7. Equity

During the nine months ended September 30, 2016, Simon issued 4,770,419 shares of common stock to twelve limited partners of the Operating Partnership in exchange for an equal number of units pursuant to the partnership agreement of the Operating Partnership. This transaction increased Simon’s ownership interest in the Operating Partnership.

On April 2, 2015, Simon’s Board of Directors authorized Simon to repurchase up to $2.0 billion of common stock over a twenty-four month period as market conditions warrant. Simon may repurchase the shares in the open market or in privately negotiated transactions. During the nine months ended September 30, 2016, no purchases were made as part of this program. As Simon repurchases shares under this program, the Operating Partnership repurchases an equal number of units from Simon.

Temporary Equity

Simon

We classify as temporary equity those securities for which there is the possibility that we could be required to redeem the security for cash irrespective of the probability of such a possibility. As a result, we classify one series of preferred units of the Operating Partnership and noncontrolling redeemable interests in properties in temporary equity. Each of these securities is discussed further below.

Limited Partners’ Preferred Interest in the Operating Partnership and Noncontrolling Redeemable Interests in Properties. The redemption features of the preferred units of the Operating Partnership contain provisions which could require us to settle the redemption in cash. As a result, this series of preferred units in the Operating Partnership remains classified outside permanent equity. The remaining interests in a property or portfolio of properties that are redeemable at the option of the holder or in circumstances that may be outside our control are accounted for as temporary equity within limited partners’ preferred interest in the Operating Partnership and noncontrolling redeemable interests in properties in the accompanying consolidated balance sheets. The carrying amount of the noncontrolling interest is adjusted to the redemption amount assuming the instrument is redeemable at the balance sheet date. Changes in the redemption value of the underlying noncontrolling interest are recorded within accumulated deficit. There are no noncontrolling interests redeemable at amounts in excess of fair value. The preferred units of the Operating Partnership and the amount of the noncontrolling redeemable interests in properties are summarized as follows:


	As of		As of
	September 30,		December 31,
	2016		2015
7.50% Cumulative Redeemable Preferred Units, 260,000 units authorized, 255,373 issued and outstanding	$	25,537	$	25,537
Other noncontrolling redeemable interests in properties		133,813		—
Limited partners’ preferred interest in the Operating Partnership and noncontrolling redeemable interests in properties	$	159,350	$	25,537

The Operating Partnership

We classify as temporary equity those securities for which there is the possibility that we could be required to redeem the security for cash, irrespective of the probability of such a possibility. As a result, we classify one series of preferred units and noncontrolling redeemable interests in properties in temporary equity. The carrying values for those securities classified in temporary equity are summarized as follows:


	As of		As of
	September 30,		December 31,
	2016		2015
7.50% Cumulative Redeemable Preferred Units, 260,000 units authorized, 255,373 issued and outstanding	$	25,537	$	25,537
Other noncontrolling redeemable interests in properties		133,813		—
Total preferred units, at liquidation value, and noncontrolling redeemable interests in properties	$	159,350	$	25,537

Stock Based Compensation

Awards under our stock based compensation plans primarily take the form of LTIP units and restricted stock grants made under The Simon Property Group, L.P. 1998 Stock Incentive Plan, as amended, or the Plan. Restricted stock and awards under the LTIP programs are all performance based and are based on various corporate and business unit performance measures as further described below. The expense related to these programs, net of amounts capitalized, is included within home and regional office costs and general and administrative costs in the accompanying consolidated statements of operations and comprehensive income.

LTIP Programs. Every year since 2010, the Compensation Committee of Simon’s Board of Directors, or the Compensation Committee, has approved long‑term, performance based incentive compensation programs, or the LTIP programs, for certain senior executive officers. Awards under the LTIP programs take the form of LTIP units, a form of limited partnership interest issued by the Operating Partnership, and will be considered earned if, and only to the extent to which, applicable total shareholder return, or TSR, performance measures are achieved during the performance period. Once earned, LTIP units are subject to a two-year vesting period. One‑half of the earned LTIP units will vest on January 1 of each of the second and third years following the end of the applicable performance period, subject to the participant maintaining employment with us through those dates and certain other conditions as described in those agreements. Awarded LTIP units not earned are forfeited. Earned and fully vested LTIP units are the equivalent of units. During the performance period, participants are entitled to receive distributions on the LTIP units awarded to them equal to 10% of the regular quarterly distributions paid on a unit of the Operating Partnership. As a result, we account for these LTIP units as participating securities under the two‑class method of computing earnings per share and earnings per unit.

The Compensation Committee approved LTIP unit grants as shown in the table below. Grant date fair values of the LTIP units are estimated using a Monte Carlo model, and the resulting expense is recorded regardless of whether the TSR performance measures are achieved if the required service is delivered. The grant date fair values are being amortized into expense over the period from the grant date to the date at which the awards, if any, would become vested. The extent to which LTIP units were earned, and the aggregate grant date fair values adjusted for estimated forfeitures, are as follows:


LTIP Program	LTIP Units Earned	Grant Date Fair Value
2010 LTIP program
1-year 2010 LTIP program	133,673	1-year program — $7.2 million
2-year 2010 LTIP program	337,006	2-year program — $14.8 million
3-year 2010 LTIP program	489,654	3-year program — $23.0 million
2011-2013 LTIP program	469,848	$35.0 million
2012-2014 LTIP program	401,203	$35.0 million
2013-2015 LTIP program	482,779	$29.5 million
2014-2016 LTIP program	To be determined in 2017	$30.0 million
2015-2017 LTIP program	To be determined in 2018	$29.9 million
2016-2018 LTIP program	To be determined in 2019	$28.8 million

We recorded compensation expense, net of capitalization, related to these LTIP programs of approximately $19.5 million and $18.6 million for the nine months ended September 30, 2016 and 2015, respectively.

