corporation

The Role of Executive Officers in Compensation Decisions

Our chief executive officer consulted with the compensation committee regarding compensation levels for each of our executives (except for himself). Our chief executive officer annually reviews the performance of each of the other executives. Based on this review, he makes compensation recommendations to the compensation committee, including

recommendations for performance targets, salary adjustments, annual cash incentive compensation, and long-term equity-based incentive awards. Although the compensation committee considers these recommendations along with data provided by its consultant, if any, it retains full discretion to set all compensation.

Elements of Executive Compensation

Base Salary. Our compensation committee believes that payment of a competitive base salary is a necessary element of any compensation program that is designed to attract and retain talented and qualified executives. Subject to our existing contractual obligations, we expect our compensation committee to consider salary levels for our executives annually as part of our performance review process, as well as upon any promotion or other change in job responsibility. No adjustments to base salaries (other than Mr. Sharp) have been made for the past three

years, including 2017. However, for 2018, based on the competitive market compensation data provided by the committee’s consultant, the compensation committee adjusted salaries for the executives other than Mr. Fordham.

The goal of our base salary program is to provide salaries at a level that allows us to attract and retain qualified executives while preserving significant flexibility to recognize and reward individual performance with other elements of the overall

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COMPENSATION DISCUSSION AND ANALYSIS

compensation program. Base salary levels also affect the annual cash incentive compensation because each executive’s annual cash incentive target opportunity is expressed as a percentage of base salary. The following items are generally considered when determining base salary levels:

market data provided by the compensation committee’s consultant;
our financial resources; and
the executive’s experience, scope of responsibilities, performance, and prospects.

Annual Cash Incentive Compensation. It is the intention of our compensation committee to make a

meaningful portion of the executives’ compensation contingent on achieving certain performance measures each year. Based on each executive’s employment agreement, target cash incentive compensation for each of our executives is set as a percentage of base salary. For a description of the target cash incentive compensation for each of our executives, please see “–Employment Agreements” below. However, the committee has further established percentages of the target for each executive that are attributable to objective performance measures and personal performance as set forth in the following table:

Executive
Objective Performance
Measures
Personal Performance
Scott W. Fordham
 
80
%
 
20
%
Dallas E. Lucas
 
75
%
 
25
%
William J. Reister (1)
 
60
%
 
40
%
Telisa Webb Schelin
 
75
%
 
25
%
James E. Sharp
 
75
%
 
25
%
(1) 2018 percentages; adjusted from 75% objective and 25% personal in 2017.

The committee set objective performance measures for the executives and utilized a mix of these objective measures and a subjective review of personal performance for setting 2017 cash incentive compensation. The committee set threshold, target,

and maximum levels with respect to each of these measures, which were weighted between 12.5% and 32.5%. The following table sets forth information about each performance-based measure for 2017:

Factor
Threshold
(50%)
Target
(100%)
Maximum
(150%)
Actual
Performance
Actual
Performance
Factor
Normalized Funds from Operations Per Share
$1.38
$1.43
$1.48
$1.59
150%
Cash Net Operating Income
(at ownership share)(1)(2)
$96.9 million
$102.0 million
$107.1 million
$103.3 million
113%
Debt Metrics (2)(3)
 
 
 
 
146%
Net Debt/EBITDA
7.80x
7.50x
7.30x
7.36x
135%
Secured Debt/TEV(4)
25%
20%
15%
11%
150%
Fixed Charge Coverage
2.80x
3.00x
3.20x
3.63x
150%
Unencumbered NOI/NOI(5)
55%
65%
75%
88%
150%
Year-end Occupancy
87.7%
88.7%
89.7%
89.1%
120%
(1) Cash Net Operating Income (NOI) is equal to rental revenue (excluding non-cash revenue items such as straight-line rent and amortization of acquired above- and below-market leases), less property operating expenses, real estate taxes, and property management expenses, as adjusted to include the business interruption proceeds for rental abatement due to the impact of Hurricane Harvey. For the purpose of measuring this target metric, only cash NOI from properties owned for the entire measurement period is included.
(2) This target metric includes our ownership share of our non-wholly-owned properties.
(3) Performance was equally weighted across all four debt metrics and measured based on balances as of December 31, 2017. Weighted average performance of each debt metric is included in the table above.
(4) Total Enterprise Value (TEV) is calculated based on consensus Net Asset Value (NAV).
(5) NOI is equal to rental revenue, less property operating expenses, real estate taxes, and property management expenses, as adjusted to include the business interruption proceeds for rental abatement due to the impact of Hurricane Harvey. Unencumbered NOI is equal to NOI less NOI attributed to properties that are encumbered by secured debt. For the purpose of measuring this target metric, only NOI and Unencumbered NOI from properties owned at the end of the performance period are included.

