Equity | 12 Months Ended |
Dec. 31, 2013 |
Equity [Abstract] | ' |
Equity | ' |
Equity |
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Non-controlling Interests |
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Common units in the Operating Partnership |
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Common units in the operating partnership consisted of 2,382,563 common units of partnership interests, or common units, not owned by us. Common units and shares of our common stock have essentially the same economic characteristics, as they share equally in the total net income or loss distributions of our operating partnership. Investors who own common units have the right to cause our operating partnership to redeem any or all of their common units for cash equal to the then-current market value of one share of common stock or, at our election, issue shares of our common stock in exchange for common units on a one-for-one basis. In February 2012, one of our common unit holders required us to redeem 155,878 common units, and in December 2012, one of our common unit holders required us to redeem 72,500 common units. In both cases, we elected, in accordance with our limited partnership agreement, to issue shares of our common stock in exchange for the common units to satisfy the redemption notice. Accordingly, our outstanding common units decreased from 2,610,941 common units outstanding to the current 2,382,563 common units outstanding, with a corresponding increase to our outstanding common stock as of the date of such exchanges, as reflected in the consolidated statements of equity under the caption “—Exchange of Non-Controlling Interest of Common Units in the Operating Partnership for Common Stock.” |
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Non-controlling interest—members in consolidated entities |
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Non-controlling interest—members in consolidated entities refers to our joint venture partner, Media Center Partners, LLC, with which we entered into a joint venture, Hudson MC Partners, LLC (the “Pinnacle JV”), to acquire The Pinnacle, a two-building (Pinnacle I and Pinnacle II), 625,640 square-foot office property located in Burbank, California. As of December 31, 2013, we own a 65.0% in the Pinnacle JV. As of December 31, 2012 and until the acquisition by the Pinnacle JV of the 231,864 square-foot Pinnacle II building on June 14, 2013, we owned a 98.25% interest in the Pinnacle JV, which owns the 393,776 square-foot Pinnacle I building. |
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6.25% series A cumulative redeemable preferred units of the Operating Partnership |
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6.25% series A cumulative redeemable preferred units of the Operating Partnership are 419,014 series A preferred units of partnership interest in our operating partnership, or series A preferred units, that are not owned by us. These series A preferred units are entitled to preferential distributions at a rate of 6.25% per annum on the liquidation preference of $25.00 per unit and became convertible at the option of the holder into common units or redeemable into cash or, at our option, exchangeable for registered shares of common stock, after June 29, 2013. In October 2013, one of our series A preferred unit holders required us to redeem 80,000 series A preferred units. We elected to redeem these units for cash equal to the liquidation preference of $25.00 per unit. As a result of this redemption, our outstanding series A preferred units decreased from 499,014 units outstanding to 419,014 units outstanding. For a description of the conversion and redemption rights of the series A preferred units, please see “Description of the Partnership Agreement of Hudson Pacific Properties, L.P.—Material Terms of Our Series A Preferred Units” in our June 23, 2010 Prospectus. |
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8.375% Series B cumulative redeemable preferred stock |
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8.375% series B cumulative redeemable preferred stock are 5,800,000 shares of 8.375% preferred stock, with a liquidation preference of $25.00 per share, $0.01 par value per share. In December 2010, we completed the public offering of 3,500,000 share of our series B preferred stock (including 300,000 shares of series B preferred stock issued and sold pursuant to the exercise of the underwriters’ option to purchase additional shares in part). Total proceeds from the offering, after deducting underwriting discount, were approximately $83.9 million (before transaction costs). On January 23, 2012, we completed the public offering of 2,300,000 of our series B cumulative preferred stock (including 300,000 shares of series B preferred stock issued and sold pursuant to the exercise of the underwriters’ option to purchase additional shares in full). Total proceeds from the offering, after deducting underwriting discount, were approximately $57.5 million (before transaction costs). |
