Equity Based Compensation Plans

12 Months Ended

Dec. 31, 2022

Share-Based Payment Arrangement, Noncash Expense [Abstract]

Stock Options and Restricted Stock

In May 2018, stockholders approved the Company’s 2018 Stock Award and Incentive Compensation Plan ("2018 Plan"). The 2018 Plan serves as the successor to the Company’s 2013 Stock Incentive Plan (the "2013 Plan"). The Company’s 2018 Plan provides incentives to attract and retain officers, directors and key employees. The 2018 Plan provides for the grant of stock-based awards to employees, directors and consultants of the Company and its affiliates. The aggregate number of shares of the Company’s common stock available for issuance pursuant to awards granted under the 2018 Plan is 2,000,000 shares, plus the number of shares authorized for grants and available for issuance under the 2013 Plan as of the effective date of the 2018 Plan and the number of shares subject to outstanding awards under the 2013 Plan that are forfeited or otherwise not issued under such awards. No further awards will be granted under the 2013 Plan and the shares that remained available for future issuance under the 2013 Plan as of the effective date of the 2018 Plan will be available for issuance under the 2018 Plan. In connection with the adoption of the 2018 Plan, the Board delegated to the Compensation Committee of the Board the authority to administer the 2018 Plan.

Equity-based compensation costs for options and restricted stock under the fair value method totaled $11.4 million, $11.7 million, and $12.9 million for years ended December 31, 2022, 2021 and 2020, respectively. For each of the years ended December 31, 2022, 2021 and 2020 equity-based compensation costs included $3.5 million related to restricted stock for bonuses awarded based on asset dispositions, which is recorded as a cost of real estate and land sold, respectively. Stock-based compensation for options and restricted stock related to recipients who are direct and incremental to projects under development were capitalized and totaled $0.7 million, $0.9 million, and $1.3 million for the years ended December 31, 2022, 2021 and 2020, respectively. The intrinsic value of the options exercised totaled $7.6 million, $25.7 million, and $7.4 million, for the years ended December 31, 2022, 2021, and 2020 respectively. The intrinsic value of the options exercisable totaled $0.2 million and $22.5 million as of December 31, 2022 and 2021, respectively.

Total unrecognized compensation cost related to unvested stock options totaled $3.7 million as of December 31, 2022 and the unrecognized compensation cost is expected to be recognized over a period of 2.0 years.

The average fair value of stock options granted for the years ended December 31, 2022, 2021 and 2020 was $23.39, $24.68 and $20.69, respectively. Certain stock options granted in 2022, 2021, and 2020 included a $100 cap on the appreciation of the market price over the exercise price. The fair value of stock options was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants:


	2022			2021			2020
Stock price	$	245.17		$	329.71		$	244.74
Risk-free interest rates	3.50		%	1.22		%	0.83		%
Expected lives	6 years			6 years			6 years
Volatility	27.98		%	27.00		%	25.72		%
Dividend yield	3.06		%	2.90		%	2.93		%

A summary of the status of the Company’s stock option plans as of December 31, 2022, 2021, and 2020 and changes during the years ended on those dates is presented below:


	2022			2021			2020
	Shares	Weighted- average exercise price		Shares	Weighted- average exercise price		Shares	Weighted- average exercise price
Outstanding at beginning of year	463,863	$	284.82	613,109	$	255.86	572,971	$	251.10
Granted	111,757	245.17		99,479	329.71		149,020	244.74
Exercised	(76,246)	245.43		(248,725)	231.37		(70,802)	208.57
Forfeited and canceled	(11,928)	281.19		—	—		(38,080)	228.64
Outstanding at end of year	487,446	279.46		463,863	284.82		613,109	255.86
Options exercisable at year end	293,377	285.76		274,244	270.11		361,985	245.83

The following table summarizes information about restricted stock outstanding as of December 31, 2022, 2021 and 2020 and changes during the years ended:


	2022			2021			2020
	Shares	Weighted- average grant price		Shares	Weighted- average grant price		Shares	Weighted- average grant price
Unvested at beginning of year	159,401	$	251.03	132,603	$	214.34	114,877	$	197.62
Granted	72,838	215.73		50,349	337.52		45,196	248.16
Vested	(44,945)	306.25		(22,387)	229.90		(15,116)	170.61
Forfeited and canceled	(4,379)	272.12		(1,164)	219.30		(12,354)	184.11
Unvested at end of year	182,915	222.90		159,401	251.03		132,603	214.34

The unrecognized compensation cost related to unvested restricted stock totaled $13.8 million as of December 31, 2022 and is expected to be recognized over a period of 2.0 years.

