Tanger Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Equity-Based Compensation

Equity-Based Compensation

12 Months Ended

Dec. 31, 2017

Tanger Factory Outlet Centers, Inc. [Member]

When a common share is issued by the Company, the Operating Partnership issues one corresponding unit of partnership interest to the Company's wholly-owned subsidiaries. Therefore, when the Company grants an equity based award, the Operating Partnership treats each award as having been granted by the Operating Partnership. In the discussion below, the term "we" refers to the Company and the Operating Partnership together and the term "shares" is meant to also include corresponding units of the Operating Partnership.

We may issue up to 15.4 million common shares under the Plan. Through December 31, 2017, we had granted 7,534,560 options, net of options forfeited; 5,365,728 restricted common share awards, net of restricted common shares forfeited or withheld for employees' tax obligations; and notional units which may result in the issuance of a maximum of 603,411 common shares. Shares remaining available for future issuance totaled 1,896,301 common shares. The amount and terms of the awards granted under the Plan were determined by the Board of Directors (or the Compensation Committee of the Board of Directors).

We recorded equity-based compensation expense in general and administrative expenses in the consolidated statements of operations for the years ended December 31, 2017, 2016 and 2015, respectively, as follows (in thousands):



	2017		2016		2015
Restricted common shares	$	9,395	$	10,976	$	11,220
Notional unit performance awards	3,913		3,967		3,030
Options	277		376		462
Total equity-based compensation	$	13,585	$	15,319	$	14,712

Equity-based compensation expense capitalized as a part of rental property and deferred lease costs were as follows (in thousands):



	2017		2016		2015
Equity-based compensation expense capitalized	$	1,044	$	985	$	837

As of December 31, 2017, there was $23.2 million of total unrecognized compensation cost related to unvested common equity-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 1.9 years.

Restricted Common Share Awards

During 2017, 2016 and 2015, the Company granted 253,431, 286,524 and 357,844 restricted common shares, respectively, to the independent directors and the senior executive officers. The independent directors' restricted common shares vest ratably over a three year period and the senior executive officers' restricted common shares vest ratably over periods ranging from three to five years. For the restricted shares issued to our chief executive officer during 2017, 2016 and 2015, the restricted share agreements require him to hold the shares for a minimum of three years following each applicable vesting date thereof. Compensation expense related to the amortization of the deferred compensation is being recognized in accordance with the vesting schedule of the restricted shares. For all of the restricted common share awards described above, the grant date fair value of the award was determined based upon the closing market price of the Company's common shares on the day prior to the grant date and the associated compensation expense is being recognized in accordance with the vesting schedule of each grant.

The following table summarizes information related to unvested restricted common shares outstanding for the years ended December 31, 2017, 2016, and 2015:



Unvested Restricted Common Shares	Number of shares		Weighted average grant date fair value
Outstanding at December 31, 2014	1,099,450		$	29.01
Granted	357,844		36.69
Vested	(371,299	)	28.12
Forfeited	—		—
Outstanding at December 31, 2015	1,085,995		$	31.84
Granted	286,524		29.64
Vested	(388,851	)	31.30
Forfeited	(104,400	)	34.13
Outstanding at December 31, 2016	879,268		$	31.09
Granted	253,431		33.07
Vested	(368,043	)	29.87
Forfeited	(14,750	)	34.39
Outstanding at December 31, 2017	749,906		$	32.30

The table above excludes restricted common shares earned under the 2014 Outperformance Plan. In connection with the 2014 Outperformance Plan, we issued 184,455 restricted common shares in January 2017, with 94,663 vesting immediately and the remaining 89,792 vesting in January one year thereafter, contingent upon continued employment with the Company through the vesting date (unless terminated prior thereto (a) by the Company without cause, (b) by participant for good reason or (c) due to death or disability).

