Annual report pursuant to Section 13 and 15(d)

Stock Compensation

v3.20.4
Stock Compensation
12 Months Ended
Dec. 31, 2020
Stock Compensation [Abstract]  
Stock Compensation 10. Stock compensation

Under various share-based compensation plans, PSB grants non-qualified options to purchase the Company’s common shares at a price not less than fair value on the date of grant, as well as RSUs, to certain directors, officers and key employees.

The service period for stock options and RSUs begins when (i) the Company and the recipient reach a mutual understanding of the key terms of the award, (ii) the award has been authorized, (iii) the recipient is affected by changes in the market price of our stock and (iv) it is probable that any performance conditions will be met, and ends when the stock options or RSUs vest.

We amortize the fair value of awards starting at the beginning of the service period as compensation expense. For awards that are earned solely upon the passage of time and continued service, the entire cost of the award is amortized on a straight-line basis over the service period. For awards with performance conditions, the individual cost of each vesting is amortized separately over each individual service period (the “accelerated attribution” method).

We account for forfeitures of share-based payments as they occur by reversing previously amortized share-based compensation expense with respect to grants that are forfeited in the period the employee terminates employment.

In August 2020, the Company announced that Maria Hawthorne was retiring from her role as President and CEO effective September 1, 2020 and would continue to serve as a director of the Company. Due to Ms. Hawthorne’s continued service as a director of the Company, her unvested stock option and restricted stock units will continue to vest on their original vesting schedule in accordance with the Company’s 2012 Equity and Performance-Based Incentive Compensation Plan and related award agreements. For financial reporting purposes, the end of the service periods for these stock option and restricted stock unit grants have changed from the various respective vesting dates to September 1, 2020, the date of her retirement as President and CEO. Accordingly, all remaining stock compensation expense for Ms. Hawthorne, which

totaled $1.7 million, was amortized and included in general and administrative expense during the year ended December 31, 2020.

Stock Options

Stock options expire 10 years after the grant date and the exercise price is equal to the closing trading price of our common shares on the grant date. Stock option holders cannot require the Company to settle their award in cash. We use the Black-Scholes option valuation model to estimate the fair value of our stock options on the date of grant.

2020

2019

2018

Stock option expense for the year ( in 000's)

$

412 

$

299 

$

236 

Aggregate exercise date intrinsic value of options exercised during the year (in 000's)

$

305 

$

1,567 

$

2,752 

Average assumptions used in valuing options with the Black-Scholes method:

Expected life of options in years, based upon historical experience

5 

5 

5 

Risk-free interest rate

0.4%

2.0%

2.8%

Expected volatility, based upon historical volatility

22.3%

22.2%

20.8%

Expected dividend yield

3.3%

2.6%

2.9%

Average estimated value of options granted during the year

$

15.27 

$

26.85 

$

18.11 

As of December 31, 2020, there was $1.0 million of unamortized compensation expense related to stock options expected to be recognized over a weighted average period of 3.4 years.

Cash received from 4,136 stock options exercised during the year ended December 31, 2020 was $0.3 million. Cash received from 15,585 stock options exercised during the year ended December 31, 2019 was $1.0 million. Cash received from 44,994 stock options exercised during the year ended December 31, 2018 was $3.0 million.

Information with respect to stock options during 2020, 2019, and 2018 is as follows:

Weighted

Aggregate

Weighted

Average

Intrinsic

Number of

Average

Remaining

Value

Options:

Options

Exercise Price

Contract Life

(in thousands)

Outstanding at December 31, 2017

172,409 

$

78.63 

Granted

16,000 

$

115.45 

Exercised

(44,994)

$

66.88 

Forfeited

$

Outstanding at December 31, 2018

143,415 

$

86.42 

Granted

34,000 

$

163.95 

Exercised

(15,585)

$

62.15 

Forfeited

(4,000)

$

110.04 

Outstanding at December 31, 2019

157,830 

$

104.92 

Granted

18,000 

$

127.22 

Exercised

(4,136)

