SHARE-BASED COMPENSATION

As of December 31, 2017, there was one share-based compensation plan under which the Company has outstanding awards, the CBL & Associates Properties, Inc. 2012 Stock Incentive Plan ("the 2012 Plan"), which was approved by the Company's shareholders in May 2012. The 2012 Plan permits the Company to issue stock options and common stock to selected officers, employees and non-employee directors of the Company up to a total of 10,400,000 shares. As the primary operating subsidiary of the Company, the Operating Partnership participates in and bears the compensation expense associated with the Company's share-based compensation plan. The Compensation Committee of the Board of Directors (the “Committee”) administers the 2012 Plan.

The Company adopted ASU 2016-09 effective January 1, 2017 as described in Note 2. In accordance with the provisions of ASU 2016-09, which are designed to simplify the accounting for share-based payments transactions, the Company elected to account for forfeitures of share-based payments as they occur rather than continuing to estimate them in advance. The Company elected not to record a cumulative effect adjustment as the impact of estimated forfeitures on the Company's cumulative share-based compensation expense recorded through December 31, 2016 was nominal.

Restricted Stock Awards

Under the 2012 Plan, common stock may be awarded either alone, in addition to, or in tandem with other granted stock awards. The Committee has the authority to determine eligible persons to whom common stock will be awarded, the number of shares to be awarded and the duration of the vesting period, as defined. Generally, an award of common stock vests either immediately at grant or in equal installments over a period of five years. Stock awarded to independent directors is fully vested upon grant; however, the independent directors may not transfer such shares during their board term. The Committee may also provide for the issuance of common stock under the 2012 Plan on a deferred basis pursuant to deferred compensation arrangements. The fair value of common stock awarded under the 2012 Plan is determined based on the market price of CBL’s common stock on the grant date and the related compensation expense is recognized over the vesting period on a straight-line basis.

The Company may make restricted stock awards to independent directors, officers and its employees under the 2012 Plan. These awards are generally granted based on the performance of the Company and its employees. None of these awards have performance requirements other than a service condition of continued employment, unless otherwise provided. Compensation expense is recognized on a straight-line basis over the requisite service period.

The share-based compensation cost related to the restricted stock awards was $3,907, $4,681 and $4,287 for 2017, 2016 and 2015, respectively. Share-based compensation cost resulting from share-based awards is recorded at the Management Company, which is a taxable entity. Share-based compensation cost capitalized as part of real estate assets was $405, $351 and $274 in 2017, 2016 and 2015, respectively.

A summary of the status of the Company’s nonvested restricted stock awards as of December 31, 2017, and changes during the year ended December 31, 2017, is presented below:



	Shares		Weighted- Average Grant-Date Fair Value
Nonvested at January 1, 2017	602,162		$	15.41
Granted	326,739		$	10.75
Vested	(276,467	)	$	15.07
Forfeited	(10,075	)	$	12.97
Nonvested at December 31, 2017	642,359		$	13.23

The weighted-average grant-date fair value of shares granted during 2017, 2016 and 2015 was $10.75, $10.02 and $20.30, respectively. The total fair value of shares vested during 2017, 2016 and 2015 was $2,791, $2,605 and $4,298, respectively.

As of December 31, 2017, there was $5,914 of total unrecognized compensation cost related to nonvested stock awards granted under the 2012 Plan, which is expected to be recognized over a weighted-average period of 2.6 years.

Long-Term Incentive Program

In 2015, the Company adopted a long-term incentive program ("LTIP") for its named executive officers, which consists of performance stock unit ("PSU") awards and annual restricted stock awards, that may be issued under the 2012 Plan. The number of shares related to the PSU awards that each named executive officer may receive upon the conclusion of a three-year performance period is determined based on the Company's achievement of specified levels of long-term total stockholder return ("TSR") performance relative to the NAREIT Retail Index, provided that at least a "Threshold" level must be attained for any shares to be earned.

Annual Restricted Stock Awards

Under the LTIP, annual restricted stock awards consist of shares of time-vested restricted stock awarded based on a qualitative evaluation of the performance of the Company and the named executive officer during the fiscal year. Annual restricted stock awards under the LTIP vest 20% on the date of grant with the remainder vesting in four annual equal installments.

Performance Stock Units

The Company granted the following PSUs in the first quarter of the respective years. A summary of PSU activity as of December 31, 2017, and changes during the year ended December 31, 2017, is presented below:



	PSUs		Weighted-Average Grant Date Fair Value
2015 PSUs granted	138,680		$	15.52
2016 PSUs granted	282,995		$	4.98
Outstanding at January 1 , 2017	421,675		$	8.45
2017 PSUs granted	277,376		$	6.86
2015 PSUs canceled ⁽¹⁾	(138,680	)	$	15.52
Outstanding at December 31, 2017 ⁽²⁾	560,371		$	5.91


(1)	Based on the Company's TSR relative to the NAREIT Retail Index for the three-year performance period ended December 31, 2017, none of the 2015 PSU were earned as of December 31, 2017.


(2)	None of the PSUs outstanding at December 31, 2017 were vested.

Shares earned pursuant to the PSU awards vest 60% at the conclusion of the performance period while the remaining 40% of the PSU award vests 20% on each of the first two anniversaries thereafter.

Compensation cost is recognized on a tranche-by-tranche basis using the accelerated attribution method. The resulting expense is recorded regardless of whether any PSU awards are earned as long as the required service period is met. Share-based compensation expense related to the PSUs was $1,501, $1,033 and $624 in 2017, 2016 and 2015, respectively. Unrecognized compensation costs related to the PSUs was $2,162 as of December 31, 2017, which is expected to be recognized over a weighted-average period of 3.5 years.

The following table summarizes the assumptions used in the Monte Carlo simulation pricing model related to the 2017 PSUs and the 2016 PSUs:



	2017 PSUs			2016 PSUs
Grant date	February 7, 2017			February 10, 2016
Fair value per share on valuation date ⁽¹⁾	$	6.86		$	4.98
Risk-free interest rate ⁽²⁾	1.53		%	0.92		%
Expected share price volatility⁽³⁾	32.85		%	30.95		%

(1)

The value of the PSU awards is estimated on the date of grant using a Monte Carlo Simulation model. The valuation consisted of computing the fair value using CBL's simulated stock price as well as TSR over a three-year performance period. The award is modeled as a contingent claim in that the expected return on the underlying shares is risk-free and the rate of discounting the payoff of the award is also risk-free. The weighted-average fair value per share related to the 2017 PSUs consists of 115,082 shares at a fair value of $5.62 per share and 162,294 shares at a fair value of $7.74 per share.


(2)	The risk-free interest rate was based on the yield curve on zero-coupon U.S. Treasury securities in effect as of the valuation date.


(3)	The computation of expected volatility was based on a blend of the historical volatility of CBL's shares of common stock based on annualized daily total continuous returns over a three-year period and implied volatility data based on the trailing month average of daily implied volatilities implied by stock call option contracts that were both closest to the terms shown and closest to the money.