The total value of restricted common shares vested during the years ended 2017, 2016 and 2015 was $12.4 million, $12.7 million and $13.1 million, respectively. During 2017, 2016 and 2015, we withheld shares with value equivalent to the employees' minimum statutory obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. The total number of shares withheld were 69,886, 66,760 and 31,863 for 2017, 2016 and 2015, respectively, and were based on the value of the restricted common shares on the vesting date as determined by our closing share price on the day prior to the vesting date. Total amounts paid for the employees' tax obligation to taxing authorities were $2.4 million, $2.2 million and $1.1 million for 2017, 2016 and 2015, respectively, which is reflected as a financing activity within the consolidated statements of cash flows.

Notional Unit Performance Awards

Outperformance Plan

Each year, the Compensation Committee of Tanger Factory Outlet Centers, Inc. approves the terms and the number of awards to be granted under the Tanger Factory Outlet Centers, Inc. Outperformance Plan (the “OPP"). The OPP is a long-term incentive compensation plan. Recipients may earn units which may convert, subject to the achievement of the goals described below, into restricted common shares of the Company based on the Company’s absolute share price appreciation (or absolute total shareholder return) and its share price appreciation relative to its peer group (or relative total shareholder return) over a three-year measurement period. Any shares earned at the end of the three-year measurement period are subject to a time-based vesting schedule, with 50% of the shares vesting immediately following the measurement period, and the remaining 50% vesting one year thereafter, contingent upon continued employment with the Company through the vesting date (unless terminated prior thereto (a) by the Company without cause, (b) by participant for good reason or (c) due to death or disability.

The following table sets forth OPP performance targets and other relevant information about each plan:



	2017 OPP		2016 OPP		2015 OPP⁽¹⁾		2014 OPP⁽²⁾		2013 OPP ⁽³⁾
Performance targets ⁽⁴⁾
Absolute portion of award:
Percent of total award	50%		50%		60%		70%		70%
Absolute share price appreciation range	18% - 35%		18% - 35%		25% - 35%		25% - 35%		25% - 35%
Percentage of units to be earned	20%-100%		20%-100%		33%-100%		33%-100%		33%-100%

Relative portion of award:
Percent of total award	50%		50%		40%		30%		30%
Percentile rank of peer group range⁽⁵⁾	40th - 70th		40th - 70th		50th - 70th		50th - 70th		50th - 70th
Percentage of units to be earned	20%-100%		20%-100%		33%-100%		33%-100%		33%-100%

Maximum number of restricted common shares that may be earned	296,400		321,900		306,600		329,700		315,150
Grant date fair value per share	$	16.60	$	15.10	$	15.85	$	14.71	$	13.99


(1)	On December 31, 2017, the measurement period for the 2015 OPP expired and neither of the Company’s absolute nor relative total shareholder returns were sufficient for employees to earn, and therefore become eligible to vest in, any restricted shares under the plan. Accordingly, all 2015 OPP performance awards were automatically forfeited.

(2)

On December 31, 2016, the measurement period for the 2014 OPP expired. Based on the Company’s absolute total shareholder return over the three-year measurement period, we issued 184,455 restricted common shares in January 2017, with 94,663 vesting immediately and the remaining 89,792 vesting in January one year thereafter, contingent upon continued employment with the Company through the vesting date (unless terminated prior thereto (a) by the Company without cause, (b) by participant for good reason or (c) due to death or disability). Our relative total shareholder return for the 2014 OPP did not meet the minimum share price appreciation and no shares were earned under this component of the 2014 OPP.


(3)	On December 31, 2015, the measurement period for the 2013 OPP expired and neither of the Company’s absolute nor relative total shareholder returns were sufficient for employees to earn, and therefore become eligible to vest in, any restricted shares under the plan. Accordingly, all 2013 OPP performance awards were automatically forfeited.

(4)

The performance shares for the OPP will convert on a pro-rata basis by linear interpolation between share price appreciation thresholds, both for absolute total shareholder return and for relative total shareholder return. The share price for the purposes of calculation of share price appreciation will be adjusted on a penny-for-penny basis with respect to any dividend payments made during the measurement period.


