Stock-based Employee Compensation, Stock Option Plans, and Deferred Compensation Plan for Directors

9 Months Ended

Sep. 30, 2019

Share-based Payment Arrangement [Abstract]

Stock-based Employee Compensation, Stock Option Plans, and Deferred Compensation Plan for Directors

In 2004, the Company established a stock incentive plan (the "Plan"), as amended. Under the Plan, options were granted at an exercise price not less than the market value of the common stock on the date of grant and expire ten years from the date of grant. Officer options vest ratably over four years following the grant and are charged to expense using the straight-line method over the vesting period. Director options vest immediately and are charged to expense as of the date of grant.

The Company uses the fair value method to value and account for employee stock options. The fair value of options granted is determined at the time of each award using the Black-Scholes model, a widely used method for valuing stock-based employee compensation, and the following assumptions: (1) Expected Volatility determined using the most recent trading history of the Company’s common stock (month-end closing prices) corresponding to the average expected term of the options; (2) Average Expected Term of the options is based on prior exercise history, scheduled vesting and the expiration date;

(3) Expected Dividend Yield determined by management after considering the Company’s current and historic dividend yield rates, the Company’s yield in relation to other retail REITs and the Company’s market yield at the grant date; and (4) a Risk-free Interest Rate based upon the market yields of US Treasury obligations with maturities corresponding to the average expected term of the options at the grant date. The Company amortizes the value of options granted ratably over the vesting period and includes the amounts as compensation expense in general and administrative expenses.

Pursuant to the Plan, the Compensation Committee established a Deferred Compensation Plan for Directors for the benefit of the Company’s directors and their beneficiaries, which replaced a previous Deferred Compensation and Stock Plan for Directors. Annually, directors are given the ability to make an election to defer all or part of their fees and have the option to have their fees paid in cash, in shares of common stock or in a combination of cash and shares of common stock upon separation from the Board. If a director elects to their have fees paid in stock, fees earned during a calendar quarter are aggregated and divided by the closing market price of the Company’s common stock on the first trading day of the following quarter to determine the number of shares to be credited to the director. During the nine months ended September 30, 2019, 5,017 shares were credited to director's deferred fee accounts and 7,058 shares were issued. As of September 30, 2019, the director's deferred fee accounts comprise 112,603 shares.

The Compensation Committee has also approved an annual award of shares of the Company’s common stock as additional compensation to each director serving on the Board of Directors as of the record date for the Annual Meeting of Stockholders. The shares are awarded as of each Annual Meeting of Stockholders, and their issuance may not be deferred.

The following table summarizes the assumptions used in the valuation of the 2018 and 2019 option grants. During the nine months ended September 30, 2019, stock option expense totaling $1.3 million was included in general and administrative expense in the Consolidated Statements of Operations. As of September 30, 2019, the estimated future expense related to unvested stock options was $2.9 million.



	Directors						Officers
Grant date	May 11, 2018			May 3, 2019			May 11, 2018			May 3, 2019
Exercise price	$	49.46		$	55.71		$	49.46		$	55.71
Volatility	0.192			0.236			0.177			0.206
Expected life (years)	5.0			5.0			7.0			7.0
Assumed yield	3.70		%	3.75		%	3.75		%	3.80		%
Risk-free rate	2.84		%	2.33		%	2.94		%	2.43		%

The table below summarizes the option activity for the nine months ended September 30, 2019:



	Number of Shares		Weighted Average Exercise Price per share		Aggregate Intrinsic Value
Outstanding at January 1	1,114,169		$	52.40	$	543,662
Granted	260,000		55.71		—
Exercised	(47,055	)	45.11		512,322
Expired/Forfeited	(7,500	)	56.07		—
Outstanding at September 30	1,319,614		53.29		3,712,807
Exercisable at September 30	773,614		52.29		2,889,025

The intrinsic value measures the price difference between the options’ exercise price and the closing share price quoted by the New York Stock Exchange as of the date of measurement. The intrinsic value for shares exercised during the period was calculated by using the closing share price on the date of exercise. At September 30, 2019, the final trading day of the third quarter, the closing share price of $54.51 was lower than the exercise price of the 210,875, 227,500, and 260,000 outstanding options granted in 2016, 2017 and 2019, respectively. The weighted average remaining contractual life of the Company’s outstanding and exercisable options is 7.2 years and 6.1 years, respectively.