Stock Based Compensation

In May 2017, the Company’s stockholders approved the 2017 Plan, with such stockholder action resulting in the termination of the Company’s 2010 Stock Incentive Plan (the “2010 Plan”). The terms of the 2017 Plan are substantially the same as the 2010 Plan. However, any outstanding awards under the 2010 Plan will continue in accordance with the terms of the 2010 Plan and any award agreement executed in connection with such outstanding awards. At March 31, 2018, there are 94,043 common shares reserved for issuance under the 2010 Plan in connection with an outstanding PSA.

Pursuant to the 2017 Plan, eligible employees, officers and directors of the Company are offered the opportunity to acquire the Company's common stock through the award of restricted stock and other equity awards under the 2017 Plan. The maximum number of shares that may be issued under the 2017 Plan is 5,570,000. The Company’s non-employee directors have been issued 58,920 shares under the 2017 Plan as of March 31, 2018. The Company’s employees have been issued 212,855 shares under the 2017 Plan as of March 31, 2018. At March 31, 2018, there were 212,855 shares of non-vested restricted stock outstanding under the 2017 Plan.

Of the common stock authorized at March 31, 2018, 5,298,225 shares were reserved for issuance under the 2017 Plan. The Company’s non-employee directors have been issued 265,934 shares collectively under the 2010 and 2017 Plans as of March 31, 2018 and December 31, 2017. The Company’s employees have been issued 1,101,798 and 895,201 restricted shares collectively under the 2010 and 2017 Plans as of March 31, 2018 and December 31, 2017, respectively. At March 31, 2018 and December 31, 2017, there were 464,880 and 422,928 shares of non-vested restricted stock outstanding collectively under the 2010 and 2017 Plans, respectively.


(a)	Restricted Common Stock Awards

During the three months ended March 31, 2018 and March 31, 2017, the Company recognized non-cash compensation expense on its restricted common stock awards of $0.3 million. Dividends are paid on all restricted common stock issued, whether those shares have vested or not. In general, non-vested restricted stock is forfeited upon the recipient's termination of employment. There were no forfeitures during the three months ended March 31, 2018 and 2017.

A summary of the activity of the Company's non-vested restricted stock collectively under the 2010 and 2017 Plans for the three months ended March 31, 2018 and 2017, respectively, is presented below:



	2018				2017
	Number of Non-vested Restricted Shares		Weighted Average Per Share Grant Date Fair Value ⁽¹⁾		Number of Non-vested Restricted Shares		Weighted Average Per Share Grant Date Fair Value ⁽¹⁾
Non-vested shares at January 1	422,928		$	6.36	319,058		$	6.40
Granted	206,597		5.57		326,663		6.54
Vested	(164,645	)	6.72		(116,875	)	7.04
Non-vested shares as of March 31	464,880		5.88		528,846		6.34
Weighted-average of restricted stock granted during the period	206,597		$	5.57	326,663		$	6.54


⁽¹⁾	The grant date fair value of restricted stock awards is based on the closing market price of the Company’s common stock at the grant date.

At March 31, 2018 and 2017, the Company had unrecognized compensation expense of $2.4 million and $3.0 million, respectively, related to the non-vested shares of restricted common stock under the 2010 and 2017 Plans. The unrecognized compensation expense at March 31, 2018 is expected to be recognized over a weighted average period of 2.3 years. The total fair value of restricted shares vested during the three months ended March 31, 2018 and 2017 was approximately $0.9 million and $0.8 million, respectively. The requisite service period for restricted shares at issuance is three years.


(b)	Performance Share Awards

In May 2015, the Compensation Committee of the Board of Directors approved a PSA under the 2010 Plan to the Company’s Chairman and Chief Executive Officer. At the time of grant, the target number of shares pursuant to the PSA consisted of 89,629 shares of common stock. The PSA had a grant date fair value of approximately $0.4 million. The PSA award under which the number of underlying shares of Company common stock that can be earned will generally range from 0% to 200% of the target number of shares, with the target number of shares increased to reflect the value of the reinvestment of any dividends declared on Company common stock during the vesting period. Vesting of the PSA will occur at the end of three years based on three-year total shareholder return, or TSR, as follows:


•	If three-year TSR is less than 33%, then 0% of the PSA will vest;


•	If three-year TSR is greater than or equal to 33% and the TSR is not in the bottom quartile of an identified peer group, then 100% of the PSA will vest;


•	If three-year TSR is greater than or equal to 33% and the TSR is in the top quartile of an identified peer group, then 200% of the PSA will vest;


•	If three-year TSR is greater than or equal to 33% and the TSR is in the bottom quartile of an identified peer group, then 50% of the PSA will vest.

