A moving occasion at Dynex Capital…

September 14, 2011

Dynex Capital (DX) makes its money investing in mortgages and mortgage securities. Let’s hope most of its portfolio has better terms than it recently negotiated with its own chief investment officer, Byron L. Boston.

Dynex is based in Glen Allen, Virginia, just north of Richmond, and Boston joined the real-estate investment trust in the spring of 2008. Even so, he apparently has been living in Jacksonville, Florida, more than 600 miles away. No longer, though — Dynex is making it very attractive for Boston to move north.

We know this from the 8-K that Dynex filed on Friday afternoon, which included a relocation letter agreement with Boston. In it, Dynex lays out all the help Boston is getting for the big move, including the usual shipping and temporary storage costs, temporary housing through September 30 of this year (less time than many relo agreements we’ve seen), and up to $21,000 for house-hunting and miscellaneous living expenses (other than rent).

Dynex is also paying any taxes Boston owes Uncle Sam on these benefits, which could add up to a pretty penny on its own.

All well and good, but Boston wouldn’t be a crack real-estate investment executive if he didn’t negotiate a little something to help with that house back in Florida. It is a soft real-estate market, after all.

And sure enough, he gets up to $90,000 in total closing costs for selling his old house and buying a new one. Oh, and Dynex is going to buy his old house if he can’t sell it by Halloween. Here’s the language from the agreement:

“Based on the average of two independent appraisals of the Jacksonville Residence arranged by the Company and you, the current appraised value of the Jacksonville Residence is at least $985,000. If a valid binding contract to sell the Jacksonville Residence is not entered into by October 31, 2011, the Company agrees to purchase the Jacksonville Residence free-and-clear for $811,000…”

That might not seem like such a good deal for Boston, but there’s more: If the company makes a profit when it sells the house, Boston gets to keep it, up to $174,000. The company only gets to share in the gains if they exceed that amount. If the company loses money — well, the company loses money. Here’s the formal language:

“Subsequent to its purchase by the Company, if the Company sells the Jacksonville Residence to a third party for an amount up to or exceeding $985,000, then the Company will pay you an additional $174,000. If the house sells for greater than $811,000 but less than $985,000, the Company will pay you the excess of the sales price over $811,000. If the sales price is less than $811,000, the Company will not pay you any additional amounts.”

(We see a smidgen of ambiguity in there, what with one clause specifying a payment of $174,000 if the house is sold for “up to or exceeding $985,000″ and another saying the company will pay only the amount of the gain for sales up to but less than $985,000. But we’re sure the parties can sort it out.)

Strangely, this “relocation addendum” to Boston’s employment contract includes a grant of restricted stock worth $300,000, vesting in quarterly chunks over three years (or immediately if he’s canned without cause or quits with good reason before then). They’re being granted “to compensate [Boston] for [his] agreement to relocate to Richmond…”

And the company will pay Boston’s taxes on those shares as well. Given Dynex’s size (a market-cap of $347 million), the package ranks among the more generous ones we’ve footnoted over time.

There are a few strings, but they’re pretty minimal. If Boston quits without good reason, he forfeits unvested stock (though it doesn’t appear he would have to give back any of what has vested), and if he quits before December 31 — less than four months away — he has to buy the house back.

We’ve spent a little time in Richmond, and it’s not a bad town. Still, if you take a look at Boston’s house in Florida, it’s clear he’s giving up a nice pad: a 5,100-square-foot, 5-bedroom, 4.5-bath split-level with a pool (pictured), spa, concrete dock, balcony, and gas fireplace — all on a nice canal-bordered strip of land not far from the coast. While the county’s estimated value for the place pretty closely matches the figure in the agreement, realtor.com has an automated estimate (based in part on recent sales) that suggests it may only be worth $544,000 or so.

Boston paid closer to $1.3 million for the place in mid-2004. That has to smart a little. Perhaps the restricted stock will help soothe the sting.

Image source: Zillow.com listing

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