Equity Incentive Plans

3 Months Ended

Mar. 31, 2024

Share-Based Payment Arrangement, Noncash Expense [Abstract]

All grants of common shares and options to purchase common shares were issued under the Company's 2007 Equity Incentive Plan prior to May 12, 2016, and under the 2016 Equity Incentive Plan on and after May 12, 2016. Under the 2016 Equity Incentive Plan, an aggregate of 3,950,000 common shares, options to purchase common shares and restricted share units, subject to adjustment in the event of certain capital events, may be granted. Additionally, the 2020 Long Term Incentive Plan (2020 LTIP) is a sub-plan under the Company's 2016 Equity Incentive Plan. Under the 2020 LTIP, the Company awards performance shares and restricted shares to the Company's executive officers. At March 31, 2024, there were 905,470 shares available for grant under the 2016 Equity Incentive Plan.

Nonvested Shares

A summary of the Company’s nonvested share activity and related information is as follows:


	Number of shares	Weighted avg. grant date fair value		Weighted avg. life remaining
Outstanding at December 31, 2023	609,228	$	44.44
Granted	290,271	41.96
Vested	(284,885)	45.47

Outstanding at March 31, 2024	614,614	$	42.79	1.61

The holders of nonvested shares have voting rights and receive dividends from the date of grant. The fair value of the nonvested shares that vested was $13.7 million and $8.3 million for the three months ended March 31, 2024 and 2023, respectively. Expense recognized related to nonvested shares and included in "General and administrative expense" in the accompanying consolidated statements of income and comprehensive income was $1.8 million and $1.9 million for the three months ended March 31, 2024 and 2023, respectively. Expense related to nonvested shares and included in retirement and severance expense in the accompanying consolidated statements of income and comprehensive income was $0.7 million for the three months ended March 31, 2024. There was no expense related to nonvested shares included in retirement and severance expense for the three months ended March 31, 2023. At March 31, 2024, unamortized share-based compensation expense related to nonvested shares was $14.7 million.

Nonvested Performance Shares

A summary of the Company's nonvested performance share activity and related information is as follows:


	Target Number of Performance Shares	Weighted avg. grant date fair value (1)
Outstanding at December 31, 2023	312,641	$	70.04
Granted	116,266	44.76
Vested (2)	(102,438)	75.14

Outstanding at March 31, 2024	326,469	$	59.44

(1) The grant date fair value was determined utilizing (i) a Monte Carlo simulation model to generate an estimate of the Company's future stock price over the three-year performance period for performance shares based on the Company's Total Shareholder Return (TSR) performance further described below and (ii) the Company's grant date fair value for performance shares based on the Company's estimated Compounded Annual Growth Rate (CAGR) in AFFO per share over the three-year performance period.

(2) The achievement of the performance conditions for the performance shares granted during the year ended December 31, 2021 resulted in a performance payout percentage of 250% for both the Company's TSR relative to the TSRs of the Company's peer group companies and the Company's TSR relative to the TSRs of companies in the MSCI US REIT Index and a payout percentage of 200% for the Company's CAGR in AFFO per share over the three-year performance period. The achievement of the performance conditions and the above payout percentages resulted in the issuance of 243,290 common shares and 49,574 common shares from dividend equivalents. The fair value of the performance shares and dividend equivalents that vested was $12.6 million.

The number of common shares issuable upon settlement of the performance shares granted during the three months ended March 31, 2024, 2023 and 2022 will be based upon the Company's achievement level relative to performance

measures at December 31, 2026, 2025 and 2024, respectively. The achievement level for the performance shares granted during the three months ended March 31, 2024 is 52.2% based upon the Company's TSR relative to the TSRs of the Company's peer group companies, 26.1% based upon the Company's TSR relative to the TSRs of companies in the MSCI US REIT Index and 21.7% based upon the Company's estimated CAGR in AFFO per share over the three-year performance period. The achievement level for the performance shares granted during the years ended December 31, 2023 and 2022 is 50% based upon the Company's Total Shareholder Return (TSR) relative to the TSRs of the Company's peer group companies, 25% based upon the Company's TSR relative to the TSRs of companies in the MSCI US REIT Index and 25% based upon the Company's Compounded Annual Growth Rate (CAGR) in AFFO per share over the three-year performance period. The Company's achievement level relative to the performance measures is assigned a specific payout percentage, which is multiplied by a target number of performance shares.

The performance shares based on relative TSR performance have market conditions and are valued using a Monte Carlo simulation model on the grant date, which resulted in a grant date fair value of approximately $4.1 million and $5.9 million for the three months ended March 31, 2024 and 2023, respectively. The estimated fair value is amortized to expense over the three-year performance periods, which end on December 31, 2026, 2025 and 2024 for performance shares granted in 2024, 2023 and 2022, respectively. The following assumptions were used in the Monte Carlo simulation for computing the grant date fair value of the performance shares with a market condition for the three months ended March 31, 2024: risk-free interest rate of 4.5%, volatility factors in the expected market price of the Company's common shares of 30% and an expected life of approximately three years.

The performance shares based on growth in AFFO per share have a performance condition. The probability of achieving the performance condition is assessed at each reporting period. If it is deemed probable that the performance condition will be met, compensation cost will be recognized based on the closing price per share of the Company's common stock on the date of the grant multiplied by the number of awards expected to be earned. If it is deemed that it is not probable that the performance condition will be met, the Company will discontinue the recognition of compensation cost and any compensation cost previously recorded will be reversed. At March 31, 2024, achievement of the performance condition was deemed probable for the performance shares granted during the three months ended March 31, 2023 and 2022 with an expected payout percentage of 52.3% and 200%, respectively, which resulted in a grant date fair value of approximately $0.6 million and $2.3 million, respectively. Achievement of the performance condition for the performance shares granted during the three months ended March 31, 2024 was deemed not probable at March 31, 2024.

Expense recognized related to performance shares and included in "General and administrative expense" in the accompanying consolidated statements of income and comprehensive income was $1.5 million and $2.0 million for the three months ended March 31, 2024 and 2023, respectively. Expense related to performance shares and included in retirement and severance expense in the accompanying consolidated statements of income and comprehensive income was $0.9 million for the three months ended March 31, 2024. At March 31, 2024, unamortized share-based compensation expense related to nonvested performance shares was $8.9 million.

The performance shares accrue dividend equivalents that are paid only if common shares are issued upon settlement of the performance shares. During the three months ended March 31, 2024 and 2023, the Company accrued dividend equivalents expected to be paid on earned awards of $598 thousand and $353 thousand, respectively.

Restricted Share Units

A summary of the Company’s restricted share unit activity and related information is as follows:


	Number of shares	Weighted avg. grant date fair value		Weighted avg. life remaining
Outstanding at December 31, 2023	42,048	$	41.67
Granted	—	—
Vested	—	—
Outstanding at March 31, 2024	42,048	$	41.67	0.17

The holders of restricted share units receive dividend equivalents from the date of grant. Total expense recognized related to shares issued to non-employee Trustees and included in "General and administrative expense" in the accompanying consolidated statements of income and comprehensive income was $0.4 million and $0.5 million for the three months ended March 31, 2024 and 2023, respectively. At March 31, 2024, unamortized share-based compensation expense related to restricted share units was $0.3 million.