Share-Based Compensation |
3 Months Ended | |||||||||||||||||||||
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Mar. 31, 2020 | ||||||||||||||||||||||
| Share-based Payment Arrangement [Abstract] | ||||||||||||||||||||||
| Share-Based Compensation | Share-Based Compensation Restricted Shares
During the three months ended March 31, 2020, certain employees were granted a total of 133,335 restricted common shares with an aggregate grant date fair value of $3.4 million ($25.34 per share). Restricted shares granted to employees vest based on increments and over periods of time set forth under the terms of the respective awards provided that the employee remains employed by us. During the three months ended March 31, 2020, forfeiture restrictions lapsed on 132,703 previously issued common shares; these shares had a weighted average grant date fair value of $28.13 per share, and the aggregate intrinsic value of the shares on the vesting dates was $3.4 million.
Performance Share Awards (“PSUs”)
We issued 23,181 common shares on January 13, 2020 to executives in settlement of PSUs granted in 2017, representing 53% of the target awards for those PSUs.
Profit Interest Units (“PIUs”)
For 2020, we offered our executives the opportunity to select PIUs as a form of long-term compensation in lieu of, or in combination with, other forms of share-based compensation awards (restricted shares, deferred share awards and PSUs), and our executives selected PIUs. We granted two forms of PIUs: time-based PIUs (“TB-PIUs”); and performance-based PIUs (“PB-PIUs”). TB-PIUs are subject to forfeiture restrictions until the end of the requisite service period, at which time the TB-PIUs automatically convert into vested PIUs. PB-PIUs are subject to a market condition in that the number of earned awards are determined at the end of the performance period (as described further below) and then settled in vested PIUs. Vested PIUs carry substantially the same rights to redemption and distributions as non-PIU common units.
TB-PIUs
During the three months ended March 31, 2020, our executives were granted a total of 67,081 TB-PIUs with an aggregate grant date fair value of $1.7 million ($25.34 per TB-PIU). TB-PIUs granted to executives vest in equal one-third increments over a three-year period beginning on the first anniversary of the date of grant. Prior to vesting, TB-PIUs carry substantially the same rights to distributions as non-PIU common units but carry no redemption rights. During the three months ended March 31, 2020, 20,622 TB-PIUs awarded to our former Executive Vice President and Chief Operating Officer were forfeited upon his resignation. During the three months ended March 31, 2020, forfeiture restrictions lapsed on 18,318 previously issued TB-PIUs; these TB-PIUs had a grant date fair value of $25.81 per unit, and the aggregate intrinsic value of the TB-PIUs on the vesting date was $464,000.
PB-PIUs
On January 1, 2020, we granted our executives 176,758 PB-PIUs with a three-year performance period concluding on the earlier of December 31, 2022 or the date of: (1) termination by us without cause, death or disability of the executive or constructive discharge of the executive (collectively, “qualified termination”); or (2) a sale event. The number of earned awards at the end of the performance period will be determined based on the percentile rank of COPT’s total shareholder return (“TSR”) relative to a peer group of companies, as set forth in the following schedule:
If the percentile rank exceeds the 25th percentile and is between two of the percentile ranks set forth in the table above, then the percentage of the earned awards will be interpolated between the ranges set forth in the table above to reflect any performance between the listed percentiles. If COPT’s TSR during the measurement period is negative, the maximum number of earned awards will be limited to the target level payout percentage. During the performance period, PB-PIUs carry rights to distributions equal to 10% of the distribution rights of non-PIU common units but carry no redemption rights.
At the end of the performance period, we will settle the award by issuing vested PIUs equal to the number of earned awards in settlement of the award plan and paying cash equal to the excess, if any, of: the aggregate distributions that would have been paid with respect to vested PIUs issued in settlement of the earned awards through the date of settlement had such vested PIUs been issued on the grant date; over the aggregate distributions made on the PB-PIUs during the performance period. If a performance period ends due to a sale event or qualified termination, the number of earned awards is prorated based on the portion of the three-year performance period that has elapsed. If employment is terminated by the employee or by us for cause, all PB-PIUs are forfeited.
These PB-PIU grants had an aggregate grant date fair value of $2.9 million ($16.36 per PB-PIU) which is being recognized over the performance period. The grant date fair value was computed using a Monte Carlo model that included the following assumptions: baseline common share value of $29.38; expected volatility for common shares of 18.0%; and a risk-free interest rate of 1.65%.
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