Note 10—Share-Based Compensation

We have share-based compensation programs for the purpose of retaining certain key employees. Prior to the IPO, the program consisted of incentive compensation units, the Class B Units, granted in the form of profits interests in the Invitation Homes Partnerships. In connection with the IPO, we granted awards in the form of RSUs that settle in shares of common stock of Invitation Homes Inc. and RSAs that are restricted shares of common stock of Invitation Homes Inc.

Profits Interests — Class B Units

Prior to the IPO, the Invitation Homes Partnerships granted incentive compensation units to certain key employees, which were profits interests for United States federal income tax purposes. The Class B Units were accounted for as a substantive class of equity and contained both service based and performance based vesting criteria. Recognition of compensation expense was recorded based on whether or not the award recipient was an employee of the Manager, a wholly owned subsidiary of IH1, resulting in some awards being recognized based on grant-date fair value and others being remeasured at each reporting period until the actual vesting date as required for non-employee awards. Prior to the IPO, none of the performance based vesting criteria had been achieved, and as such through the date of the IPO, no compensation expense had been recorded for performance based Class B Units. However, the IPO triggered achievement of the performance based criteria and effectively converted all such awards into service based awards.

2017 New Awards: Pursuant to an amended and restated partnership agreement, on January 5, 2017, IH6 issued certain individuals a total of 9,650 Class B Units that were expected to vest based on terms and conditions similar to all other Class B Units. In January 2017, an additional 188 Class B Units in total were issued from IH1, IH2, and IH3.

2017 Class B Unit Conversion: The Pre-IPO Transactions described in Note 1 resulted in accelerated vesting of 7,520 Class B Units held by certain unitholders which resulted in additional share-based compensation expense of $11,601. On January 31, 2017, in connection with the IPO, all of the Class B Units held by current employees of the Manager (except for 3,878 fully vested Class B Units awarded to a certain unitholder) were either converted into shares of Invitation Homes Inc. common stock or canceled based on the value of the Class B Units implied by the per share price of common stock sold to the public in the IPO. As such, a total of 730 Class B Units were converted into 62,529 RSAs, and 17,669 Class B Units were canceled for no consideration. For the Class B Units converted into RSAs, vesting and other terms of the RSAs delivered in the conversion have the same vesting and other terms applicable to the corresponding Class B Units converted.

Additionally, the obligations under the remaining 40,992 fully vested Class B Units, including those of the unitholders who are not current employees of the Manager and the one employee unitholder noted above that did not convert, were converted into similar units of newly formed subsidiaries of the Pre-IPO Owners. There are no nonvested Class B Units held by former employees of the Manager.

The following table summarizes the activity related to the Class B Units for the three months ended March 31, 2017:



	Class B Units
	Employee					Non-employee					Total Class B Units
	Number of Units		Weighted Average Fair Value			Number of Units		Weighted Average Fair Value			Number of Units		Weighted Average Fair Value
Balance, December 31, 2016	9,915		$	4.2		39,638		$	2.5		49,553		$	2.9
Granted	85		14.0			9,753		—			9,838		0.1
Converted to RSAs	(245	)	(3.4		)	(485	)	(0.8		)	(730	)	(1.7		)
Canceled	(555	)	(8.2		)	(17,114	)	(0.4		)	(17,669	)	(0.6		)
Converted to Units of affiliated entities	(9,200	)	(4.0		)	(31,792	)	(2.9		)	(40,992	)	(3.2		)
Balance, March 31, 2017	—		$	—		—		$	—		—		$	—

As of March 31, 2017, no Class B Units were outstanding.

RSAs and RSUs Issued by Invitation Homes Inc.

RSAs: In connection with the conversion of the Class B Units, we issued 62,529 RSAs, of which 51,039 were fully vested as of March 31, 2017, and the remaining 11,490 nonvested RSAs will vest in accordance with the original terms of the Class B Unit award agreements. The conversion of the Class B Units into RSAs resulted in a modification of the awards of which some were previously accounted for as non-employee awards. The modification resulted in the reversal of $246 of previously recognized incentive compensation expense with respect to these non-employee awards.

