We have a stock award and incentive program to attract and retain officers and independent directors. As of December 31, 2022, approximately three million shares were available for issuance under our Amended and Restated 2020 Stock Award and Incentive Plan (the “Plan”). The total number of shares available for issuance under this Plan may increase due to any forfeiture, cancellation, exchange, surrender, termination, or expiration of an award outstanding under the Plan. Awards under the Plan may be in the form of incentive stock options, non-qualified stock options, or other types of awards as authorized under the Plan. Our plans are administered by the Compensation and Human Resources Committee of the Board of Directors. Subsequent to the year ended December 31, 2022, an additional 3.5 million shares were available for issuance under the Plan, as amended on January 31, 2023, and as approved by AIR’s shareholders on December 7, 2022.

We grant stock options and restricted stock awards that are subject to time-based vesting and require continuous employment, typically over a period of four years from the grant date, and we refer to these awards as Time-Based Stock Options and Time-Based Restricted Stock, respectively. We also grant stock options, restricted stock awards, and two forms of long-term incentive partnership units (“LTIP units”) that vest conditioned on AIR’s total stockholder return (“TSR”), relative to the NAREIT Equity Apartments Index (60% weighting) and the MSCI US REIT Index (40% weighting) over a forward-looking performance period of three years. We refer to these awards as TSR Stock Options, TSR Restricted Stock, TSR LTIP I units, and TSR LTIP II units. Vested LTIP II units may be converted at the holders’ option to common OP Units for a strike price over a term of 10 years. Earned TSR-based awards, if any, will vest 50% on each of the third anniversary and fourth anniversary of the grant date, based on continued employment. Our Time-Based Stock Options and TSR Stock Options expire generally 10 years from the date of grant. In the case of stock options, the exercise price of the options granted may not be less than the fair market value of a share of Common Stock at the date of grant.

We recognize compensation cost associated with Time-Based awards ratably over the requisite service periods, which are typically four years. We recognize compensation cost related to the TSR-based awards, which have graded vesting periods, over the requisite service period for each separate vesting tranche of the award, commencing on the grant date. The value of the TSR-based awards takes into consideration the probability that the market condition will be achieved; therefore previously recorded compensation cost is not adjusted in the event that the market condition is not achieved and awards do not vest.

We had TSR and Time-Based Stock Options, TSR and Time-Based Restricted Stock Awards, TSR and Time-Based LTIP I units, and TSR LTIP II units outstanding as of December 31, 2022. The annual activity related to our stock and unit awards are immaterial.

In connection with the Separation, we entered into an Employee Matters Agreement to modify all outstanding stock and unit awards granted to Aimco’s teammates. Under the agreement, holders of Aimco’s stock and unit awards received AIR stock and unit awards. Generally, AIR awards retain the same terms and vesting conditions as the original Aimco awards. Holders of Aimco’s TSR stock options and TSR LTIP II awards will have a modified exercise price adjusted by a ratio specified in the Employee Matters Agreement. Compensation expense related to replacement awards for the teammates retained by Aimco is recognized by Aimco. The compensation expense related to replacement awards for teammates of AIR is recognized by AIR.

Total compensation cost recognized for share-based awards was as follows for the years ended December 31, 2022, 2021, and 2020 (in thousands):


	2022		2021		2020
Share-based compensation expense (1)	$	7,463	$	7,360	$	8,295
Capitalized share-based compensation (2)		503		295		946
Total share-based compensation (3)	$	7,966	$	7,655	$	9,241

(1)

Amounts are recorded in general and administrative expenses in our consolidated statements of operations.

(2)

Amounts are recorded in building and improvements in our consolidated balance sheets.

(3)

Amounts are recorded in additional paid-in capital and common noncontrolling interests in the AIR Operating Partnership in the AIR consolidated balance sheets, and in general partner and special limited partner and limited partners in the AIR Operating Partnership consolidated balance sheets.

As of December 31, 2022, total unvested compensation cost not yet recognized was $9.8 million. We expect to recognize this compensation over a weighted-average period of approximately 1.7 years.

As of December 31, 2022, we had stock options outstanding of 807,405, which had no aggregate intrinsic value and a weighted-average remaining contractual term of 3.1 years. We had 718,961 of stock options exercisable as of December 31, 2022, which had no aggregate intrinsic value and a weighted-average remaining contractual term of 2.8 years. The intrinsic value of a stock option represents the amount by which the current price of the underlying stock exceeds the exercise price of the option. These options will be settled in accordance with the Employee Matters Agreement.

During 2020, we granted TSR Stock Options with a weighted-average grant date fair value of $8.15. We did not grant any TSR Stock Options during 2022 and 2021.

As of December 31, 2022, we had 116,026 shares unvested at a weighted-average grant date fair value of $52.07 per share for Time-Based Restricted Stock Awards. As of December 31, 2022, we had 243,966 of shares unvested based on the target performance payout, at a weighted-average grant date fair value of $48.51 per share for TSR Restricted Stock Awards.

The aggregate fair value of Time-Based Restricted Stock awards and TSR Restricted Stock awards that vested during the years ended December 31, 2022, 2021, and 2020 was $4.3 million, $3.2 million, and $7.5 million, respectively. These awards will be settled in accordance with the Employee Matters Agreement.

As of December 31, 2022, we had 1,843,761 of TSR LTIP II units outstanding, at a weighted-average grant date fair value of $8.67 per share. These units will be settled in accordance with the Employee Matters Agreement.

Options are granted with an exercise price at the fair market value of our Common Stock on the date of grant and expire, subject to employment, which is generally 10 years from the date of grant. Factors considered are the simulated stock price as well as total stockholder return relative to both the NAREIT Equity Apartment Index and the MSCI US REIT Index.

We estimated the fair value of TSR-based awards granted in 2022, 2021, and 2020 using a Monte Carlo model with the assumptions set forth in the table below.

The risk-free interest rate reflects the annualized yield of a zero coupon United States Treasury security with a term equal to the expected term of the awards. The expected dividend yield reflects expectations regarding cash dividend amounts per share paid on our Common Stock during the expected term of the awards. Expected volatility reflects an average of the historical volatility of our Common Stock during the historical period commensurate with the expected term of the award that ended on the date of grant, and the implied volatility is calculated from observed call option contracts closest to the expected term. The derived vesting period of TSR Restricted Stock and TSR LTIP I units was determined based on the graded vesting terms. The expected term of the TSR-options and TSR LTIP II units was based on historical exercises and post-vesting terminations. The valuation assumptions for the 2022, 2021, and 2020 grants were as follows:


	2022	2021	2020
Grant date market value of a common share	$53.91	$36.84	$53.26
Risk-free interest rate	1.20% - 1.68%	0.24% - 0.78%	1.48% - 1.58%
Dividend yield	3.50%	4.00%	2.93%
Expected volatility	22.63% - 24.83%	23.08% - 28.21%	15.82% - 16.84%
Derived vesting period of TSR Restricted Stock and TSR LTIP I units	3.5 years	3.2 years	3.5 years
Weighted average expected term of TSR Stock Options and LTIP II units	5.4 years	5.4 years	5.9 years

The grant date fair value for the Time-Based awards reflects the closing price of a share of our Common Stock on the grant date.