Stock-based Employee Compensation, Stock Option Plans, and Deferred Compensation Plan for Directors

6 Months Ended

Jun. 30, 2022

Share-Based Payment Arrangement [Abstract]

Stock-based Employee Compensation, Stock Option Plans, and Deferred Compensation Plan for Directors

In 2004, the Company established a stock incentive plan (the “Plan”), as amended. Under the Plan, options are granted at an exercise price not less than the market value of the common stock on the date of grant and expire ten years from the date of grant. Officer options vest ratably over four years following the grant and are charged to expense using the straight-line method over the vesting period. Director options vest immediately and are charged to expense as of the date of grant.

The Company uses the fair value method to value and account for employee stock options. The fair value of options granted is determined at the time of the grant using the Black-Scholes model, a widely used method for valuing stock-based employee compensation, and the following assumptions: (1) Expected Volatility determined using the most recent trading history of the Company’s common stock (month-end closing prices) corresponding to the average expected term of the options; (2) Average Expected Term of the options based on prior exercise history, scheduled vesting and the expiration date; (3) Expected Dividend Yield determined by management after considering the Company’s current and historic dividend yield, the Company’s yield in relation to other retail REITs and the Company’s market yield at the grant date; and (4) a Risk-free Interest Rate based upon the market yields of US Treasury obligations with maturities corresponding to the average expected term of the options at the grant date. The Company amortizes the value of options granted ratably over the vesting period and includes the amounts as compensation expense in general and administrative expenses.

Pursuant to the Plan, the Compensation Committee established a Deferred Compensation Plan for Directors for the benefit of the Company’s directors and their beneficiaries, which replaced a previous Deferred Compensation and Stock Plan for Directors. Annually, directors are given the ability to make an election to defer all or part of their fees and have the option to have their fees paid in cash, in shares of common stock or in a combination of cash and shares of common stock upon separation from the Board. If a director elects to have their fees paid in stock, fees earned during a calendar quarter are aggregated and divided by the closing market price of the Company’s common stock on the first trading day of the following quarter to determine the number of shares to be credited to the director. During the six months ended June 30, 2022, 3,739 shares were credited to director’s deferred fee accounts and 7,738 shares were issued. As of June 30, 2022, the director's deferred fee accounts comprise 116,241 shares.

Effective May 13, 2022, the Company granted 248,000 options to its directors and certain officers. The following table summarizes the assumptions used in the valuation of the 2022 and 2021 option grants. During the six months ended June 30, 2022, stock option expense totaling $0.8 million was included in general and administrative expense in the Consolidated Statements of Operations. As of June 30, 2022, the estimated future expense related to unvested stock options was $2.7 million.


	Directors				Officers
Grant date	May 13, 2022		May 7, 2021		May 13, 2022		May 7, 2021
Exercise price per share	$	47.90	$	43.89	$	47.90	$	43.89
Fair value per option	$	8.34	$	6.32	$	7.66	$	5.96
Volatility	0.300		0.297		0.271		0.275
Expected life (years)	5.0		5.0		7.0		7.0
Assumed yield	4.90%		4.96%		4.93%		4.97%
Risk-free rate	2.89%		0.77%		2.95%		1.24%

The table below summarizes the option activity for the six months ended June 30, 2022:


	Number of Shares	Weighted Average Exercise Price per share		Aggregate Intrinsic Value
Outstanding at January 1	1,601,250	$	51.73	$	4,886,106
Granted	248,000	47.90		—
Exercised	(24,375)	44.17		237,724
Expired/Forfeited	(19,000)	51.71		—
Outstanding at June 30	1,805,875	51.31		833,048
Exercisable at June 30	1,289,750	52.73		330,728

The intrinsic value of stock options outstanding or exercisable measures the price difference between the options’ exercise price and the closing share price quoted by the New York Stock Exchange as of the date of measurement. The intrinsic value of stock options exercised during the six months ended June 30, 2022 and 2021 was calculated by using the transaction price on the date of exercise and totaled $237,724 and $3,450, respectively. At June 30, 2022, the final trading day of the 2022 second quarter, the closing share price of $47.11 was lower than the exercise price of 1,459,750 outstanding options granted in 2015 through 2020 and 2022. The weighted average remaining contractual life of the Company’s outstanding and exercisable options is 6.3 years and 5.3 years, respectively.