Quarterly report pursuant to Section 13 or 15(d)

Stock-Based Compensation

v3.19.1
Stock-Based Compensation
3 Months Ended
Mar. 31, 2019
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]
Note 7 – Stock-Based Compensation
 
2016 Equity Incentive Plan
 
The 2016 Equity Incentive Plan (the “Plan”) is intended to assist the Company and its affiliates in recruiting and retaining employees of the Manager, members of the Board, executive officers of the Company, and individuals who provide services to those entities or affiliates of those entities.

The Plan is intended to permit the grant of both qualifying and non-qualified options and the grant of stock appreciation rights, restricted stock, unrestricted stock, awards of restricted stock units, performance awards and other equity-based awards (including LTIP Units) for up to an aggregate of 1,232 shares of common stock, subject to increase under certain provisions of the Plan. Based on the grants outstanding as of March 31, 2019, there are 37 units that remain available to be granted under the Plan. Units subject to awards under the Plan that are forfeited, cancelled, lapsed, settled in cash or otherwise expired (excluding shares withheld to satisfy exercise prices or tax withholding obligations) are available for grant.
 
Time-Based Grants
 
The time-based vesting LTIP unit activity under the Plan during the three months ended March 31, 2019 was as follows:
 
 LTIP Units outstanding as of December 31, 2018
 
 
588
 
LTIP Units earned and granted via the 2018 performance program – Annual Awards
(1)
 
 
108
 
LTIP Units granted on a discretionary basis related to the Annual Awards
(2)
 
 
28
 
LTIP Units granted as 2019 long-term time based awards
(3)
 
 
54
 
LTIP Units – other grant and forfeitures, net
(4)
 
 
(4
)
LTIP Units outstanding as of March 31, 2019
 
 
774
 
 
 
(1)
The
108
LTIP Units represents earned and granted units from the previously disclosed 2018 annual awards (the “Annual Awards”). On March 5, 2019 the Compensation Committee of the Board (the “Compensation Committee”) determined the extent to which the Company achieved the performance goals related to the 2018 Annual Awards and determined the number of LTIP Units that each grantee was entitled to receive. These grants vested
50
% on March 5, 2019, the determination date, and
50
% vest on March 5, 2020.
 
(2)
The
28
LTIP Units represents a discretionary grant by the Compensation Committee. These grants vested
50
% on March 5, 2019, the grant date, and
50
% vest on March 5, 2020.
 
(3)
The
54
LTIP Units represent grants approved by the Board on March 5, 2019.  These grants are valued based on the Company’s share price at the date of grant of $
10.07
and vest in equal one-third increments on each of March 5, 2020, March 5, 2021, and March 5, 2022.
 
(4)
The decrease of four LTIP Units net represents 6 LTIP Units redeemed for the Company’s common stock with a value of $57 and one LTIP Unit that was forfeited, partially offset by three LTIP Units that were granted on March 15, 2019 related to a new hire. These three LTIP Units vest in equal one-third increments on each of March 15, 2020, March 15, 2021, and March 5, 2022.
 
A detail of the vested and unvested LTIP units outstanding as of March 31, 2019 is as follows:
 
Total vested units
 
 
463
 
Unvested units:
 
 
 
 
Granted to employees of the Advisor
 
 
290
 
Granted to the Company’s independent directors
 
 
21
 
Total unvested units
 
 
311
 
LTIP Units outstanding as of March 31, 2019
 
 
774
 
 
Performance Based Awards
 
For each of the past three years the Company’s Board has approved annual performance-based equity incentive awards in the form of LTIP Units and long-term performance-based LTIP awards (“Long-Term Awards”) to the executive officers of the Company and other employees of the Advisor who perform services for the Company. As described in detail below the Annual Awards have one-year performance periods and the Long-Term Awards have three-year performance periods. In addition to meeting specified performance metrics, vesting in both the Annual Awards and the Long-Term Awards is subject to service requirements.
 
