Equity-Based Compensation

12 Months Ended

Dec. 31, 2019

Tanger Factory Outlet Centers, Inc. [Member]

When a common share is issued by the Company, the Operating Partnership issues one corresponding unit of partnership interest to the Company's wholly-owned subsidiaries. Therefore, when the Company grants an equity based award, the Operating Partnership treats each award as having been granted by the Operating Partnership. In the discussion below, the term "we" refers to the Company and the Operating Partnership together and the term "shares" is meant to also include corresponding units of the Operating Partnership.

As of December 31, 2019, we may issue up to 18.7 million common shares under the Plan. Shares remaining available for future issuance totaled approximately 3,854,000 common shares. The amount and terms of the awards granted under the Plan were determined by the Board of Directors (or the Compensation Committee of the Board of Directors).

We recorded equity-based compensation expense in general and administrative expenses in the consolidated statements of operations for the years ended December 31, 2019, 2018 and 2017, respectively, as follows (in thousands):



	2019		2018		2017
Restricted common shares	$	12,036	$	9,870	$	9,395
Notional unit performance awards	5,918		4,356		3,913
Options	166		443		277
Total equity-based compensation	$	18,120	$	14,669	$	13,585

Equity-based compensation expense capitalized as a part of rental property and deferred lease costs were as follows (in thousands):



	2019		2018		2017
Equity-based compensation expense capitalized	$	384	$	1,131	$	1,044

As of December 31, 2019, there was $15.3 million of total unrecognized compensation cost related to unvested common equity-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 2.4 years.

Restricted Common Share and Restricted Share Unit Awards

During 2019, 2018 and 2017, the Company granted approximately 309,000, 407,000 and 253,000 restricted common shares and restricted share units, respectively, to the Company's non-employee directors and the Company's senior executive officers. The non-employee directors' restricted common shares generally vest ratably over a three year period and the senior executive officers' restricted common shares (other than our Chief Executive Officer's) generally vest ratably over periods ranging from three to five years. For the restricted common shares and restricted share units issued to our chief executive officer during 2019, 2018 and 2017, the award agreements generally require him to hold the shares or units issued to him for a minimum of three years following each applicable vesting date or the share issuance date, as applicable. Compensation expense related to the amortization of the deferred compensation is being recognized in accordance with the vesting schedule of the restricted common shares and restricted share units. For all of the restricted common share and restricted share unit awards described above, the grant date fair value of the awards were determined based upon the closing market price of the Company's common shares on the day prior to the grant date.

The following table summarizes information related to unvested restricted common shares and restricted share units outstanding for the years ended December 31, 2019, 2018, and 2017:



Unvested Restricted Common Shares and Restricted Share Units	Number of shares and units		Weighted average grant date fair value
Outstanding at December 31, 2016	879,268		$	31.09
Granted	253,431		33.07
Vested	(368,043	)	29.87
Forfeited	(14,750	)	34.39
Outstanding at December 31, 2017	749,906		$	32.30
Granted ⁽¹⁾	407,156		21.13
Vested	(314,982	)	31.43
Forfeited	—		—
Outstanding at December 31, 2018	842,080		$	27.56
Granted ⁽²⁾	308,623		21.05
Vested	(469,178	)	27.73
Forfeited	—		—
Outstanding at December 31, 2019	681,525		$	23.92


(1)	Includes 44,452 restricted share units.


(2)	Includes 51,217 restricted share units.

The table above excludes restricted common shares earned under the 2014 Outperformance Plan. In connection with the 2014 Outperformance Plan, we issued approximately 184,000 restricted common shares in January 2017, with approximately 94,000 vesting immediately and the remaining 90,000 vesting in January 2018, contingent upon continued employment with the Company through the vesting date (unless terminated prior thereto (a) by the Company without cause, (b) by participant for good reason or (c) due to death or disability).

The total value of restricted common shares vested during the years ended 2019, 2018 and 2017 was $9.2 million, $9.2 million and $12.4 million, respectively. During 2019, 2018 and 2017, we withheld shares with value equivalent to the employees' obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. The total number of shares withheld were approximately 132,000, 89,000 and 70,000 for 2019, 2018 and 2017, respectively, and were based on the value of the restricted common shares on the vesting date as determined by our closing share price on the day prior to the vesting date. Total amounts paid for the employees' tax obligation to taxing authorities were $2.5 million, $2.1 million and $2.4 million for 2019, 2018 and 2017, respectively, which are reflected as a financing activity within the consolidated statements of cash flows.

