Nnn REIT, Inc DEF 14A, filed Mar 23, 2023
Nnn REIT, Inc. (NNN)
About this DEF 14A
Nnn REIT, Inc filed this DEF 14A on March 23, 2023.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Rule 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, For Use of the Commission Only (as Permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to §240.14a-12
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statements, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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[_] Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11
NATIONAL RETAIL PROPERTIES, INC.
450 South Orange Avenue, Suite 900
Orlando, Florida 32801
Tel: 407-265-7348
_________________
To Our Stockholders:
You are cordially invited to attend the annual meeting of stockholders of National Retail Properties, Inc. (the “Company”) on May 16, 2023, at 8:30 a.m. local time, at 450 South Orange Avenue, Suite 900, Orlando, Florida 32801. Enclosed for your review are the Proxy Card, Proxy Statement and Notice of Meeting for the Annual Meeting of Stockholders, which describe the business to be conducted at the meeting. The matters proposed for consideration at the meeting are:
Whether you own a few or many shares of stock of the Company, it is important that your shares be represented. If you cannot personally attend the meeting, we encourage you to make certain you are represented at the meeting by signing and dating the accompanying proxy card and promptly returning it in the enclosed envelope. You may also vote either by telephone (1-800-690-6903) or on the Internet (http://www.proxyvote.com). Returning your proxy card, voting by telephone or voting on the Internet will not prevent you from voting in person, but will assure that your vote will be counted if you are unable to attend the meeting. As always, the Company encourages you to vote your shares prior to the Annual Meeting.
Sincerely,
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/s/ Stephen A. Horn, Jr. Stephen A. Horn, Jr. President and Chief Executive Officer
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NATIONAL RETAIL PROPERTIES, INC.
450 South Orange Avenue, Suite 900
Orlando, Florida 32801
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD May 16, 2023
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of NATIONAL RETAIL PROPERTIES, INC. will be held at 8:30 a.m. local time, on May 16, 2023 , at 450 South Orange Avenue, Suite 900, Orlando, Florida 32801, for the following purposes:
We will also transact such other business as may properly come before the meeting or any adjournment or postponement thereof.
Stockholders of record at the close of business on March 14, 2023, will be entitled to notice of and to vote at the annual meeting or at any adjournment thereof.
Stockholders are cordially invited to attend the meeting in person. PLEASE VOTE, EVEN IF YOU PLAN TO ATTEND THE MEETING, by completing, signing and returning the enclosed proxy card, by telephone (1-800-690-6903) or on the internet (http://www.proxyvote.com) by following the instructions on your proxy card. If you decide to attend the meeting you may revoke your Proxy and vote your shares in person. It is important that your shares be voted.
By Order of the Board of Directors,
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/s/ Christopher P. Tessitore Christopher P. Tessitore Executive Vice President, General Counsel, and Secretary |
March 23, 2023
Orlando, Florida
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR
THE ANNUAL MEETING TO BE HELD ON May 16, 2023
Our Proxy Statement and our Annual Report to stockholders,
which includes our Annual Report on Form 10-K, are available at
www.nnnreit.com/proxyvote
NATIONAL RETAIL PROPERTIES, INC.
450 South Orange Avenue, Suite 900
Orlando, Florida 32801
Tel: 407-265-7348
PROXY STATEMENT
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General. This Proxy Statement is furnished by the Board of Directors of National Retail Properties, Inc. (the “Company”) in connection with the solicitation by the Board of Directors of proxies to be voted at the annual meeting of stockholders to be held on May 16, 2023, and at any adjournment thereof, for the purposes set forth in the accompanying notice of such meeting. All stockholders of record at the close of business on March 14, 2023 (the “Record Date”), will be entitled to vote. It is anticipated that this Proxy Statement and the enclosed Proxy will be mailed to stockholders on or about April 3, 2023. The Proxy Statement and our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) will also be available on the Internet at www.nnnreit.com/proxyvote.
When we use the words “we,” “us,” “our” or “Company,” we are referring to National Retail Properties, Inc.