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If the threshold level is not satisfied with respect to a particular measure, the actual performance factor would be zero with respect to that factor. If performance exceeds the threshold level but does not satisfy the target level, the actual performance factor would range on a sliding scale between 50% and 100% with respect to that factor. If performance is between the target level and the maximum level, the actual performance factor would range on a sliding scale between 100% and 150% with respect to that factor. The factor used to determine the amount an executive could earn in 2017 in cash incentive compensation was the average of the actual performance factors for each of the performance-based measures, which were weighted between 12.5% and 32.5% for each executive. Notwithstanding the formulas described above, our compensation committee retains the discretion and flexibility to increase or decrease the actual performance factor with respect to any particular measure or any particular officer to more appropriately reflect actual performance, market conditions, unanticipated circumstances, and other factors in the committee’s sole discretion. In relation to personal performance, the committee considered each executive’s role in connection with the significant accomplishments of the Company’s key objectives in 2017. Based on the actual performance factors and each executive’s personal performance, the compensation committee awarded each executive between 147% and 150% of the established percentages of the executive’s target attributable to the combined objective performance measures and personal performance.

Long-Term Equity Incentive Compensation. The objective of our long-term equity incentive award program, which is administered through our 2015 Equity Incentive Plan, is to attract and retain qualified personnel by offering an equity-based program that is competitive with our peer companies, as well as to promote a performance-focused culture by rewarding employees, including our executives, based upon the achievements of the Company and individual performance. Our compensation committee believes that equity awards are necessary to successfully attract qualified employees, including the executives, and will continue to be an important incentive for promoting employee retention going forward. The 2017 equity awards of restricted stock and performance restricted stock units for the executives were granted by the compensation committee based on the long-term incentive program discussed below

and were equal to the target equity incentive award set forth in each executive’s Employment Agreement. Please see “– Employment Agreements” below.

To reinforce our “pay-for-performance” compensation philosophy, the compensation committee continued our long-term incentive program (the “Program”), a multi-year, performance-based and time-based equity compensation program in 2017. The purpose of the Program is to further align the interests of management with those of our stockholders by encouraging our executive officers to create stockholder value in a pay-for-performance structure.

Under the Program, participants who are granted an equity award receive 60% of such award in the form of restricted stock units that are subject to performance-based vesting over a three-year period and 40% of such award in the form of shares of restricted stock that are subject to time-based vesting over a three-year period.

The performance-based restricted stock units are subject to vesting based on the Company’s annualized total return to stockholders (“TSR”) over a three-year performance measurement period on both an absolute and relative basis. For example, the performance measurement period for restricted stock units granted in 2017 began on January 1, 2017 and continues through December 31, 2019. The vesting of one-third of the restricted stock unit award will be based on our achievement of a predetermined absolute TSR, the vesting of one-third of the restricted stock unit award will be based on our TSR relative to the TSR of the constituent companies of the NAREIT Office Index (unweighted) on the first day of each performance period, and the vesting of one-third of the restricted stock unit award will be based on our TSR relative to the TSR of a select peer group of companies.

With respect to each of the three metrics described above, the number of restricted stock units that vest over a performance measurement period will be based on a predetermined threshold, target and maximum level of performance of our TSR determined by the compensation committee at the time of each restricted stock unit grant. The restricted stock units granted annually under the Program will not vest if our TSR during the performance measurement period does not meet the minimum thresholds determined by the compensation committee for such grant. Participants can receive (1) 50% of the target restricted stock units with respect to each of the three TSR metrics at the threshold level

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of performance, (2) 100% of the target restricted stock units with respect to each of the three TSR metrics at the target level of performance and (3) 200% of the target restricted stock units with respect to each of the three TSR metrics at the maximum level of performance. The number of restricted stock units that vest if performance is between the threshold and target levels or between the target and maximum levels with respect to any of the metrics described above will be determined based on linear interpolation.

After the performance measurement period, we will issue to participants a number of shares of our common stock under our 2015 Equity Incentive Plan based on the number of restricted stock units that vest. In addition, participants will receive additional shares to cover the dividends that would have been

paid with respect to the vested restricted stock units calculated as if the restricted stock units were outstanding shares during the performance period and prior to the issuance date of the shares.