Notional Unit Performance Awards

Outperformance Plan

Each year, the Compensation Committee of Tanger Factory Outlet Centers, Inc. approves the terms and the number of awards to be granted under the Tanger Factory Outlet Centers, Inc. Outperformance Plan (the “OPP"). The OPP is a long-term incentive compensation plan. Recipients may earn units which may convert, subject to the achievement of the goals described below, into restricted common shares of the Company based on the Company’s absolute share price appreciation (or absolute total shareholder return) and its share price appreciation relative to its peer group (or relative total shareholder return) over a three-year measurement period. For all recipients (other than our chief executive officer), any shares earned at the end of the three-year measurement period are subject to a time-based vesting schedule, with 50% of the shares vesting immediately following the measurement period, and the remaining 50% vesting one year thereafter, contingent upon continued employment with the Company through the vesting date (unless terminated prior thereto (a) by the Company without cause, (b) by participant for good reason or (c) due to death or disability. For our chief executive officer, any shares earned at the end of the three-year measurement period remain subject to a time-based vesting schedule and are issued following vesting, with 50% of the shares vesting immediately following issuance, and the remaining 50% vesting one year thereafter, contingent upon continued employment with the Company through the vesting dates (unless terminated prior thereto (a) by the Company without cause, (b) by participant for good reason or due to retirement or (c) due to death or disability).

The following table sets forth OPP performance targets and other relevant information about each plan:



	2019 OPP⁽¹⁾					2018 OPP⁽¹⁾					2017 OPP⁽²⁾					2016 OPP^(2),(3)					2015 OPP^(2),(4)
Performance targets
Absolute portion of award:
Percent of total award	33%					33%					50%					50%					60%
Absolute total shareholder return range	19		%	-	30%	19		%	-	30%	18		%	-	35%	18		%	-	35%	25		%	-	35%
Percentage of units to be earned	20		%	-	100%	20		%	-	100%	20		%	-	100%	20		%	-	100%	33		%	-	100%

Relative portion of award:
Percent of total award	67%					67%					50%					50%					40%
Percentile rank of peer group range	30		th	-	80th	30		th	-	80th	40		th	-	70th	40		th	-	70th	50		th	-	70th
Percentage of units to be earned	20		%	-	100%	20		%	-	100%	20		%	-	100%	20		%	-	100%	33		%	-	100%

Maximum number of restricted common shares that may be earned	531,827					409,972					296,400					321,900					306,600
Grant date fair value per share	$	12.09				$	12.42				$	16.60				$	15.10				$	15.85


(1)	The number of restricted common shares received under the 2019 and 2018 OPP will be determined on a pro-rata basis by linear interpolation between total shareholder return thresholds, both for absolute total shareholder return and for relative total shareholder return amongst the Company's peer group. The peer group is based on companies included in the FTSE NAREIT Retail Index.

(2)

The performance shares for the 2017 OPP will convert on a pro-rata basis by linear interpolation between share price appreciation thresholds, both for absolute total shareholder return and for relative total shareholder return. The share price for the purposes of calculation of share price appreciation will be adjusted on a penny-for-penny basis with respect to any dividend payments made during the measurement period. The peer group is based on companies included in the SNL Equity REIT index.


(3)	On February 15, 2019, the measurement period for the 2016 OPP expired and neither of the Company’s absolute nor relative total shareholder returns were sufficient for employees to earn, and therefore become eligible to vest in, any restricted shares under the plan. Accordingly, all 2016 OPP performance awards were automatically forfeited.


(4)	On December 31, 2017, the measurement period for the 2015 OPP expired and neither of the Company’s absolute nor relative total shareholder returns were sufficient for employees to earn, and therefore become eligible to vest in, any restricted shares under the plan. Accordingly, all 2015 OPP performance awards were automatically forfeited.