Voting/Revocation of Proxy. If you complete and properly sign and mail the accompanying proxy card, it will be voted as you direct. If you are a registered stockholder and attend the meeting, you may deliver your completed proxy card in person. “Street name” stockholders who wish to vote at the meeting will need to obtain a proxy from the institution that holds their shares.
If you are a registered stockholder, you may vote by telephone (1-800-690-6903), or electronically through the Internet (http://www.proxyvote.com), by following the instructions included with your proxy card. If your shares are held in “street name,” please check your proxy card or contact your broker or nominee to determine whether you will be able to vote by telephone or electronically.
Any proxy, if received in time, properly signed and not revoked, will be voted at such meeting in accordance with the directions of the stockholder. If no directions are specified, the proxy will be voted FOR each of Proposals I, II, IV and V and for every "1 YEAR" on the advisory vote on the frequency of future advisory votes by stockholders on the compensation of our named executive officers in Proposal III, contained herein. Any stockholder giving a proxy has the power to revoke it at any time before it is exercised. A proxy may be revoked (1) by delivery of a written statement to the Secretary of the Company stating that the proxy is revoked, (2) by presentation at the annual meeting of a subsequent proxy executed by the person executing the prior proxy, or (3) by attendance at the annual meeting and voting in person.
Vote Required for Approval; Quorum. The nominees for director who receive a majority of the votes cast will be elected. If you indicate “withhold authority to vote” for a particular nominee by entering the number of any nominee (as designated on the proxy card) below the pertinent instruction on the proxy card, your vote will not count either for or against the nominee. As of the Record Date, March 14, 2023, 182,086,562 shares of the common stock of the Company (the “Common Stock”) were outstanding, of which 181,350,479 shares entitled the holder thereof to one vote on each of the matters to be voted upon at the annual meeting. As of the Record Date, our executive officers and directors had the power to vote approximately 0.14% of the outstanding shares of Common Stock. Our executive officers and directors have advised us that they intend to vote their shares of Common Stock FOR each of Proposals
I, II, IV and V and for every "1 YEAR" on the advisory vote on the frequency of future advisory votes by stockholders on the compensation of our named executive officers in Proposal III, contained herein.
The presence in person or by proxy of stockholders entitled to cast a majority of all the votes entitled to be cast at a meeting of stockholders shall constitute a quorum.
Votes cast in person or by proxy at the annual meeting will be tabulated and a determination will be made as to whether or not a quorum is present. We will treat abstentions as shares that are present and entitled to vote for purposes of determining the presence or absence of a quorum, but as unvoted for purposes of determining the approval of any matter submitted to the stockholders. If a broker submits a proxy indicating that it does not have discretionary authority as to certain shares to vote on a particular matter (broker non-votes), those shares will not be considered as present and entitled to vote with respect to such matter. Broker non-votes with respect to the election of directors will have no effect on the outcome of the vote on that proposal.
YOUR VOTE AT THE ANNUAL MEETING IS VERY IMPORTANT TO US.
Solicitation of Proxies. Solicitation of proxies will be primarily by mail. We will bear the cost of soliciting proxies from our stockholders. In addition to solicitation by mail, our directors, officers, employees, and agents may solicit proxies by telephone, internet, or otherwise. These directors, officers, and employees will not be additionally compensated for the solicitation, but may be reimbursed for out-of-pocket expenses incurred in connection with the solicitation. Copies of solicitation materials will be furnished to brokerage firms, fiduciaries, and other custodians who hold shares of our Common Stock of record for beneficial owners for forwarding to such beneficial owners. We may also reimburse persons representing beneficial owners for their reasonable expenses incurred in forwarding such materials.
TABLE OF CONTENTS
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PROPOSAL I
ELECTION OF DIRECTORS
Nominees
Based on the recommendation of our Governance and Nominating Committee, the persons named below have been nominated by the Board of Directors of the Company (the “Board of Directors” or the “Board”) for election as directors to serve until the next annual meeting of stockholders or until their successors shall have been elected and qualified.
