Share-Based Compensation

3 Months Ended

Mar. 31, 2023

Note 12 – Share-Based Compensation

Restricted Stock Awards

Compensation expense is recognized on a straight-line basis over the requisite service period. The share-based compensation expense related to restricted stock awards granted under the CBL & Associates Properties, Inc. 2021 Equity Incentive Plan ("EIP") was $1,843 and $1,622 for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, there was $18,507 of total unrecognized compensation cost related to nonvested restricted stock awards, which is expected to be recognized over a weighted-average period of 2.7 years. Share-based compensation cost resulting from share-based awards is recorded at the Management Company, which is a taxable entity.

A summary of the status of the Company’s nonvested restricted stock awards as of March 31, 2023, and changes during the three months ended March 31, 2023, are presented below:


	Shares			Weighted- Average Grant-Date Fair Value Per Share
Nonvested at January 1, 2023		662,875		$	27.42
Granted		355,278		$	26.21
Vested		(265,341	)	$	26.25
Forfeited		(5,279	)	$	24.86
Nonvested at March 31, 2023		747,533		$	27.28

The total grant-date fair value of restricted stock awards granted during the three months ended March 31, 2023 was $9,313. The total fair value of restricted stock awards that vested during the three months ended March 31, 2023 was $6,755.

Performance Stock Awards

In February 2023, the compensation committee of the board of directors established a long-term incentive program (“LTIP”) under the EIP and approved 2023 LTIP awards consisting of both a PSU component (55% - 60% of the LTIP award) and a restricted stock award component (40% - 45% of the LTIP award). The amount of common stock that may be issued for the PSU component upon the conclusion of the applicable three-year performance period will be determined by two measures: (i) a portion (40%) of the number of shares issued will be determined based on the Company’s achievement of specified levels of long-term relative Total Stockholder Return (“TSR”) performance (stock price appreciation plus aggregate dividends) versus the Retail Sector Component (excluding companies comprising the Free-Standing Subsector) of the Financial Times Stock Exchange ("FTSE") National Association of Real Estate Investment Trusts ("NAREIT") All Equity REIT Index, provided that at least a “Threshold” level must be attained for any shares to be received, and (ii) a portion (60%) of such number of shares issued will be determined based on the Company’s absolute TSR performance over such period, provided again that at least a “Threshold” level must be attained for any shares to be received. The restricted stock award component consists of time-vesting restricted stock, of which a third of the award vests equally over the three-year performance period.

Compensation cost for the PSUs granted in February 2023 is recognized on a straight-line basis over the service period since it is longer than the performance period. The resulting expense is recorded regardless of whether any PSU awards are earned as long as the required service period is met. For the PSUs granted in February 2022, each quarter, management assesses the probability that the measures associated with the Company's outstanding PSU awards will be attained. The Company begins recognizing compensation expense on a straight-line basis over the remaining service period once the PSU award measures are deemed probable of achievement. See Note 16 to the consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 for a description of the PSUs granted in February 2022. Share-based compensation expense related to the 2022 and 2023 PSUs granted under the EIP was $1,409 and $1,121 for the three months ended March 31, 2023 and 2022, respectively. The unrecognized compensation expense related to the 2022 and 2023 PSUs was $17,036 as of March 31, 2023, which is expected to be recognized over a weighted-average period of 3.1 years.

A summary of the status of the Company’s outstanding 2022 and 2023 PSU awards as of March 31, 2023, and changes during the three months ended March 31, 2023, are presented below:


	PSUs			Weighted- Average Grant-Date Fair Value Per Share
Outstanding at January 1, 2023		607,128		$	24.69
2023 PSUs granted		157,789		$	38.79
Incremental PSUs granted (1)		10,909		$	24.54
Forfeited		(51,019	)	$	24.87
Outstanding at March 31, 2023		724,807		$	27.90

(1)

PSUs granted shall be adjusted as if the shares of common stock represented by such PSUs had received any applicable stock or cash dividends declared. As for stock dividends, a number of PSUs shall be added to the target amount corresponding to the number of shares of common stock that would have been payable per such stock dividend on the then outstanding number of PSUs under the agreement as if common stock had been issued for such PSUs. As to cash dividends, a number of PSUs shall be added to the target amount corresponding to the number of shares of common stock that could have been acquired by the cash dividend payable on the then outstanding number of PSUs under the agreement as if common stock had been issued for such PSUs, and the calculation of the number of shares of common stock that could have been acquired shall be based on the closing price of the common stock on the record date for the cash dividend at issue.

The total grant-date fair value of PSU awards granted during the three months ended March 31, 2023 was $6,120.

The following table summarizes the assumptions used in the Monte Carlo simulation pricing model related to the PSUs granted in 2023:


	2023 PSUs
Grant date	February 17, 2023
Fair value per share on valuation date (1)	$	38.79
Risk-free interest rate (2)		4.37	%
Expected share price volatility (3)		62.50	%

(1)

The value of the PSU awards is estimated on the date of grant using a Monte Carlo simulation model. The valuation consists of computing the fair value using CBL's simulated stock price as well as TSR over a three-year performance period. The award is modeled as a contingent claim in that the expected return on the underlying shares is risk-free and the rate of discounting the payoff of the award is also risk-free. The weighted-average fair value per share related to the 2023 PSUs consists of 63,114 shares at a fair value of $40.64 per share (which relates to the relative TSR) and 94,675 shares at a fair value of $37.55 per share (which relates to absolute TSR).

(2)

The risk-free interest rate was based on the yield curve on zero-coupon U.S. Treasury securities in effect as of the valuation date, which is the grant date listed above.

(3)

The computation of expected volatility was based on the historical volatility of CBL's shares of common stock based on annualized daily total continuous returns over a three-year period and implied volatility data based on the trailing month average of daily implied volatilities implied by stock call option contracts that were both closest to the terms shown and closest to the money.