SHARE BASED AND DEFERRED COMPENSATION

Stock Options

At March 31, 2012, the Parent Company had 3,599,672 options outstanding under its shareholder approved equity incentive plan. There were 903,066 options unvested as of March 31, 2012 and $2.0 million of unrecognized compensation expense associated with these options to be recognized over a weighted average of 1.2 years. During the three months ended March 31, 2012 and 2011, the Company recognized compensation expense related to unvested options of $0.4 million and $0.3 million, of which $0.1 million and a nominal amount, respectively, were capitalized as part of the Company’s review of employee salaries eligible for capitalization.

Option activity as of March 31, 2012 and changes during the three months ended March 31, 2012 were as follows:



	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at January 1, 2012	3,599,672	$	14.50	7.20	$	(18,015,060	)
Granted	—	—		—	—
Exercised	—	—		—	—
Outstanding at March 31, 2012	3,599,672	$	14.50	6.96	$	(10,887,709	)
Vested/Exercisable at March 31, 2012	2,696,606	$	16.18	6.63	$	(12,302,777	)

Restricted Share Awards

As of March 31, 2012, 964,297 restricted shares were outstanding under the 1997 Plan and vest over three to seven years from the initial grant date. The remaining compensation expense to be recognized at March 31, 2012 was approximately $5.1 million. That expense is expected to be recognized over a weighted average remaining vesting period of 1.6 years. The Company recognized compensation expense related to outstanding restricted shares of $0.7 million and $0.8 million during the three months ended March 31, 2012 and 2011, of which $0.2 million and $0.1 million, respectively, were capitalized as part of the Company’s review of employee salaries eligible for capitalization. The expensed amounts are included in general and administrative expense on the Company’s consolidated statement of operations in the respective periods.

The following table summarizes the Company’s restricted share activity for the three-months ended March 31, 2012:



	Shares		Weighted Average Grant Date Fair value
Non-vested at January 1, 2012	807,291		$	9.46
Granted	196,719		10.86
Vested	(39,274	)	27.63
Forfeited	(439	)	14.58
Non-vested at March 31, 2012	964,297		$	9.29

On March 1, 2012, the Compensation Committee of the Company’s Board of Trustees awarded 196,719 restricted shares to the Company’s executives. The restricted shares will cliff vest after three years from the grant date. The vesting of the restricted shares is also subject to acceleration upon a change in control or if the recipient of the award were to die, become disabled, be terminated without cause or retire in a qualifying retirement prior to the vesting date. Qualifying retirement for restricted shares granted on March 1, 2012 as provided in the Plan award agreements means the recipient’s voluntary termination of employment after reaching age 57 and accumulating at least 15 years of service with the Company. As of March 31, 2012, none of the Company’s executives had met conditions to elect a qualifying retirement.

Restricted Performance Share Units Plan

On March 1, 2012, March 2, 2011, and March 4, 2010, the Compensation Committee of the Parent Company’s Board of Trustees awarded an aggregate of 265,222, 124,293, and 120,955 share-based awards, respectively, to its executives. These awards are referred to as Restricted Performance Share Units, or RPSUs. The RPSUs represent the right to earn common shares. The number of common shares, if any, deliverable to award recipients depends on the Company’s performance based on its total return to shareholders during the three year measurement period that commenced on January 1, 2012 (in the case of the March 1, 2012 awards), January 1, 2011 (in the case of the March 2, 2011 awards), and January 1, 2010 (in the case of the March 4, 2010 awards) and that ends on the earlier of December 31, 2014, December 31, 2013 or December 31, 2012 (as applicable) or the date of a change of control. In the case of the awards made on March 1, 2012, our performance is compared to the shareholder return of REITs within an index over the measurement period for 50% of the RPSUs awarded on that date, with the remaining 50% being compared to the total shareholder return of REITs within our proxy peer group over such period. In the case of the awards made on March 2, 2011 and March 4, 2010, our performance is compared to the total shareholder return of REITs within an index over such respective periods. The awards are also contingent upon the continued employment of the participants through the performance periods (with exceptions for death, disability and qualifying retirement). Dividends are deemed credited to the performance units accounts and are applied to “acquire” more performance units for the account of the unit holder at the price per common share ending on the dividend payment date. If earned, awards will be settled in common shares in an amount that reflects both the number of performance units in the holder’s account at the end of the applicable measurement period and the Company’s total return to shareholders during the applicable three year measurement period relative to the total shareholder return of the REIT within the index or peer group, as applicable.