In selecting the candidates to nominate for election as directors, the Governance and Nominating Committee’s principal qualification is whether an individual has the ability to act in the best interests of the Company and its stockholders. The Governance and Nominating Committee endeavors to identify individuals to serve on the Board who have expertise that is useful to the Company and complementary to the background, skills and experience of other Board members. Each individual serving on the Board should be willing to devote the time necessary to carry out the responsibilities of a director of the Company. The Governance and Nominating Committee’s assessment of the composition of the Board should include: (a) skills - business and management experience, real estate experience, accounting experience, finance and capital markets experience, and an understanding of corporate governance regulations and public policy matters, (b) character - ethical and moral standards, leadership abilities, sound business judgment, independence and innovative thought, and (c) composition - diversity and public company experience. The Governance and Nominating Committee measures the Board’s composition by taking into account the entirety of the Board and the criteria listed above rather than having any representational directors.
Our Board views diversity in a broad sense, taking into consideration not only racial, ethnic and gender diversity, but also the mix of qualifications of our directors including tenure, experience levels and types of experience, including both industry and subject matter expertise. When considering board candidates, the Governance and Nominating Committee considers whether an individual would bring a diverse viewpoint to the Board, including with respect to the candidate’s gender, race and ethnicity. The Governance and Nominating Committee has demonstrated its commitment to both diversity and board refreshment by adding five independent new directors to the Board over the past seven years, expanding the diversity of gender, race, and ethnicity of the Board. Recent Board refreshment has deepened the diversity of composition, thought and experience of the Board, adding fresh perspectives, and maintaining the effectiveness of the Board through the retirement of its long-serving members. The Governance and Nominating Committee intends to continue considering the diversity of experience and perspective, including racial, ethnic and gender diversity, that future candidates may bring when nominating individuals to serve on our Board. Our Governance and Nominating Committee identifies potential director candidates through a variety of means, including recommendations from members of the Board and suggestions from Company management. Our Governance and Nominating Committee may also, in its discretion, engage director search firms to identify candidates. During fiscal year 2022, our Governance and Nominating Committee retained the services of a leading director search firm and paid a fee in connection with the director search process.
The biographies below set forth each nominee’s name, age, principal occupation or employment and directorships in other public corporations during at least the last five years, as well as the specific experience, qualifications, attributes and skills each nominee has acquired in such positions. Each of the nominees below have been recommended by the Governance and Nominating Committee and approved by the Board of Directors for inclusion on the attached proxy card.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ALL OF THE
NOMINEES DESCRIBED BELOW FOR ELECTION AS DIRECTORS.
Name and Age |
Background |
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Pamela K.M. Beall, 66
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Ms. Beall has served as a director of the Company since August 2016. In April 2021, Ms. Beall was appointed to the board of directors of Nationwide Mutual Insurance Company, a Fortune 100 financial services company where she serves as a member of the Audit Committee and Sponsor and Customer Committee. She also serves on the board of trustees of the University of Findlay. Ms. Beall retired in 2021 from Marathon Petroleum Corporation (MPC) as Executive Vice President, Chief Financial Officer and as a member of the board of directors of MPLX GP LLC, a subsidiary of MPC, positions which she held from 2016 and 2014, respectively. MPLX GP LLC is the general partner of MPLX LP, a publicly traded master limited partnership, which owns and operates crude oil, refined products and natural gas logistics assets and processing operations.
Ms. Beall began her career with Marathon Oil Company (Marathon) in 1978 as an auditor. She then served as General Manager Treasury Services, at USX Corporation, a leading manufacturer of steel; Vice President and Treasurer at OHM Corporation, a leading environmental services provider and NationsRent, Inc., a construction equipment rental services company, and as a member of the boards of directors of System One Services, Inc. and Boyle Engineering. Ms. Beall rejoined Marathon in 2002, serving in areas of increasing responsibility, including as Director, Corporate Affairs; Organizational Vice President Business Development - Downstream; Vice President of Global Procurement, and Vice President of Products, Supply, & Optimization. She served as MPC’s Vice President, Investor Relations and Government & Public Affairs from 2011 to 2014, when she was named President of MPLX GP. She also served as Executive Vice President, Corporate Planning and Strategy of MPLX GP in 2016. Ms. Beall received a bachelor’s degree in accounting from the University of Findlay and a master’s degree in business administration from Bowling Green State University, is a non- practicing Certified Public Accountant, and she has attended the Oxford Institute for Energy Studies. Other public company directorships she has held include Tesoro Logistics GP, LLC (2018-2109).
