NOTE 7: Equity Compensation Plans

Long Term Incentive Plan

In May 2016, our shareholders approved and our board of directors adopted an amended and restated Long Term Incentive Plan, or the incentive plan, which provides for the grants of awards to our directors, officers and full-time employees, full-time employees of our former advisor and its affiliates, full-time employees of entities that provide services to our former advisor, directors of our former advisor or of entities that provide services to it, certain of our consultants and certain consultants to our former advisor and its affiliates or to entities that provide services to our former advisor. The incentive plan authorizes the grant of restricted or unrestricted shares of our common stock, non-qualified and incentive stock options, restricted stock units, stock appreciation rights, dividend equivalents and other stock- or cash-based awards. In conjunction with the amendment, the number of shares of common stock issuable under the incentive plan was increased to 4,300,000 shares and the term of the incentive plan was extended to May 12, 2026.

Under the incentive plan or predecessor incentive plans, we have granted restricted shares and stock appreciation rights, or SARs, to employees and employees of our former advisor. These awards generally vested over a three or four year period. In addition, we have granted unrestricted shares to our directors. These awards generally vested immediately.

For the years ended December 31, 2017, 2016 and 2015 we recognized $1,968, $1,222 and $495 of stock compensation expense, respectively.

A summary of the restricted common share awards activity of the incentive plan is presented below.

	2017					2016					2015
	Number of Shares			Weighted Average Grant Date Fair Value Per Share		Number of Shares			Weighted Average Grant Date Fair Value Per Share		Number of Shares			Weighted Average Grant Date Fair Value Per Share
Balance, January 1,		281,005		$	6.99		117,000		$	9.13		36,000		$	8.20
Granted		168,010			9.17		228,000			6.33		112,000			9.30
Vested		(142,748	)		7.68		(60,661	)		8.62		(24,000	)		8.55
Forfeited		(10,420	)		8.56		(3,334	)		7.47		(7,000	)		9.02
Balance, December 31,		295,847		$	7.84		281,005		$	6.99		117,000		$	9.13

As of December 31, 2017, the unearned compensation cost relating to unvested restricted common share awards was $1,463. The estimated fair value of restricted common share awards vested during 2017 and 2016 was $1,319 and $427, respectively.

A summary of the SARs activity of the incentive plan is presented below.

	2017					2016					2015
	SARs			Weighted Average Exercise Price		SARs			Weighted Average Exercise Price		SARs			Weighted Average Exercise Price
Outstanding, January 1,		337,000		$	9.15		351,000		$	9.13		72,000		$	8.20
Granted		—			—		—			—		300,000			9.35
Expired		—			—		(2,000	)		9		—			—
Exercised		(84,000	)		8.78		(8,000	)		8.20		(2,000	)		8.20
Forfeited		(3,000	)		9.35		(4,000	)		9.35		(19,000	)		9.11
Outstanding, December 31,		250,000		$	9.28		337,000		$	9.15		351,000		$	9.13
SARs exercisable at December 31,		160,000					128,998					22,000

As of December 29, 2017, our closing common stock price was $10.09, which exceeds the exercise prices of all outstanding SARs. The exercise prices of outstanding SARs ranges from $8.20-$9.35. The weighted average contractual life of outstanding SARs is 2.07 years. The weighted average contractual life of exercisable SARs is 2.03 years. The total intrinsic value of SARs outstanding and exercisable at December 31, 2017 was $203. As of December 31, 2017, there was no unearned compensation cost relating to unvested SAR awards.

Our assumptions used in computing the fair value of the SARs issued during the year ended December 31, 2015 using the Black-Scholes Option Pricing Model, are summarized below. There were no SARs issued during the years ended December 31, 2017 and 2016.

	As of December 31,
	2015
Stock Price	$	7.51
Strike Price	$ 8.20-9.35
Risk-free interest rate	1.1 - 1.2%
Dividend yield		9.6	%
Volatility		34	%
Expected term	1.7 - 2.5 years

The following table summarizes the PSUs granted for the year ended December 31, 2017:

Grant Date

Type of PSUs Granted

Number of PSUs Granted

Performance Period Commencement Date

Performance Period End Date

Grant Date Fair Value

Number of PSUs Outstanding as of December 31, 2017

February 28, 2017

Relative 3-year TSR vs NAREIT Apartment Index

135,881

January 1, 2018

December 31, 2020

4.83

135,881

February 28, 2017

Absolute 3-Year TSR

45,294

January 1, 2018

December 31, 2020

3.13

45,294

July 26, 2017

Strategic Objectives

45,294

January 1, 2018

December 31, 2020

9.87

45,294

Our assumptions used in computing the fair value of the PSUs at the dates of their respective awards, using the Monte Carlo method, were as follows:


	For the year ended December 31, 2017
Dividend yield		8.1	%
Volatility		27.0	%	(a)
Expected term	2.8 years

(a)

This represents the volatility assumption used for IRT. The volatility assumptions used for our peer group and the NAREIT Mortgage Index ranged from 19% to 28%.

The Company estimates future expenses associated with PSUs outstanding at December 31, 2017 to be $751, which will be recognized over a weighted-average period of 2.2 years.