Tanger Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Equity-Based Compensation of the Company

Equity-Based Compensation of the Company

9 Months Ended

Sep. 30, 2019

Tanger Factory Outlet Centers, Inc. [Member]

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 (as amended and restated on April 4, 2014, the “Plan”), which covers our non-employee 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				Nine months ended
	September 30,				September 30,
	2019		2018		2019		2018
Restricted common shares ⁽¹⁾	$	2,084	$	2,275	$	9,224	$	7,359
Notional unit performance awards ⁽¹⁾	1,446		1,040		5,021		3,141
Options	45		92		126		314
Total equity-based compensation	$	3,575	$	3,407	$	14,371	$	10,814


(1)	Includes the accelerated recognition of compensation cost related to the planned retirement of an executive officer.

Equity-based compensation expense capitalized as a part of rental property and deferred lease costs were as follows (in thousands):



	Three months ended				Nine months ended
	September 30,				September 30,
	2019		2018		2019		2018
Equity-based compensation expense capitalized	$	94	$	652	$	286	$	840

Restricted Common Share and Restricted Share Unit Awards

During February 2019, the Company granted approximately 309,000 restricted common shares and restricted share units to the Company’s non-employee directors and the Company’s senior executive officers. The grant date fair value of the awards ranged from $19.01 to $21.73 per share. The non-employee directors’ restricted common shares vest ratably over a three year period and the senior executive officers’ restricted shares (other than our Chief Executive Officer’s) vest ratably over a three or five year period. Our Chief Executive Officer’s restricted shares vest on the first anniversary of the grant date and his restricted share units vest in two equal installments on the second and third anniversaries of the grant date. For the restricted shares and units issued to our Chief Executive Officer, the award agreements require him to hold shares or units issued to him for a minimum of three years following vesting or the share issuance date, as applicable. 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 up to the employees’ maximum 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 were approximately 81,000 and 89,000 for the nine months ended September 30, 2019 and 2018, 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 were $1.8 million for the nine months ended September 30, 2019 and $2.1 million for the nine months ended September 30, 2018. These amounts are reflected as financing activities within the consolidated statements of cash flows.

2019 Outperformance Plan

In February 2019, the Compensation Committee of the Company approved the general terms of the Tanger Factory Outlet Centers, Inc. 2019 Outperformance Plan (the “2019 OPP”). The 2019 OPP is a long-term incentive compensation plan. Recipients may earn units which may convert into restricted common shares of the Company based on the Company’s absolute share price appreciation (or absolute total shareholder return) and its share price appreciation relative to its peer group (or relative total shareholder return) 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 the measurement period, and the remaining 50% vesting one year thereafter, contingent upon continued employment with the Company through the vesting date (unless terminated prior thereto (a) by the Company without cause, (b) by participant for good reason or, with respect to our Chief Executive Officer, retirement or (c) due to death or disability).

The following table sets forth 2019 OPP performance targets and other relevant information about the 2019 OPP:



Performance targets ⁽¹⁾
Absolute portion of award:
Percent of total award	33.3%
Absolute total shareholder return range	19.1		%	-	29.5%
Percentage of units to be earned	20		%	-	100%

Relative portion of award:
Percent of total award	66.7%
Percentile rank of peer group range⁽²⁾	30		th	-	80th
Percentage of units to be earned	20		%	-	100%

Maximum number of restricted common shares that may be earned	531,827
Grant date fair value per share	$	12.09


(1)	The number of restricted common shares received under the 2019 OPP will be determined on a pro-rata basis by linear interpolation between total shareholder return thresholds, both for absolute total shareholder return and for relative total shareholder return amongst the Company’s peer group.


(2)	The peer group is based on companies included in the FTSE NAREIT Retail Index.

The fair values of the 2019 OPP awards granted during the nine months ended September 30, 2019 were determined at the grant dates using a Monte Carlo simulation pricing model and the following assumptions:



Risk free interest rate ⁽¹⁾	2.6	%
Expected dividend yield ⁽²⁾	5.3	%
Expected volatility ⁽³⁾	24	%


(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.