SHARE-BASED COMPENSATION

We recognize share-based compensation for all stock options granted over the requisite service period using the fair value of these grants as estimated at the date of grant using the Black-Scholes pricing model, and all restricted stock granted over the requisite service period using the market value of our publicly-traded common stock on the date of grant.

Share-Based Compensation Plans

The Compensation Committee of the Board of Directors (“the Committee”) has the authority to select the participants to be granted options; to designate whether the option granted is an incentive stock option (“ISO”), a non-qualified option, or a stock appreciation right; to establish the number of shares of common stock that may be issued upon exercise of the option; to establish the vesting provision for any award; and to establish the term any award may be outstanding. The exercise price of any ISO’s granted will not be less than 100% of the fair market value of the shares of common stock on the date granted, and the term of an ISO may not be more than ten years. The exercise price of any non-qualified options granted will not be less than 100% of the fair market value of the shares of common stock on the date granted unless so determined by the Committee.

In May 2012, our stockholders approved the 2012 Stock Incentive Plan (“the 2012 Plan”) pursuant to which 1,500,000 shares of our common stock were made available to grant as share-based payments to employees, officers, directors or consultants. Through a vote of our shareholders on May 7, 2015, we increased the maximum number of shares under the plan from 1,500,000 shares to 3,000,000 shares; increased the automatic annual grant to non-employee directors from 15,000 shares to 20,000 shares; and limited the Company’s ability to re-issue shares under the Plan. As of June 30, 2017, there were 961,668 shares available for future grants under the 2012 Plan. The individual restricted stock and option grant awards vest over periods up to five years. The term of the options under the 2012 Plan is up to ten years from the date of grant.

In May 2005, our stockholders approved the NHI 2005 Stock Option Plan (“the 2005 Plan”) pursuant to which 1,500,000 shares of our common stock were made available to grant as share-based payments to employees, officers, directors or consultants. As of June 30, 2017, the 2005 Plan has expired and no additional shares may be granted under the 2005 Plan. The individual restricted stock and option grant awards vest over periods up to ten years. The term of the options outstanding under the 2005 Plan is up to ten years from the date of grant.

Compensation expense is recognized only for the awards that ultimately vest. Accordingly, forfeitures that were not expected will result in the reversal of previously recorded compensation expense. The compensation expense reported for the three months ended June 30, 2017 and 2016 was $342,000 and $251,000, respectively, and is included in general and administrative expense in the Condensed Consolidated Statements of Income. For the six months ended June 30, 2017 and 2016 compensation expense included in general and administrative expense was $1,865,000 and $1,230,000, respectively.

At June 30, 2017, we had, net of expected forfeitures, $1,302,000 of unrecognized compensation cost related to unvested stock options which is expected to be expensed over the following periods: 2017 - $685,000, 2018 - $552,000 and 2019 - $65,000. Stock-based compensation is included in general and administrative expense in the Condensed Consolidated Statements of Income.

The weighted average fair value per share of options granted during the six months ended June 30, 2017 and 2016 was $5.75 and $3.65, respectively. The fair value of each grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:



	2017	2016
Dividend yield	5.3%	6.2%
Expected volatility	19.7%	19.1%
Expected lives	3.3 years	2.9 years
Risk-free interest rate	1.49%	0.91%

The following table summarizes our outstanding stock options:



	Six Months Ended
	June 30,
	2017		2016
Options outstanding January 1,	541,679		741,676
Options granted under 2012 Plan	485,000		470,000
Options exercised under 2012 Plan	(70,830	)	(451,668	)
Options forfeited under 2012 Plan	(6,668	)	—
Options exercised under 2005 Plan	(15,000	)	—
Options outstanding, June 30,	934,181		760,008

Exercisable at June 30,	540,830		406,660