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Steven D. Cosler, 67 |
Mr. Cosler has served as a director of the Company since August 2016 and Chairman since May 2021. Mr. Cosler served as the CEO of Priority Healthcare which was acquired by Express Scripts in 2005 and was lead director of Catamaran Corporation, which was acquired by United Healthcare in July 2015. Mr. Cosler currently serves on the boards of Imagine360, Southern Scripts and Eversana, all of which are Water Street Healthcare Partners portfolio companies, and privately held MedShorts. He also serves on the board and is co-founder of Elevate Indianapolis, a non-profit organization.
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David M. Fick, 65 |
Mr. Fick has served as a director of the Company since November 2010. Mr. Fick is an adjunct professor at the Johns Hopkins University Carey Business School where he teaches graduate-level Real Estate Finance, Capital Markets, and REIT Structuring and Analysis. He is President of Nandua Oyster Company, an aquaculture business he founded in 2007. Mr. Fick served as Managing Director at Stifel Nicolaus & Company, a successor to Legg Mason Wood Walker. In that position he headed Real Estate Research and was an analyst covering real estate investment trusts from 1997 to 2010. During this period he was also a member of the Legg Mason Real Estate Capital Investment Committee. Mr. Fick also served as Equity Vice President, Finance with Alex Brown Kleinwort Benson and LaSalle Partners from 1993 to 1995, and as Chief Financial Officer at Mills Corporation and Western Development Corporation from 1991 to 1994. Prior to that, he was a practicing CPA and consultant with a national accounting firm, specializing in the real estate industry. He is also a member of the National Association of Real Estate Investment Trusts (“Nareit”), and the American Institute of Certified Public Accountants, and is a non-practicing Certified Public Accountant. He is also a member of the Johns Hopkins University Carey Business School Real Estate Advisory Board. Mr. Fick is also an active investor in private real estate funds and partnerships.
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Edward J. Fritsch, 64 |
Mr. Fritsch has served as a director of the Company since February 2012. Mr. Fritsch retired in September 2019 as President and Chief Executive Officer of Highwoods Properties, Inc., a publicly traded REIT (NYSE: HIW). Joining Highwoods in 1982, Mr. Fritsch was a partner in the predecessor firm which launched its initial public offering in 1994. In 2004, Mr. Fritsch assumed the role of Chief Executive Officer. Mr. Fritsch is a former member of the Nareit Board of Governors and served as its 2015/2016 national chair. Mr. Fritsch is an active investor in privately-held, commercial, multi-family residential development projects. He is currently a member of the following boards: University of North Carolina at Chapel Hill Foundation, University of North Carolina at Chapel Hill Real Estate Holdings, Dix Park Conservancy and Executive Committee, Cristo Rey Research Triangle High School, North Carolina Chamber of Commerce, Triangle Family Services, and the YMCA of the Triangle.
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Elizabeth C. Gulacsy, 49 |
Ms. Castro Gulacsy was appointed to the Board of Directors of the Company effective August 17, 2022. She is currently providing CFO consulting and advisory services to SeaWorld Entertainment, Inc. (NYSE: SEAS) where she most recently served as their Chief Financial Officer & Treasurer from May 2021 to June 2022 and Interim Chief Financial Officer & Treasurer and Chief Accounting Officer from April 2020 to May 2021. Prior to that time, Ms. Castro Gulacsy served as their Chief Accounting Officer from August 2017 to April 2020, Vice President of Financial Reporting from 2016 to 2017, and Director of Financial Reporting from 2013 to 2016. Prior to joining SeaWorld Entertainment, from 2002 to 2013, Ms. Castro Gulacsy was at Cross Country Healthcare, Inc. (NYSE: CCRN), a publicly traded healthcare staffing company, where she most recently served as their Chief Accounting Officer and Corporate Controller. Prior to that time, Ms. Castro Gulacsy worked for Ernst & Young LLP from 1997 to 2002, where she most recently served as Audit Manager. During her tenure at SeaWorld Entertainment, from 2020 to 2022, Ms. Castro Gulacsy also served on the audit committee for IAAPA, a non-profit |
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global association for the theme park industry, and from 2018 to 2020, served as a board member and Treasurer for the SeaWorld and Busch Gardens Conservation Fund, a non-profit private foundation supporting conservation projects. Ms. Castro Gulacsy is a graduate of the University of Florida with a Bachelor of Science in Accounting and a Masters of Accounting and is a licensed Certified Public Accountant. She is a member of the National Association of Corporate Directors and the Latino Corporate Directors Association.