A detail of the Annual Awards and Long-Term Awards under the 2017, 2018, and 2019 programs as of March 31, 2019 is as follows:
 
 
 
2017 Program
 
 
2018 Program
 
 
2019 Program
 
 
 
 
 
 
Long-Term
 
 
Annual
 
 
Long-Term
 
 
Annual
 
 
Long-Term
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net annual and long-term LTIP awards as of December 31, 2018 (at target)
 
 
96
 
 
 
161
 
 
 
110
 
 
 
-
 
 
 
-
 
 
 
367
 
LTIP Unit target grants via the 2019 Performance Program – Annual Awards and Long-Term Awards
(1)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
133
 
 
 
82
 
 
 
215
 
LTIP Units earned and granted via the 2018 Performance Program – Annual Awards
(2)
 
 
-
 
 
 
(108
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(108
)
LTIP Units granted on a discretionary basis via the 2018 Performance Program – Annual Awards
(2)
 
 
-
 
 
 
(28
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(28
)
LTIP Units not earned under the 2018 Performance Program – Annual Awards
(3)
 
 
-
 
 
 
(25
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(25
)
Net annual and long-term LTIP awards as of

March 31, 2019 (at target)
 
 
96
 
 
 
-
 
 
 
110
 
 
 
133
 
 
 
82
 
 
 
421
 
 
 
(1)
These target Annual Awards and Long-Term Awards were approved by the Board on March 5, 2019.
 
(2)
These amounts represents grants from the 2018 program Annual Awards. Refer to the “Time-Based Grants” table above which presents these grants as earned and time-based.
 
(3)
On March 5, 2019 the Compensation Committee determined the extent to which the Company achieved the performance goals and concluded that these target awards were not achieved.
 
The number of target LTIP Units comprising each 2019 program Annual Award target grant was based on the closing price of the Company’s common stock reported on the New York Stock Exchange (“NYSE”) on the date of grant. The number of target LTIP Units comprising each Long-Term Award target grant was based on the fair value of the Long-Term Awards as determined by an independent valuation consultant, in each case rounded to the nearest whole LTIP unit in order to eliminate fractional units.
 
Annual Awards
. The Annual Awards are subject to the terms and conditions of LTIP Annual Award Agreements (“LTIP Annual Award Agreements”) between the Company and each grantee.
 
The Compensation Committee and Board established performance goals for fiscal year 2019, as set forth in Exhibit A to the 2019 LTIP Annual Award Agreements (the “Performance Goals”) that will be used to determine the number of LTIP Units earned by each grantee.
As of March 31, 2019, management estimated that the Performance Goals would be met at a 100% level, and accordingly, applied 100% to the net target 2019 program Annual Awards to estimate the 2019 program Annual Awards expected to be earned at the end of the performance period.
Cumulative stock-based compensation expense during the three months ended March 31, 2019 reflects management’s estimate that 100% of these awards will be earned. As soon as reasonably practicable following the last day of the 2019 fiscal year, the Compensation Committee and Board will determine the extent to which the Company has achieved each of the Performance Goals (expressed as a percentage) and, based on such determination, will calculate the number of LTIP Units that each grantee is entitled to receive. Each grantee may earn up to 150% of the number of his/her target LTIP Units. Any 2019 Annual Award LTIP Units that are not earned will be forfeited and cancelled.
 
Vesting.
LTIP Units that are earned as of the end of the applicable performance period will be subject to vesting, subject to continued employment through each vesting date, in two installments as follows: 50% of
the earned LTIP Units will become vested on the date in 2020 that the Board approves the number of LTIP Units to be awarded pursuant to the performance components set forth in the 2019 LTIP Annual Award Agreements and 50% of the earned LTIP Units become vested on the one year anniversary of the initial vesting date. Vesting may be accelerated under certain circumstances such as a “change-in-control” transaction or a “qualified termination” event.
 
Distributions.
Distributions equal to the dividends declared and paid by the Company will accrue during the applicable performance period on the maximum number of LTIP Units that the grantee could earn and will be paid with respect to all of the earned LTIP Units at the conclusion of the applicable performance period, in cash or by the issuance of additional LTIP Units at the discretion of the Compensation Committee.
 
Long-Term Awards.
The Long-Term Awards are subject to the terms and conditions of 2017, 2018 and 2019 LTIP Long-Term Award Agreements (collectively the “LTIP Long-Term Award Agreements”) between the Company and each grantee. The number of LTIP Units that each grantee is entitled to earn under the LTIP Long-Term Award Agreements will be determined following the conclusion of a three-year performance period based on the Company’s total stockholder return (“TSR”), which is determined based on a combination of appreciation in stock price and dividends paid during the performance period. Each grantee may earn up to 200% of the number of target LTIP Units covered by the grantee’s Long-Term Award. Any target LTIP Units that are not earned will be forfeited and cancelled.
The number of LTIP Units earned under the Long-Term Awards will be determined as soon as reasonably practicable following the end of the applicable three-year performance period (2020, 2021, or 2022 depending on the program) based on the Company’s TSR on an absolute basis (as to 75% of the Long-Term Award) and relative to the SNL Healthcare REIT Index (as to 25% of the Long-Term Award).
 
