Annual report pursuant to Section 13 and 15(d)

Share-Based Compensation and Other Compensation Matters

v2.4.1.9
Share-Based Compensation and Other Compensation Matters
 12 Months Ended
Dec. 31, 2014
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Share-Based Compensation and Other Compensation Matters
Share-Based Compensation and Other Compensation Matters
 
Share-Based Compensation Plans
 
In May 2010, COPT adopted the Amended and Restated 2008 Omnibus Equity and Incentive Plan. COPT may issue equity-based awards under this plan to officers, employees, non-employee trustees and any other key persons of us and our subsidiaries, as defined in the plan. The plan provides for a maximum of 5.9 million common shares in COPT to be issued in the form of options, share appreciation rights, deferred share awards, restricted share awards, unrestricted share awards, performance shares, dividend equivalent rights and other equity-based awards and for the granting of cash-based awards. The plan expires on May 13, 2020.

In March 1998, COPT adopted a long-term incentive plan for our Trustees and employees. This plan, which expired in March 2008, provided for the award of options, restricted shares and dividend equivalents.

Grants of restricted shares and options under these plans to nonemployee Trustees generally vest on the first anniversary of the grant date provided that the Trustee remains in his or her position. Restricted shares and options granted to employees vest based on increments and over periods of time set forth under the terms of the respective awards provided that the employees remain employed by us. Options expire ten years after the date of grant. Shares for each of the share-based compensation plans are issued under registration statements on Form S-8 that became effective upon filing with the Securities and Exchange Commission. In connection with awards of common shares granted by COPT under such share-based compensation plans, COPLP issues to COPT an equal number of equity instruments with identical terms.

The following table summarizes restricted share transactions under the share-based compensation plans for 2012, 2013 and 2014:
 
 
 Shares
 
Weighted Average Grant Date Fair Value
Unvested at December 31, 2011
 
648,378

 
$
33.13

Granted
 
177,662

 
23.64

Forfeited
 
(17,019
)
 
31.43

Vested
 
(374,378
)
 
32.72

Unvested at December 31, 2012
 
434,643

 
29.67

Granted
 
193,833

 
25.91

Forfeited
 
(9,541
)
 
27.59

Vested
 
(241,487
)
 
30.97

Unvested at December 31, 2013
 
377,448

 
26.96

Granted
 
216,607

 
26.73

Forfeited
 
(21,335
)
 
25.10

Vested
 
(182,213
)
 
28.56

Unvested at December 31, 2014
 
390,507

 
$
26.19

Unvested shares as of December 31, 2014 that are expected to vest
 
375,686

 
$
26.18



The aggregate intrinsic value of restricted shares that vested was $4.9 million in 2014, $6.3 million in 2013 and $9.0 million in 2012.

Our Board of Trustees made the following grants of PSUs to executives from 2011 through 2014 (dollars in thousands):
Grant Date
 
Number of PSUs Granted
 
Performance Period Commencement Date
 
Performance Period End Date
 
Grant Date Fair Value
 
Number of PSUs Outstanding as of December 31, 2014
3/3/2011
 
56,883

 
3/3/2011
 
3/2/2014
 
$
2,796

 
—

3/1/2012
 
54,070

 
1/1/2012
 
12/31/2014
 
1,772

 
54,070

3/1/2013
 
69,579

 
1/1/2013
 
12/31/2015
 
1,867

 
69,579

3/6/2014
 
49,103

 
1/1/2014
 
12/31/2016
 
1,723

 
49,103



The PSUs each have three year performance periods concluding on the earlier of the respective performance period end dates set forth above 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 PSUs earned (“earned PSUs”) at the end of the performance period will be determined based on the percentile rank of COPT’s total shareholder return relative to a peer group of companies, as set forth in the following schedule:
Percentile Rank
 
Earned PSUs Payout %
75th or greater
 
200% of PSUs granted
50th or greater
 
100% of PSUs granted
25th
 
50% of PSUs granted
Below 25th
 
0% of PSUs granted


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 PSUs will be interpolated between the ranges set forth in the table above to reflect any performance between the listed percentiles.  At the end of the performance period, we, in settlement of the award, will issue a number of fully-vested COPT common shares equal to the sum of:

•
the number of earned PSUs in settlement of the award plan; plus
•
the aggregate dividends that would have been paid with respect to the common shares issued in settlement of the earned PSUs through the date of settlement had such shares been issued on the grant date, divided by the share price on such settlement date, as defined under the terms of the agreement.
 
