12. Equity Incentive Plan

In connection with our IPO, the Company’s Board of Directors adopted the 2010 Equity Incentive Award Plan, which we refer to as the 2010 Plan. The 2010 Plan is administered by the Board of Directors, or the plan administrator. Awards issuable under the 2010 Plan include common stock, stock options, restricted stock, stock appreciation rights, dividend equivalents and other incentive awards. We have reserved a total of 3,000,000 shares of our common stock for issuance pursuant to the 2010 Plan, which may be adjusted for changes in our capitalization and certain corporate transactions. To the extent that an award expires, terminates or lapses, or an award is settled in cash without the delivery of shares of common stock to the participant, then any unexercised shares subject to the award will be available for future grant or sale under the 2010 Plan. Shares of restricted stock which are forfeited or repurchased by us pursuant to the 2010 Plan may again be optioned, granted or awarded under the 2010 Plan. The payment of dividend equivalents in cash in conjunction with any outstanding awards will not be counted against the shares available for issuance under the 2010 Plan.

As of December 31, 2012, 993,033 shares of our common stock remained available for issuance pursuant to the 2010 Plan.

Stock Options

Stock option awards are granted with an exercise price equal to the closing market price of the Company’s common stock at the date of grant. The fair value of each option granted under the 2010 Plan is estimated on the date of the grant using the Black-Scholes option-pricing model. The fair values are being expensed on a straight-line basis over the vesting period.

The following table sets forth the 2010 Plan’s stock option activity for the years ended December 31, 2012, 2011, and 2010:

	Number of		Weighted		Weighted Average
	Shares Subject		Average		Remaining	Aggregate Intrinsic
	to Option		Exercise Price		Contractual Term	Value
Options outstanding, December 31, 2009	—		$	—
Granted	587,555		16.00
Forfeited	—		—
Expired	—		—
Exercised	—		—
Options outstanding, December 31, 2010	587,555		16.00		9.7 years	$	—
Granted	543,380		15.27
Forfeited	(122,848	)	15.80
Expired	(8,074	)	16.00
Exercised	(1,962	)	16.00			Less than $0.1 million
Options outstanding, December 31, 2011	998,051			15.63	8.9 years	$	2.2 million
Granted	236,893		23.87
Forfeited	(119,723	)	16.62
Expired	(156	)	16.00
Exercised	(97,870	)	16.04			$	0.8 million
Options outstanding, December 31, 2012	1,017,195		$	17.25	8.2 years	$	10.6 million

Exercisable at December 31,
2010	—		N/A		N/A	N/A
2011	130,942		$	16.00	8.7 years	$	0.2 million
2012	287,036		$	15.74	7.9 years	$	3.4 million

The following table sets forth the number of shares subject to option that are unvested as of December 31, 2012 and the fair value of these options at the grant date:

	Number of Shares Subject to Option		Weighted Average Fair Value at Grant
Unvested balance, December 31, 2009	—		$	—
Granted	587,555		4.95
Forfeited	—		—
Vested	—		—
Unvested balance, December 31, 2010	587,555		$		4.95
Granted	543,380		4.89
Forfeited	(122,848	)	4.93
Vested	(140,978	)	4.92
Unvested balance, December 31, 2011	867,109		$	4.92
Granted	236,893		7.76
Forfeited	(119,723	)	5.24
Vested	(254,120	)	4.96
Unvested balance, December 31, 2012	730,159		$	5.70

As of December 31, 2012, total unearned compensation on options was approximately $3.3 million, and the weighted average vesting period was 2.3 years. The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model. As the Company has been a publicly traded company only since September 28, 2010, expected volatilities used in the Black-Scholes model are based on the historical volatility of a group of comparable REITs. We utilize the simplified method of estimating the term for options granted due to the lack of historical exercise data necessary to provide a reasonable basis upon which to estimate the term. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The following table summarizes the assumptions used to value the stock options granted during the years ended December 31, 2012, and 2011:

	2012		2011		2010
Expected term (in years)	6.25		6.25		6.25
Expected volatility	44.08	%	43.07	%	43.59	%
Expected annual dividend	3.00	%	3.41	%	3.25	%
Risk-free rate	1.56	%	2.76	%	1.33	%

Restricted Awards

During the years ended December 31, 2012, 2011, and 2010, the Company issued 405,608, 263,393 and 185,437 shares of restricted stock, respectively, which had values of $9.9 million, $4.0 million, and $3.0 million, respectively, on the grant date. The restricted stock granted in 2012 includes 176,630 awards granted under new employment agreements. Also during the years ended December 31, 2012, 2011, and 2010, the Company issued 7,172, 10,080 and 10,000 restricted stock units or RSUs, respectively, which each grant had values of $0.2 million on the grant date. The principal difference between these instruments is that RSUs are not shares of the Company’s common stock and do not have any of the rights or privileges thereof, including voting rights. On the applicable vesting date, the holder of an RSU becomes entitled to a share of common stock. The restricted awards will be amortized on a straight-line basis to expense over the vesting period. The following table sets forth the number of unvested restricted awards and the weighted average fair value of these awards at the date of grant:

	Restricted Awards		Weighted Average Fair Value at Grant
Unvested balance, December 31, 2009	—		$	—
Granted	195,437		15.98
Forfeited	—		—
Vested	—		—
Unvested balance, December 31, 2010	195,437		15.98
Granted	273,473		15.19
Forfeited	(51,213	)	15.81
Vested	(74,466	)	16.10
Unvested balance, December 31, 2011	343,231		15.35
Granted	412,780		24.59
Forfeited	(48,599	)	18.26
Vested	(108,717	)	15.46
Unvested balance, December 31, 2012	598,695		$	21.37

As of December 31, 2012, total unearned compensation on restricted awards was approximately $9.7 million, and the weighted average vesting period was 2.3 years.

Operating Partnership Units

In connection with the IPO, we issued 25,883 Operating Partnership units, which were fair valued at $15.98 per unit or $0.4 million in total. The Operating Partnership units will be amortized on a straight-line basis to expense over the vesting period. As of December 31, 2012, 17,254 units have vested, 7,138 units were unvested and 1,491 were forfeited. As of December 31, 2012, total unearned compensation on Operating Partnership units was approximately $0.1 million, and the weighted average vesting period was 0.7 years.