Benefits. All full-time employees, including our executives, may participate in our health and welfare benefit programs, including medical, dental, and vision care coverage, disability and life insurance, and our 401(k) plan. We do not have any special benefits or retirement plans for our executives.

Severance. Under their employment agreements, each of our executives is entitled to receive severance payments under certain circumstances in the event that their employment is terminated. These circumstances and payments are described below under “–Employment Agreements” and “–Potential Payments upon Termination or Change of Control.”

2015 Equity Incentive Plan

The 2015 Equity Incentive Plan was approved by our board of directors on July 30, 2015 and by our stockholders on December 3, 2015. The 2015 Equity Incentive Plan replaced the 2005 Incentive Award Plan, which expired on March 28, 2015. The 2015 Equity Incentive Plan is administered by our compensation committee. Employees, officers, non-employee directors, and consultants of ours and our subsidiaries are eligible to be granted stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock, other stock-based awards, dividend equivalent rights, performance share awards and cash-based awards under the 2015 Equity Incentive Plan at the discretion of our compensation committee. We anticipate that providing such persons with interests and awards of this nature will result in a closer alignment of their interests with our own interests and those of our stockholders, thereby motivating their efforts on our behalf and strengthening their desire to remain with the Company.

As of December 31, 2017, we had no outstanding options to purchase shares of our common stock.

As of December 31, 2017, we had 180,791 shares of restricted stock outstanding that were granted to employees, including our executives, with a weighted average grant date fair value of $20.47 per share. Restrictions on outstanding shares of restricted stock

lapse based on various lapse schedules and range from January 2018 to May 2020.

As of December 31, 2017, we had 19,672 restricted stock units outstanding that were granted to our independent directors with a weighted average grant date fair value of $17.03 per unit. These units vest 13 months after the grant date. Subsequent to vesting, the restricted stock units will be converted to an equivalent number of shares of common stock upon the earlier to occur of the following events or dates: (i) separation from service for any reason other than cause; (ii) a change in control of the Company; (iii) death; or (iv) specific dates chosen by the independent directors that range from February 2018 to June 2018.

As of December 31, 2017, we had 208,620 restricted stock units outstanding that were granted to our employees with a weighted average grant price of $16.59 per unit. These units vest on dates ranging from December 2018 to December 2019, at which time they will be converted into a number of shares of common stock, which could range from zero shares to 417,240 shares, based on our TSR percentage as compared to three metrics: our TSR on a predetermined absolute basis, the TSR of the constituent companies of the NAREIT Office Index (unweighted), and the TSR of a select group of peer companies.

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Risk Management

The compensation committee was involved in negotiating each of the employment agreements with our executives. The committee believes that our compensation policies and practices do not encourage our employees to take excessive or unnecessary risks and are not reasonably likely to have a material adverse effect on the Company. The compensation committee considered a variety of

factors, including base salary, annual cash incentive compensation, and long-term equity incentive compensation opportunities available to our executives. The committee believes that the combination of those factors should lead to executive and employee behavior that is consistent with our overall objectives and risk profile.

Impact of Regulatory Requirements on Executive Compensation

Section 162(m). Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), generally limits the deductibility compensation of more than $1.0 million paid to any “covered employee” unless certain exceptions are met, primarily relating to “performance-based compensation.” Although certain qualifying “performance-based compensation” was previously exempt from this deduction limit, the recently-exacted Tax Cuts and Jobs Act made certain changes to Section 162(m) of the Code. Pursuant to such changes, “performance-based compensation” is no longer exempt under Section 162(m) of the Code effective for tax years beginning after January 1, 2017, subject to a transition rule for written binding contracts which were in effect on November 2, 2017 and which were not modified in any material respect on or after such date.

We are continuing to assess the impact of Section 162(m) of the Code on our compensation arrangements; however, we believe that, because we intend to maintain our qualification as a REIT under the Code and pay distributions sufficient to minimize federal income taxes, the payment of compensation that does not satisfy the requirements of Section 162(m) will generally not affect our net income. In addition, substantially all of the services rendered by our executive officers are performed on behalf of Tier Operating Partnership LP (the “Operating Partnership”), of which our wholly owned subsidiary is the sole general partner. The Internal Revenue Service has issued a series of private letter rulings which indicate that compensation paid by an operating partnership to executive officers of a REIT that serves as its general partner is not subject to the limitation under Section 162(m) to the extent such compensation is attributable to services rendered to the Company’s operating partnership. The Operating Partnership, in our case, is disregarded as separate