If a performance period ends due to a sale event or qualified termination, the number of earned PSUs 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 PSUs are forfeited.  PSUs do not carry voting rights.
 
Based on COPT’s total shareholder return relative to its peer group of companies:

•
for the 2011 PSUs that vested in 2014, there was no payout value in connection with the vesting; and
•
for the 2012 PSUs that vested on December 31, 2014 to be paid out in 2015, approximately 40,000 shares will be issued in March 2015 in connection with the vesting.

We computed grant date fair values for PSUs using Monte Carlo models and are recognizing these values over three-year periods that commenced on the respective grant dates. The grant date fair value and certain of the assumptions used in the Monte Carlo models for the PSUs granted in 2012, 2013 and 2014 are set forth below:
 
 
For the Years Ended December 31,
 
 
2014
 
2013
 
2012
Grant date fair value
 
$
35.09

 
$
26.84

 
$
32.77

Baseline common share value
 
$
26.52

 
$
25.85

 
$
24.39

Expected volatility of common shares
 
28.6
%
 
29.5
%
 
43.2
%
Risk-free interest rate
 
0.66
%
 
0.33
%
 
0.41
%


The following table summarizes option transactions under the share-based compensation plans for 2012, 2013 and 2014 (dollars in thousands, except per share data):
 
 
 Shares
 
Range of Exercise Price per Share
 
Weighted Average Exercise Price per Share
 
Weighted Average Remaining Contractual Term
(in Years)
 
Aggregate Intrinsic Value
Outstanding at December 31, 2011
 
945,422

 
$13.40 - $57.00
 
$
36.63

 
4
 
$
510

Forfeited/Expired – 2012
 
(85,588
)
 
$25.52 - $57.00
 
$
42.98

 
 
 
 
Exercised – 2012
 
(61,624
)
 
$13.40 - $22.49
 
$
15.08

 
 
 
 
Outstanding at December 31, 2012
 
798,210

 
$13.60 - $57.00
 
$
37.62

 
3
 
$
325

Forfeited/Expired – 2013
 
(117,952
)
 
$18.08 - $51.62
 
$
40.91

 
 
 
 
Exercised – 2013
 
(39,331
)
 
$13.60 - $26.24
 
$
19.67

 
 
 
 
Outstanding at December 31, 2013
 
640,927

 
$19.63 - $56.00
 
$
38.11

 
2
 
$
68

Forfeited/Expired – 2014
 
(18,303
)
 
$22.34 - $49.60
 
$
42.12

 
 
 
 
Exercised – 2014
 
(62,888
)
 
$19.63 - $28.15
 
$
23.70

 
 
 
 
Outstanding at December 31, 2014
 
559,736

 
$25.52 - $56.00
 
$
39.60

 
2
 
$
167

Exercisable at December 31, 2012
 
798,210

 
(1)
 
$
37.62

 
 
 
 
Exercisable at December 31, 2013
 
640,927

 
(2)
 
$
38.11

 
 
 
 
Exercisable at December 31, 2014
 
559,736

 
(3)
 
$
39.60

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(1)
9,500 of these options had an exercise price ranging from $13.60 to $16.73; 204,736 had an exercise price ranging from $16.74 to $30.04; 180,962 had an exercise price ranging from $30.05 to $41.28; and 403,012 had an exercise price ranging from $41.29 to $57.00.
(2)
171,288 of these options had an exercise price ranging from $19.63 to $30.04; 145,187 had an exercise price ranging from$30.05 to $41.28; 160,402 had an exercise price ranging from $41.29 to $42.74; and 164,050 had an exercise price ranging from $42.75 to $56.00.
(3)
105,672 of these options had an exercise price ranging from $25.52 to $30.04; 142,862 had an exercise price ranging from$30.05 to $41.28; 158,902 had an exercise price ranging from $41.29 to $42.74; and 152,300 had an exercise price ranging from $42.75 to $56.00.

