9. Equity

Preferred Stock. Historically, we had 2,000,000 shares of our 8.5% Series C Cumulative Convertible Preferred Stock (or Series C preferred stock) outstanding. Our Series C preferred stock was convertible into 2,000,000 shares of our common stock at $19.25 per share and dividends were payable quarterly. During, 2015, the sole holder of our Series C Preferred stock elected to convert all of its preferred shares into 2,000,000 shares of common stock. Accordingly, we had no preferred stock outstanding as of December 31, 2017.

Common Stock. We have entered into equity distribution agreement with sales agents to issue and sell, from time to time, up to $200,000,000 in aggregate offering price of our common shares. Sales of common shares will be made by means of ordinary brokers’ transactions, which may include block trades or transactions that are deemed to be “at the market” offerings.

During the year ended December 31, 2017, we sold 312,881 shares of common stock for $14,600,000 in net proceeds under our equity distribution agreement. In conjunction with the sale of common stock, we paid $260,000 as compensation to our sales agents and we reclassified $49,000 of accumulated costs associated with this agreement to additional paid in capital. Accordingly, at December 31, 2017, we had $185,162,000 available under our equity distribution agreement.

During the year ended December 31, 2016, we sold 1,643,017 shares of common stock for $78,600,000 in net proceeds under our equity distribution agreement. In conjunction with the sale of common stock, we paid $1,400,000 as compensation to our sales agents and we reclassified $463,000 of accumulated costs associated with this agreement to additional paid in capital. During 2015, we did not sell shares of common stock.

During the years 2017, 2016 and 2015, we acquired 42,089 shares, 49,405 shares and 26,993 shares, respectively, of common stock held by employees who tendered owned shares to satisfy tax withholding obligations. Subsequent to December 31, 2017, we acquired 28,256 shares of common stock held by employees who tendered owned shares to satisfy tax withholding obligations.

Non-controlling Interests. During 2017, we entered into a partnership and acquired an 87-unit ALF and MC community for $10,000,000. Additionally, we entered into a partnership for the acquisition of land and development of a 110-unit ILF/ALF/MC community in Wisconsin. The commitment totals approximately $22,471,000 including the land purchase. We hold a 90% economic interest in both partnerships. Since we exercise power over and receive benefits from the partnerships, we are considered the primary beneficiary of the partnerships. Accordingly, we consolidated the partnerships and carried the non-controlling interests at cost.

Shelf Registration Statement. We have an automatic shelf registration statement on file with the SEC, and currently have the ability to file additional automatic shelf registration statements, to provide us with capacity to offer an indeterminate amount of common stock, preferred stock, warrants, debt, depositary shares, or units. We may from time to time publicly raise capital under our automatic shelf registration statement in amounts, at prices, and on terms to be announced when and if the securities are offered. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of the offering.

Distributions. We declared and paid the following cash dividends (in thousands):


	Year Ended December 31,
	2017						2016						2015
	Declared			Paid			Declared			Paid			Declared			Paid
Preferred Stock Series C	$	—		$	—		$	—		$	—		$	2,454		$	2,454
Common Stock		90,219	(1)		90,219	(1)		84,568	(2)		84,568	(2)		74,311	(3)		74,311	(3)
Total	$	90,219		$	90,219		$	84,568		$	84,568		$	76,765		$	76,765

⁽¹⁾

Represents $0.19 per share per month for the year ended December 31, 2017.

⁽²⁾

Represents $0.18 per share per month for January through September 2016 and $0.19 per share per month for October through December 2016.

⁽³⁾

Represents $0.17 per share per month for January through September 2015 and $0.18 per share per month for October through December 2015.

In January 2018, we declared a monthly cash dividend of $0.19 per share on our common stock for the months of January, February and March 2018 payable on January 31, February 28 and March 30, 2018, respectively, to stockholders of record on January 23, February 20 and March 22, 2018, respectively.

Accumulated Other Comprehensive Income. During prior years, we had investments in Real Estate Mortgage Investment Conduit (or REMIC) Certificates, and retained the non‑investment grade certificates issued in the securitizations. During 2005, a loan was paid off in the last remaining REMIC pool which caused the last third-party REMIC Certificate holders entitled to any principal payments to be paid off in full. After this transaction, we became the sole holder of the remaining REMIC Certificates and were therefore entitled to the entire principal outstanding of the loan pool underlying the remaining REMIC Certificates. Under the FASB accounting guidance relating to accounting for changes that result in a transferor regaining control of financial assets sold, a Special Purpose Entity (or SPE) may become non‑qualified or tainted which generally results in the “repurchase” by the transferor of all the assets sold to and still held by the SPE. Since we were the sole REMIC Certificate holder entitled to principal from the underlying loan pool, we had all the risks and were entitled to all the rewards from the underlying loan pool. As required by the accounting guidance, the repurchase for the transferred assets was accounted for at fair value. The accumulated other comprehensive income balance represents the fair market value adjustment offset by any previously adjusted impairment charge which is amortized to increase interest income over the remaining life of the loans that we repurchased from the REMIC pool. At both December 31, 2017 and 2016, accumulated other comprehensive income was $0.