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Dividends on our series B preferred stock are cumulative from the date of original issue and payable quarterly on or about the last calendar day of each March, June, September and December, at the rate of 8.375% per annum of its $25.00 per share liquidation preference (equivalent to $2.0938 per share per annum). If, following a change of control of the Company, either our series B preferred stock (or any preferred stock of the surviving entity that is issued in exchange for our series B preferred stock) or the common stock of the surviving entity, as applicable, is not listed on the New York Stock Exchange, or NYSE, or quoted on the NASDAQ Stock Market, or NASDAQ (or listed or quoted on a successor exchange or quotation system), holders of our series B preferred stock will be entitled to receive cumulative cash dividends from, and including, the first date on which both the change of control occurred and either our series B preferred stock (or any preferred stock of the surviving entity that is issued in exchange for our series B preferred stock) or the common stock of the surviving entity, as applicable, is not so listed or quoted, at the increased rate of 12.375% per annum per share of the liquidation preference of our series B preferred stock (equivalent to $3.09375 per annum per share) for as long as either our series B preferred stock (or any preferred stock of the surviving entity that is issued in exchange for our series B preferred stock) or the common stock of the surviving entity, as applicable, is not so listed or quoted. Except in instances relating to preservation of our qualification as a REIT or in connection with a change of control of the Company, our series B preferred stock is not redeemable prior to December 10, 2015. On and after December 10, 2015, we may redeem our series B preferred stock in whole, at any time, or in part, from time to time, for cash at a redemption price of $25.00 per share, plus any accrued and unpaid dividends to, but not including, the date of redemption. If at any time following a change of control either our series B preferred stock (or any preferred stock of the surviving entity that is issued in exchange for our series B preferred stock) or the common stock of the surviving entity, as applicable, is not listed on the NYSE or quoted on NASDAQ (or listed or quoted on a successor exchange or quotation system), we will have the option to redeem our series B preferred stock, in whole but not in part, within 90 days after the first date on which both the change of control has occurred and either our series B preferred stock (or any preferred stock of the surviving entity that is issued in exchange for our series B preferred stock) or the common stock of the surviving entity, as applicable, is not so listed or quoted, for cash at $25.00 per share, plus accrued and unpaid dividends, if any, to, but not including, the redemption date. Our series B preferred stock has no maturity date and will remain outstanding indefinitely unless redeemed by us, and it is not subject to any sinking fund or mandatory redemption and is not convertible into any of our other securities. For a full description of the Series B cumulative redeemable preferred stock, please see “Description of our Preferred Stock” in our December 7, 2010 Prospectus. |
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May 2012 Common Stock Offering |
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On May 18, 2012, we completed the public offering of 13,225,000 shares of common stock and the exercise of the underwriters’ option to purchase an additional 1,725,000 shares of our common stock at the public offering price of $15.00 per share. Funds affiliated with Farallon Capital Management, L.L.C. acquired 2,000,000 of the shares of common stock offered in this offering. |
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Total proceeds from the public offering, after underwriters’ discount, were approximately $190.8 million (before transaction costs). |
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February 2013 Common Stock Offering |
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On February 12, 2013, we completed the public offering of 8,000,000 shares of common stock and the exercise of the underwriters’ option to purchase an additional 1,200,000 shares of our common stock at the public offering price of $21.50 per share. |
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Total proceeds from the public offering, after underwriters’ discount, were approximately $189.9 million (before transaction costs). |
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At-the-Market, or ATM, program |
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During the fourth quarter of 2012, we instituted a new At-the-Market, or ATM, program permitting sales of up to $125.0 million of stock, $12.6 million of which has been sold as of December 31, 2013. |
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Exchange of Common Units for Common Stock |
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In February 2012, we elected to issue 155,878 shares of our common stock in exchange for a corresponding number of |
common units to satisfy the common unit redemption notice of Glenborough Fund XIV, L.P. |
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In December 2012, we elected to issue 72,500 shares of our common stock in exchange for a corresponding number of common units to satisfy the common unit redemption notice of Howard S. Stern. |
