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Stock-Based Compensation
 3 Months Ended
Mar. 31, 2024
Share-Based Payment Arrangement [Abstract]  
STOCK-BASED COMPENSATION STOCK-BASED COMPENSATION
The Company currently has several types of employee stock-based compensation — restricted stock, restricted stock units ("RSUs"), and the Employee Stock Purchase Plan ("ESPP"). While the Company's plans also allow for the issuance of stock options, none had been exercised or were outstanding as of or during any of the periods presented. A portion of the Company's independent directors' compensation is also provided in the form of company stock.
The Company's compensation expense for the three months ended March 31, 2024 relates to restricted stock, stock-settled RSUs, and the ESPP. Restricted stock and the stock-settled RSUs are equity-classified awards for which compensation expense per share is fixed. Cash-settled RSUs are liability-classified awards for which the expense fluctuates from period to period dependent, in part, on the Company's stock price. Cash-settled RSUs were last awarded in 2019 and were fully expensed as of March 31, 2023. For the three months ended March 31, 2024 and 2023, stock-based compensation expense, net of forfeitures, was recorded as follows ($ in thousands):
Three Months Ended March 31,
20242023
Equity-classified awards:
Restricted stock$971 $858 
Market-based RSUs2,342 1,751 
Performance-based RSUs573 480 
Director grants408 385 
Employee Stock Purchase Plan24 37 
Total equity-classified award expense, net of forfeitures4,318 3,511 
Liability-classified awards
Time-vested RSUs— 61 
Total liability-classified award expense, net of forfeitures— 61 
Total stock-based compensation expense, net of forfeitures$4,318 $3,572 
Information on the Company's stock compensation plan, including information on the Company's equity-classified and liability-classified awards is discussed in note 14 of the notes to condensed consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.
Grants of Equity-Classified Awards
Under the 2019 Plan, in February 2024, the Company granted three types of equity-classified awards to key employees: (1) RSUs based on the Total Stockholder Return ("TSR") of the Company, as defined in the award documents, relative to that of office peers included in the Nareit Office Index (the "Market-based RSUs"), (2) RSUs based on the ratio of cumulative funds from operations per share to targeted cumulative funds from operations per share (the “Performance-based RSUs”), and (3) restricted stock.
The RSU awards are equity-classified awards to be settled in common stock with issuance dependent upon the attainment of required service, market, and performance criteria. For the Market-based RSUs the Company expenses an estimate of the fair value of the awards on the grant date, calculated using a Monte Carlo valuation at grant date, ratably over the vesting period, adjusting only for forfeitures when they occur. The expense of these Market-based RSUs is not adjusted for the number of awards that actually vest. For the Performance-based RSUs, the Company expenses the awards over the vesting period using the fair market value of the Company's stock on the grant date. The expense is recognized ratably over the vesting period and adjusted each quarter based on the number of shares expected to vest and for forfeitures when they occur. The performance period for the Performance-based RSUs and TSR measurement period for the Market-based RSUs awarded is three years starting on January 1 of the year of issuance and ending on December 31. The ultimate settlement of these awards can range from zero percent to 200% of the targeted number of units depending on the achievement of the market and performance metrics described above.
The restricted stock vests ratably over three years from the grant date. The Company records restricted stock in common stock and additional paid-in capital at fair value on the grant date, with the offsetting deferred compensation also recorded in additional paid-in capital. The Company records compensation expense over the vesting period.
The following table summarizes the grants of equity-classified awards made by the Company in the first quarter of 2024 and 2023:
Shares and Targeted Units Granted in
20242023
Market-based RSUs205,129 164,430 
Performance-based RSUs87,912 70,472 
Restricted stock203,158 164,221 
The Monte Carlo valuation used to determine the grant date fair value of the equity-classified Market-based RSUs included the following assumptions for those RSUs granted in the first quarter of 2024 and 2023:
Assumptions for RSUs Granted in
20242023
Volatility(1)30.5 %40.5 %
Risk-free rate(2)4.43 %4.35 %
Stock beta(3)0.96 %1.03 %
(1) Based on historical volatility over three years using daily stock price.
(2) Reflects the yield on three-year Treasury bonds.
(3) Betas are calculated with up to three years of daily stock price data.