$

62.29 

Forfeited

$

Outstanding at December 31, 2020

171,694 

$

108.29 

4.49 Years

$

5,278 

Exercisable at December 31, 2020

105,094 

$

89.74 

3.85 Years

$

4,744 

RSUs

RSUs granted prior to 2016 are subject to a six-year vesting, with 20% vesting after year two, and 20% vesting after each of the next four years. RSUs granted during and subsequent to 2016 are subject to a five-year vesting at the rate of 20% per year. Grantees receive dividends for each outstanding RSU equal to the per share dividend received by common shareholders. We expense any dividends previously paid upon forfeiture of the related RSU. Upon vesting, the grantee receives common shares equal to the number of vested RSUs, less common shares withheld in exchange for tax withholdings

made by the Company to satisfy the grantee’s statutory tax liabilities arising from the vesting. The fair value of our RSUs is determined based upon the applicable closing trading price of our common shares on the date of grant.

In March 2020, the Compensation Committee of the Board approved an annual performance-based equity incentive program (“Annual Equity Incentive Program”) under the Company’s 2012 Equity and Performance-Based Incentive Compensation Plan. Under the program, certain employees will be eligible on an annual basis to receive RSUs based on the Company’s achievement of pre-established targets for (i) growth in net asset value per share, and (ii) shareholder value creation, each as computed pursuant to the terms of the Annual Equity Incentive Program. In the event the pre-established targets are achieved, eligible employees will receive the target award, except that the Compensation Committee of the Board may adjust the actual award to 75%-125% of the target award based on the their assessment of whether certain strategic and operational goals were accomplished in the performance period.

During the year ended December 31, 2020, management determined that it was not probable that the targets under the Annual Equity Incentive Program for the 2020 performance year would be met, largely due to the negative impact of the COVID-19 pandemic, and, as such, the Company did not record stock compensation expense related to the Annual Equity Incentive Program.

During the three months and year ended December 31, 2020, the Company granted a total of 18,286 RSUs to our Regional and Divisional Vice Presidents. Furthermore, during the same periods, the Company also granted a one-time special equity grant of 20,000 RSUs to our Interim President and Chief Executive Officer and Chief Operating Officer.

Information with respect to RSUs during 2020, 2019, and 2018 is as follows (dollar amounts in thousands):

Weighted

Number of

Average Grant

Restricted Stock Units:

RSUs

Date Fair Value

Nonvested at December 31, 2017

165,083 

$

15,116 

Granted

194,450 

18,431 

Vested

(106,103)

(9,256)

Forfeited

(10,140)

(905)

Nonvested at December 31, 2018

243,290 

23,386 

Granted

6,400 

1,137 

Vested

(95,500)

(8,753)

Forfeited

(3,342)

(345)

Nonvested at December 31, 2019

150,848 

$

15,425 

Granted

46,036 

5,562 

Vested

(73,256)

(6,991)

Forfeited

(2,120)

(290)

Nonvested at December 31, 2020

121,508 

$

13,706 

As of December 31, 2020, there was $7.8 million of unamortized compensation expense related to RSUs expected to be recognized over a weighted average period of 3.4 years.

(In thousands, except number of shares)

2020

2019

2018

Restricted share unit expense

$

4,475 

$

3,196 

$

3,727 

Common shares issued upon vesting

43,458 

55,267 

62,500 

Fair value of vested shares on vesting date

$

10,350 

$

15,078 

$

12,127 

Cash paid for taxes in lieu of shares upon vesting of RSUs

$

4,216 

$

6,350 

$

4,981 

In July 2019, the Company amended the Retirement Plan for Non-Employee Directors (the “Director Retirement Plan”), to increase the maximum shares issued upon retirement as a director from 8,000 shares to 10,000 shares of common stock. The Company recognizes compensation expense with regard to grants to be issued in the future under the Director Retirement Plan over the requisite service period. The Company recorded compensation expense related to these shares of $0.8 million, $1.5 million, and $0.2 million for the years ended December 31, 2020, 2019, and 2018, respectively.

In April 2019, we issued 8,000 shares to a director upon retirement with an aggregate fair value of $1.2 million. No director retirement shares were issued during the years ended December 31, 2020 and 2018.