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The table below represents the net loss attributable to stockholders and transfers from non-controlling interest (in thousands) for the twelve months ended: |
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| | December 31, | | | | | | | | |
| | 2013 | | 2012 | | | | | | | | |
Net loss attributable to Hudson Pacific Properties, Inc. | | $ | (2,389 | ) | | $ | (4,751 | ) | | | | | | | | |
Transfers from the non-controlling interests | | — | | | — | | | | | | | | | |
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Increase in common stockholders additional paid-in capital for exchange of common units | | — | | | 3,780 | | | | | | | | | |
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Change from net loss attributable to common stockholders and transfer from non-controlling interests | | $ | (2,389 | ) | | $ | (971 | ) | | | | | | | | |
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Dividends |
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During the 2013, we declared dividends on our common stock and non-controlling common partnership interests of $0.500 per share and unit. We also declared dividends on our series A preferred partnership interests of $1.5625 per unit. In addition, we declared dividends on our series B preferred shares of $2.09375 per share. The fourth quarter dividends were declared on December 10, 2013 to holders of record on December 20, 2013. |
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Taxability of Dividends |
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Earnings and profits, which determine the taxability of distributions to stockholders, may differ from income reported for financial reporting purposes due to the differences for federal income tax purposes in the treatment of loss on extinguishment of debt, revenue recognition, and compensation expense and in the basis of depreciable assets and estimated useful lives used to compute depreciation. |
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The Company’s dividends related to its common stock (CUSIP #444097109) and described above under “Dividends,” will be classified for United States federal income tax purposes as follows (unaudited): |
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| | | Ordinary Dividends | |
Record Date | Payment Date | Distributions per Share | Total | Non-qualified | Qualified | Return of Capital |
3/20/13 | 4/1/13 | $ | 0.125 | | $ | 0.01671 | | $ | 0.01605 | | $ | 0.00066 | | $ | 0.10829 | |
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6/20/13 | 7/1/13 | 0.125 | | 0.01671 | | 0.01605 | | 0.00066 | | 0.10829 | |
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9/20/13 | 9/30/13 | 0.125 | | 0.01671 | | 0.01605 | | 0.00066 | | 0.10829 | |
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12/20/13 | 12/30/13 | 0.125 | | 0.01671 | | 0.01605 | | 0.00066 | | 0.10829 | |
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| Total | $ | 0.5 | | $ | 0.06684 | | $ | 0.0642 | | $ | 0.00264 | | $ | 0.43316 | |
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| | 100 | % | 13.3699 | % | | | 86.6301 | % |
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The Company’s dividends related to its 8.375% Series B Cumulative Preferred Stock (CUSIP #444097208) and described above under “Dividends,” will be classified for United States federal income tax purposes as follows (unaudited): |
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| | | Ordinary Dividends | | | |
Record Date | Payment Date | Distributions per Share | Total | Non-qualified | Qualified | | | |
3/20/13 | 4/1/13 | $ | 0.52344 | | $ | 0.52344 | | $ | 0.50285 | | $ | 0.02059 | | | | |
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6/20/13 | 7/1/13 | 0.52344 | | 0.52344 | | 0.50285 | | 0.02059 | | | | |
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9/20/13 | 9/30/13 | 0.52344 | | 0.52344 | | 0.50285 | | 0.02059 | | | | |
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12/20/13 | 12/30/13 | 0.52344 | | 0.52344 | | 0.50285 | | 0.02059 | | | | |
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| Total | $ | 2.09376 | | $ | 2.09376 | | $ | 2.0114 | | $ | 0.08236 | | | | |
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Stock-Based Compensation |
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The Board of Directors awards restricted shares to non-employee board members on an annual basis as part of such board members’ annual compensation and to newly elected non-employee board members in accordance with our Board of Directors compensation program. The share-based awards are generally issued in the second quarter, and the individual share awards vest in equal annual installments over the applicable service vesting period, which is three years. |
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In addition, the Board of Directors awards restricted shares to employees on an annual basis as part of the employees’ annual compensation. The share-based awards are generally issued in the fourth quarter, and the individual share awards vest in equal annual installments over the applicable service vesting period, which is three years. These awards are generally subject to a two-year hold upon vesting. |
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The following table summarizes the restricted share activity for the twelve months ended December 31, 2013 and status of all unvested restricted share awards to our non-employee board members and employees at December 31, 2013: |
