Stock-Based Compensation |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Disclosure of Compensation Related Costs, Share-based Payments [Text Block] |
Note 7 Stock-Based Compensation 2017 Program Performance Based Awards On February 28, 2017, the Board approved the recommendations of the Compensation Committee of the Board (the “Compensation Committee”) with respect to the awarding of 2017 annual performance-based equity incentive award targets in the form of LTIP units (the “Annual Awards”) and long-term performance-based LTIP awards (the “Long-Term Awards”) to the executive officers of the Company and other employees of the Company’s external manager who perform services for the Company (the “2017 Program”). Additionally, the Board approved the recommendations of the Compensation Committee with respect to awarding Annual Awards and Long-Term Awards to two executive officers of the Company whose employment commenced on August 23, 2017 and May 8, 2017, respectively. None of the LTIP units awarded under the 2017 Program have been earned by the participants as of September 30, 2017. The 2017 Program is a part of the Company’s 2016 Plan and therefore the Annual Awards and Long-Term Awards were awarded pursuant to the 2016 Plan. The purpose of the 2016 Plan is to attract and retain qualified persons upon whom, in large measure, the Company’s sustained progress, growth and profitability depend, to motivate the participants to achieve long-term company goals and to more closely align the participants’ interests with those of the Company’s other stockholders by providing them with a proprietary interest in the Company’s growth and performance. The Company’s executive officers, employees, employees of its advisor and its affiliates, consultants and non-employee directors are eligible to participate in the 2016 Plan. The LTIP unit award targets under the 2017 Program and subsequent activity during the nine months ended September 30, 2017, is as follows:
As of September 30, 2017, all 192,296 LTIP unit target awards as of September 30, 2017 were to non-employees. The number of target LTIP units comprising each Annual Award was based on the closing price of the Company’s common stock reported on the New York Stock Exchange (“NYSE”) on the dates of grant (August 23, 2017, May 8, 2017, and February 28, 2017) and the number of target LTIP units comprising each Long-Term Award was based on the fair value of the Long-Term Awards as determined by an independent valuation consultant, in each case rounded to the next 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 established various operating performance goals for calendar year 2017, as set forth in Exhibit A to the LTIP Annual Award Agreements (the “Performance Goals”), that will be used to determine the actual number of LTIP units earned by each grantee under each LTIP Annual Award Agreement. During the three months ended September 30, 2017, management made a determination that the Annual Award payout trend as of September 30, 2017 was 55%, and accordingly, applied 55% to the net target Annual Awards as of September 30, 2017 (86,129 units) to estimate the Annual Awards expected to be earned at the end of the performance period (47,371 units). Cumulative stock based compensation expense during the three and nine months ended September 30, 2017 was adjusted to reflect the reduction in the Annual Award target to 55%. As soon as reasonably practicable following the last day of the 2017 fiscal year, the Compensation Committee will determine the extent to which the Company has achieved the Performance Goals and, based on such determination, will calculate the number of LTIP units that each grantee is entitled to receive under the grantee’s Annual Award based on the performance percentages described in the grantee’s LTIP Annual Award Agreement. Each grantee may earn up to 150% of the number of target LTIP units covered by the grantee’s Annual Award. Any target LTIP units that are not earned will be forfeited and cancelled. The Company expenses the fair value of all unit awards in accordance with the fair value recognition requirements of ASC Topic 718, Compensation-Stock Compensation, for “employees,” and ASC Topic 505, Equity, for “non-employees.” As the Annual Awards were granted to non-employees, in accordance with the provisions of ASC Topic 505, the Annual Awards utilize the grant date fair value for expense recognition; however, the accounting after the measurement date requires a fair value re-measurement each reporting period until the awards vest. Since these are performance based awards with no market condition, the closing price on the valuation date and revaluation date will be used for expense recognition purposes.