The fair values of the OPP awards granted during the years ended December 31, 2019, 2018, and 2017 were determined at the grant dates using a Monte Carlo simulation pricing model and the following assumptions:



	2019		2018		2017
Risk free interest rate ⁽¹⁾	2.55	%	2.40	%	1.52	%
Expected dividend yield ⁽²⁾	5.3	%	4.8	%	3.4	%
Expected volatility ⁽³⁾	24	%	27	%	19	%


(1)	Represents the interest rate as of the grant date on U.S. treasury bonds having the same life as the estimated life of the restricted unit grants.


(2)	The dividend yield is calculated utilizing the dividends paid for the previous five-year period.


(3)	Based on a mix of historical and implied volatility for our common shares and the common shares of our peer index companies over the measurement period.

The following table sets forth OPP activity for the years ended December 31, 2019, 2018, and 2017:



Unvested OPP Awards	Number of units		Weighted average grant date fair value
Outstanding as of December 31, 2016	759,176		$	15.36
Awarded	296,400		16.60
Earned ⁽¹⁾	(184,455	)	14.71
Forfeited	(267,710	)	15.84
Outstanding as of December 31, 2017	603,411		$	15.83
Awarded	409,972		12.42
Earned	—		—
Forfeited	—		—
Outstanding as of December 31, 2018	1,013,383		$	14.44
Awarded	531,827		12.09
Earned	—		—
Forfeited	(421,306	)	14.36
Outstanding as of December 31, 2019	1,123,904		$	13.36


(1)	Represents the units under the 2014 OPP that are no longer outstanding and have been settled in restricted common shares.

Option Awards

Options outstanding at December 31, 2019 had the following weighted average exercise prices and weighted average remaining contractual lives:



		Options Outstanding				Options Exercisable
Exercise prices		Options	Weighted average exercise price		Weighted remaining contractual life in years	Options	Weighted average exercise price
$	21.94	298,500	$	21.94	8.21	59,700	$	21.94
$	26.06	61,700	26.06		1.15	61,700	26.06
$	32.02	163,100	32.02		4.01	163,100	32.02
		523,300	$	25.57	6.06	284,500	$	28.61

A summary of option activity under the Plan for the years ended December 31, 2019, 2018, and 2017 (aggregate intrinsic value amount in thousands):



Options	Shares		Weighted-average exercise price		Weighted-average remaining contractual life in years	Aggregate intrinsic value
Outstanding as of December 31, 2016	242,200		$	30.46
Granted	—		—
Exercised	(1,800	)	29.70
Forfeited	(9,200	)	31.83
Outstanding as of December 31, 2017	231,200		$	30.42	5.24	$	28
Granted	331,000		21.94
Exercised	—		—
Forfeited	(27,700	)	22.62
Outstanding as of December 31, 2018	534,500		$	25.56	7.08	$	—
Granted	—		—
Exercised	—		—
Forfeited	(11,200	)	25.27
Outstanding as of December 31, 2019	523,300		$	25.57	6.06	$	—

Vested and Expected to Vest as of
December 31, 2019	498,008		$	25.75	5.97	$	—

Exercisable as of December 31, 2019	284,500		$	28.61	4.27	$	—

During February 2018, the Company granted 331,000 options to non-executive employees of the Company. The exercise price of the options granted during the first quarter of 2018 was $21.94 per share which equaled the closing market price of the Company's common shares on the day prior to the grant date. The options expire 10 years from the date of grant and 20% of the options become exercisable in each of the first five years commencing one year from the date of grant. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model, which resulted in a weighted average grant date fair value per share of $3.62 and included the following weighted-average assumptions: expected dividend yield 6.24%; expected life of 7.1 years; expected volatility of 32.47%; a risk-free rate of 2.8%; and forfeiture rates of 3.0% to 10.0% dependent upon the employee's position within the Company. The total intrinsic value of options exercised during the year ended December 31, 2017 was $8,000. For both the years ended December 31, 2019 and 2018, no options were exercised.

401(k) Retirement Savings Plan

We have a 401(k) Retirement Savings Plan covering substantially all employees who meet certain age and employment criteria. An employee may invest pretax earnings in the 401(k) plan up to the maximum legal limits (as defined by Federal regulations). This plan allows participants to defer a portion of their compensation and to receive matching contributions for a portion of the deferred amounts. During the years ended December 31, 2019, 2018 and 2017, we contributed approximately $889,000, $872,000 and $862,000, respectively, to the 401(k) Retirement Savings Plan.