Annual report pursuant to Section 13 and 15(d)

Equity-Based Compensation

v3.22.4
Equity-Based Compensation
 12 Months Ended
Dec. 31, 2022
Tanger Factory Outlet Centers, Inc. [Member]  
Equity-Based Compensation Equity-Based Compensation
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 subsidiary, the Tanger LP Trust. 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.

As of December 31, 2022, we may issue up to 18.7 million common shares under the Plan. Shares remaining available for future issuance totaled approximately 1,514,000 common shares. The amount and terms of the awards granted under the Plan were determined by the Board of Directors (or the Compensation Committee of the Board of Directors).

We recorded equity-based compensation expense in general and administrative expenses in the consolidated statements of operations for the years ended December 31, 2022, 2021 and 2020, respectively, as follows (in thousands):
2022 2021 2020
Restricted common shares $ 7,654  $ 7,980  $ 7,614 
Notional unit performance awards 4,987  4,406  4,574 
Options 328  366  329 
Total equity-based compensation $ 12,969  $ 12,752  $ 12,517 

Equity-based compensation expense capitalized as a part of rental property and deferred lease costs were as follows (in thousands):
  2022 2021 2020
Equity-based compensation expense capitalized $ 191  $ 94  $ 409 

As of December 31, 2022, there was $17.8 million of total unrecognized compensation cost related to unvested common equity-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 2.3 years.

Restricted Common Share and Restricted Share Unit Awards

During 2022, 2021 and 2020, the Company granted approximately 513,000, 485,000 and 788,000 restricted common shares and restricted share units, respectively, to the Company's non-employee directors and the Company's senior executive officers. The 2020 grants include approximately 389,000 restricted common shares that were issued to our Chief Executive Officer, Stephen J. Yalof, as an inducement to his entering into employment with the Company and were granted outside of the Company’s shareholder approved equity plan pursuant to New York Stock Exchange rules. The non-employee directors' restricted common shares generally vest ratably over a three year period and the senior executive officers' restricted common shares generally vest ratably over periods ranging from three to five years. Compensation expense related to the amortization of the deferred compensation is being recognized in accordance with the vesting schedule of the restricted common shares and restricted share units. For all of the restricted common share and restricted share unit awards described above, the grant date fair value of the awards were determined based upon the closing market price of the Company's common shares on the day prior to the grant date.
The following table summarizes information related to unvested restricted common shares and restricted share units outstanding for the years ended December 31, 2022, 2021 and 2020:

Unvested Restricted Common Shares and Restricted Share Units Number of shares and units Weighted average grant date fair value
Outstanding at December 31, 2019 681,525  $ 23.92 
Granted (1)
787,873  23.92 
Vested (330,014) 25.43 
Forfeited (18,996) 19.79 
Outstanding at December 31, 2020 1,120,388  $ 13.91 
Granted (2)
485,105  15.40 
Vested (575,688) 15.90 
Forfeited —  — 
Outstanding at December 31, 2021 1,029,805  $ 13.51 
Granted (3)
512,957  17.32 
Vested (545,788) 14.01 
Forfeited (26,591) 15.87 
Outstanding at December 31, 2022 970,383  $ 15.18 
(1)Includes 121,527 restricted share units.
(2)Includes 68,494 restricted share units.
(3)Includes 36,102 restricted share units.

The table above excludes restricted common shares earned under the 2018 and 2019 Performance Share Plan. In connection with the 2018 Performance Share Plan, we issued approximately 76,000 restricted common shares in February 2021, with approximately 49,000 vesting during 2021 and the remaining 27,000 vesting in February 2022, In connection with the 2019 Performance Share Plan, we issued approximately 97,000 restricted common shares in February 2022, with approximately 59,000 vesting during 2022 and the remaining 38,000 to vest in February 2023. All performance share plan vesting is 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 (c) due to death or disability).