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Kevin B. Habicht, 64 |
Mr. Habicht has served as a director of the Company since June 2000, as Executive Vice President and Chief Financial Officer of the Company since December 1993 and as Treasurer of the Company since January 1998. Mr. Habicht served as Secretary of the Company from January 1998 to May 2003. Mr. Habicht is a Certified Public Accountant and a Chartered Financial Analyst. Mr. Habicht is currently a member of the Board of Directors for the Boys & Girls Clubs of Central Florida. |
Betsy D. Holden, 67 |
Ms. Holden has served as a director of the Company since February 2019. Ms. Holden serves on the Food Chain Advisory Board and several private portfolio company boards for Paine Schwartz Partners, a private equity firm focused on sustainable agriculture and food products. She served as a Senior Advisor to McKinsey & Company from April 2007 to December 2020, leading strategy, marketing and board effectiveness initiatives for consumer goods, healthcare, and financial services clients. Prior to that, Ms. Holden spent 25 years in marketing and line positions in consumer goods. Ms. Holden served as President, Global Marketing and Category Development of Kraft Foods Inc. from January 2004 to June 2005, Co-Chief Executive Officer, Kraft Foods, Inc. 2001-2003, Chief Executive Officer of Kraft Foods North America from May 2000 to December 2003. Ms. Holden currently serves as a Director of Dentsply Sirona and Western Union. She has served on nine public boards over the last 20 years, including Diageo Plc (2009 - 2018), Time, Inc. (2014 - 2018), and Catamaran Corporation (2012 - 2015). Ms. Holden was selected as a 2015 NACD Directorship 100 honoree and was inducted into the Chicago Business Hall of Fame in 2016. Ms. Holden graduated Phi Beta Kappa with a Bachelor of Arts from Duke University and serves on the Executive Committee of Duke University's Board of Trustees. She received a Masters of Management in Marketing and Finance from Northwestern University's Kellogg School of Management and serves on the Global Advisory Board.
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Stephen A. Horn, Jr, 51 |
In connection with the announcement on January 19, 2022, Mr. Horn was promoted to Chief Executive Officer and President of the Company effective, April 29, 2022. In addition, Mr. Horn joined the Board of Directors effective February 17, 2022. Previously, Mr. Horn served as Executive Vice President and Chief Operating Officer of the Company since August 2020, and as Executive Vice President and Chief Acquisition Officer of the Company from January 2014 to August 2020. He also previously served as Senior Vice President of Acquisitions for the Company from June 2008 to December 2013, and as Vice President of Acquisitions of the Company from 2003 to 2008. Prior to 2003, Mr. Horn worked in the mergers and acquisitions group at A.G. Edwards & Sons in St. Louis, MO. He is a member of |
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Innovating Commerce Serving Communities ("ICSC") and Nareit. Mr. Horn serves on the Board of Trustees of Windermere Preparatory School.