from the Company, and so the reasoning of these private letter rulings may not apply to us. We have not obtained a ruling on this issue, and commencing in 2010, the Internal Revenue Service stated that it would not issue further rulings on this topic. To the extent that compensation paid to our executive officers is (or becomes) subject to and does not qualify for deduction under Section 162(m), a larger portion of stockholder distributions may be subject to federal income taxation as dividend income rather than return of capital. We do not believe that Section 162(m) will materially affect the taxability of stockholder distributions, although no assurance can be given in this regard due to the variety of factors that affect the tax position of each stockholder. For these reasons, the compensation committee’s compensation policy and practices are not directly guided by considerations relating to Section 162(m) of the Code.

Section 409A. Section 409A of the Code generally affects the federal income tax treatment of most forms of deferred compensation by accelerating the timing of the inclusion of the deferred compensation to the recipient for federal income tax purposes and imposing an additional federal income tax on the recipient equal to 20% of the amount of the accelerated income. The committee considers the potential adverse federal income tax impact of Section 409A of the Code in determining the form and timing of compensation paid to our executives and other employees and service providers.

Section 280G and 4999. Sections 280G and 4999 of the Code limit a company’s ability to deduct, and impose excise taxes on, certain “excess parachute payments” (as defined in Sections 280G and 4999 of the Code and related regulations) paid to each service provider (including an employee or officer) in connection with a change of control of the company (as set forth in Sections 280G and 4999 of the Code and related

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regulations). The committee considers the potential adverse tax impact of Sections 280G and 4999 of the Code, as well as other competitive factors, in structuring certain post-termination compensation or

other compensation that might be payable to our executives and other employees and service providers in connection with a change of control of the company.

Accounting Rules

We account for stock-based employee compensation (currently restricted stock and restricted stock units) using the fair value based method of accounting, which requires that the fair value of stock-based employee compensation awards with service conditions be measured at the grant date of the award

and amortized into expense over the appropriate vesting period. If an award is forfeited, previously recognized compensation expense related to the forfeited award is reversed, and no additional compensation expense is recognized.

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Summary Compensation Table

In connection with the transition from an arrears-based restricted stock incentive program to the forward-looking Program noted above that is principally based on total stockholder return performance, the compensation committee granted stock awards in December 2015 for 2015 performance, approximately 30 days earlier than originally scheduled. In accordance with SEC rules, stock

awards must be reported in the year made regardless of the performance year they are based on. Therefore, the following table sets forth stock awards granted in 2015 for both 2014 and 2015 performance. Beginning in 2016, stock awards were granted pursuant to the Program at each executive’s equity incentive target at the beginning of the year.

The following table sets forth the compensation for 2017, 2016 and 2015 paid to our executives:

Name and Principal Position
Year
Salary ($)
Stock Awards ($)(1)
Non-Equity
Incentive Plan
Compensation ($)
Total ($)
Scott W. Fordham
2017
 
650,000
 
 
1,280,246
 
 
1,144,299
 
 
3,074,545
 
Chief Executive Officer
2016
 
650,000
 
 
1,353,378
(2) 
 
1,094,496
 
 
3,097,874
 
 
2015
 
650,000
 
 
2,807,546
(3) 
 
1,054,560
 
 
4,512,106
 
Dallas E. Lucas
2017
 
360,000
 
 
709,071
 
 
648,155
 
 
1,717,226
 
President and
2016
 
360,000
 
 
749,566
(2) 
 
581,796
 
 
1,691,352
 
Chief Operating Officer
2015
 
360,000
 
 
1,357,390
(3) 
 
563,760
 
 
2,281,150
 
William J. Reister
2017
 
300,000
 
 
459,883
 
 
360,086
 
 
1,119,969
 
Chief Investment Officer and
2016
 
300,000
 
 
486,165
(2) 
 
317,220
 
 
1,103,385
 
Executive Vice President
2015
 
300,000
 
 
990,623
(3) 
 
316,380
 
 
1,607,003
 
Telisa Webb Schelin
2017
 
300,000
 
 
429,907
 
 
337,581
 
 
1,067,488
 
Chief Legal Officer, Executive
2016
 
300,000
 
 
454,478
(2) 
 
312,165
 
 
1,066,643
 
Vice President and Secretary
2015
 
300,000
 
 
849,910
(3) 
 
