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Stock Based Compensation

9 Months Ended

Sep. 30, 2019

Note 13 – Stock Based Compensation

The Company’s 2019 Incentive Plan (‘‘Plan’’), approved by the Company’s stockholders in June 2019, 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 September 30, 2019, an aggregate of 77,776 shares subject to awards in the form of RSUs have been granted under the Plan.

Under the Company’s 2016 and 2012 equity incentive plans (collectively, the “Prior Plans "), as of September 30, 2019, an aggregate of 826,750 shares of restricted stock and RSUs are outstanding and have not yet vested. No additional awards may be granted under the Prior Plans.

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 the third quarter of each of 2017, 2018 and 2019, the Company granted RSUs exchangeable for up to 76,250, 76,250 and 77,776 shares, respectively, of common stock upon satisfaction, through June 30, 2020, June 30, 2021 and June 30, 2022, 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 2019 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 6.22%, a risk-free interest rate of 1.79% - 2.07% and an expected price volatility of 21.37% - 23.04%. The expected price volatility was calculated based on historical 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. The Company does not recognize expense on ROC Awards which it does not expect to vest.

As of September 30, 2019, based on performance and market assumptions, the fair value of the RSUs granted in 2017, 2018 and 2019 is $787,000, $856,000 and $923,000, respectively. Recognition of such deferred compensation expense 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 nine months ended September 30, 2019.

Note 13 – Stock Based Compensation (Continued)

The following is a summary of the activity of the equity incentive plans:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Restricted stock grants:
Number of shares		—		—		150,050		144,750
Average per share grant price		—		—	$	25.70	$	25.31
Deferred compensation to be recognized over vesting period		—		—	$	3,856,000	$	3,664,000

Number of non-vested shares:
Non-vested beginning of period		689,150		651,500		651,250		612,900
Grants		—		—		150,050		144,750
Vested during period		(2,500)		—		(114,650)		(106,000)
Forfeitures		(12,400)		(250)		(12,400)		(400)
Non-vested end of period		674,250		651,250		674,250		651,250

RSU grants:
Number of underlying shares		77,776		76,250		77,776		76,250
Average per share grant price	$	28.96	$	26.41	$	28.96	$	26.41
Deferred compensation to be recognized over vesting period	$	923,000	$	1,136,000	$	923,000	$	1,136,000

Number of non-vested shares:
Non-vested beginning of period		152,500		76,250		152,500		76,250
Grants		77,776		76,250		77,776		76,250
Vested during period		—		—		—		—
Forfeitures		—		—		—		—
Non-vested end of period		230,276		152,500		230,276		152,500


Restricted stock and RSU grants:
Weighted average per share value of non-vested shares (based on grant price)	$	24.98	$	23.83	$	24.98	$	23.83
Value of stock vested during the period (based on grant price)	$	61,500	$	—	$	2,365,000	$	2,289,000
Weighted average per share value of shares forfeited during the period (based on grant price)	$	24.41	$	23.39	$	24.41	$	23.59

The total charge to operations:
Outstanding restricted stock grants	$	717,000	$	763,000	$	2,403,000	$	2,263,000
Outstanding RSUs		225,000		208,000		431,000		390,000
Total charge to operations	$	942,000	$	971,000	$	2,834,000	$	2,653,000

As of September 30, 2019, total compensation costs of $7,965,000 and $1,559,000 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 remaining vesting period is 2.4 years for the restricted stock and 1.8 years for the RSUs.