Vesting.
LTIP Units that are earned as of the end of the applicable three year performance period will be subject to forfeiture restrictions that will lapse (“vesting”), subject to continued employment through each vesting date as follows; 50% of the earned LTIP Units will vest upon the third anniversary of the respective grant dates and the remaining 50% will vest on the fourth anniversary of the respective grant dates. 
Vesting may be accelerated under certain circumstances such as a “change-in-control” transaction or a “qualified termination” event.
 
Distributions.
Pursuant to the LTIP Long-Term Award Agreements, distributions equal to the dividends declared and paid by the Company will accrue during the applicable performance period on the maximum number of LTIP Units that the grantee could earn and will be paid with respect to all of the earned LTIP Units at the conclusion of the applicable performance period, in cash or by the issuance of additional LTIP Units at the discretion of the Compensation Committee.
 
Stock-Based Compensation Expense
 
In July 2018, the Company implemented the provisions of ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting” (“ASU 2018-07”). This standard simplifies several aspects of the accounting for non-employee transactions by stipulating that the existing accounting guidance for share-based payments to employees (accounted for under ASC Topic 718, “Compensation-Stock Compensation”) will also apply to non-employee share-based transactions (accounted for under ASC Topic 505, “Equity”).
 
Under the provisions of ASU 2018-07 the Company’s prospective compensation expense for all unvested LTIP Units, Annual Awards, and Long-Term Awards is recognized using the adoption date fair value of the awards, with no remeasurement required. Compensation expense for future LTIP Unit grants, Annual Awards, and Long-Term Awards is based on the grant date fair value of the units/awards, with no subsequent remeasurement required.
 
As the Long-Term Awards involve market-based performance conditions, the Company utilizes a Monte Carlo simulation to provide a grant date fair value for expense recognition. The Monte Carlo simulation is a generally accepted statistical technique used, in this instance, to simulate a range of possible future stock prices for the Company and the members of the SNL Healthcare REIT Index (the “Index”) over the Performance Periods. The purpose of this modeling is to use a probabilistic approach for estimating the fair value of the performance share award for purposes of accounting under ASC Topic 718.
 
The assumptions used in the Monte Carlo simulation include beginning average stock price, valuation date stock price, expected volatilities, correlation coefficients, risk-free rate of interest, and expected dividend yield. The beginning average stock price is the beginning average stock price for the Company and each member of the Index for the five trading days leading up to the grant date of the Long-Term Award. The valuation date stock price is the closing stock price of the Company and each of the peer companies in the Index on the grant dates of the Long-Term Awards. The expected volatilities are modeled using the historical volatilities for the Company and the members of the Index.
The correlation coefficients are calculated using the same data as the historical volatilities. The risk-free rate of interest is taken from the U.S. Treasury website and relates to the expected life of the remaining performance period on valuation or revaluation. Lastly, the dividend yield assumption is 0.0%, which is mathematically equivalent to reinvesting dividends in the issuing entity, which is part of the Company’s award agreement assumptions.
 
Below are details regarding certain of the assumptions for the Long-Term Awards using Monte Carlo simulations:
 
 
 
2019 Long-Term

Awards
 
 
2018 Long-Term

Awards
 
 
2017 Long-Term

Awards
 
Share price
 
$
10.07
 
 
$
8.86
 
 
$
8.86
 
Target awards
 
 
82
 
 
 
110
 
 
 
96
 
Volatility
 
 
31.7
%
 
 
33.8
%
 
 
33.8% - 35.4%
 
Risk-free rate
 
 
2.5
%
 
 
2.6
%
 
 
2.4% - 2.6%
 
Dividend assumption
 
 
reinvested
 
 
 
reinvested
 
 
 
reinvested
 
Expected term in years
 
 
3
 
 
 
2.7
 
 
 
1.7 – 2.7
 
 
The Company incurred stock compensation expense of $771 and $182 for the three months ended March 31, 2019 and 2018, respectively, related to the grants awarded under the Plan. Compensation expense is included within “General and Administrative” expense in the Company’s Consolidated Statements of Operations.
 
As of March 31, 2019, total unamortized compensation expense related to these awards of approximately $5.0 million is expected to be recognized over a weighted average remaining period of 1.93 years.