SHARE BASED COMPENSATION

Share Based Compensation Plans

As of December 31, 2017, we make share based compensation awards using our Second Amended and Restated 2003 Equity Incentive Plan, which is a share based compensation plan that was approved by our shareholders in 2012 (the “2003 Equity Incentive Plan”). Previously, we maintained five other plans pursuant to which we granted equity awards in various forms. Certain restricted shares and certain options granted under these previous plans remain subject to restrictions or remain outstanding and exercisable, respectively. In addition, we previously maintained two plans pursuant to which we granted options to our non-employee trustees.

We recognize expense in connection with share based awards to employees and trustees by valuing all share based awards at their fair value on the date of grant, and then expensing them over the applicable vesting period.

For the years ended December 31, 2017, 2016 and 2015, we recorded aggregate compensation expense for share based awards of $5.7 million (including a net reversal of $0.2 million of amortization relating to employee separation), $6.0 million (including $0.3 million of accelerated amortization relating to employee separation) and $6.3 million, (including $0.2 million of accelerated amortization related to employee separation), respectively, in connection with the equity incentive programs described below. There was no income tax benefit recognized in the income statement for share based compensation arrangements. For the years ended December 31, 2017, 2016 and 2015, we capitalized compensation costs related to share based awards of $0.1 million, $0.2 million, and $0.2 million, respectively

2003 Equity Incentive Plan

Subject to any future adjustments for share splits and similar events, the total remaining number of common shares that may be issued to employees or trustees under our 2003 Equity Incentive Plan (pursuant to options, restricted shares, shares issuable pursuant to current or future RSU Programs, or otherwise) was 677,384 as of December 31, 2017. The share based awards described in this footnote were all made under the 2003 Equity Incentive Plan.

Restricted Shares

The aggregate fair value of the restricted shares that we granted to our employees in 2017, 2016 and 2015 was $4.0 million, $4.3 million and $4.0 million, respectively. As of December 31, 2017, there was $4.0 million of total unrecognized compensation cost related to unvested share based compensation arrangements granted under the 2003 Equity Incentive Plan. The cost is expected to be recognized over a weighted average period of 0.8 years. The total fair value of shares vested during the years ended December 31, 2017, 2016 and 2015 was $3.9 million, $3.6 million and $3.7 million, respectively.

A summary of the status of our unvested restricted shares as of December 31, 2017 and changes during the years ended December 31, 2017, 2016 and 2015 is presented below:



	Shares		Weighted Average Grant Date Fair Value
Unvested at January 1, 2015	438,049		$	19.11
Shares granted	195,255		23.38
Shares vested	(282,125	)	17.12
Shares forfeited	(8,849	)	21.32
December 31, 2015	342,330		$	23.13
Shares granted	264,989		19.27
Shares vested	(206,480	)	20.77
Shares forfeited	(14,427	)	19.60
December 31, 2016	386,412		$	21.88
Shares granted	336,296		14.95
Shares vested	(238,859	)	19.56
Shares forfeited	(34,427	)	18.00
December 31, 2017	449,422		$	16.85

Restricted Shares Subject to Time Based Vesting

In 2017, 2016 and 2015, we made grants of restricted shares subject to time based vesting. The awarded shares vest over periods of one to three years, typically in equal annual installments, provided the recipient is our employee on the vesting date. For all grantees, the shares generally vest immediately upon death or disability. Recipients are entitled to receive an amount equal to the dividends on the shares prior to vesting. We granted a total of 245,950, 230,429 and 169,131 restricted shares subject to time based vesting to our employees in 2017, 2016 and 2015, respectively. The weighted average grant date fair values of time based restricted shares was $16.43 per share in 2017, $18.67 per share in 2016 and $23.55 per share in 2015. Compensation cost relating to time based restricted share awards is recorded ratably over the respective vesting periods. We recorded $3.9 million (including $0.2 million of accelerated amortization relating to employee separation), $3.3 million (including $0.2 million of accelerated amortization relating to employee separation) and $3.9 million (including $0.2 million of accelerated amortization relating to employee separation) of compensation expense related to time based restricted shares for the years ended December 31, 2017, 2016 and 2015, respectively.

On January 19, 2018, the Company granted 392,697 time-based restricted shares to employees with a grant date fair value of $4.3 million that vest over periods of two to three years in annual installments.

We will record future compensation expense in connection with the vesting of existing time based restricted share awards to employees as follows (including restricted shares issued in 2018):



(in thousands of dollars) For the Year Ending December 31,	Future Compensation Expense
2018	$	3,960
2019	2,776
2020	1,420
2021	151
Total	$	8,307

Restricted Share Unit Programs

In 2017, 2016, 2015, 2014 and 2013, our Board of Trustees established the 2017-2019 RSU program, 2016-2018 RSU program, 2015-2017 RSU Program, the 2014-2016 RSU Program, and the 2013-2015 RSU Program, respectively (the “RSU Programs”).