The aggregate intrinsic value of options exercised was $225,000 in 2014, $258,000 in 2013 and $553,000 in 2012.

We own a taxable REIT subsidiary that is subject to Federal and state income taxes. We realized a windfall tax (loss) benefit of $(3,000) in 2014, $(122,000) in 2013 and $43,000 in 2012 on options exercised and vesting restricted shares in connection with employees of that subsidiary.

The table below sets forth our reporting for share based compensation expense (in thousands):
 
 
 For the Years Ended December 31,
 
 
2014
 
2013
 
2012
General, administrative and leasing expenses
 
$
5,307

 
$
5,412

 
$
8,611

Property operating expenses
 
857

 
1,118

 
1,371

Capitalized to development activities
 
886

 
1,075

 
1,202

Share-based compensation expense
 
$
7,050

 
$
7,605

 
$
11,184



The amounts included in our consolidated statements of operations for share-based compensation reflected an estimate of pre-vesting forfeitures of 0% for PSUs and 0% to 5% for restricted shares.

As of December 31, 2014, all of our options are vested and fully expensed. As of December 31, 2014, there was $6.3 million of unrecognized compensation cost related to unvested restricted shares that is expected to be recognized over a weighted average period of approximately two years. As of December 31, 2014, there was $1.9 million of unrecognized compensation cost related to PSUs that is expected to be recognized over a weighted average performance period of approximately two years.

401(k) Plan

We have a 401(k) defined contribution plan covering substantially all of our employees that permits participants to contribute up to 90% of their compensation, as defined in the Plan, per pay period on a before-tax basis or after-tax basis, or a combination of both, subject to limitations under the Internal Revenue Code of 1986 ( the “IRC”), as amended. Participants who are 50 years of age or older by the end of a particular plan year and have contributed the maximum 401(k) deferral amount allowed under the plan for that year are eligible to contribute an additional portion of their annual compensation on a before-tax basis as catch-up contributions, up to the annual limit under the IRC. We match 100% of the first 1% of pre-tax and/or after-tax contributions that participants contribute to the plan and 50% of the next 5% in participant contributions to the plan (representing an aggregate match by us of 3.5% on the first 6% of participant pre-tax and/or after-tax contributions to the plan).  Participants’ contributions are fully vested. Participants are 50% vested in matching contributions after one year of credited service and 100% vested after two years of credited service. We fund all contributions with cash. Our matching contributions under the plan totaled approximately $1.2 million in 2014, $1.1 million in 2013 and $1.1 million in 2012. The 401(k) plan is fully funded as of December 31, 2014.

Deferred Compensation Plan

COPT has a non-qualified elective deferred compensation plan for certain members of our management team that permits participants to defer up to 100% of their compensation on a pre-tax basis and receive a tax-deferred return on such deferrals. The balance of the plan, which was fully funded, totaled $5.9 million as of December 31, 2014 and $7.5 million as of December 31, 2013, and is included in the accompanying COPT consolidated balance sheets.

Executive Transition Costs

In connection with the departure on February 3, 2015 of Stephen E. Riffee, our Executive Vice President and Chief Financial Officer, and the retirement on March 31, 2012 of Randall M. Griffin, our former Chief Executive Officer, we recognized executive transition costs of $1.1 million in 2014 and $2.2 million in 2012. These costs, which are included in general administrative expense, represent incremental compensation costs associated with the executives’ employment separation, including cash and share-based compensation and post-employment benefits.