Equity Incentive Plan

On January 6, 2017, the Company granted performance units approved by the compensation committee of the board of directors, under the 2011 Plan to provide certain key employees of the Company with incentives designed to align those key employees' interests more closely with those of the stockholders.

The ultimate value of the performance units depends on the Company’s total stockholder return ("TSR") over a three-year period commencing January 1, 2017 and ends on December 31, 2019 (the "measuring period"). At the end of the measuring period, the performance units convert into shares of common stock, or, at the Company's election and with the award recipient's consent, LTIP units or other securities, at a rate depending on the Company’s TSR over the measuring period as compared to three different benchmarks and on the absolute amount of the Company’s TSR. A recipient of the performance units may receive as few as zero shares or as many as 250% of the number of target units, plus deemed dividends. The target amount of the performance units is nominally allocated as: i) 25% to the Company’s TSR compared to the TSR of an industry peer group; ii) 25% to the Company’s TSR compared to the TSR of a size-based peer group; and iii) 50% to the Company’s TSR compared to the TSR of the companies in the MSCI US REIT index.

No dividends are paid to the recipient during the measuring period. At the end of the measuring period, if the Company’s TSR is such that the recipient earns shares of common stock or, at the Company's election and with the award recipient's consent, LTIP units or other securities (“Award Shares”), the recipient will receive additional Award Shares relating to dividends deemed to have been paid and reinvested on the Award Shares. The Company, in the discretion of the compensation committee of the board of directors, may pay the cash value of the deemed dividends instead of issuing additional Award Shares. The number of Award Shares is determined at the end of the measuring period, and one-half of the Award Shares and all dividend shares vest immediately. The other one-half of the Award Shares will be restricted (subject to forfeiture) and vest one year after the end of the measuring period.

The fair value of the performance units at the date of grant was determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation. The fair value of the performance units are based on Level 3 inputs and are non-recurring fair value measurements. The table below sets forth the assumptions used in valuing the performance units granted during the nine months ended September 30, 2017.



Performance Units	Assumptions
Grant date	January 6, 2017
Expected volatility	23.0		%
Expected dividend yield	6.0		%
Risk-free interest rate	1.61		%
Fair value of performance units grant (in thousands)	$	2,882

The performance unit equity compensation expense is recognized into earnings ratably from the grant date over the respective vesting periods. The unrecognized compensation expense associated with the Company's performance units and outperformance program (collectively, "Performance-based Compensation Plans") at September 30, 2017 was approximately $3.7 million and is expected to be recognized over a weighted average period of approximately 2.3 years.

Non-cash Compensation Expense

The following table summarizes the amount recorded in general and administrative expenses in the accompanying Consolidated Statements of Operations for the amortization of restricted shares of common stock, LTIP units, Performance-based Compensation Plans, and the Company’s board of directors’ compensation for the three and nine months ended September 30, 2017 and September 30, 2016.



	Three months ended September 30,				Nine months ended September 30,
Non-Cash Compensation Expense (in thousands)	2017		2016		2017		2016
Restricted shares of common stock	$	594	$	533	$	1,776	$	1,625
LTIP units	1,167		1,099		3,508		4,992		₍₁₎
Performance-based Compensation Plans	536		322		1,610		816
Board of directors compensation ⁽²⁾	87		89		265		259
Total non-cash compensation expense	$	2,384	$	2,043	$	7,159	$	7,692


(1)	Inclusive of approximately $1.6 million of non-cash compensation expense during the nine months ended September 30, 2016 associated with the severance cost of a former executive officer.


(2)	All of the Company’s independent directors elected to receive shares of common stock in lieu of cash for their service during the three and nine months ended September 30, 2017 and September 30, 2016. The number of shares of common stock granted is calculated based on the trailing 10 days average common stock price ending on the third business day preceding the grant date.