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

3 Months Ended

Mar. 31, 2020

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), as amended (the “Plan”), which covers our non-employee directors, officers, employees and consultants. Per the Operating Partnership agreement, when a common share is 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,
	2020		2019
Restricted common shares	$	2,227	$	2,513
Notional unit performance awards	1,520		1,262
Options	41		43
Total equity-based compensation	$	3,788	$	3,818

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,
	2020		2019
Equity-based compensation expense capitalized	$	101	$	92

Restricted Common Share and Restricted Share Unit Awards

During February 2020, the Company granted approximately 399,000 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 $12.03 to $13.75 per share. The restricted common shares vest ratably over a three year period on January 4th of each year for non-employee directors and on February 15th of each year for senior executive officers. For the restricted shares 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 57,000 and 81,000 for the three months ended March 31, 2020 and 2019, 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 $736,000 and $1.8 million for the three months ended March 31, 2020 and 2019, respectively. These amounts are reflected as financing activities within the consolidated statements of cash flows.

2020 Outperformance Plan

During February 2020, the Compensation Committee of the Company approved the general terms of the Tanger Factory Outlet Centers, Inc. 2020 Outperformance Plan (the “2020 OPP”) covering the Company's senior executive officers whereby a maximum of approximately 697,000 restricted common shares may be earned if certain share price appreciation goals are achieved over a three year measurement period. The 2020 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 2020 OPP performance targets and other relevant information about the 2020 OPP:



Performance targets ⁽¹⁾
Absolute portion of award:
Percent of total award	33.3%
Absolute total shareholder return range	36.8		%	-	52.1%
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	696,687
Grant date fair value per share	$	7.30


(1)	The number of restricted common shares received under the 2020 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 2020 OPP awards granted during the three months ended March 31, 2020 were determined at the grant dates using a Monte Carlo simulation pricing model and the following assumptions:



Risk free interest rate ⁽¹⁾	1.4	%
Expected dividend yield ⁽²⁾	8.4	%
Expected volatility ⁽³⁾	29	%


(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.