Annual report pursuant to Section 13 and 15(d)

Share-based Compensation of the Company (Notes)

v2.4.0.6
Share-based Compensation of the Company (Notes) (Tanger Factory Outlet Centers, Inc)
 12 Months Ended
Dec. 31, 2011
Tanger Factory Outlet Centers, Inc
  
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]
Share-Based Compensation of the Company

We have a shareholder approved share-based compensation plan, the Amended and Restated Incentive Award Plan of Tanger Factory Outlet Centers and Tanger Properties Limited Partnership (the "Plan"), which covers our independent directors, officers and our employees. We may issue up to 15.4 million common shares under the Plan. Through December 31, 2011, we had granted 7,345,460 options, net of options forfeited, and 2,774,820 restricted share awards, net of restricted shares forfeited, and notional units which may result in the issuance of a maximum of 1,176,000 common shares. Shares remaining available for future issuance totaled 4,103,720 common shares. The amount and terms of the awards granted under the Plan are determined by the Share and Unit Option Committee of the Board of Directors.

In February 2011, the Company's Board of Directors approved the grant of 191,500 options to non-executive employees of the Company. The exercise price of the options granted during the first quarter of 2011 is $26.06 which equaled the closing market price of the Company's common shares on the day prior to the grant date. The options expire ten years from the date of grant and 20% of the options become exercisable in each of the first five years commencing one year from the date of grant. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for the 2011 grant: expected dividend yield 3.0%; expected life of 7 years; expected volatility of 32.8%; a risk-free rate of 2.9%; and forfeiture rates of 3.0% to 20.0% dependent upon the employee's position within the Company.

During 2011, 2010 and 2009, the Board of Directors approved the grant of 329,000, 312,750 and 415,000 restricted shares, respectively, to the independent directors and the senior executive officers. The independent directors' restricted shares vest ratably over a three year period and the senior executive officers' restricted shares vest ratably over a five year period. For all of the restricted awards described above, the grant date fair value of the award was determined based upon the market price of our common shares on the date of grant and the associated compensation expense is being recognized in accordance with the vesting schedule of each grant.

Also, during the first quarter of 2010, the Company's Compensation Committee Approved the general terms of the Tanger Factory Outlet Centers, Inc. 2010 Multi-Year Performance Plan, (the "2010 Multi Year Performance Plan"). Under the 2010 Multi-Year Performance Plan, we granted 392,000 notional units, net of notional units forfeited, to award recipients as a group. If the Company's aggregate share price appreciation during the four year period beginning January 1, 2010 equals or exceeds the minimum threshold of 40%, then the notional units will convert into the Company's restricted common shares on a one-for-one basis. The notional units will convert into restricted common shares on a one-for-two basis if the share price appreciation exceeds the target threshold of 50% and on a one-for-three basis if the share price appreciation exceeds the maximum of 60%. The notional amounts will convert on a pro-rata basis between share price appreciation thresholds. The share price targets will be reduced on a dollar-for-dollar basis with respect to any dividend payments made during the measurement period, subject to a minimum level price target. For notional amounts granted in 2010, any shares earned on December 31, 2013 will vest on December 31, 2014 contingent on continued employment through the vesting date.

The notional units, prior to the date they are converted into restricted common shares, will not entitle award recipients to receive any dividends or other distributions. If the notional units are earned, and thereby converted into restricted common shares, then award recipients will be entitled to receive a payment of all dividends and other distributions that would have been paid had the number of earned common shares been issued at the beginning of the performance period. Thereafter, dividends and other distributions will be paid currently with respect to all restricted common shares that were earned.

At the end of the four-year performance period, if the minimum share price threshold is not achieved but the Company's share performance exceeds the 50th percentile of the share performance of its peer group, the notional units will convert into restricted common shares on a one-for-one basis. All determinations, interpretations and assumptions relating to the vesting and calculation of the performance awards will be made by the Company's Compensation Committee.

We recorded share based compensation expense in general and administrative expenses in the consolidated statements of operations for the years ended December 31, 2011, 2010 and 2009, respectively, as follows (in thousands):
 
 
2011
 
2010
 
2009
Restricted shares (1)
 
$
5,227

 
$
4,095

 
$
11,720

Notional unit performance awards
 
1,885

 
1,753

 
—

Options
 
179

 
—

 
78

Total share based compensation
 
$
7,291

 
$
5,848

 
$
11,798


(1)
For the year ended December 31, 2009, includes $6.9 million of incremental share-based compensation related to the accelerated vesting of restricted shares.

Stanley K. Tanger, founder of the Company, retired as an employee of the Company and resigned as Chairman of the Board effective September 1, 2009. Pursuant to Mr. Tanger's employment agreement, as mutually agreed upon by the Company and Mr. Tanger, he received a cash severance amount of $3.4 million.  Additionally, the Board approved a modification to Mr. Tanger's restricted share agreements whereas, upon his retirement, 432,000 unvested restricted common shares previously granted to Mr. Tanger vested. As a result of this vesting, we recorded $6.9 million in incremental share-based compensation expense. Mr. Tanger's severance costs are included in the general and administrative expenses in the consolidated statement of operations for the year-ended December 31, 2009. Mr. Tanger continued to serve as a member of the Company's Board of Directors until his passing on October 23, 2010.

Share-based compensation expense capitalized as a part of rental property and deferred lease costs during the years ended December 31, 2011, 2010 and 2009 was $234,000, $393,000 and $302,000, respectively.

Options outstanding at December 31, 2011 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
$9.69
 
10,000

 
$
9.69

 
2.32
 
10,000

 
$
9.69

$9.71
 
61,700

 
9.71

 
2.33
 
61,700

 
9.71

$11.81
 
12,000

 
11.81

 
2.84
 
12,000

 
11.81

$26.06
 
177,500

 
26.06

 
9.16
 
—

 
—

 
 
261,200

 
$
20.92

 
6.99
 
83,700

 
$
10.01



A summary of option activity under our Amended and Restated Incentive Award Plan as of December 31, 2011 and changes during the year then ended is presented below (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, 2010
 
120,200

 
$
9.92

 

 

Granted
 
191,500

 
26.06

 

 

Exercised
 
(36,500
)
 
9.71

 

 

Forfeited
 
(14,000
)
 
26.06

 

 

Outstanding as of December 31, 2011
 
261,200

 
$
20.92

 
6.99

 
$
2,273

 
 
 
 
 
 
 
 
 
Vested and Expected to Vest as of
 
 
 
 
 
 
 
 
December 31, 2011
 
222,181

 
$
20.01

 
6.61

 
$
2,135

 
 
 
 
 
 
 
 
 
Exercisable as of December 31, 2011
 
83,700

 
$
10.01

 
2.40

 
$
1,642


The total intrinsic value of options exercised during the years ended December 31, 2011, 2010 and 2009 was $652,000, $1.7 million and $1.5 million, respectively.

The following table summarizes information related to unvested restricted shares outstanding as of December 31, 2011:

Unvested Restricted Shares
 
Number of shares
 
Weighted average grant date fair value
Unvested at December 31, 2010
 
717,760

 
$
17.95

Granted
 
329,000

 
25.48

Vested
 
(243,823
)
 
18.46

Forfeited
 
(11,600
)
 
17.78

Unvested at December 31, 2011
 
791,337

 
$
20.93


The total value of restricted shares vested during the years ended 2011, 2010 and 2009 was $7.1 million, $4.7 million and $13.5 million, respectively.

As of December 31, 2011, there was $19.5 million of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 3.2 years.