NOTE 12—STOCKHOLDERS’ EQUITY

Stock Based Compensation

The Company’s 2016 Incentive Plan (“Plan”), approved by the Company’s stockholders in June 2016, permits the Company to grant, among other things, stock options, restricted stock, RSUs, performance share awards and dividend equivalent rights and any one or more of the foregoing to its employees, officers, directors and consultants. A maximum of 750,000 shares of the Company’s common stock is authorized for issuance pursuant to this Plan. As of December 31, 2018, (i) restricted stock awards with respect to 284,850 shares had been issued, of which 300 shares were forfeited and 3,000 shares had vested, and (ii) as further described below, RSUs with respect to 152,500 shares had been issued and are outstanding. On January 10, 2019, 150,050 restricted shares were issued pursuant to this Plan, having an aggregate value of approximately $3,856,000 and are scheduled to vest in January 2024.

Under the Company’s 2012 equity incentive plan, as of December 31, 2018, 500,700 shares had been issued, of which 3,550 shares were forfeited and 127,450 shares had vested. No additional awards may be granted under this plan.

For accounting purposes, the restricted stock is not included in the shares shown as outstanding on the balance sheet until they vest; however, dividends are paid on the unvested shares. The restricted stock grants are charged to General and administrative expense over the respective vesting periods based on the market value of the common stock on the grant date. Unless earlier forfeited because the participant’s relationship with the Company terminated, unvested restricted stock awards vest on the fifth anniversary of the grant date, and under certain circumstances may vest earlier.

In each of 2017 and 2018, the Company granted RSUs exchangeable for up to 76,250 shares of common stock upon satisfaction, through June 30, 2020 and 2021, respectively, of specified conditions. Specifically, up to 50% of these RSUs vest upon achievement of metrics related to average annual total stockholder return (the “TSR Awards”), which metrics meet the definition of a market condition, and up to 50% vest upon achievement of metrics related to average annual return on capital (the “ROC Awards”), which metrics meet the definition of a performance condition. The holders of the RSUs are not entitled to dividends or to vote the underlying shares until such RSUs vest and shares are issued. Accordingly, the shares underlying these RSUs are not included in the shares shown as outstanding on the balance sheet. For the TSR awards, a third party appraiser prepared a Monte Carlo simulation pricing model to determine the fair value, which is recognized ratably over the service period. The Monte Carlo valuation consisted of computing the grant date fair value of the awards using the Company’s simulated stock price. For the 2018 and 2017 TSR awards, the per unit or share fair value was estimated using the following assumptions: an expected life of three years, a dividend rate of 6.82% and 7.16%, respectively, a risk-free interest rate of 2.18% - 2.70% and 1.14% - 1.64%, respectively, and an expected price volatility of 22.29% - 25.99% and 16.57% - 19.16%, respectively. The expected price volatility was calculated based on the historical volatility and implied volatility. For the ROC awards, the fair value is based on the market value on the date of grant and the performance assumptions are re-evaluated quarterly. Expense is not recognized on the RSUs which the Company does not expect to vest as a result of service conditions or the Company's performance expectations.

As of December 31, 2018, based on performance and market assumptions, the fair value of the RSUs granted in 2017 and 2018 is $915,000 and $952,000, respectively. Recognition of such deferred compensation will be charged to General and administrative expense over the respective three year performance cycle. None of these RSUs were forfeited or vested during the year ended December 31, 2018.

In 2010, RSUs exchangeable for up to 200,000 shares of common stock were awarded pursuant to the Company’s 2009 Incentive Plan. The holders of RSUs were not entitled to dividends or to vote the underlying shares until the RSUs vested and the underlying shares were issued. During 2017, 113,584 shares of common stock underlying the RSUs were deemed to have vested and were issued. RSUs with respect to the balance of 86,416 shares were forfeited. The following is a summary of the activity of the equity incentive plans:


	Years Ended December 31,
	2018		2017		2016
Restricted stock grants:
Number of shares		144,750		140,100		139,225
Average per share grant price	$	25.31	$	24.75	$	21.74
Deferred compensation to be recognized over vesting period	$	3,664,000	$	3,467,000	$	3,027,000

Number of non-vested shares:
Non-vested beginning of year		612,900		591,750		538,755
Grants		144,750		140,100		139,225
Vested during year		(106,000)		(118,450)		(85,730)
Forfeitures		(400)		(500)		(500)
Non-vested end of year		651,250		612,900		591,750

RSU grants:
Number of underlying shares		76,250		76,250		—
Average per share grant price	$	26.41	$	24.03		—
Deferred compensation to be recognized over vesting period	$	952,000	$	1,004,000		—

Number of non-vested shares:
Non-vested beginning of year		76,250		200,000		200,000
Grants		76,250		76,250		—
Vested during year		—		(113,584)		—
Forfeitures		—		(86,416)		—
Non-vested end of year		152,500		76,250		200,000

Restricted stock and RSU grants:
Weighted average per share value of non-vested shares (based on grant price)	$	23.83	$	22.89	$	17.95
Value of stock vested during the year (based on grant price)	$	2,289,000	$	3,008,000	$	1,451,500
Weighted average per share value of shares forfeited during the year (based on grant price)	$	23.59	$	8.37	$	21.05

Total charge to operations:
Outstanding restricted stock grants	$	3,028,000	$	2,966,000	$	2,692,000
Outstanding RSUs		482,000		167,000		291,000
Total charge to operations	$	3,510,000	$	3,133,000	$	2,983,000

As of December 31, 2018, total compensation costs of $6,815,000 and $1,290,000, related to non-vested restricted stock awards and RSUs, respectively, have not yet been recognized. These compensation costs will be charged to General and administrative expense over the remaining respective vesting periods. The weighted average vesting period is 2.1 years for the restricted stock and 2.0 years for the RSUs.

Common Stock Dividend Distributions

In 2018, 2017 and 2016, the Board of Directors declared an aggregate $1.80, $1.74 and $1.66 per share in cash distributions, respectively.

On March 11, 2019, the Board of Directors declared a quarterly cash dividend of $.45 per share on the Company's common stock, totaling approximately $8,800,000. The quarterly dividend is payable on April 5, 2019 to stockholders of record on March 26, 2019.

Dividend Reinvestment Plan

The Company’s Dividend Reinvestment Plan (the “DRP”) provides stockholders with the opportunity to reinvest all, or a portion of, their cash dividends paid on the Company’s common stock in additional shares of its common stock, at a discount of up to 5% from the market price. The discount is determined in the Company’s sole discretion. The Company is currently offering up to a 5% discount from market. The Company issued 243,000, 198,000 and 142,000 common shares under the DRP during 2018, 2017 and 2016, respectively.

Shares Issued Through Equity Offering Program

During 2018, the Company sold 126,300 shares for proceeds of $3,245,000, net of commissions of $33,000, and incurred offering costs of $107,000 for professional fees. During 2017, the Company sold 231,000 shares for proceeds of $5,758,000, net of commissions of $58,000, and incurred offering costs of $188,000 for professional fees.