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Kamau O. Witherspoon, 49 |
Mr. Witherspoon has served as a Director of the Company since January 2022. He recently joined Shipt as their Chief Executive Officer effective March 1, 2022. Prior to that, Mr. Witherspoon was a Senior Vice President of Operations at Target Corporation from 2018 to 2022, Senior Vice President of Operational Performance & Readiness at UnitedHealth Group from 2017 to 2018, and was a Chief Restaurant Excellence Officer, KFC US, with Yum! Brands, Inc. from 2015 to 2016. Prior to that, Mr. Witherspoon was at Target Corporation as a Senior Director of Store Operations from 2013 to 2015, as a Director of Risk Management, Finance from 2011 to 2013, as a Regional Director of Property Management from 2008 to 2011, and as a Corporate Real Estate Manager of Target Properties from 2007 to 2008. Earlier in his career, Mr. Witherspoon was a General Manager at Hines and served as a Surface Warfare Officer in the U.S. Navy. Mr. Witherspoon is a graduate of Morehouse College and received his MBA from Old Dominion University in Accounting. |
In the event that any nominee(s) should be unable to accept the office of director, which is not anticipated, it is intended that the persons named in the Proxy will vote FOR the election of such other person in the place of such nominee(s) for the office of director as the Board of Directors may recommend.
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Board Composition
Qualifications and Experience. The Governance and Nominating Committee believes that a complementary balance of knowledge, experience and capability will best serve the Company and its stockholders. The table below summarizes certain of the types of experience, qualifications, attributes and skills of each director nominee that the Board believes to be desirable because of their particular relevance to the Company’s business and structure.
Racial, Ethnic and Gender Diversity, Tenure and Age. In addition to maintaining Board diversity in experience, qualifications, attributes and skills, The Governance and Nominating Committee is committed to ensuring Board diversity including racial, ethnic and gender diversity. To ensure the Board has an appropriate balance of institutional knowledge and fresh perspectives, our Governance and Nominating Committee considers, among other factors, length of tenure and age when reviewing nominees. We have onboarded five new independent directors in the past seven years, increasing the racial, ethnic and gender diversity of the Board as well as breadth of experience, while also providing Board refreshment.
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2022 Performance and Business Highlights
Our business strategy delivers consistent, sustainable growth in support of long-term value creation while maintaining a conservative balance sheet. In fiscal year 2022, we continued to grow operationally and deliver value to stockholders as highlighted below.
Dividend Growth |
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Net Earnings and Core FFO Per Share |
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Increased 2.9 % to $2.16 per share |
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Increased net earnings per share 25.2% to $1.89 per share |
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33rd consecutive year of annual dividend increases (1 of only 3 REITs to accomplish this) |
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Increased Core FFO per share 9.8% to $3.14 per share (1) |
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Acquisition Volume |
Total Shareholder Return |
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$847.7 million |
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Outperformed 90% of Equity REITs in 2022 |
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Initial annual yield 6.4% |
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15-yr Annual TSR 10.2% Growth |
(1) For calculations of Core FFO per share, see page 5 of our Annual Supplemental Financial Information furnished as Exhibit 99.2 to the SEC on February 9, 2023 which also includes a GAAP reconciliation of this non-GAAP measure.
Corporate Governance
General. We are currently managed by a nine-member Board of Directors that consists of Mses. Beall, Gulacsy and Holden and Messrs. Cosler, Fick, Fritsch, Habicht, Horn, and Witherspoon, with Mr. Cosler as Chairperson of the Board from May 1, 2021 to present. Mr. Witherspoon joined the Board as an independent director effective January 1, 2022. Ms. Gulacsy joined the Board as an independent director effective August 17, 2022.
Julian E. Whitehurst, retired from the Board and as Chief Executive Officer and President of the Company effective as of April 28, 2022 in connection with his previously announced retirement and the Company’s long-term executive succession planning.
Effective as of April 29, 2022, Stephen A. Horn, Jr. assumed the positions of Chief Executive Officer and President of the Company and, pursuant to the recommendation of the Governance and Nominating Committee, the Board appointed Mr. Horn as a member of the Board effective February 17, 2022.
The Board of Directors has adopted a set of corporate governance guidelines, which, along with the written charters for the Board committees described below, provide the framework for the Board’s governance of the Company. Our corporate governance guidelines are available on our website at http://www.nnnreit.com.