Restricted Stock. The Compensation Committee awarded 61,398 shares of restricted stock to employees during the nine months ended September 30, 2016 under the Plan at a weighted-average fair market value of $208.99 per share. On May 11, 2016, our non-employee Directors were awarded an aggregate of 6,437 shares of restricted stock under the Plan at a fair market value of $203.24 per share. These shares represent a portion of the compensation we pay our non-employee Directors, and all of the shares have been placed in a non-employee Director deferred compensation account maintained by us. The grant date fair value of the employee restricted stock awards is being recognized as expense over the three-year vesting service period. The grant date fair value of the non-employees Director restricted stock awards is being recognized as expense over the one-year vesting service period. In accordance with the Operating Partnership's partnership agreement, the Operating Partnership issued an equal number of units to Simon that are subject to the same vesting conditions as the restricted stock.

We recorded compensation expense, net of capitalization, related to restricted stock of approximately $6.6 million for both the nine months ended September 30, 2016 and 2015.

Other Compensation Arrangements. On July 6, 2011, in connection with the execution of an eight year employment agreement, the Compensation Committee granted David Simon, our Chairman and Chief Executive Officer, a retention award in the form of 1,000,000 LTIP units, or the Award, for his continued service as our Chairman and Chief Executive Officer through July 5, 2019. Effective December 31, 2013, the Award was modified, or the Current Award, and as a result the LTIP units will now become earned and eligible to vest based on the attainment of company‑based performance goals, in addition to the service‑based vesting requirement included in the original Award. If the relevant performance criteria are not achieved, all or a portion of the Current Award will be forfeited. The performance criteria of the Current Award are based on the attainment of certain specified funds from operations per share as defined by and as set forth in the Current Award. If the performance criteria have been met, a maximum of 360,000 LTIP units, or the A units, 360,000 LTIP units, or the B units, and 280,000 LTIP units, or the C units, may become earned on December 31, 2015, December 31, 2016 and December 31, 2017, respectively. Based on the Company’s performance in 2015, 360,000 A units were earned. The earned A units will vest on January 1, 2018, earned B units, if any, will vest on January 1, 2019 and earned C units, if any, will vest on June 30, 2019, subject to Mr. Simon’s continued employment through such applicable date. The grant date fair value of the retention award of $120.3 million is being recognized as expense over the eight‑year term of his employment agreement on a straight‑line basis through the applicable vesting periods of the A units, B units and C units.

Changes in Equity

Simon

The following table provides a reconciliation of the beginning and ending carrying amounts of total equity, equity attributable to common stockholders and equity attributable to noncontrolling interests:


					Accumulated						Common
					Other		Capital in				Stock
	Preferred		Common		Comprehensive		Excess of		Accumulated		Held in		Noncontrolling		Total
	Stock		Stock		Income (Loss)		Par Value		Deficit		Treasury		interests		Equity
January 1, 2016	$	43,733	$	31	$	(252,686)	$	9,384,450	$	(4,266,930)	$	(437,134)	$	744,905	$	5,216,369
Exchange of limited partner units for common shares				1				70,100						(70,101)		—
LTIP units														36,243		36,243
Purchase and disposition of noncontrolling interests, net and other		(246)						(4,639)		(7,583)		9,840		681		(1,947)
Adjustment to limited partners’ interest from change in ownership in the Operating Partnership								28,398						(28,398)		—
Distributions to common stockholders and limited partners, excluding Operating Partnership preferred interests										(1,518,823)				(237,837)		(1,756,660)
Distributions to other noncontrolling interest partners														(1,842)		(1,842)
Comprehensive income, excluding $1,436 attributable to preferred interests in the Operating Partnership and $4,666 attributable to noncontrolling redeemable interests in properties						136,854				1,443,631				254,165		1,834,650
September 30, 2016	$	43,487	$	32	$	(115,832)	$	9,478,309	$	(4,349,705)	$	(427,294)	$	697,816	$	5,326,813

The Operating Partnership

The following table provides a reconciliation of the beginning and ending carrying amounts of total equity, equity attributable to partners and equity attributable to noncontrolling interests:


	Preferred		Simon (Managing		Limited		Noncontrolling		Total
	Units		General Partner)		Partners		interests		Equity
January 1, 2016	$	43,733	$	4,427,731	$	741,449	$	3,456	$	5,216,369
Limited partner units exchanged to units				70,101		(70,101)				—
LTIP Units						36,243				36,243
Purchase and disposition of noncontrolling interests, net and other		(246)		(2,382)				681		(1,947)
Adjustment to limited partners’ interest from change in ownership in the Operating Partnership				28,398		(28,398)				—
Distributions to limited partners, excluding preferred interests classified as temporary equity		(2,503)		(1,516,320)		(237,837)		(1,842)		(1,758,502)
Comprehensive income, excluding $1,436 attributable to preferred interests in the Operating Partnership and $4,666 attributable to noncontrolling redeemable interests in properties		2,503		1,577,982		252,176		1,989		1,834,650
September 30, 2016	$	43,487	$	4,585,510	$	693,532	$	4,284	$	5,326,813