Share-Based Payments and Employee Benefits

9 Months Ended

Sep. 30, 2019

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Share-Based Payments and Employee Benefits

LTIP and Time-Based LTIP Units

During the nine months ended September 30, 2019, we granted 351,982 LTIP Units with time-based vesting requirements ("Time-Based LTIP Units") to management and other employees with a weighted average grant-date fair value of $34.26 per unit that vest primarily over four years, 25.0% per year, subject to continued employment. Compensation expense for these units is being recognized primarily over a four-year period. The aggregate grant-date fair value of these Time-Based LTIP Units granted during the nine months ended September 30, 2019 was $12.1 million valued using Monte Carlo simulations.

During the nine months ended September 30, 2019, we granted 91,636 of fully vested LTIP Units, with a grant-date fair value of $34.21 per unit, to certain executives who elected to receive all or a portion of their cash bonus paid in 2019, related to 2018 service, as LTIP Units. Compensation expense totaling $3.1 million for these LTIP Units was recognized in 2018.

In May 2019, as part of their annual compensation, we granted a total of 50,159 fully vested LTIP Units to certain of our trustees with an aggregate grant-date fair value of $1.8 million.

The significant assumptions used to value LTIP and Time-Based LTIP Units included:



Expected volatility	18.0% to 24.0%
Risk-free interest rate	2.3% to 2.6%
Post-grant restriction periods	2 to 3 years

Performance-Based LTIP Units

During the nine months ended September 30, 2019, we granted 478,411 LTIP Units with performance-based vesting requirements ("Performance-Based LTIP Units") to management and other employees with a weighted average grant-date fair value of $19.49 per unit. Our Performance-Based LTIP Units have a three-year performance period. Fifty percent of any Performance-Based LTIP Units that are earned vest at the end of the three-year performance period and the remaining 50% on the fourth anniversary of the date of grant, subject to continued employment.

The aggregate grant-date fair value of the Performance-Based LTIP Units granted during the nine months ended September 30, 2019 was $9.3 million valued using Monte Carlo simulations. Compensation expense for the Performance-Based LTIP Units is being recognized over a four-year period. The significant assumptions used to value the Performance-Based LTIP Units included:




Expected volatility	19.0% to 23.0%
Dividend yield	2.3% to 2.5%
Risk-free interest rate	2.3% to 2.6%

ESPP

Pursuant to the ESPP, employees purchased 25,575 common shares for $747,000 during the nine months ended September 30, 2019. The significant assumptions used to value the ESPP common shares using the Black-Scholes model included expected volatility (28.0%), dividend yield (2.6%), risk-free interest rate (2.4%) and expected life (six months).

Share-Based Compensation Expense

Share-based compensation expense is summarized as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(In thousands)
Time-Based LTIP Units	$	2,755		$	2,520		$	8,529		$	7,772
Performance-Based LTIP Units	2,016			1,391			6,205			3,898
LTIP Units	—			—			1,000			794
Other equity awards ⁽¹⁾	1,403			989			3,443			2,693
Share-based compensation expense - other	6,174			4,900			19,177			15,157
Formation Awards	1,227			1,375			4,116			4,192
OP Units ⁽²⁾	6,747			6,943			21,491			22,512
LTIP Units ⁽²⁾	117			69			340			208
Special Performance-Based LTIP Units ⁽³⁾	654			—			1,938			—
Special Time-Based LTIP Units ⁽³⁾	804			—			2,318			—
Share-based compensation related to Formation Transaction and special equity awards ⁽⁴⁾	9,549			8,387			30,203			26,912
Total share-based compensation expense	15,723			13,287			49,380			42,069
Less amount capitalized	(406		)	(873		)	(1,948		)	(2,379		)
Share-based compensation expense	$	15,317		$	12,414		$	47,432		$	39,690

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⁽¹⁾	Includes compensation expense for certain executives who have elected to receive all or a portion of any cash bonus that may be paid in the subsequent year related to past service in the form of fully vested LTIP Units and expense related to our employee share purchase plan.


⁽²⁾	Represents share-based compensation expense for LTIP Units and OP Units subject to post-Combination employment obligations.


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


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

As of September 30, 2019, we had $94.7 million of total unrecognized compensation expense related to unvested share-based payment arrangements. This expense is expected to be recognized over a weighted average period of 2.3 years.