Long-Term Incentive Plans – LTIP Units

On December 9, 2014, the Operating Partnership issued 44,750 LTIP units under the 2015 Long-Term Incentive Plan Award agreements to executives of the Company. The 2015 Long-Term Incentive Plan Units (the "2015 LTIP Units") are subject to forfeiture based on performance-based and service based conditions. An additional 24,000 LTIP units were granted subject only to performance-based criteria and were fully vested on the date granted. The 2015 LTIP Units, that are subject to vesting, vested at 20% per year on each of the first five anniversaries of the initial grant date. The 2015 LTIP Units performance conditions measurement ended on December 9, 2015 and 95.75% of the units awarded were earned by the recipients. 2015 LTIP Units not earned based on the performance-based criteria were automatically forfeited by the recipients. The 2015 LTIP Units are convertible one-for-one into OP Units which, in turn, are convertible into common stock of the Company subject to a ten-year liquidity restriction.

In December 2013, the Operating Partnership issued 50,500 LTIP units under the 2014 Long-Term Incentive Plan Award agreements to executives of the Company. The 2014 Long-Term Incentive Plan Units (the "2014 LTIP Units") were subject to forfeiture based on performance-based conditions and are currently subject to service based vesting. The 2014 LTIP Units vested 25% per year on each of the first four anniversaries of the initial grant date. In December 2014, the Company achieved the performance criteria and all of the 2014 LTIP Units awarded were earned by the recipients, subject to satisfaction of service based vesting conditions. The 2014 LTIP Units are convertible one-for-one into OP Units which, in turn, are convertible into common stock of the Company subject to a ten year liquidity restriction.

The estimated fair value of the 2015 LTIP Units and 2014 LTIP Units were determined on the grant date using Monte Carlo simulations under a risk-neutral premise and considered Essex’s stock price on the date of grant, the unpaid dividends on unvested units and the discount factor for ten years of illiquidity.

Prior to 2013, the Company issued Series Z Incentive Units and Series Z-1 Incentive Units (collectively referred to as "Z Units") of limited partnership interest in the Operating Partnership. Vesting in the Z Units is based on performance criteria established in the plan. The criteria can be revised by the Compensation Committee of the Board of Directors if the Committee deems that the plan's criterion is unachievable for any given year. The sale of Z Units is contractually prohibited. Z Units are convertible into Operating Partnership units which are exchangeable for shares of the Company’s common stock that have marketability restrictions. The estimated fair value of Z Units were determined on the grant date and considered the Company's stock price on the date of grant, the dividends that are not paid on unvested units and a marketability discount for the 8 to 15 years of illiquidity. Compensation expense is calculated by multiplying estimated vesting increases for the period by the estimated fair value as of the grant date.

During 2011 and 2010, the Operating Partnership issued 154,500 Series Z-1 Incentive Units (the "Z-1 Units") of limited partner interest to executives of the Company. The Z-1 Units are convertible one-for-one into common units of the Operating Partnership (which, in turn, are convertible into common stock of the Company) upon the earlier to occur of 100 percent vesting of the units or the year 2026. The conversion ratchet (accounted for as vesting) of the Z-1 Units into common units, is to increase consistent with the Company’s annual FFO growth, but is not to be less than zero or greater than 14 percent. Z-1 Unitholders are entitled to receive distributions, on vested units, that are now equal to dividends distributed to common stockholders.

Equity-based compensation costs for LTIP and Z Units under the fair value method totaled approximately zero for the years ended December 31, 2022, 2021 and 2020. Equity-based compensation costs related to LTIP Units attributable to recipients who are direct and incremental to these projects was capitalized to real estate under development and totaled approximately zero for the years ended December 31, 2022, 2021, and 2020. The intrinsic value of the vested and unvested LTIP Units totaled $22.5 million as of December 31, 2022. Total unrecognized compensation cost related to the unvested LTIP Units under the LTIP Units plans was zero as of December 31, 2022.

The following table summarizes information about the LTIP Units outstanding as of December 31, 2022:


	Long-Term Incentive Plan - LTIP Units
	Total Vested Units	Total Unvested Units	Total Outstanding Units	Weighted- average Grant-date Fair Value		Weighted- average Remaining Contractual Life (years)
Balance, December 31, 2019	143,257	1,890	145,147	$	75.03	5.2
Granted	—	—	—
Vested	1,890	(1,890)	—
Converted	(39,010)	—	(39,010)
Cancelled	—	—	—
Balance, December 31, 2020	106,137	—	106,137	$	84.47	3.6
Granted	—	—	—
Vested	—	—	—
Converted	—	—	—
Cancelled	—	—	—
Balance, December 31, 2021	106,137	—	106,137	$	84.47	2.6
Granted	—	—	—
Vested	—	—	—
Converted	—	—	—
Cancelled	—	—	—
Balance, December 31, 2022	106,137	—	106,137	$	84.47	1.6