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Non-vested Shares | | Shares | Weighted-Average Grant-Date Fair Value | | | | | | | | | | |
Outstanding at December 31, 2012 | | 628,666 | | $ | 14.93 | | | | | | | | | | | |
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Granted | | 268,060 | | 20.33 | | | | | | | | | | | |
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Vested | | (262,908 | ) | 15.19 | | | | | | | | | | | |
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Canceled | | (1,474 | ) | 13.57 | | | | | | | | | | | |
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Outstanding at December 31, 2012 | | 632,344 | | $ | 17.12 | | | | | | | | | | | |
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Granted | | 263,039 | | 22.16 | | | | | | | | | | | |
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Vested | | (350,788 | ) | 16.5 | | | | | | | | | | | |
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Canceled | | (3,415 | ) | 16.09 | | | | | | | | | | | |
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Outstanding at December 31, 2013 | | 541,180 | | $ | 19.98 | | | | | | | | | | | |
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Twelve Months Ended December 31, | | Non-Vested Shares Issued | | Weighted Average Grant - dated Fair Value | | Vested Shares | Total Vest-Date Fair Value (in thousands) | | | |
2013 | | 263,039 | | | $ | 22.16 | | | (350,788 | ) | $ | 7,664 | | | | |
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2012 | | 268,060 | | | 20.33 | | | (262,908 | ) | 5,096 | | | | |
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2011 | | 307,282 | | (1) | 13.72 | | | (161,523 | ) | 2,359 | | | | |
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-1 | Amount includes 1,653 shares canceled during twelve months ended December 31, 2011. | | | | | | | | | | | | | | | |
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We recognize the total compensation expense for time-vested shares on a straight-line basis over the vesting period based on the fair value of the award on the date of grant. |
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Hudson Pacific Properties, Inc. 2012 Outperformance Program |
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On January 1, 2012, the Compensation Committee of our Board of Directors adopted the Hudson Pacific Properties, Inc. 2012 Outperformance Program, or the 2012 Outperformance Program. Participants in the 2012 Outperformance Program may earn, in the aggregate, up to $10.0 million of stock-settled awards based on our total shareholder return (“TSR”) for the three-year period beginning January 1, 2012 and ending December 31, 2014. Under the 2012 Outperformance Program, participants will be entitled to share in a performance pool with a value, subject to the $10.0 million cap, equal to the sum of: (i) 4% of the amount by which our TSR during the performance period exceeds 9% simple annual TSR (“the absolute TSR component”), plus (ii) 4% of the amount by which our TSR during the performance period exceeds that of the SNL Equity REIT Index over the performance period (“the relative TSR component”), except that the relative TSR component will be reduced on a linear basis from 100% to 0% for absolute TSR ranging from 7% to 0% simple annual TSR over the performance period. In addition, the relative TSR component may be a negative value equal to 4% of the amount by which we underperform the SNL Equity REIT Index by more than 3% per year during the performance period (if any). If we attain pro-rated TSR performance goals during 2012 and/or 2013 that yield hypothetical bonus pools of up to $2 million for 2012 performance and/or up to $4 million for combined 2012/2013 performance, stock awards issued under the final bonus pool at the end of the performance period will cover a number of shares in the aggregate at least equal to the number of shares that would have been subject to stock awards issued at the end of 2012 or 2013 (whichever is greater) based on our TSR performance and common stock price for such prior years (subject to reduction to comply with the $10.0 million bonus pool limitation). At the end of the three-year performance period, participants who remain employed with us will be paid their percentage interest in the bonus pool as stock awards based on the value of our common stock at the end of the performance period. Half of each such participant’s bonus pool interest will be paid in fully vested shares of our common stock and the other half will be paid in restricted stock units (“RSUs”) that vest in equal annual installments over the two years immediately following the performance period (based on continued employment). In addition to these share/RSU payments, each 2012 Outperformance Program award entitles its holder to a cash payment equal to the aggregate dividends that would have been paid during the performance period on the total number of shares and RSUs ultimately issued or granted in respect of such 2012 Outperformance Program award, had such shares and RSUs been outstanding throughout the performance period. |