The total value of restricted common shares vested during the years ended 2022, 2021 and 2020 was $10.6 million, $9.4 million and $4.2 million, respectively. During 2022, 2021 and 2020, we withheld shares with value equivalent to the employees' obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. The total number of shares withheld were approximately 240,000, 139,000 and 57,000 for 2022, 2021 and 2020, respectively, and were 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 $3.7 million, $2.1 million and $0.7 million for 2022, 2021 and 2020, respectively, which are reflected as a financing activity within the consolidated statements of cash flows.
Notional Unit Performance Awards

Performance Share Plan

Each year, the Compensation Committee of Tanger Factory Outlet Centers, Inc. approves the terms and the number of awards to be granted under the Tanger Factory Outlet Centers, Inc. Performance Share Plan (the “PSP"), formerly titled the "Outperformance Plan". The PSP is a long-term incentive compensation plan. Recipients may earn 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 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. For all recipients, 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 (c) due to death or disability).

The following table sets forth PSP performance targets and other relevant information about each plan:
2022
PSP(1)
2021
PSP(1)
2020
PSP(1)
2019
PSP(1)
Performance targets
Absolute portion of award:
Percent of total award 33% 33% 33% 33%
Absolute total shareholder return range 26  % - 41% 26  % - 41% 37  % - 52% 19  % - 30%
Percentage of units to be earned 20% - 100% 20  % - 100% 20  % - 100% 20  % - 100%
Relative portion of award:
Percent of total award 67% 67% 67% 67%
Percentile rank of peer group range 30  th - 80th 30  th - 80th 30  th - 80th 30  th - 80th
Percentage of units to be earned 20  % - 100% 20  % - 100% 20  % - 100% 20  % - 100%
Maximum number of restricted common shares that may be earned 555,349  688,824  902,167  531,827 
February grant date fair value per share $ 11.68  $ 9.65  $ 7.30  $ 12.09 
April 2020 grant date fair value per share (2)
N/A N/A $ 3.11  N/A
August 2021 grant date fair value per share (3)
N/A $ 12.44  N/A N/A
(1)The number of restricted common shares received under the 2022, 2021, 2020 and 2019 PSP 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. The peer group is based on companies included in the FTSE Nareit Retail Index.
(2)In April 2020, Mr. Yalof was awarded 205,480 notional units under the 2020 PSP. These awards have the same terms as the awards our executive officers received in February 2020.
(3)In August of 2021, additional awards under the 2021 PSP were granted to recently hired senior executive officers whereby a maximum of approximately 26,000 restricted common shares may be earned.
The fair values of the PSP awards granted during the years ended December 31, 2022, 2021 and 2020 were determined at the grant dates using a Monte Carlo simulation pricing model and the following assumptions:
PSP PSP PSP
2022 2021 2020
Risk free interest rate (1)
1.70  % 0.20  % 1.40  %
Expected dividend yield (2)
5.7  % 6.5  % 8.4  %
Expected volatility (3)
65  % 61  % 29  %
(1)Represents the interest rate as of the grant date on U.S. 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.

The following table sets forth PSP activity for the years ended December 31, 2022, 2021 and 2020:
Unvested PSP Awards
Number of units Weighted average grant date fair value
Outstanding as of December 31, 2019 1,123,904  $ 13.36 
Awarded 902,167  6.35 
Earned —  — 
Forfeited (316,297) 16.01 
Outstanding as of December 31, 2020 1,709,774  $ 9.17 
Awarded 688,824  9.76 
Earned (1)
(76,478) 12.42 
Forfeited (475,854) 11.03 
Outstanding as of December 31, 2021 1,826,266  $ 8.82 
Awarded 556,794  11.68 
Earned (1)
(96,592) 12.42 
Forfeited (475,061) 11.44 
Outstanding as of December 31, 2022 1,811,407  $ 8.84 
(1)Represents the units under the 2018 and 2019 PSP that are no longer outstanding and have been settled in restricted common shares.
Option Awards

Options outstanding at December 31, 2022 had the following weighted average exercise prices and weighted average remaining contractual lives:
Options Outstanding Options Exercisable
Exercise prices Options Weighted average exercise price Weighted remaining contractual life in years Options Weighted average exercise price
$ 5.73  203,500  $ 5.73  7.69 65,800  $ 5.73 
$ 7.15  1,000,000  $ 7.15  7.37 750,000  $ 7.15 
$ 19.37  250,000  $ 19.37  9.91 —  $ — 
$ 21.94  177,500  $ 21.94  5.13 141,700  $ 21.94 
$ 32.02  85,800  $ 32.02  1.00 85,800  $ 32.02 
1,716,800  $ 11.53  6.79 1,043,300  $ 11.11 