310,635
 
 
1,460,545
 
James E. Sharp
2017
 
284,706
 
 
210,858
 
 
315,075
 
 
810,639
 
Chief Financial Officer and
2016
 
250,000
 
 
216,435
(2) 
 
173,425
 
 
639,860
 
Treasurer
2015
 
250,000
 
 
378,977
(3) 
 
172,575
 
 
801,552
 
(1) Reflects the grant date fair value of restricted stock awards and performance restricted stock unit awards, where applicable. For information regarding the valuation of grants of restricted stock made in 2015, 2016 and 2017, see Note 11 or 12 (Equity) to the consolidated financial statements in our Annual Reports on Form 10-K for the fiscal years ended December 31, 2015, 2016 and 2017, respectively.
(2) Includes the grant date fair value of restricted stock awards. In addition, includes the grant date fair value of performance restricted stock unit awards granted in 2017 and 2016 for the performance measurement periods of January 1, 2017 through December 31, 2019 and January 1, 2016 through December 31, 2018, respectively, based on the probable outcome of the awards. The maximum values of such performance restricted stock unit awards granted in 2017, assuming grant date fair value and the highest level of performance is achieved, are as follows: Mr. Fordham - $1,622,410, Mr. Lucas - $898,587, Mr. Reister - $582,787, Ms. Schelin - $544,784, and Mr. Sharp - $439,070.The maximum values of such performance restricted stock unit awards granted in 2016, assuming grant date fair value and the highest level of performance is achieved, are as follows: Mr. Fordham - $1,768,664, Mr. Lucas - $979,560, Mr. Reister - $635,356, Ms. Schelin - $593,928, and Mr. Sharp - $282,866.
(3) Reflects restricted stock award grants made in January 2015 for 2014 performance equal to $1,222,180, $509,860, $435,375, $306,298, and $120,100, for Mr. Fordham, Mr. Lucas, Mr. Reister, Ms. Schelin, and Mr. Sharp, respectively, and restricted stock award grants made in December 2015 for 2015 performance equal to $1,585,366, $847,530, $555,248, $543,612, and $258,877, for Mr. Fordham, Mr. Lucas, Mr. Reister, Ms. Schelin, and Mr. Sharp, respectively.

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Grants of Plan-Based Awards

The following table provides information on the grants of plan-based awards made to our executives during the fiscal year ended December 31, 2017.

 
 
Estimated Possible Payouts Under
Non-Equity Incentive Plan Awards(1)
Estimated Future Payouts Under
Equity Incentive Plan Awards(2)
All Other
Stock
Awards;
Shares of
Stock (#)
Grant Date
Fair Value
of Stock
Awards ($)(3)
Name and Type of Award
Grant
Date
Threshold
($)
Target
($)
Maximum
($)
Threshold
(#)
Target
(#)
Maximum
(#)
Scott W. Fordham
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Non-Equity Incentive
 
5/15/17
 
 
390,000
 
 
780,000
 
 
1,170,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Time-Based Restricted Stock
 
1/23/17
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
25,814
 
 
469,040
 
Performance Restricted Stock Units
 
1/23/17
 
 
 
 
 
 
 
 
 
 
 
19,361
 
 
38,721
 
 
77,442
 
 
 
 
 
 
 
Dallas E. Lucas
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Non-Equity Incentive
 
5/15/17
 
 
216,000
 
 
432,000
 
 
648,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Time-Based Restricted Stock
 
1/23/17
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
14,297
 
 
259,776
 
Performance Restricted Stock Units
 
1/23/17
 
 
 
 
 
 
 
 
 
 
 
10,723
 
 
21,446
 
 
42,892
 
 
 
 
 
 
 
William J. Reister
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Non-Equity Incentive
 
5/15/17
 
 
120,000
 
 
240,000
 
 
360,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Time-Based Restricted Stock
 
1/23/17
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9,273
 
 
168,490
 
Performance Restricted Stock Units
 
1/23/17
 
 
 
 
 
 
 
 
 
 
 
6,955
 
 
13,909
 
 
27,818
 
 
 
 
 
 
 
Telisa Webb Schelin
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Non-Equity Incentive
 
5/15/17
 
 
112,500
 
 
225,000
 
 
337,500
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Time-Based Restricted Stock
 
1/23/17
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8,669
 
 
157,516
 
Performance Restricted Stock Units
 
1/23/17
 
 
 
 
 
 
 
 
 
 
 
6,501
 
 
13,002
 
 
26,004
 
 
 
 
 
 
 
James E. Sharp
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Non-Equity Incentive
 
