Quarterly report pursuant to Section 13 or 15(d)

Equity Based Compensation of the Company

v3.7.0.1
Equity Based Compensation of the Company
3 Months Ended
Mar. 31, 2017
Tanger Factory Outlet Centers, Inc [Member]  
Equity Based Compensation of the Company
Equity Based Compensation of the Company

We have a shareholder approved equity-based compensation plan, the Incentive Award Plan of Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership (Amended and Restated as of April 4, 2014) (the "Plan"), which covers our independent directors, officers, employees and consultants. For each common share issued by the Company, the Operating Partnership issues one corresponding unit of partnership interest to the Company's wholly owned subsidiaries. Therefore, when the Company grants an equity-based award, the Operating Partnership treats each award as having been granted by the Operating Partnership. In the discussion below, the term "we" refers to the Company and the Operating Partnership together and the term "shares" is meant to also include corresponding units of the Operating Partnership.

We recorded equity-based compensation expense in general and administrative expenses in our consolidated statements of operations as follows (in thousands):
 
 
Three months ended
 
 
March 31,
 
 
2017
 
2016
Restricted common shares
 
$
2,349

 
$
2,939

Notional unit performance awards
 
882

 
885

Options
 
61

 
177

Total equity-based compensation
 
$
3,292

 
$
4,001



Equity-based compensation expense capitalized as a part of rental property and deferred lease costs were as follows (in thousands):
 
 
Three months ended
 
 
March 31,
 
 
2017
 
2016
Equity-based compensation expense capitalized
 
$
246

 
$
230



Restricted Common Share Awards

During February 2017, the Company granted 253,431 restricted common shares to the Company's independent directors and the Company's senior executive officers. The grant date fair value of the awards ranged from $30.16 to $34.47 per share. The independent directors' restricted common shares vest ratably over a three year period and the senior executive officers' restricted shares vest ratably over a three or five year period. For the restricted shares issued to our chief executive officer, the restricted share agreement requires him to hold the shares for a minimum of three years following each vesting date. Compensation expense related to the amortization of the deferred compensation is being recognized in accordance with the vesting schedule of the restricted shares.

For certain shares that vest during the period, we withhold shares with value equivalent to the employees' minimum statutory obligation for the applicable income and other employment taxes, and remit cash to the appropriate taxing authorities. The total number of shares withheld upon vesting was 69,886 and 60,382 for the three months ended March 31, 2017 and 2016, respectively. The total number of shares withheld was based on the value of the restricted common shares on the vesting date as determined by our closing share price on the day prior to the vesting date. Total amounts paid for the employees' tax obligation to taxing authorities was $2.4 million and $1.9 million for the three months ended March 31, 2017 and 2016, respectively. These amounts are reflected as financing activities within the consolidated statements of cash flows.

2017 Outperformance Plan

In February 2017, the Compensation Committee of Tanger Factory Outlet Centers, Inc. approved the terms of the Tanger Factory Outlet Centers, Inc. 2017 Outperformance Plan (the “2017 OPP"), a long-term incentive compensation plan. Recipients receive notional units which may convert, subject to the achievement of the goals described below, into restricted common shares of the Company based on the Company’s absolute share price appreciation (or total shareholder return) and its share price appreciation relative to its peer group over a three-year measurement period. Any shares earned at the end of the three-year measurement period are subject to a time-based vesting schedule, with 50% of the shares vesting immediately following issuance, and the remaining 50% vesting one year thereafter, contingent upon continued employment with the Company through the vesting dates (unless terminated prior thereto (a) by the Company without cause, (b) by participant for good reason or (c) due to death or disability).

The following table sets forth 2017 OPP performance targets and other relevant information about the 2017 OPP:
Performance targets (1)
 
 
Absolute portion of award:
 
 
Percent of total award
 
50%
Absolute share price appreciation range
 
18% - 35%
Percentage of units to be earned
 
20%-100%
 
 
 
Relative portion of award:
 
 
Percent of total award
 
50%
Percentile rank of peer group range(2)
 
40th - 70th
Percentage of units to be earned
 
20%-100%
 
 
 
Maximum number of restricted common shares that may be earned
 
296,400

Grant date fair value per share
 
$
16.60

(1)
The number of restricted common shares received under the 2017 OPP will be determined on a pro-rata basis by linear interpolation between share price appreciation thresholds, both for absolute share price appreciation and for relative share price appreciation amongst the Company's peer group. The share price for the purposes of calculation of share price appreciation will be adjusted on a penny-for-penny basis with respect to any dividend payments made during the measurement period.
(2)
The peer group is based on companies included in the SNL Equity REIT index.

The fair values of the 2017 OPP awards granted during the three months ended March 31, 2017 were determined at the grant dates using a Monte Carlo simulation pricing model and the following assumptions:
Risk free interest rate (1)
 
1.52
%
Expected dividend yield (2)
 
3.4
%
Expected volatility (3)
 
19
%
(1)
Represents the interest rate as of the grant date on US treasury bonds having the same life as the estimated life of the restricted unit grants.
(2)
The dividend yield is calculated utilizing the dividends paid for the previous five-year period.
(3)
Based on a mix of historical and implied volatility for our common shares and the common shares of our peer index companies over the measurement period.

2014 Outperformance Plan

On December 31, 2016, the measurement period for the 2014 Outperformance Plan ('the 2014 OPP") expired. Based on the Company’s absolute share price appreciation (or total shareholder return) over the three year measurement period, we issued 184,455 restricted common shares in January 2017, with 94,663 vesting immediately and the remaining 89,792 vesting in January one year thereafter, contingent upon continued employment with the Company through the vesting date. Our relative total shareholder return for the 2014 OPP did not meet the minimum share price appreciation and no shares were earned under this component of the 2014 OPP.