Stock Based Compensation Plans. During 2015, we adopted and our shareholders approved the 2015 Equity Participation Plan (or the 2015 Plan) which replaced the 2008 Equity Participation Plan (or the 2008 Plan). Under the 2015 Plan, 1,400,000 shares of common stock have been reserved for awards, including nonqualified stock option grants and restricted stock grants to officers, employees, non-employee directors and consultants. As of December 31, 2017, we have 1,048,000 shares of common stock reserved for awards under the 2015 Plan. The terms of the awards granted under the 2015 Plan are set by our compensation committee at its discretion.

Restricted Stock and performance-based stock units. Restricted stock and performance based stock units activity for the years ended December 31, 2017, 2016 and 2015 was as follows:


	2017		2016		2015
Outstanding, January 1		210,573		187,347		214,168
Granted		143,057		127,087		92,150
Vested		(85,343)		(103,861)		(118,331)
Canceled		(24,106)		—		(640)
Outstanding, December 31		244,181		210,573		187,347

Compensation expense related to restricted stock and performance based stock units for the year	$	5,247,000	$	4,265,000	$	3,992,000

During 2017, 2016 and 2015, we granted 143,057, 127,087 and 92,150 shares of restricted common stock, respectively, under the 2015 plan and 2008 Plan as follows:


	No. of	Price per
Year	Shares/Units	Share		Vesting Period
2017	74,760	$	45.76	ratably over 3 years
	57,881	$	45.76	TSR targets (1)
	7,416	$	48.55	June 1, 2018
	3,000	$	50.50	ratably over 3 years
	143,057

2016	65,300	$	43.24	ratably over 3 years
	54,107	$	46.87	TSR targets (2)
	7,680	$	46.87	June 1, 2017
	127,087

2015	65,750	$	44.45	ratably over 3 years
	18,000	$	42.30	ratably over 3 years
	8,400	$	42.30	June 2, 2016
	92,150

⁽¹⁾

Vesting is based on achieving certain total shareholder return (or TSR) targets in 4 years with acceleration opportunity in 3 years.

⁽²⁾

Vesting is based on achieving certain total TSR targets in 3.7 years with acceleration opportunity in 2.7 years.

Subsequent to December 31, 2017, we granted 147,990 shares of restricted common stock at $38.18 per share. Out of these shares, 81,819 vest ratably from the grant date over a three-year period and 66,171 vest based on achieving certain TSR targets in 4 years with acceleration opportunity in 3 years.

At December 31, 2017, the total number of restricted common stock and performance-based stock units that are scheduled to vest and remaining compensation expense to be recognized related to the future service period of unvested outstanding restricted common stock and performance-based stock units are as follows:


	Number		Remaining
	of		Compensation
Vesting Date	Awards		Expense
2018	75,149		$	3,947,000
2019	92,218	(1)		2,149,000
2020	76,814	(2)		259,000
	244,181		$	6,355,000

⁽¹⁾

Includes 54,107 performance-based stock units. The performance based stock units are valued utilizing a lattice-binomial option pricing model based on Monte Carlo simulations. The company recognizes the fair value of the awards over the applicable vesting period as compensation expense.

⁽²⁾

Includes 57,881 performance-based stock units. See (1) above for valuation methodology.

Stock Options. During 2017, 2016 and 2015, we did not issue any stock options. Nonqualified stock option activity for the years ended December 31, 2017, 2016 and 2015, was as follows:


				Weighted Average
	Shares			Price
	2017	2016	2015	2017			2016	2015
Outstanding, January 1	33,334	40,001	43,334	$	30.76	$	29.60	$	29.16
Granted	—	—	—		n.a		n.a		n.a
Exercised	(8,334)	(6,667)	(3,333)	$	24.31	$	23.79	$	23.79
Canceled	—	—	—		n.a		n.a		n.a
Outstanding, December 31	25,000	33,334	40,001	$	32.92	$	30.76	$	29.60

Exercisable, December 31(1)	25,000	28,334	30,001	$	32.92	$	45.45	$	31.99

⁽¹⁾

The aggregate intrinsic value of exercisable options at December 31, 2017, based upon the closing price of our common shares at December 29, 2017, the last trading day of 2017, was approximately $266,000. Options exercisable at December 31, 2017 have a weighted average remaining contractual life of approximately 3.5 years.

The options exercised during 2017, 2016 and 2015 were as follows:


		Weighted
		Average
	Options	Exercise		Option		Market
	Exercised	Price		Value		Value(1)
2017	8,334	$	24.31	$	202,000	$	410,797
2016	6,667	$	23.79	$	159,000	$	311,000
2015	3,333	$	23.79	$	79,000	$	140,000

⁽¹⁾

As of the exercise dates.

We use the Black‑Scholes‑Merton formula to estimate the value of stock options granted to employees. This model requires management to make certain estimates including stock volatility, expected dividend yield and the expected term. The weighted average exercise share price of the options was $32.92, $30.76 and $29.60 and the weighted average remaining contractual life was 3.5, 2.9 and 2.6 years as of December 31, 2017, 2016 and 2015, respectively. Compensation expense related to the vesting of stock options for the years ended December 31, 2017, 2016 and 2015 was $2,000, $15,000 and $14,000, respectively.