5/15/17
 
 
105,000
 
 
210,000
 
 
315,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Time-Based Restricted Stock
 
1/23/17
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4,252
 
 
77,259
 
Performance Restricted Stock Units
 
1/23/17
 
 
 
 
 
 
 
 
 
 
 
3,189
 
 
6,377
 
 
12,754
 
 
 
 
 
 
 
Time-Based Restricted Stock
 
5/10/17
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2,735
 
 
45,155
 
Time-Based Restricted Stock
 
5/10/17
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9,086
 
 
150,010
 
Performance Restricted Stock Units
 
5/10/17
 
 
 
 
 
 
 
 
 
 
 
2,051
 
 
4,102
 
 
8,204
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) The “Estimated Possible Payouts Under Non-Equity Incentive Plan Awards” columns reflect the threshold, target, and maximum cash amounts that our named executives were eligible to earn in 2017 under our annual non-equity incentive program. The “Non-Equity Incentive Plan Compensation” column in the “Summary Compensation” table reflects the actual cash amounts earned under this plan for 2017.
(2) The “Estimated Future Payouts Under Equity Incentive Plan Awards” columns reflect the threshold, target and maximum number of shares which may be earned pursuant to performance restricted stock units awarded in 2017 for the performance measurement period from January 1, 2017 through December 31, 2019 without regard to dividend reinvestment.
(3) Reflects the grant date fair value of such restricted stock awards. For information regarding the valuation of grants of restricted stock made in 2017, see Note 11 (Equity) to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2017.

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Outstanding Equity Awards at Fiscal Year End

The following table sets forth information with respect to outstanding restricted stock awards under our 2015 Equity Incentive Plan and our 2005 Incentive Award Plan that have not vested for each of the executives as of December 31, 2017.

 
Stock Awards
Name
Number of Shares of
Stock That Have Not
Vested (#)(1)
Market Value of Shares of
Stock That Have Not
Vested ($)(2)
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other Rights
That Have
Not Vested
(#)(3)(4)
Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares,
Units or
Other Rights
That Have
Not Vested
($)(3)
Scott W. Fordham
 
57,356
 
 
1,169,489
 
 
180,465
 
 
3,679,681
 
Dallas E. Lucas
 
24,691
 
 
503,449
 
 
99,952
 
 
2,038,021
 
William J. Reister
 
21,832
 
 
445,154
 
 
64,824
 
 
1,321,761
 
Telisa Webb Schelin
 
17,694
 
 
360,781
 
 
60,600
 
 
1,235,634
 
James E. Sharp
 
18,617
 
 
379,601
 
 
37,736
 
 
769,988
 
(1) The shares of restricted stock granted prior to December 2015 vest 25% annually over a four-year period following the grant date. With respect to the shares of restricted stock granted in December 2015, one-third of such shares vested on the grant date, one-third vested one year after the grant date and one-third vested two years after the grant date. All other shares of restricted stock granted vest over a three-year period, with one-third vesting on December 30 of each respective year.
(2) Based on the closing price of our common stock on the NYSE of $20.39 on December 29, 2017.
(3) The number and market or payout value of equity incentive plan awards is based on the maximum level payable under the performance restricted stock unit awards granted in 2016 and 2017 for the performance measurement periods from January 1, 2016 through December 31, 2018 and January 1, 2017 through December 31, 2019, respectively, because our performace through December 31, 2017 exceeded both the threshold and target levels of such awards (assuming our performance had continued through the end of the performance period at the same rate as had occurred from the beginning of each performance period through December 31, 2017).
(4) Includes additional shares to cover dividends that would have been paid through December 31, 2017, on unvested restricted stock units.

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Stock Vested in Last Fiscal Year

The following table sets forth information with respect to restricted stock awards under our 2015 Equity Incentive Plan and our 2005 Incentive Award Plan that vested for each of the executives during the year ended December 31, 2017.

 
Stock Awards
Name
Number of Shares or Units of
Stock Acquired on Vesting (#)
Market Value Realized
on Vesting ($)(1)
Scott W. Fordham
 
61,395
 
 
1,198,186
 
Dallas E. Lucas
 
24,409
 
 
487,789
 
William J. Reister
 
24,371
 
 
472,338
 
Telisa Webb Schelin
 
20,470
 
 
399,888
 
James E. Sharp
 
9,834
 
 
194,029
 
(1) Market value realized is based on the closing price of our shares of common stock on the NYSE on the date of vesting.