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If a participant’s employment is terminated without “cause,” for “good reason” or due to the participant’s death or disability during the performance period (referred to as qualifying terminations), the participant will be paid his or her 2012 Outperformance Program award at the end of the performance period entirely in fully vested shares (except for the performance period dividend equivalent, which will be paid in cash at the end of the performance period). Any such payment will be pro-rated in the case of a termination without “cause” or for “good reason” by reference to the participant’s period of employment during the performance period. If we experience a change in control or a participant experiences a qualifying termination of employment, in either case, after December 31, 2014, any unvested RSUs that remain outstanding will accelerate and vest in full upon such event. |
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The cost of the 2012 Outperformance Plan (approximately $3.49 million, subject to a forfeiture adjustment equal to 6% of the total cost) will be amortized through the final vesting period under a graded vesting expense recognition schedule. |
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The 2012 Outperformance Program was valued, in accordance with ASC Topic 718, at an aggregate of approximately $3.49 million utilizing a Monte Carlo simulation to estimate the probability of the performance vesting conditions being satisfied. The Monte Carlo simulation used a statistical formula underlying the Black-Scholes and binomial formulas and such simulation was run 100,000 times. For each simulation, the payoff is calculated at the settlement dates, which is then discounted to the award date at a risk-free interest rate. The average of the values over all simulations is the expected value of the unit on the award date. Assumptions used in the valuations included (1) factors associated with the underlying performance of the Company’s stock price and total shareholder return over the term of the performance awards including total stock return volatility and risk-free interest and (2) factors associated with the relative performance of the Company’s stock price and total shareholder return when compared to the SNL Equity REIT Index. The valuation was performed in a risk-neutral framework, so no assumption was made with respect to an equity risk premium. The fair value of the 2012 OPP Units is based on the sum of: (1) the present value of the expected payoff to the OPP Award on the measurement dates, if the TSR over the applicable measurement period exceeds performance hurdles of the absolute and the relative TSR components; and (2) the present value of the distributions payable on the 2012 OPP Units. The ultimate reward realized on account of the OPP Award by the holders of the 2012 OPP Units is contingent on the TSR achieved on the measurement dates, both in absolute terms and relative to the TSR of the SNL Equity REIT Index. The per unit fair value of each 2012 OPP Unit was estimated on the date of grant using the following assumptions in the Monte Carlo valuation: expected price volatility for the Company and the SNL Equity REIT index of 36% and 35%, respectively; a risk free rate of 0.40%; and total dividend payments over the measurement period of $1.62 per share. |
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Hudson Pacific Properties, Inc. 2013 Outperformance Program |
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On January 1, 2013, the Compensation Committee of our Board of Directors adopted the Hudson Pacific Properties, Inc. 2013 Outperformance Program, or the 2013 Outperformance Program. Participants in the 2013 Outperformance Program may earn, in the aggregate, up to $11.0 million of stock-settled awards based on our total shareholder return (“TSR”) for the three-year period beginning January 1, 2013 and ending December 31, 2015. Under the 2013 Outperformance Program, participants will be entitled to share in a performance pool with a value, subject to the $11.0 million cap, equal to the sum of: (i) 4% of the amount by which our TSR during the performance period exceeds 9% simple annual TSR (the “absolute TSR component”), plus (ii) 4% of the amount by which our TSR during the performance period exceeds that of the SNL Equity REIT Index (determined on a percentage basis that is then multiplied by the sum of (A) our market capitalization on that date, plus (B) the aggregate per share dividend over the performance period through such date) (the “relative TSR component”), except that the relative TSR component will be reduced on a linear basis from 100% to zero percent for absolute TSR ranging from 7% to zero percent simple annual TSR over the performance period. In addition, the relative TSR component may be a negative value equal to 4% of the amount by which we underperform the SNL Equity REIT Index by more than 3% per year during the performance period (if any). If we attain pro-rated TSR performance goals during 2013 and/or 2014 that yield hypothetical bonus pools of up to $2 million for 2013 performance and/or up to $4 million for combined 2013/2014 performance, stock awards issued under the final bonus pool at the end of the performance period will cover a number of shares in the aggregate at least equal to the number of shares that would have been subject to stock awards issued