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Highlights of our corporate governance include:
● Annual evaluation and assessment of the |
● Anti-Corruption Policy |
● Code of Business Conduct |
● Clawback Policy |
● Independent standing Board committees |
● Pledging Limitation Policy |
● Seven of our nine directors are independent |
● Bylaws permit stockholders to call special meeting |
● Independent Chairperson of the Board with |
● Annual advisory vote on executive |
● A majority voting standard for uncontested |
● Procedures for stockholders to communicate |
● Average Board tenure of 7 years (representing the |
● Stock ownership guidelines for executive |
● Annual evaluation of the CEO by independent |
● Periodic review of Committee charters and |
● Proxy access to make it easier for stockholders |
● Regular meetings of our independent |
● Board oversight of our human capital through |
● 57% of independent directors are female, racially |
● Annual Enterprise Risk Management |
● Cybersecurity and information security |
● Audit Committee oversight of all cyber risks |
● Board conducts regular executive sessions of |
● Policies prohibiting hedging, short selling and |
● Anonymous reporting is available directly to |
● The Compensation Committee annually |
● Board has direct oversight over all |
● Independent external consultant is used to help ensure |
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Independence and Composition. Our corporate governance guidelines and the rules and regulations of the New York Stock Exchange, which we refer to as the NYSE listing standards, each requires that a majority of the Board of Directors are “independent” directors, as that term is defined in the NYSE listing standards.
Leadership Structure. The Board of Directors has determined that Mses. Beall, Holden, Gulacsy and Messrs. Cosler, Fick, Fritsch and Witherspoon representing a majority of the Board of Directors, qualify as independent directors (the “Independent Directors”) as that term is defined in the NYSE listing standards. The Board of Directors made its determination based on information furnished by all directors regarding their relationships with us and our affiliates and research conducted by management. In addition, the Board of Directors consulted with our external legal counsel to ensure that the Board’s determination would be consistent with all relevant securities laws and regulations as well as the NYSE listing standards.
Our Board of Directors is directed by a non-executive Chairperson of the Board. The Board of Directors believes that having its own leadership separate from our Chief Executive Officer provides the Board of Directors with an
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effective way to ensure that they are fully informed and have the opportunity to fully debate all important issues in order to fulfill their oversight responsibilities and hold management accountable for the performance of the Company. This also allows our Chief Executive Officer to focus his time on running our day-to-day business. Mr. Cosler has served as Chairperson of the Board since his election on May 1, 2021. In his role as Chairperson of the Board, Mr. Cosler presides over all meetings of the stockholders and directors, and reviews and approves Board meeting schedules, agendas, and information provided to the Board. In addition, Mr. Cosler presides as Chairperson when the Board meets in executive session and serves as the interface between the Board and the Chief Executive Officer in communicating matters discussed during the executive session.
Stockholder Engagement. We make ourselves available to stockholders and other capital providers. During 2022, the Company engaged and interacted with a significant number of our stockholders on a regular basis which allows management to stay abreast of various issues that are important to the investment community. Topics discussed include: business strategy, 2021 and 2022 performance, Board governance practices, and ESG. As appropriate, the Company discusses these stockholder conversations with the Board of Directors and/or it’s committees.
Risk Oversight. Our management is responsible for managing the day-to-day risks associated with our business. The Board of Directors, however, is elected to provide effective oversight of our affairs for the benefit of our stockholders, and among its primary responsibilities, in accordance with our corporate governance guidelines, is overseeing management in the competent and ethical operation of the Company, reviewing and approving our business plans and corporate strategies, and adopting and evaluating policies of corporate and ethical conduct and governance. Implicit in these duties is risk oversight, the primary responsibility of which has been delegated to the Board’s Audit Committee. Among the significant risks that we oversee are operational risk; legal and regulatory compliance risk, financial risk, such as credit risks, interest rate risk, market risk, and liquidity risk; and privacy and data security risk. The Audit Committee reviews with management annually, or more frequently as the Audit Committee deems necessary, our significant risks or exposures and discusses guidelines and policies to govern this process and assesses steps that management has taken to minimize such risks to the Company.
While the primary responsibility has been delegated to the Audit Committee, the Governance and Nominating Committee and the Compensation Committee consider risks within their area of responsibility. Further, each director may consult with management at any time and is encouraged to discuss with management any questions such director may have.