Employment Agreements

We have employment agreements, as amended, (collectively, the “Employment Agreements”) with each of the following executive officers: Scott W. Fordham, our chief executive officer; Dallas E. Lucas, our president and chief operating officer; William J. Reister, our chief investment officer and executive vice president; Telisa Webb Schelin, our chief legal officer, executive vice president and secretary; and James E. Sharp, our chief financial officer and treasurer. The term of these Employment Agreements ends on February 10, 2020, provided that the term will automatically continue for an additional one-year period unless either party provides 60 days written notice of non-renewal prior to the expiration of the initial term. These agreements were approved by our compensation committee. The compensation committee reviewed market materials related to executive contracts and retained its own legal counsel and independent compensation consultant to, among other things, negotiate the terms of the agreements.

Compensation. During the initial term of each employment agreement, we pay each executive an annual base salary, which is set forth in the table below for 2018. However, the base salary is reviewed annually and may not be reduced without the executive’s consent. In addition, during the term of each employment agreement, each executive is eligible to receive cash incentive compensation as determined by the compensation committee. Each executive’s target annual incentive compensation is equal to a percentage of his or her base salary, also as set forth below. The cash incentive compensation is predicated on both objective corporate and individual measures to be mutually agreed upon between the executive and the compensation committee. The amount of cash incentive compensation awarded to the executive each year must be reasonable in light of the contributions made by the executive for the year in relation to the contributions made and incentive compensation awarded to the other executives for the same year.

Name
Minimum Annual Base
Salary for 2018
Target Annual Cash
Incentive Compensation
(as % of annual base salary)
Scott W. Fordham
$
650,000
 
 
120
%
Dallas E. Lucas
$
375,000
 
 
120
%
William J. Reister
$
310,000
 
 
90
%
Telisa Webb Schelin
$
330,000
 
 
75
%
James E. Sharp
$
320,000
 
 
70
%

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During the initial term, each executive is also eligible to receive equity awards under the 2015 Equity Incentive Plan and any other successor plan, at the discretion of the compensation committee. Each executive’s target annual long-term incentive award is equal to a percentage, as set forth in the table below,

of the executive’s base salary plus the target annual cash incentive compensation. The amount of each equity award granted to the executive must be reasonable in light of the contributions made, or anticipated to be made, by the executive for the period for which that equity award is made.

Name
Target Annual Long-Term Incentive Award
(as % of annual base salary + target
annual cash incentive compensation)
Scott W. Fordham
 
110
%
Dallas E. Lucas
 
100
%
William J. Reister
 
80
%
Telisa Webb Schelin
 
80
%
James E. Sharp
 
70
%

Payments Upon Termination or a Change of Control. Under the employment agreements, we are required to provide any earned compensation and other vested benefits to the executives in the event of a termination of employment. In addition, each executive will have the right to additional compensation and benefits depending upon the manner of termination of employment, as summarized below.

During the term of each employment agreement, we may terminate the agreement with or without “cause,” defined as, among other things, the executive’s dishonest or fraudulent action, willful misconduct or gross negligence in the conduct of his or her duties to us, or the executive’s material uncured breach of the employment agreement. In addition, each executive may terminate his or her employment agreement for “good reason,” defined as, among other things, a material breach of the employment agreement by us. If we terminate the executive’s employment without “cause” or if the executive terminates for “good reason”:

we will pay the executive an amount equal to the product of: (1) a “Severance Multiple,” equal to 2.6 for Mr. Fordham, 2.25 for each of Messrs. Lucas and Reister and Ms. Schelin, and 2.0 for Mr. Sharp; and (2) the sum of: (a) the executive’s base salary and (b) the greater of: (i) the executive’s target annual cash incentive compensation; or (ii) the average of the annual cash incentive compensation received by the executive each year during the term of his or her employment agreement;
all equity awards with time-based vesting will immediately vest in accordance with their terms, and each equity award with performance vesting will vest at the greater of: (1) the target amount of

the award, if applicable; or (2) an amount based on our performance from the commencement of the performance period through the date of termination, multiplied by a fraction, the numerator of which will be equal to the number of days the executive was employed by us from the commencement of the performance period through the date of termination and the denominator of which will be equal to the total number of days in the performance period; and

if the executive was participating in our group medical, vision, and dental plan immediately prior to the date of termination, then we will pay to the executive a lump sum payment equal to: (1) eighteen times the amount of the monthly employer contribution that we made to an insurer to provide these benefits to the executive and his or her dependents in the month immediately preceding the date of termination plus (2) the amount we would have contributed to their health reimbursement arrangement for eighteen months from the date of termination if the executive had remained employed by us.