at the end of 2013 or 2014 (whichever is greater) based on our TSR performance and common stock price for such prior years (subject to reduction to comply with the $11.0 million bonus pool limitation). At the end of the three-year performance period, participants who remain employed with us will be paid their percentage interest in the bonus pool as stock awards based on the value of our common stock at the end of the performance period. Half of each such participant’s bonus pool interest will be paid in fully vested shares of our common stock and the other half will be paid in restricted stock units (“RSUs”) that vest in equal annual installments over the two years immediately following the performance period (based on continued employment) and which carry tandem dividend equivalent rights. However, if the performance period is terminated prior to December 31, 2015 in connection with a change in control, 2013 Outperformance Program awards will be paid entirely in fully vested shares of our common stock immediately prior to the change in control. In addition to these share/RSU payments, each 2013 Outperformance Program award entitles its holder to a cash payment equal to the aggregate dividends that would have been paid during the performance period on the total number of shares and RSUs ultimately issued or granted in respect of such 2013 Outperformance Program award, had such shares and RSUs been outstanding throughout the performance period. |
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If a participant’s employment is terminated without “cause,” for “good reason” or due to the participant’s death or disability during the performance period (referred to as qualifying terminations), the participant will be paid his or her 2013 Outperformance Program award at the end of the performance period entirely in fully vested shares (except for the performance period dividend equivalent, which will be paid in cash at the end of the performance period). Any such payment will be pro-rated in the case of a termination without “cause” or for “good reason” by reference to the participant’s period of employment during the performance period. If we experience a change in control or a participant experiences a qualifying termination of employment, in either case, after December 31, 2015, any unvested RSUs that remain outstanding will accelerate and vest in full upon such event. |
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The cost of the 2013 Outperformance Program (approximately $4.14 million, subject to a forfeiture adjustment equal to 6% of the total cost) will be amortized through the final vesting period under a graded vesting expense recognition schedule. |
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The 2013 Outperformance Program was valued, in accordance with ASC topic 718, at an aggregate of approximately $4.14 million utilizing a Monte Carlo simulation to estimate the probability of the performance vesting conditions being satisfied. The Monte Carlo simulation used a statistical formula underlying the Black-Scholes and binomial formulas and such simulation was run 100,000 times. For each simulation, the payoff is calculated at the settlement dates, which is then discounted to the award date at a risk-free interest rate. The average of the values over all simulations is the expected value of the unit on the award date. Assumptions used in the valuations included (1) factors associated with the underlying performance of the Company’s stock price and total shareholder return over the term of the performance awards including total stock return volatility and risk-free interest and (2) factors associated with the relative performance of the Company’s stock price and total shareholder return when compared to the SNL Equity REIT Index. The valuation was performed in a risk-neutral framework, so no assumption was made with respect to an equity risk premium. The fair value of the 2013 OPP Units is based on the sum of: (1) the present value of the expected payoff to the OPP Award on the measurement dates, if the TSR over the applicable measurement period exceeds performance hurdles of the absolute and the relative TSR components; and (2) the present value of the distributions payable on the 2013 OPP Units. The ultimate reward realized on account of the OPP Award by the holders of the 2013 OPP Units is contingent on the TSR achieved on the measurement dates, both in absolute terms and relative to the TSR of the SNL Equity REIT Index. The per unit fair value of each 2013 OPP Unit was estimated on the date of grant using the following assumptions in the Monte Carlo valuation: expected price volatility for the Company and the SNL Equity REIT index of 33% and 25%, respectively; a risk free rate of 0.38%; and total dividend payments over the measurement period of $1.50 per share. |
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For the twelve months ended December 31, 2013 and 2012, $6,682 and $4,314, respectively, of non-cash compensation expense for all stock compensation was recognized as additional paid-in capital, of which $6,454 and $4,212, respectively, was included in general and administrative expenses, with the remaining $228 and $102, respectively, of stock compensation capitalized to tenant improvements and deferred leasing costs and lease intangibles, net. |