A summary of option activity under the Plan for the years ended December 31, 2022, 2021 and 2020 (aggregate intrinsic value amount in thousands):
Options Shares Weighted-average exercise price Weighted-average remaining contractual life in years Aggregate intrinsic value
Outstanding as of December 31, 2019 523,300  $ 25.57 
Granted 1,334,500  6.79 
Exercised —  — 
Forfeited (52,100) 25.80 
Outstanding as of December 31, 2020 1,805,700  $ 11.69  8.30 $ — 
Granted —  — 
Exercised (42,100) 6.31 
Forfeited (168,000) 22.84 
Outstanding as of December 31, 2021 1,595,600  $ 10.68  7.64 $ — 
Granted 250,000  19.37 
Exercised (15,500) 5.73 
Forfeited (113,300) 17.66 
Outstanding as of December 31, 2022 1,716,800  $ 11.53  6.79 $ 13,275 
Vested and Expected to Vest as of
December 31, 2022 1,700,270  $ 11.59  6.78 $ 13,077 
Exercisable as of December 31, 2022 1,043,300  $ 11.11  6.56 $ 8,896 
In November 2022, Michael Bilerman became the Executive Vice President, Chief Financial Officer and Chief Investment Officer of the Company. Mr. Bilerman was granted 250,000 options that have an exercise price of $19.37 per share, which equaled the closing market price of a common share of the Company on the day prior to the grant date. The options expire 10 years from the date of grant and 50% of the options become exercisable on November 29, 2024, 25% of the award on November 29, 2025 and 25% of the award on November 29, 2026, in each case, contingent upon continued employment with the Company through the applicable vesting date (subject to acceleration upon certain terminations of employment). The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model, which resulted in a weighted average grant date fair value per share of $6.13 and included the following weighted-average assumptions: expected dividend yield 5.10%; expected life of 6.8 years; expected volatility of 48%; a risk-free rate of 3.96%; and forfeiture rate of 0.0%.

In September 2020, the Company granted 334,500 options to non-executive employees of the Company. The exercise price of the options granted was $5.73 per share which equaled the closing market price of the Company's common shares on the day prior to the grant date. The options expire 10 years from the date of grant and 20% of the options become exercisable in each of the first 5 years commencing one year from the date of grant. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model, which resulted in a weighted average grant date fair value per share of $1.03 and included the following weighted-average assumptions: expected dividend yield 4.93%; expected life of 6.5 years; expected volatility of 34.39%; a risk-free rate of 0.48%; and forfeiture rate of 7.2% dependent upon the employee's position within the Company.

In April 2020, Stephen Yalof became the President and Chief Operating Officer of the Company. Mr. Yalof was granted 1.0 million options that have an exercise price of $7.15 per share, which equaled the closing market price of a common share of the Company on the day prior to the grant date. As an inducement to his entering into employment with the Company, the options were granted outside of the Company’s shareholder approved equity plan pursuant to New York Stock Exchange rules. The options expire 10 years from the date of grant and 25% of the options became exercisable on December 31, 2020 with the remaining options vesting ratably on each December 31st through 2023, in each case, contingent upon continued employment with the Company through the applicable vesting date (subject to acceleration upon certain terminations of employment). The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model, which resulted in a weighted average grant date fair value per share of $0.42 and included the following weighted-average assumptions: expected dividend yield 9.86%; expected life of 7.9 years; expected volatility of 30%; a risk-free rate of 0.60%; and forfeiture rate of 0.0%.

401(k) Retirement Savings Plan
We have a 401(k) Retirement Savings Plan covering substantially all employees who meet certain age and employment criteria. An employee may invest pretax earnings in the 401(k) plan up to the maximum legal limits (as defined by Federal regulations). This plan allows participants to defer a portion of their compensation and to receive matching contributions for a portion of the deferred amounts. During the years ended December 31, 2022, 2021 and 2020, we contributed approximately $968,000, $867,000 and $878,000, respectively, to the 401(k) Retirement Savings Plan.