If the executive’s employment is terminated within eighteen months after the occurrence of the first event constituting a “change in control” (as defined in the employment agreements) of us or the operating partnership, each employment agreement provides that all equity awards with time-based vesting will immediately vest and each equity award with performance vesting will vest at the greater of: (1) the target amount of the award, if applicable, or (2) a prorated amount based on our performance from the commencement of the performance period through the end of the calendar month immediately preceding the change in control. Further, during the initial term, if within eighteen months after a change in control, we

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terminate the executive’s employment without “cause” or the executive terminates his or her employment for “good reason”:

we will pay the executive a lump sum in cash in an amount equal to the product of: (1) the Severance Multiple (defined above for each executive) and (2) the sum of (a) the executive’s current base salary (or the executive’s base salary in effect immediately prior to the change in control, if higher) and (b) the greater of: (i) the executive’s target annual cash incentive compensation or (ii) the average of the annual cash incentive compensation received by the executive during the term of his or her employment agreement; and
if the executive was participating in our group medical, vision, and dental plan immediately prior to the date of termination, then we will pay to the executive a lump sum payment equal to: (1) eighteen times the amount of the monthly employer contribution that we made to an

insurer to provide these benefits to the executive and his or her dependents in the month immediately preceding the date of termination plus (2) the amount we would have contributed to their health reimbursement arrangement for eighteen months from the date of termination if the executive had remained employed by us.

If an executive’s employment agreement is terminated upon death or disability, we will pay (1) a lump sum in cash in an amount equal to the executive’s base salary and (2) the pro rata portion of any cash incentive compensation that would have been earned during the year of the termination.

Other Terms and Conditions. During the term of the employment agreements (including any extensions) and for a period of fifteen months thereafter, each executive has agreed to certain non-competition and non-solicitation provisions. The executives have also agreed to certain non-disclosure and non-disparagement provisions both during and after their employment with us.

Potential Payments upon Termination or Change of Control

The following table summarizes the potential cash payments and estimated equivalent cash value of unvested equity awards and other benefits that would be payable to our executives or immediately vest under the terms of their employment agreements described above upon termination of those

agreements under the various scenarios listed below, assuming the event took place on December 31, 2017 (without regard to any potential reductions required under the employment agreements for amounts in excess of Section 280G thresholds):

Name
Without Cause/
For Good Reason(1)
Change-in-Control
(Termination Without Cause/
For Good Reason)(1)
Death/Disability(2)
Scott W. Fordham
$
8,606,506
 
$
8,606,506
 
$
1,430,000
 
Dallas E. Lucas
$
4,441,179
 
$
4,441,179
 
$
792,000
 
William J. Reister
$
3,328,790
 
$
3,328,790
 
$
540,000
 
Telisa Webb Schelin
$
3,042,001
 
$
3,042,001
 
$
525,000
 
James E. Sharp
$
2,208,924
 
$
2,208,924
 
$
510,000
 
(1) Includes the lump sum payment to the executive if he or she was participating in our group medical, vision, and dental plans immediately prior to the date of termination (assuming premiums as of December 31, 2017).
(2) Excludes the fair value of unvested equity awards that would immediately vest upon the executive’s death or disability pursuant to the terms of award agreements. The fair value of unvested equity awards are $4,849,170, $2,541,471, $1,766,916, $1,596,415, and $1,149,588, for Mr. Fordham, Mr. Lucas, Mr. Reister, Ms. Schelin, and Mr. Sharp, respectively.

The amounts described above do not include payment or benefits to the extent they have been earned prior to the termination of employment or are

provided on a non-discriminatory basis to salaried employees upon termination of employment, including, but not limited to, accrued vacation.

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COMPENSATION DISCUSSION AND ANALYSIS

Directors’ Compensation

We pay each independent director the following annual retainers and per meeting fees. The retainers and meeting fees are paid in cash, quarterly in arrears. Additionally, all directors are reimbursed for their reasonable out-of-pocket expenses incurred in

connection with attending meetings. However, we do not pay any of the fees described herein to any director that also serves as an officer of, or provides consulting services to, the Company.

Retainer for Service as a Director (for up to six meetings)
$
45,000
 
Retainer for Non-Executive Chairman of the Board
$
50,000
 
Retainer for Chairman of the Audit Committee
$
15,000
 
Retainer for Chairman of the Compensation Committee
$