RSUs: Prior to the completion of the IPO, our board of directors adopted, and our stockholders approved, the Invitation Homes Inc. 2017 Omnibus Incentive Plan (the “Omnibus Incentive Plan”) to provide a means through which to attract and retain key personnel and to provide a means whereby our directors, officers, employees, consultants and advisors can acquire and maintain an equity interest in us, or be paid incentive compensation, including incentive compensation measured by reference to the value of our common stock, and aligning their interests with those of our stockholders. Under the Omnibus Incentive Plan, we may issue up to 16,000,000 shares, and as of March 31, 2017, we have awarded 3,290,126 shares under the Omnibus Incentive Plan pursuant to our Supplemental Bonus Plan and the IH6 Bonus Awards and to certain non-employee directors.

•

Supplemental Bonus Plan: In October 2016, we established a supplemental bonus plan for certain key executives and employees (the “Supplemental Bonus Plan”). Pursuant to the Supplemental Bonus plan, the awards became payable and the payment amount became determinable upon the completion of the IPO. The $59,580 of awards were converted into 2,979,001 time-vesting RSUs that will generally vest in three equal annual installments, commencing on the completion of the Invitation Homes Inc. IPO and on the first and second anniversaries thereafter.

•

IH6 Bonus Awards: In addition to the Class B Units granted by IH6 to certain individuals, these individuals were also granted bonus awards (the “IH6 Bonus Awards”) equal to $0.5 multiplied by the 9,650 IH6 Class B Units granted, entitling the recipients to receive bonus payments in connection with an IPO or exit event. Upon completion of the Invitation Homes Inc. IPO, the IH6 Bonus Awards became payable to the recipients and were converted into the right to receive shares of common stock. The $4,825 of awards were settled in the form of 241,250 RSUs that were fully vested upon issuance.


•	Director Awards: Invitation Homes Inc. issued $1,398 of awards, or 69,875 RSUs, to directors who are not our employees or employees of BREP VII. These awards will fully vest on the date scheduled for Invitation Homes Inc.’s 2018 annual stockholders meeting, subject to the director’s continued service on the board of directors through such date.

The following tables summarize the status of non-vested RSUs and RSAs as of March 31, 2017 and changes during the period from January 31, 2017 through March 31, 2017:



	RSUs					RSAs					Total Share-Based Awards
	Number		Weighted Average Grant Date Fair Value (Actual $)			Number		Weighted Average Grant Date Fair Value (Actual $)			Number		Weighted Average Grant Date Fair Value (Actual $)
Balance, January 1, 2017	—		$	—		—		$	—		—		$	—
Granted	3,290,126		20.00			62,529		15.50			3,352,655		19.92
Vested⁽¹⁾	(1,405,070	)	(20.00		)	(51,039	)	(15.88		)	(1,456,109	)	(19.86		)
Forfeited	(51,252	)	(20.00		)	—		—			(51,252	)	(20.00		)
Balance, March 31, 2017	1,833,804		$	20.00		11,490		$	13.83		1,845,294		$	19.96


(1)	All vested RSAs and RSUs are included in basic EPS for the period during which they are outstanding. However, the vested RSUs will not settle with the individual awardees until July 30, 2017, and therefore are not included in legally outstanding shares of common stock as of March 31, 2017.

During the period from January 31, 2017 through March 31, 2017, 51,039 RSAs and 1,405,070 RSUs with an estimated fair value of $28,912 fully vested. As of March 31, 2017, no RSAs or RSUs included performance-based vesting criteria. Grant date fair value of the RSAs and RSUs is generally based on the closing price of our common stock on the grant date; however, for the awards granted in connection with the IPO, the grant-date fair value is the opening offering price per common share.

Summary of Total Share-Based Compensation Expense

During the three months ended March 31, 2017 and 2016, we recognized $44,244 and $4,206 respectively, of share-based compensation expense, comprised of the following:



	Share-Based Compensation Expense for the Three Months Ended March 31,
	2017						2016
	General and Administrative			Property Management Expense			General and Administrative		Property Management Expense		Unrecognized Expense at March 31, 2017
Class B Units	$	11,998		$	3		$	4,051	$	155	$	—
RSUs	28,463			4,020			—		—		32,294
RSAs	(190		)	(50		)	—		—		28
Total	$	40,271		$	3,973		$	4,051	$	155	$	32,322

As of March 31, 2017, there was $32,322 of unrecognized share-based compensation expense related to nonvested RSUs and RSAs which is expected to be recognized over a weighted average period of 1.36 years.