STOCK-BASED PLANS

12 Months Ended

Dec. 31, 2019

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

STOCK-BASED PLANS

STOCK-BASED PLANS

On November 9, 2010, HHC adopted The Howard Hughes Corporation Amended and Restated 2010 Incentive Plan (the “Incentive Plan”). Pursuant to the Incentive Plan, 3,698,050 shares of HHC common stock were reserved for issuance. The Incentive Plan provides for grants of options, stock appreciation rights, restricted stock, other stock‑based awards and market‑based compensation. Directors, employees and consultants of HHC and its subsidiaries and affiliates are eligible for awards. The Incentive Plan is administered by the Compensation Committee of the Board of Directors (the “Committee”).

Compensation costs related to stock options were $1.8 million, $12.1 million and $8.4 million, of which $0.4 million, $2.4 million and $1.1 million were capitalized for 2019, 2018, and 2017, respectively. As of December 31, 2019, there were a maximum of 1,697,667 shares available for future grant under the Company’s various stock plans.

Stock Options

The following table summarizes stock option activity:

					Weighted-Average
					Remaining	Aggregate
			Weighted-Average		Contractual Term	Intrinsic
	Shares		Exercise Price		(In years)	Value
Stock options outstanding at January 1, 2017	1,176,640		$	78.87
Granted	58,000		119.85
Exercised	(395,482	)	58.81
Forfeited	(54,976	)	105.17
Expired	(1,000	)	57.77
Stock options outstanding at December 31, 2017	783,182		$	90.22
Granted	265,000		$	124.56
Exercised	(183,592	)	65.72
Forfeited	(46,592	)	121.34
Stock options outstanding at December 31, 2018	817,998		$	105.06
Granted	21,500		$	105.37
Exercised	(39,402	)	63.73
Forfeited	(65,800	)	128.02
Expired	(12,800	)	143.45
Stock options outstanding at December 31, 2019	721,496		$	104.55	5.5	17,098,603
Stock options exercisable at December 31, 2019	256,296		$	76.61	2.0	13,356,723
Stock options vested and expected to vest at December 31, 2019	705,947		$	104.17	5.4	17,011,899

Information related to stock options outstanding as of December 31, 2019 is summarized below:

							Weighted-Average
							Remaining
				Number	Weighted-Average		Contractual Term	Number
Range of Exercise Prices				Outstanding	Exercise Price		(In years)	Exercisable
$	46.46	$	55.82	8,775	$	48.38	1.8	8,775
$	57.77	$	60.33	131,874	58.03		1.2	131,874
$	61.64	$	69.75	47,529	66.75		2.3	47,529
$	81.80	$	110.50	75,710	103.12		5.9	33,210
$	112.64	$	151.72	457,608	123.20		7.0	34,908
				721,496	$	104.56	5.5	256,296

The fair value on the grant date and the significant assumptions used in the Black‑Scholes option‑pricing model are as follows:

	As of December 31,
	2019			2018			2017
Grant date fair value	$	32.51		$	48.27		$	34.51
Expected life of options (in years)	7.5			8.4			8.4
Risk-free interest rate	2.2		%	2.7		%	2.2		%
Expected volatility	22.6		%	24.7		%	22.8		%
Expected annual dividend per share	—			—			—

The computation of the expected volatility assumption used in the Black‑Scholes calculations is based on the median asset volatility of comparable companies as of each of the grant dates. 

Generally, options granted vest over requisite service periods or on a graduated scale based on total shareholder returns, expire ten years after the grant date and generally do not become exercisable until their restrictions on exercise lapse after the five-year anniversary of the grant date. For options that vest based on shareholder returns, the grant date fair values are calculated using a Monte-Carlo approach which simulates the Company’s stock price on the corresponding vesting dates before applying the Black-Scholes model.

The balance of unamortized stock option expense as of December 31, 2019 is $10.6 million, which is expected to be recognized over a weighted‑average period of 4.8 years. Net of amounts capitalized relating to the Company’s developments, $1.4 million, $2.2 million and $1.6 million of expense associated with stock options are included in General and administrative expense in the accompanying Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017, respectively.

Restricted Stock

Restricted stock awards issued under the Incentive Plan provide that shares awarded may not be sold or otherwise transferred until restrictions have lapsed as established by the Committee. In addition to the granting of restricted stock to certain members of management, the Company awards restricted stock to non‑employee directors as part of their annual retainer. The management awards generally vest over a range of three to five years, and the restriction on the non‑employee director shares generally lapses on the date of the Company’s following annual meeting of shareholders, or June 1^st of the year following the award year, whichever is earlier.

Generally, upon termination of employment or directorship, restricted shares which have not vested are forfeited.

The following table summarizes restricted stock activity:

	Weighted-Average
	Grant Date
	Shares		Fair Value
Restricted stock outstanding at January 1, 2017	289,112		$	88.88
Granted	177,708		85.88
Vested	(68,819	)	88.58
Forfeited	(43,482	)	76.10
Restricted stock outstanding at December 31, 2017	354,519		$	89.00
Granted	142,332		83.09
Vested	(52,479	)	124.50
Forfeited	(37,828	)	91.71
Restricted stock outstanding at December 31, 2018	406,544		$	82.10
Granted	236,145		98.78
Vested	(118,560	)	122.51
Forfeited	(117,327	)	95.03
Restricted stock outstanding at December 31, 2019	406,802		$	76.27

The grant date fair value of restricted stock is based on the closing sales price of common stock on the grant date. For restricted stock awards that vest based on shareholder returns, the grant date fair values are calculated using a Monte-Carlo approach which simulates the Company’s stock price on the corresponding vesting dates before applying the Black-Scholes model. The number of shares of restricted stock subject to performance-based vesting conditions are reflected at the “target” level of performance in the table above.

Net of amounts capitalized relating to the Company’s developments, HHC recognized compensation expense related to restricted stock awards of $16.7 million, $7.5 million and $5.7 million for the years ended December 31, 2019, 2018 and 2017, respectively, included in General and administrative expense in the accompanying Consolidated Statements of Operations. The increase in compensation expense for the year is generally in connection with the Company’s restructuring. The fair value of restricted stock that vested during 2019 was $14.9 million. The balance of unamortized restricted stock expense as of December 31, 2019 was $18.4 million, which is expected to be recognized over a weighted‑average period of 3.0 years.