If the total shareholder return during the measurement period places the Company at or above a certain percentile as compared to the REITs within the index or peer group, as applicable, then at the end of the measurement period the number of shares that will be delivered shall equal a certain percentage (not to exceed 200%) of the participant's base units.

On the date of each grant, the awards were valued using a Monte Carlo simulation. The fair value of the 2012 award on the grant date was $4.2 million, while the fair values of the 2011 and 2010 awards were $2.0 million, respectively. The fair values of each award are being amortized over the three year cliff vesting period. In the case of the 2012 and 2011 awards, the vesting of the RPSUs is also subject to acceleration upon a change in control or if the recipient of the award were to die, become disabled, terminated without cause or retire in a qualifying retirement prior to the vesting date. Qualifying retirement for RPSUs granted on March 1, 2012 and March 1, 2011 as provided under the 1997 Plan means the recipient’s voluntary termination of employment after reaching age 57 and accumulating at least 15 years of service with the Company. As of March 31, 2012, none of the Company’s executives has met conditions to elect a qualifying retirement.

For the three months ended March 31, 2012 and 2011, the Company recognized total compensation expense for the 2012, 2011, and 2010 awards of $0.6 million and $0.3 million, of which $0.2 million and nominal amounts, respectively, were capitalized as part of the Company’s review of employee salaries eligible for capitalization.

In the case of the Company's previous April 1, 2009 award, a total of 372,102 shares were delivered to award recipients on March 1, 2012. These shares, which all vested on December 31, 2011 (the end of its three-year measurement period), were also paid cash dividends on January 19, 2012.

Employee Share Purchase Plan

On May 9, 2007, the Parent Company’s shareholders approved the 2007 Non-Qualified Employee Share Purchase Plan (the “ESPP”). The ESPP is intended to provide eligible employees with a convenient means to purchase common shares of the Parent Company through payroll deductions and voluntary cash purchases at an amount equal to 85% of the average closing price per share for a specified period. Under the plan document, the maximum participant contribution for the 2012 plan year is limited to the lesser of 20% of compensation or $50,000. The number of shares initially reserved for issuance under the ESPP is 1.25 million. During each of the three months ended March 31, 2012 and 2011, employees made purchases under the ESPP of $0.1 million. The Company recognized a nominal amount compensation expense related to the ESPP during each of the three months ended March 31, 2012 and 2011. The Board of Trustees of the Parent Company may terminate the ESPP at its sole discretion at any time.

Deferred Compensation

In January 2005, the Parent Company adopted a Deferred Compensation Plan (the “Plan”) that allows trustees and certain key employees to voluntarily defer compensation. Compensation expense is recorded for the deferred compensation and a related liability is recognized. Participants may elect designated benchmark investment options for the notional investment of their deferred compensation. The deferred compensation obligation is adjusted for deemed income or loss related to the investments selected. At the time the participants defer compensation, the Company records a liability, which is included in the Company’s consolidated balance sheet. The liability is adjusted for changes in the market value of the participant-selected investments at the end of each accounting period, and the impact of adjusting the liability is recorded as an increase or decrease to compensation cost. For the three months ended March 31, 2012 and 2011, the Company recorded net increases in compensation costs of $0.9 million and $0.5 million, respectively, in connection with the Plan due to the change in the market value of the participant investments in the Plan.

The deferred compensation obligations are unfunded, but the Company has purchased company-owned life insurance policies and mutual funds, which can be utilized as a funding source for the Company’s obligations under the Plan. Participants in the Plan have no interest in any assets set aside by the Company to meet its obligations under the Plan. For the three months ended March 31, 2012 and 2011, the Company recorded net decreases in compensation costs of $0.9 million and $0.4 million, respectively, in connection with the investments in the company-owned policies and mutual funds.

Participants in the Plan may elect to have all or a portion of their deferred compensation invested in the Company’s common shares. The Company holds these shares in a rabbi trust, which is subject to the claims of the Company’s creditors in the event of the Company’s bankruptcy or insolvency. The Plan does not permit diversification of a participant’s deferral allocated to the Company common share and deferrals allocated to Company common shares can only be settled with a fixed number of shares. In accordance with the accounting standard for deferred compensation arrangements where amounts earned are held in a rabbi trust and invested, the deferred compensation obligation associated with the Company’s common shares is classified as a component of shareholder’s equity and the related shares are treated as shares to be issued and are included in total shares outstanding. At each of March 31, 2012 and 2011, 0.3 million of such shares were included in total shares outstanding. Subsequent changes in the fair value of the common shares are not reflected in operations or shareholders’ equity of the Company.