Quarterly report pursuant to Section 13 or 15(d)

Equity-Based Compensation of the Company

v3.22.2.2
Equity-Based Compensation of the Company
 9 Months Ended
Sep. 30, 2022
Share-Based Payment Arrangement [Abstract]  
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 (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 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.

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,
  2022 2021 2022 2021
Restricted common shares (1)
$ 1,705  $ 1,937  $ 5,919  $ 6,050 
Notional unit performance awards (1)
1,227  962  3,802  3,257 
Options 74  95  244  296 
Total equity-based compensation $ 3,006  $ 2,994  $ 9,965  $ 9,603 
(1)    Each of the three and nine months ended September 30, 2022 and nine months ended September 30, 2021, include the accelerated recognition of compensation cost.

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,
  2022 2021 2022 2021
Equity-based compensation expense capitalized $ 51  $ 18  $ 137  $ 84 

Restricted Common Share and Restricted Share Unit Awards

During February 2022, the Company granted approximately 383,000 restricted common shares and restricted share units to the Company’s non-employee directors and the Company’s executive officers. The grant date fair value of the awards was $16.62 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 executive officers. 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 229,700 and 121,000 for the nine months ended September 30, 2022 and 2021, 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 $3.7 million and $1.8 million for the nine months ended September 30, 2022 and 2021, respectively. These amounts are reflected as financing activities within the consolidated statements of cash flows.

2022 Performance Share Plan

During February 2022, the Compensation Committee of the Company approved the general terms of the Tanger Factory Outlet Centers, Inc. 2022 Performance Share Plan (the “2022 PSP”) covering the Company's executive officers whereby a maximum of approximately 555,000 restricted common shares may be earned if certain share price appreciation goals are achieved over a three year measurement period.
The 2022 PSP 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, (c) due to death or disability).

The following table sets forth 2022 PSP performance targets and other relevant information about the 2022 PSP:
Performance targets (1)
Absolute portion of award:
Percent of total award 33.3%
Absolute total shareholder return range 26.0  % - 40.5%
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 555,349 
February grant date fair value per share $ 11.68 
(1)The number of restricted common shares received under the 2022 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.
(2)The peer group is based on companies included in the FTSE NAREIT Retail Index.

The fair values of the 2022 PSP awards granted during the nine months ended September 30, 2022 were determined at the grant dates using a Monte Carlo simulation pricing model and the following assumptions:
Risk free interest rate (1)
1.7  %
Expected dividend yield (2)
5.7  %
Expected volatility (3)
65  %
(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 average dividend yield over the previous three-year period and the current dividend yield as of the valuation date.
(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.

2019 Performance Share Plan

On February 17, 2022, the measurement period for the 2019 Performance Share Plan (the “2019 PSP") expired. Based on the Company’s relative total shareholder return over the three year measurement period, we issued 96,592 restricted common shares in February 2022, with 58,569 vesting immediately and the remaining 38,023 vesting in February one year thereafter, contingent upon continued employment with the Company through the vesting date. Our absolute share price appreciation (or total shareholder return) for the 2019 OPP did not meet the minimum share price appreciation and no shares were earned under this component of the 2019 OPP.