Share-Based Payments

9 Months Ended

Sep. 30, 2023

Share-Based Payments

Share-Based Payments

11.Share-Based Payments

LTIP Units and Time-Based LTIP Units

During the nine months ended September 30, 2023, we granted to certain employees 979,138 LTIP Units with time-based vesting requirements ("Time-Based LTIP Units") and a weighted average grant-date fair value of $17.56 per unit that primarily vest ratably over four years subject to continued employment. Compensation expense for these units is primarily being recognized over a four-year period.

In February 2023, we granted 280,342 fully vested LTIP Units to certain employees, who elected to receive all or a portion of their cash bonuses related to 2022 service as LTIP Units. The LTIP units had a grant-date fair value of $15.90 per unit. Compensation expense totaling $4.5 million for these LTIP Units was recognized in 2022.

In May 2023, as part of their annual compensation, we granted to non-employee trustees a total of 155,523 fully vested LTIP Units with a grant-date fair value of $11.30 per unit, which includes LTIP Units elected in lieu of cash retainers. The LTIP Units may not be sold while a trustee is serving on the Board of Trustees.

The aggregate grant-date fair value of the Time-Based LTIP Units and the LTIP Units granted during the nine months ended September 30, 2023 was $23.4 million. The Time-Based LTIP Units and the LTIP Units were valued based on the closing common share price on the grant date, less a discount for post-grant restrictions. The discount was determined using Monte Carlo simulations based on the following significant assumptions:

Expected volatility	26.0% to 31.0%
Risk-free interest rate	3.4% to 4.9%
Post-grant restriction periods	2 to 6 years

Appreciation-Only LTIP Units ("AO LTIP Units")

In January 2023, we granted to certain employees 1.7 million performance-based AO LTIP Units with a grant-date fair value of $3.73 per unit. The AO LTIP Units are structured in the form of profits interests that provide for a share of appreciation determined by the increase in the value of a common share at the time of conversion over the participation threshold of $20.83. The AO LTIP Units are subject to a TSR modifier whereby the number of AO LTIP Units that will ultimately be earned will be increased or reduced by as much as 25%. The AO LTIP Units have a three-year performance period with 50% of the AO LTIP Units earned vesting at the end of the three-year performance period and the remaining 50% vesting on the fourth anniversary of the grant date, subject to continued employment. The AO LTIP Units expire on the tenth anniversary of their grant date.

The aggregate grant-date fair value of the AO LTIP Units granted during the nine months ended September 30, 2023 was $6.4 million, valued using Monte Carlo simulations based on the following significant assumptions:

Expected volatility	30.0%
Dividend yield	3.2%
Risk-free interest rate	4.1%

LTIP Units with Performance-Based Vesting Requirements ("Performance-Based LTIP Units")

In January 2023, 470,773 Performance-Based LTIP Units, which were unvested as of December 31, 2022, were forfeited because the performance measures were not met.

Restricted Share Units ("RSUs")

In January 2023, we granted to certain non-executive employees 78,681 time-based RSUs ("Time-Based RSUs") with a grant-date fair value of $18.94 per unit. Vesting requirements and compensation expense recognition for the Time-Based RSUs are primarily consistent to those of the Time-Based LTIP Units granted in 2023.

The aggregate grant-date fair value of the RSUs granted during the nine months ended September 30, 2023 was $1.5 million. The Time-Based RSUs were valued based on the closing common share price on the date of grant.

ESPP

Pursuant to the ESPP, employees purchased 52,089 common shares for $665,000 during the nine months ended September 30, 2023. The following is a summary of the significant assumptions used to value the ESPP common shares using the Black-Scholes model:

Expected volatility	30.0%
Dividend yield	2.4%
Risk-free interest rate	4.7%
Expected life	6 months

Share-Based Compensation Expense

The following is a summary of share-based compensation expense:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2023		2022		X	2023		2022
	(In thousands)
Time-Based LTIP Units	$	3,517	$	3,496		$	14,373	$	15,824
AO LTIP Units and Performance-Based LTIP Units		2,440		2,167			9,382		9,914
LTIP Units		—		—			1,000		1,000
Other equity awards (1)		912		1,413			3,710		4,239
Share-based compensation expense - other		6,869		7,076			28,465		30,977
Formation awards, OP Units and LTIP Units (2)		—		(142)			108		1,832
Special Time-Based LTIP Units and Special Performance-Based LTIP Units (3)		46		690			289		2,537
Share-based compensation related to Formation Transaction and special equity awards (4)		46		548			397		4,369
Total share-based compensation expense		6,915		7,624			28,862		35,346
Less: amount capitalized		(418)		(675)			(1,851)		(3,022)
Share-based compensation expense	$	6,497	$	6,949		$	27,011	$	32,324

(1) Primarily comprising compensation expense for: (i) fully vested LTIP Units issued to certain employees in lieu of all or a portion of any cash bonuses earned, (ii) RSUs and (iii) shares issued under our ESPP.

(2) Includes share-based compensation expense for formation awards, LTIP Units and OP Units issued in the Formation Transaction, which fully vested in July 2022.

(3) Represents equity awards issued related to our successful pursuit of Amazon's additional headquarters in National Landing.

(4) Included in "General and administrative expense: Share-based compensation related to Formation Transaction and special equity awards" in our statements of operations.

As of September 30, 2023, we had $31.5 million of total unrecognized compensation expense related to unvested share-based payment arrangements, which is expected to be recognized over a weighted average period of 3.0 years.