TSR is defined, with respect to the Company and each member of the identified peer group, as applicable, as the average annual total shareholder return based on common stock price appreciation/depreciation during the applicable measurement period or until the date of a change of control, whichever first occurs, plus the value on the last day of the applicable measurement period or the date of a change of control of common shares if all cash dividends declared on a common share during such period were reinvested in additional common shares.

Under the terms of the agreement pursuant to which the PSA was granted (the "PSA Agreement"), the PSA is subject to the terms and conditions of the 2010 Plan and in the event of any conflict between the terms of the 2010 Plan and the PSA Agreement, the terms of the 2010 Plan govern. The 2010 Plan provides that the Compensation Committee may determine that the amount payable when an award of performance shares is earned may be settled in cash, by the issuance of shares, or a combination thereof. The maximum number of shares which may be issued under the PSA is limited to 94,043 shares. In the event the PSA is earned at a level that would cause the Company to issue more than 94,043 shares, the dollar value of the PSA earned in excess of 94,043 shares will be paid in cash, subject to the terms of the 2010 Plan.

The grant date fair value of the PSA was determined through a Monte-Carlo simulation of the Company’s common stock total shareholder return and the common stock total shareholder return of its peer companies to determine the TSR of the Company’s common stock relative to its peer companies over a future period of three years. For the PSA granted in 2015, the inputs used by the model to determine the fair value are (i) historical stock return volatilities of the Company and its peer companies over the most recent three year period, (ii) a risk free rate based on the three year U.S. Treasury rate on grant date, and (iii) historical pairwise stock return correlations between the Company and its peer companies over the most recent three year period.

Compensation expense related to the PSA was $31.3 thousand for the three months ended March 31, 2018. As of March 31, 2018, there was $10.4 thousand of unrecognized compensation cost related to the non-vested portion of the PSA.


(c)	Performance Stock Units

During the three months ended March 31, 2018, the Compensation Committee and the Board of Directors approved the grant of PSUs to the Chief Executive Officer, Chief Financial Officer and certain other employees as part of our 2018 Long-Term EIP. The awards were issued pursuant to and are consistent with the terms and conditions of the 2017 Plan.

The PSU awards are subject to performance-based vesting under the 2017 Plan pursuant to the PSU Agreements. At the time of grant, the target number of shares pursuant to the PSU awards totaled 588,535 shares of common stock. The PSU awards had a grant date fair value of approximately $2.4 million. Vesting of the PSUs will occur at the end of three years based on the following:


•	If three-year TSR performance relative to the Company's identified performance peer group (the "Relative TSR") is less than 30^th percentile, then 0% of the target PSUs will vest;


•	If three-year Relative TSR performance is equal to the 30^th percentile, then Threshold % (as defined in the individual PSU Agreements) of the target PSUs will vest;


•	If three-year Relative TSR performance is equal to the 50^th percentile, then 100% of the target PSUs will vest; and


•	If three-year Relative TSR performance is greater than or equal to the 80^th percentile, then Maximum % (as defined in the individual PSU Agreements) of the target PSUs will vest.

The percentage of target PSUs that vest for performance between the 30^th, 50^th, and 80^th percentiles will be calculated using linear interpolation.

Total shareholder return for the Company and each member of the peer group will be determined by dividing (i) the sum of the cumulative amount of such entity’s dividends per share for the performance period and the arithmetic average per share volume weighted average price (the “VWAP”) of such entity’s common stock for the last thirty (30) consecutive trading days of the performance period minus the arithmetic average per share VWAP of such entity’s common stock for the last thirty (30) consecutive trading days immediately prior to the performance period by (ii) the arithmetic average per share VWAP of such entity’s common stock for the last thirty (30) consecutive trading days immediately prior to the performance period. Each PSU represents an unfunded promise to receive one share of the Company's common stock once the performance condition has been satisfied.

The grant date fair value of the PSUs was determined through a Monte-Carlo simulation of the Company’s common stock total shareholder return and the common stock total shareholder return of its identified performance peer companies to determine the Relative TSR of the Company’s common stock over a future period of three years. For the PSUs granted in 2018, the inputs used by the model to determine the fair value are (i) historical stock price volatilities of the Company and its identified performance peer companies over the most recent three year period and correlation between each company's stock and the identified performance peer group over the same time series and (ii) a risk free rate for the period interpolated from the U.S. Treasury yield curve on grant date.

Compensation expense related to the PSU was $37.2 thousand for the three months ended March 31, 2018. As of March 31, 2018, there was $2.3 million of unrecognized compensation cost related to the non-vested portion of the PSU.