Long-Term Awards. The Long-Term Awards are subject to the terms and conditions of LTIP Long-Term Award Agreements (“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 shareholder return, which is determined based on a combination of appreciation in stock price and dividends paid during the performance period (“TSR”). 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 three-year performance period 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).
As the Long-Term Awards were granted to non-employees and involved market-based performance conditions, in accordance with the provisions of ASC Topic 505, the Long-Term Awards utilize a Monte Carlo simulation to provide a grant date fair value for expense recognition; however, the accounting after the measurement date requires a fair value re-measurement each reporting period until the awards vest. The fair value re-measurement will be performed by calculating a Monte Carlo produced fair value at the conclusion of each reporting period until vesting. 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 Period (February 28, 2017 to February 27, 2020; May 8, 2017 to May 7, 2020; and August 23, 2017 to August 22, 2020, respectively). 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. ASC Topic 505 does not provide guidance on how to derive a fair value, so the valuation defaults to that described in 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. 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 date for the grant date fair value, and the closing stock price on September 30, 2017 for revaluation. 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.
Vesting. LTIP units that are earned as of the end of the applicable performance period will be subject to forfeiture restrictions that will lapse (“vesting”), subject to continued employment through each vesting date, in two installments as follows: 50% of the earned LTIP units will vest upon being earned as of the end of the applicable performance period and the remaining 50% will vest on the first anniversary of the date on which such LTIP units are earned.
Distributions. Pursuant to both the LTIP Annual Award Agreements and 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
2016 Plan Time Based Grants (excludes 2017 Program - Performance Based Awards) The LTIP units granted under the 2016 Plan (excluding 2017 Program awards) during the nine months ended September 30, 2017, are as follows:
Of the 27,179 LTIP units that were granted during the nine months ended September 30, 2017, there was a total of 11,204 LTIP units granted to two executives of the Company (employees of the Advisor) on August 23, 2017 and May 8, 2017 and the remaining 15,975 LTIP units were granted to the Company’s independent directors on May 18, 2017. Of the 402,950 LTIP units that were granted under the 2016 Plan (net of forfeitures), 60,400 units vested immediately on July 1, 2016 upon completion of the Company’s initial public offering, 68,900 LTIP units vested on December 1, 2016, 13,750 units that were granted to the independent directors vested on July 1, 2017, and an additional 72,488 LTIP units vested immediately as a result of individuals (primarily executives) leaving the Company, resulting in a total of 215,538 vested LTIP units as of September 30, 2017. The remaining unvested 187,412 LTIP units, net of forfeitures, (the “Service LTIPs”) consists of 171,437 units granted to employees of the Advisor and its affiliates deemed to be non-employees in accordance with ASC Topic 505 and vest over periods of 36 months to 53 months, from the grant date, dependent on the population granted to, as well as 15,975 units granted to the Company’s independent directors on May 18, 2017 (who were treated as employees in accordance with ASC Topic 718), and vest over a period of 12 months from the grant date. Under the 2016 Plan a total of 1,232,397 shares of common stock are available to be granted or issued in respect of other equity-based awards such as LTIP units. Based on the grants and target awards outstanding as of September 30, 2017, there are 637,151 shares that remain available to be granted or issued under the 2016 Plan as of September 30, 2017. Shares subject to awards under the 2017 Program and the 2016 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.
Detail of Compensation Expense Recognized For The Three and Nine Months Ended September 30, 2017 The Company incurred compensation expense of $340,287 and $1,480,724 for the three and nine months ended September 30, 2017, respectively, related to the grants awarded under the 2017 Program and the 2016 Plan. Compensation expense is classified as “General and Administrative” expense in the Company’s accompanying Consolidated Statements of Operations. A detail of compensation expense recognized during the three and nine months ended September 30, 2017, is as follows:
Total unamortized compensation expense related to these units of approximately $1.9 million is expected to be recognized subsequent to September 30, 2017 over a weighted average remaining period of 1.23 years.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||