Under the RSU Programs, we may make awards in the form of market based performance-contingent restricted share units, or RSUs. The RSUs represent the right to earn common shares in the future depending on our performance in terms of total return to shareholders (as defined in the RSU Programs) for applicable three year periods or a shorter period ending upon the date of a change in control of the Company (each, a “Measurement Period”) relative to the total return to shareholders, as defined, for the applicable Measurement Period of companies comprising an index of real estate investment trusts (the “Index REITs”). Dividends are deemed credited to the participants’ RSU accounts and are applied to “acquire” more RSUs for the account of the participants at the 20-day average price per common share ending on the dividend payment date. If earned, awards will be paid in common shares in an amount equal to the applicable percentage of the number of RSUs in the participant’s account at the end of the applicable Measurement Period.

The aggregate fair values of the RSU awards in 2017, 2016 and 2015 were determined using a Monte Carlo simulation probabilistic valuation model, and are presented in the table below. The table also sets forth the assumptions used in the Monte Carlo simulations used to determine the aggregate fair values of the RSU awards in 2017, 2016 and 2015 by grant date:



(in thousands of dollars, except per share data)	RSUs and assumptions by Grant Date
	February 27, 2017			February 23, 2016			February 24, 2015
RSUs granted	140,490			127,421			94,014
Aggregate fair value of shares granted	$	1,620		$	1,914		$	2,074
Weighted average fair value per share	$	11.53		$	15.02		$	22.06
Volatility	25.8		%	25.3		%	25.3		%
Risk free interest rate	1.42		%	0.90		%	0.97		%
PREIT Stock Beta compared to Dow Jones US Real Estate Index	0.706			1.184			1.221

Compensation cost relating to the RSU awards is expensed ratably over the applicable three year vesting period. We recorded $1.3 million (including a reversal of $0.4 million of amortization relating to employee separation), $1.8 million (including $0.3 million of accelerated amortization relating to employee separation), and $1.8 million of compensation expense related to the RSU Programs for the years ended December 31, 2017, 2016 and 2015, respectively. We will record future aggregate compensation expense of $1.6 million related to the existing awards under the RSU Programs (not including the effect of the 2018 RSUs described below, the valuation for which has not yet been determined) .

For the years ended December 31, 2017 and 2016, no shares were issued from the 2015-2017 and 2014-2016 RSU programs because the required criteria were not met. For the year ended December 31, 2015, the number of shares issued to employees resulting from the measurement of the 2013-2015 RSU program was 134,733.

On January 19, 2018, the Board of Trustees established the 2018-2020 RSU program, and the Company granted 231,227 RSUs to employees (the “2018 RSUs”) with an aggregate fair value of $3.1 million. The 2018 RSUs have a three-year measurement period that ends on December 31, 2020 or a shorter period ending upon the change in control of the Company.

Restricted Shares Awarded to Non-Employee Trustees

As part of the compensation we pay to our non-employee trustees for their service, we grant restricted shares subject to time based vesting. The awarded shares vest over a one-year period. These annual awards are made under the 2003 Equity Incentive Plan. We granted a total of 64,358, 34,560, and 26,124 restricted shares subject to time based vesting to our non-employee trustees in 2017, 2016, and 2015, respectively. The aggregate fair value of the restricted shares in 2017, 2016 and 2015 was $0.7 million, $0.8 million and $0.6 million, respectively. We recorded $0.5 million, $0.6 million and $0.6 million of compensation expense related to time based vesting of non-employee trustee restricted share awards in 2017, 2016 and 2015, respectively. As of December 31, 2017, there was $0.6 million of total unrecognized compensation expense related to unvested restricted share grants to non-employee trustees. The total fair value of shares granted to non-employee trustees that vested was $0.8 million, $0.8 million, and $1.1 million for the years ended December 31, 2017, 2016 and 2015, respectively. In 2018, we will record compensation expense of $0.6 million in connection with the vesting of existing non-employee trustee restricted share awards.

Options Outstanding

Options, when granted, are typically granted with an exercise price equal to the fair market value of the underlying shares on the date of the grant. The options vest and are exercisable over periods determined by us, but in no event later than ten years from the grant date. We have six plans under which we have historically granted options. We have not granted any options to our employees since 2003. From 2003 to 2013, we only made option grants to non-employee trustees on the date they became trustees in accordance with past practice (under the 2003 Equity Incentive Plan). No options were granted to non-employee trustees since 2013. In 2013, the Board of Trustees determined that it would no longer grant options to new non-employee trustees. The following table presents the changes in the number of options outstanding from January 1, 2015 through December 31, 2017:



Options outstanding at January 1, 2015	15,000
Options forfeited (weighted average exercise price of $38.00)	(5,000		)
Options outstanding at December 31, 2015	10,000
Options forfeited	—
Options outstanding at December 31, 2016	10,000
Options forfeited	—
Options outstanding at December 31, 2017⁽¹⁾	10,000
Outstanding exercisable options at December 31, 2017
Options	10,000
Average exercise price per share	$	16.63
Aggregate exercise price⁽²⁾	$	166
Intrinsic value of options outstanding⁽²⁾	—


⁽¹⁾	The weighted average remaining contractual life of these outstanding options is 4.86 years (weighted average exercise price of $16.63 per share and an aggregate exercise price of $0.2 million).


⁽²⁾	Amounts in thousands of dollars.

The following table summarizes information relating to all options outstanding as of December 31, 2017:



Options Outstanding and Exercisable as of December 31, 2017
Number of Shares	Exercise Price (Per Share)		Weighted Average Remaining Life (Years)
5,000	$	12.87	4.4
5,000	$	20.40	5.3