10. Equity

Common Stock. We have an equity distribution agreement to issue and sell, from time to time, up to $200,000,000 in aggregate offering price of our company 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, 2018, we sold 22,244 shares of common stock for $1,005,000 in net proceeds under our equity distribution agreement. In conjunction with the sale of common stock, we paid $18,000 as compensation to our sales agents and we reclassified $76,000 of accumulated costs associated with this agreement to additional paid in capital. Accordingly, at December 31, 2018, we had $184,139,000 available under our equity distribution agreement.

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.

During the years 2018, 2017 and 2016, we acquired 31,326 shares, 42,089 shares and 49,405 shares, respectively, of common stock held by employees who tendered owned shares to satisfy tax withholding obligations. Subsequent to December 31, 2018, we acquired 20,345 shares of common stock held by employees who tendered owned shares to satisfy tax withholding obligations.

Non-controlling Interests. During 2018 and 2017, we entered into partnerships to develop and/or own real estate. Given that our limited members do not have the substantive kick-out rights, liquidation rights, or participation rights, we have concluded that the partnerships are VIEs. Since we exercise power over and receive benefits from the VIEs, we are considered the primary beneficiary. Accordingly, we consolidate the VIEs and record the non-controlling interests at cost. As of December 31, 2018, we have the following consolidated VIEs (in thousands):


					Gross
Investment		Property			Consolidated			Non-Controlling
Year (1)	Purpose	Type	State		Assets			Interests
2018	Owned real estate	ILF	OR	$	14,400	(2)	$	2,857	(2)
2018	Owned real estate and development	UDP	OR		4,606	(2)		1,081	(2)
2017	Owned real estate and development	UDP	WI		16,665	(3)		2,272	(3)
2017	Owned real estate	ALF	SC		11,195			1,271
Total				$	46,866		$	7,481

(1)

Subsequent to December 31, 2018, we entered into a JV to purchase an existing operational 74-unit ALF/MC community. The non-controlling partner contributed $919 of equity and we contributed $15,950 in cash. Our economic interest in the real estate JV will be approximately 95%. We account for the JV on a consolidated basis.

(2)

We entered into a JV to develop, purchase and own seniors housing properties. During 2018, the JV purchased land for the development of a 78-unit ALF/MC for a total anticipated project cost of $18,108. The non-controlling partner contributed $1,081 of cash and we committed to fund the remaining $17,027 project cost. Additionally, during 2018, in a sale-leaseback transaction, the JV purchased an existing operational 89-unit ILF adjacent to the 78-unit ALF/MC we are developing for $14,400. The non-controlling partner contributed $2,857 of equity and we contributed $11,543 in cash. Upon completion of the development project, our combined economic interest in the JV will be approximately 88%. We account for the JV on a consolidated basis.

(3)

We entered into a JV to own the real estate and develop a 110-unit ILF/ALF/MC community in Wisconsin. The commitment totals approximately $22,471.

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,
	2018						2017						2016
	Declared			Paid			Declared			Paid			Declared			Paid
Common Stock	$	90,372	(1)	$	90,372	(1)	$	90,219	(1)	$	90,219	(1)		84,568	(2)		84,568	(2)

(1)

Represents $0.19 per share per month for the years ended December 31, 2018, and 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.

In January 2019, we declared a monthly cash dividend of $0.19 per share on our common stock for the months of January, February and March 2019 payable on January 31, February 28 and March 29, 2019, respectively, to stockholders of record on January 23, February 20 and March 21, 2019, respectively.

Stock Based Compensation Plans. During 2015, we adopted, and our stockholders approved the 2015 Equity Participation Plan (the “2015 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, 2018, we have 825,457 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, 2018, 2017 and 2016 was as follows:


	2018		2017		2016
Outstanding, January 1		244,181		210,573		187,347
Granted		156,718		143,057		127,087
Vested		(75,149)		(85,343)		(103,861)
Cancelled		—		(24,106)		—
Outstanding, December 31		325,750		244,181		210,573

Compensation expense related to restricted stock and performance based stock units for the year	$	5,870,000	$	5,247,000	$	4,265,000

During 2018, 2017 and 2016, we granted 156,718, 143,057 and 127,087 shares of restricted common stock and performance-based stock units, respectively, under the 2015 plan as follows:


	No. of	Price per
Year	Shares/Units	Share		Vesting Period
2018	81,819	$	38.18	ratably over 3 years
	66,171	$	38.18	TSR targets (1)
	8,728	$	41.25	ratably over 1 year
	156,718

2017	74,760	$	45.76	ratably over 3 years
	57,881	$	45.76	TSR targets (1)
	7,416	$	48.55	ratably over 1 year
	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	ratably over 1 year
	127,087

(1)

Vesting is based on achieving certain total shareholder return (“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, 2018, we granted 139,112 shares of restricted common stock and performance-based stock units at $46.54 per share. Out of these shares, 78,276 vest ratably from the grant date over a three-year period and 60,836 vest based on achieving certain TSR targets in 4 years with acceleration opportunity in 3 years.

At December 31, 2018, 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
2019	128,214	(1)		4,250,000
2020	104,085	(2)		2,210,000
2021	93,451	(3)		238,000
Total	325,750		$	6,698,000

(1)

Includes 49,728 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 53,554 performance-based stock units. See (1) above for valuation methodology.

(3)

Includes 66,171 performance-based stock units. See (1) above for valuation methodology.

Stock Options. During 2018, 2017 and 2016, we did not issue any stock options. Nonqualified stock option activity for the years ended December 31, 2018, 2017 and 2016, was as follows:


				Weighted Average
	Shares			Price
	2018	2017	2016	2018			2017	2016
Outstanding, January 1	25,000	33,334	40,001	$	32.92	$	30.76	$	29.60
Granted	—	—	—		n.a		n.a		n.a
Exercised	(5,000)	(8,334)	(6,667)	$	24.65	$	24.31	$	23.79
Canceled	—	—	—		n.a		n.a		n.a
Outstanding, December 31	20,000	25,000	33,334	$	34.99	$	32.92	$	30.76

Exercisable, December 31(1)	20,000	25,000	28,334	$	34.99	$	32.92	$	45.45

(1)

The aggregate intrinsic value of exercisable options at December 31, 2018, based upon the closing price of our common shares at December 31, 2018, the last trading day of 2018, was approximately $134,000. Options exercisable at December 31, 2018, 2017 and 2016 have a weighted average remaining contractual life of approximately 3.3 years, 3.5 years, and 2.9 years, respectively.

The options exercised during 2018, 2017 and 2016 were as follows:


		Weighted
		Average
	Options	Exercise		Option		Market
	Exercised	Price		Value		Value (1)
2018	5,000	$	24.65	$	123,000	$	205,000
2017	8,334	$	24.31	$	202,000	$	410,797
2016	6,667	$	23.79	$	159,000	$	311,000

(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. Compensation expense related to the vesting of stock options for the years ended December 31, 2018, 2017 and 2016 was $0, $2,000 and $15,000, respectively.