(5)	The peer group is based on companies included in the SNL Equity REIT index.

The fair values of the OPP awards granted during the years ended December 31, 2017, 2016, and 2015 were determined at the grant dates using a Monte Carlo simulation pricing model and the following assumptions:



	2017		2016		2015
Risk free interest rate ⁽¹⁾	1.52	%	1.05	%	0.86	%
Expected dividend yield ⁽²⁾	3.4	%	3.1	%	2.7	%
Expected volatility ⁽³⁾	19	%	21	%	20	%


(1)	Represents the interest rate as of the grant date on US treasury bonds having the same life as the estimated life of the restricted unit grants.


(2)	The dividend yield is calculated utilizing the dividends paid for the previous five-year period.


(3)	Based on a mix of historical and implied volatility for our common shares and the common shares of our peer index companies over the measurement period.

The following table sets forth OPP activity for the years ended December 31, 2017, 2016, and 2015:



Unvested OPP Awards	Number of units		Weighted average grant date fair value
Outstanding as of December 31, 2014	644,850		$	14.36
Awarded	306,600		15.85
Forfeited	(407,150	)	14.28
Outstanding as of December 31, 2015	544,300		$	15.26
Awarded	321,900		15.10
Forfeited	(107,024	)	14.77
Outstanding as of December 31, 2016	759,176		$	15.36
Awarded	296,400		16.60
Earned ⁽¹⁾	(184,455	)	14.71
Forfeited	(267,710	)	15.84
Outstanding as of December 31, 2017	603,411		$	15.83


(1)	Represents the units under the 2014 OPP that are no longer outstanding and have been settled in restricted common shares.

Option Awards

Options outstanding at December 31, 2017 had the following weighted average exercise prices and weighted average remaining contractual lives:



		Options Outstanding				Options Exercisable
Exercise prices		Options	Weighted average exercise price		Weighted remaining contractual life in years	Options	Weighted average exercise price
$	26.06	62,200	$	26.06	3.15	62,200	$	26.06
32.02		169,000	32.02		6.00	89,800	32.02
		231,200	$	30.42	5.24	152,000	$	29.58

A summary of option activity under the Plan for the years ended December 31, 2017, 2016, and 2015 (aggregate intrinsic value amount in thousands):



Options	Shares		Weighted-average exercise price		Weighted-average remaining contractual life in years	Aggregate intrinsic value
Outstanding as of December 31, 2014	370,500		$	30.20
Granted	—		—
Exercised	(28,400	)	27.76
Forfeited	(23,700	)	31.58
Outstanding as of December 31, 2015	318,400		$	30.32	7.19	$	924
Granted	—		—
Exercised	(59,700	)	29.31
Forfeited	(16,500	)	31.86
Outstanding as of December 31, 2016	242,200		$	30.46	6.26	$	1,287
Granted	—		—
Exercised	(1,800	)	29.70
Forfeited	(9,200	)	31.83
Outstanding as of December 31, 2017	231,200		$	30.42	5.24	$	28

Vested and Expected to Vest as of
December 31, 2017	227,569		$	30.39	5.22	$	28

Exercisable as of December 31, 2017	152,000		$	29.58	4.84	$	28

The total intrinsic value of options exercised during the years ended December 31, 2017, 2016 and 2015 was $8,000, $469,000 and $200,000, respectively.

401(k) Retirement Savings Plan

We have a 401(k) Retirement Savings Plan covering substantially all employees who meet certain age and employment criteria. An employee may invest pretax earnings in the 401(k) plan up to the maximum legal limits (as defined by Federal regulations). This plan allows participants to defer a portion of their compensation and to receive matching contributions for a portion of the deferred amounts. During the years ended December 31, 2017, 2016 and 2015, we contributed approximately $862,000, $828,000 and $742,000, respectively, to the 401(k) Retirement Savings Plan.