Share-Based Compensation

12 Months Ended

Dec. 31, 2019

10.Share-Based Compensation

Under various share-based compensation plans and under terms established by our Board or a committee thereof, we grant non-qualified options to purchase the Company’s common shares, as well as restricted share units (“RSUs”), to trustees, officers, and key employees.

Stock options and RSUs are considered “granted” and “outstanding” as the terms are used herein, when (i) the Company and the recipient reach a mutual understanding of the key terms of the award, (ii) the award has been authorized, (iii) the recipient is affected by changes in the market price of our stock, and (iv) it is probable that any performance conditions will be met.

We amortize the grant-date fair value of awards as compensation expense over the service period, which begins on the grant date and ends generally on the vesting date. For awards that are earned solely upon the passage of time and continued service, the entire cost of the award is amortized on a straight-line basis over the service period. For awards with performance conditions, the individual cost of each vesting is amortized separately over each individual service period (the “accelerated attribution” method).

The Codification previously stipulated that grants to nonemployee service providers (other than to trustees, where equity method treatment was permitted) were accounted for on the liability method, with expenses adjusted each period based upon changes in fair value. Recent changes in the Codification allows such grants to be accounted for on the equity award method, with compensation expense based upon grant date fair value. While we have no such grants to any such individuals for any periods presented, we will account for any future grants to nonemployee service providers based upon the equity award method.

In amortizing share-based compensation expense, we do not estimate future forfeitures in advance. Instead, we reverse previously amortized share-based compensation expense with respect to grants that are forfeited in the period the employee terminates employment.

In February 2018, we announced that our Chief Executive Officer and Chief Financial Officer at the time were retiring from their executive roles at the end of 2018 and would then serve only as Trustees of the Company. Pursuant to our share-based compensation plans, their unvested grants will continue to vest over the original vesting periods during their service as Trustees. For financial reporting, the end of the service periods for previous stock option and RSU grants for these executives changed from (i) the various vesting dates to (ii) December 31, 2018 when they retired. Accordingly, all remaining share-based compensation expense for these two executives was amortized in the year ended December 31, 2018.

See also “net income per common share” in Note 2 for further discussion regarding the impact of RSUs and stock options on our net income per common share and income allocated to common shareholders.

Stock Options

Stock options vest over 3 to 5 years, expire ten years after the grant date, and the exercise price is equal to the closing trading price of our common shares on the grant date. Employees cannot require the Company to settle their award in cash. We use the Black-Scholes option valuation model to estimate the fair value of our stock options.

Outstanding stock option grants are included on a one-for-one basis in our diluted weighted average shares, to the extent dilutive, after applying the treasury stock method (based upon the average common share price during the period) to assumed exercise proceeds and measured but unrecognized compensation.

The stock options outstanding at December 31, 2019 have an aggregate intrinsic value (the excess, if any, of each option’s market value over the exercise price) of approximately $38.6 million and remaining average contractual lives of approximately six years. The aggregate intrinsic value of exercisable stock options at December 31, 2019 amounted to approximately $35.6 million. Approximately 1,360,000 of the stock options outstanding at December 31, 2019, have an exercise price of more than $200. Included in our stock options exercisable at December 31, 2019, are 39,667 stock options which expire through June 30, 2021, with an average exercise price per share of $106.91.

Additional information with respect to stock options during 2019, 2018 and 2017 is as follows:


	2019				2018				2017
				Weighted				Weighted				Weighted
				Average				Average				Average
		Number		Exercise		Number		Exercise		Number		Exercise
		of		Price		of		Price		of		Price
		Options		per Share		Options		per Share		Options		per Share
Options outstanding January 1,		2,420,922	$	201.31		2,408,917	$	192.12		1,995,440	$	150.83
Granted		120,000		221.12		200,000		194.29		1,096,000		223.58
Exercised		(191,255)		174.55		(179,995)		69.53		(482,523)		88.07
Cancelled		(10,000)		197.90		(8,000)		223.50		(200,000)		203.64

Options outstanding December 31,		2,339,667	$	204.53		2,420,922	$	201.31		2,408,917	$	192.12

Options exercisable at December 31,		1,501,667	$	196.37		1,147,122	$	178.31		848,250	$	143.55


	2019		2018		2017

Stock option expense for the year (in 000's) (a)	$	4,950	$	17,162	$	8,707

Aggregate exercise date intrinsic value of options exercised during the year (in 000's)	$	11,848	$	25,117	$	61,334

Average assumptions used in valuing options with the Black-Scholes method:
Expected life of options in years, based upon historical experience		5		5		5
Risk-free interest rate		2.3%		2.7%		1.9%
Expected volatility, based upon historical volatility		8.9%		12.5%		17.9%
Expected dividend yield		3.6%		4.1%		3.6%

Average estimated value of options granted during the year	$	9.61	$	13.09	$	23.49

(a) Amounts for 2018 include $8.1 million, in connection with the acceleration of amortization on grants discussed above. Amounts for 2017 reflect a reduction in compensation expense of $0.8 million related to stock options forfeited during the period.

Restricted Share Units

RSUs generally vest ratably over 5 to 8 years from the grant date. The grantee receives dividends for each outstanding RSU equal to the per-share dividends received by our common shareholders. We expense any dividends previously paid upon forfeiture of the related RSU. Upon vesting, the grantee receives common shares equal to the number of vested RSUs, less common shares withheld in exchange for tax deposits made by the Company to satisfy the grantee’s statutory tax liabilities arising from the vesting.

The fair value of our RSUs is determined based upon the applicable closing trading price of our common shares.

The fair value of our RSUs outstanding at December 31, 2019 was approximately $131.9 million. Remaining compensation expense related to RSUs outstanding at December 31, 2019 totals approximately $85.1 million and is expected to be recognized as compensation expense over the next 4.6 years on average. The following tables set forth relevant information with respect to restricted shares (dollar amounts in thousands):


	2019				2018				2017
		Number of		Grant Date		Number of		Grant Date		Number of		Grant Date
		Restricted		Aggregate		Restricted		Aggregate		Restricted		Aggregate
		Share Units		Fair Value		Share Units		Fair Value		Share Units		Fair Value
Restricted share units outstanding January 1,		717,696	$	151,212		799,129	$	166,144		696,641	$	136,905
Granted		97,140		21,113		138,567		27,733		340,957		73,953
Vested		(160,329)		(32,714)		(164,104)		(30,717)		(144,473)		(25,305)
Forfeited		(35,357)		(7,553)		(55,896)		(11,948)		(93,996)		(19,409)

Restricted share units outstanding December 31,		619,150	$	132,058		717,696	$	151,212		799,129	$	166,144


	2019		2018		2017
Amounts for the year (in 000's, except number of shares):
Fair value of vested shares on vesting date	$	33,769	$	32,317	$	31,962
Cash paid for taxes upon vesting in lieu of issuing common shares	$	12,162	$	12,347	$	14,092
Common shares issued upon vesting		96,479		97,516		82,060
Restricted share unit expense (a)	$	21,662	$	53,869	$	28,841

(a)Amounts for 2019, 2018 and 2017 include approximately $1.2 million, $1.1 million and $0.7 million, respectively, in employer taxes incurred upon vesting. Amounts for 2018 include $22.6 million, in connection with the acceleration of amortization on grants to our CEO and CFO as discussed above. Amounts for 2017 reflect a reduction in compensation expense of $4.6 million related to RSUs forfeited during the period.