REITs Executive Compensation Guide

Options and Stock Appreciation Rights (SARs) Stock options represent the right (but not the obligation) to purchase shares of company stock over a set exercise period at a specified price (i.e., the “strike” price), which is generally set as the share price on date of grant. Dividends are not paid on stock options or SARs since the underlying shares are not issued and outstanding, and dividend equivalents are generally not granted in conjunction with stock options. SARs are similar to options in that they allow the holder to benefit from stock price appreciation over a period of time. SARs represent the right to receive the cash or stock equivalent of the price appreciation on a specified number of shares over a specified period of time. LTIP Units A REIT that is structured as an UPREIT may award equity grants in the form of LTIP units, which are a class of units of limited partnership interest in the REIT’s operating partnership. LTIP units are structured to qualify as profits interests for tax purposes, thereby making them eligible for capital gains tax treatment, as long as certain terms and conditions are fulfilled, the most important of which is the “book-up” event. In order for the LTIP units to be convertible into common units in the operating partnership (“ OP Units ”) and have a capital interest, a “book-up” event must occur. The “book-up” event requires the appreciation of the operating partnership’s “assets” above the value of the operating partnership at the time the LTIP units are granted (the operating partnership’s “assets” for this purpose may be defined as either the value of REIT shares based on the stock price or net book value).

Similar to restricted stock and RSUs, LTIP units may be granted with time-vesting restrictions and/ or performance-vesting criteria. Time-based LTIP units are entitled to partnership distributions that are equivalent to REIT dividends and performance-based LTIP units are entitled to partial distributions (e.g., 10%) with the remainder of the distributions accruing until the LTIP units are earned. Once the LTIP units have vested and assuming the book-up event has occurred, the LTIP units may be converted into common OP Units, which the holder may then tender to the REIT for redemption in exchange for cash or, at the REIT’s election, for shares of the REIT’s common stock. UPREITs may also grant appreciation-only LTIP units or “AO” LTIP units. AO LTIP units are economically similar to stock options (or SARs) in that (i) the recipient is entitled to the increase in the stock price between the grant date and the exercise date and (ii) the recipient may elect when to exercise (which may be any time after the vesting date and before the end of the exercise period).

Prevalence of Award Type in the REIT Industry

Equity Vehicle Prevalence

100

92%

87%

80

60

40

30%

20

6%

0

Performance Based Awards

Time-Based Awards

LTIP Units

Stock Options/SARs

31 | 2023 Guide to REIT Executive Compensation