Equity Incentive Plan

3 Months Ended

Mar. 31, 2020

Equity Incentive Plan

Equity Incentive Plan

Note 11 – Equity Incentive Plan

In 2014, the Company’s stockholders approved the 2014 Omnibus Incentive Plan (the “2014 Plan”), which replaced the 2005 Equity Incentive Plan. The 2014 Plan authorizes the issuance of a maximum of 700,000 shares of common stock.

Restricted Stock

Restricted common stock has been granted to certain employees and directors under the 2014 Plan.

The holder of a restricted share award is generally entitled at all times on and after the date of issuance of the restricted shares to exercise the rights of a stockholder of the Company, including the right to vote the shares and the right to receive dividends on the shares. The restricted shares vest over a five-year period based on continued service to the Company.

The Company estimates the fair value of restricted stock grants at the date of grant and amortizes those amounts into expense on a straight line basis or amount vested, if greater, over the appropriate vesting period. During the three months ended March 31, 2020 and 2019, the Company recognized $0.7 million and $0.7 million, respectively, of expense relating to restricted stock grants.

As of March 31, 2020, there was $10.3 million of total unrecognized compensation costs related to the outstanding restricted stock, which is expected to be recognized over a weighted average period of 3.7 years. The Company used 0% for the forfeiture rate for determining the fair value of restricted stock. The intrinsic value of restricted shares redeemed was $1.6 million and $1.4 million for the three months ended March 31, 2020 and 2019, respectively.

Restricted stock activity is summarized as follows:

	Shares	Weighted Average
	Outstanding	Grant Date
	(in thousands)	Fair Value
Unvested restricted stock at December 31, 2019	194	$	50.71
Restricted stock granted	47	$	79.62
Restricted stock vested	(62)	$	45.34
Unvested restricted stock at March 31, 2020	179	$	60.15

Performance Units

On February 23, 2020 certain executive officers received performance units. Performance units are subject to a three-year performance period, at the conclusion of which, shares awarded are to be determined by the Company’s total shareholder return compared to the constituents of the MSCI US REIT Index and a defined peer group. 50% of the award is based upon the total shareholder return percentile rank versus the MSCI US REIT index for the three-year performance period; and 50% of the award is based upon TSR percentile rank versus a specified net lease peer group for the three-year performance period. Vesting of the performance units following their issuance will occur ratably over a three-year period, with the initial vesting occurring immediately following the conclusion of the performance period such that all shares vest within five years of the original award date of February 23, 2020.

The grant date fair value of these awards is determined using a Monte Carlo simulation pricing model and compensation expense is amortized on an attribution method over a five-year period. The Monte Carlo simulation pricing model for the 2020 grants utilized the following assumptions: (i) expected term of 2.9 years (equal to the remaining performance measurement period at the grant date), (ii) volatility of 18.4% (based on historical volatility), (iii) dividend yield of 2.9% (based on the most recently paid dividend at grant date), (iv) risk-free rate of 1.3% (interpolated based on 2- and 3-year rates). Compensation expense related to performance units is determined at the grant date and is not adjusted throughout the measurement or vesting periods.

During the three months ended March 31, 2020 and 2019, the Company recognized $0.3 million and $0.2 million, respectively, of expense related to performance units.  As of March 31, 2020, there was $4.5 million of total unrecognized compensation costs related to the outstanding performance units, which is expected to be recognized over a weighted average period of 4.0 years. The Company used 0% for the forfeiture rate for determining the fair value of performance units.  

Prior to 2019, the Company’s equity incentive plan utilized performance shares instead of units.   These performance shares had substantially identical terms to the performance units described above.

Performance share and unit activity is summarized as follows:

	Target Number	Weighted Average
	of Awards	Grant Date
Performance units and shares at December 31, 2019	61	$	56.57
Performance units granted	26	$	79.62
Performance units and shares at March 31, 2020	87	$	63.35