With respect to risks related to compensation matters, our management, together with the Compensation Committee, reviewed our compensation policies and practices for our associates in order to determine whether they are reasonably likely to have a material adverse effect on the Company. We believe that our compensation policies and practices do not promote unreasonable risk-taking behavior and are not reasonably likely to have a material adverse effect based on the following factors:
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Given these factors, we believe we have mitigated potential short-term excessive risk-taking and aligned compensation with increasing long-term stockholder value.
Meetings and Attendance. Our corporate governance guidelines provide that it is the responsibility of individual directors to make themselves available to attend scheduled and special Board meetings on a consistent basis. All of the eligible directors were in attendance for all Board of Directors meetings in 2022 and for the 2022 annual meeting of the Company’s stockholders. Non-management members of the Board of Directors met in an executive session four times in the fiscal year ended December 31, 2022. These sessions were presided over by Mr. Cosler in his capacity as Chairperson.
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Interested Party Communications. The Board of Directors has adopted a process whereby stockholders and other interested parties can send communications to our directors. Anyone wishing to communicate directly with one or more directors may do so in writing addressed to the director or directors, c/o National Retail Properties, Inc., 450 South Orange Avenue, Suite 900, Orlando, Florida 32801, attention: Secretary of the Company. All correspondence will be reviewed by the Secretary of the Company and forwarded directly to the addressee so long as, in the Secretary’s discretion, such correspondence is reasonably related to protecting or promoting legitimate interests of interested parties or the reliability of the financial markets.
Corporate Responsibility and Environmental, Social and Governance Matters (ESG)
We are focused on achieving success for our stockholders, providing a world class working environment for our associates, enriching our community and preserving environmental resources. We operate our business in accordance with the highest ethical standards and strive to have the best-in-class corporate governance standards. Holding ourselves to such standards is critical to the long-term success of our stockholders, associates, and community.
In 2022 we created a Sustainability Team which reports directly to the Executive Vice President, General Counsel and Secretary, with direct oversight by the Governance and Nominating Committee of the Board of Directors. The Sustainability Team is comprised of a group of associates from a broad spectrum of seniority level and departments of the Company, including but not limited to human resources, legal, asset management, lease administration, accounting, underwriting and acquisitions. The team has both internal and external projects, including, but not limited to engaging with our tenants on environmental data collection and property level sustainability.
Human Capital Development. As of January 31, 2023 the Company employed 77 associates. Our success is dependent upon the dedication and hard work of our talented associates. Our associates are true experts in their fields. We encourage continued professional and personal development of all associates by providing hundreds of hours of in-person and online training opportunities that touch all aspects of our business. We also have associate mentoring and training programs and formalized talent development programs at all levels of the Company. The success of our commitment to our associates is shown in the long tenure of our associates. Our executive team, our department heads, and our senior managers average over 21 years of experience with the Company. In addition, 47% of our associates have been with the Company for 10 years or longer. The institutional knowledge and long tenure of our associates is a true competitive advantage of the Company. In addition, the Company's gender make-up is comprised of 58% female associates and 42% male associates. We have adopted a Human Capital Policy which is available on our website at http://www.nnnreit.com.
Total Rewards, Benefits & Work-Life Balance. The Company also focuses on additional benefits for our associates in an effort to make sure our associates are not only well compensated but also engaged, developed and
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satisfied with their work-life balance. There are six key elements to our total rewards system: Compensation, Benefits, Wellness, Work-Life Balance, Professional Development and Recognition. Our programs include but are not limited to a 401(k) plan with a company match, flexible work schedules, college saving plans, educational assistance program, adoption benefits, flexible spending and health saving accounts, health and wellness events, and access to a state-of-the-art online wellness platform. We have been the recipient of numerous wellness awards, including the prestigious Cigna Well-Being Award. We actively monitor employee engagement and we conducted several anonymous associate engagement surveys in 2020, 2021 and 2022. We have taken a variety of actions and made a variety of initiatives based on the results of such surveys, including but not limited to, an expanded remote work policy, expanded associate recognition programs and other health and wellness programs. We intend to conduct additional anonymous associate engagement surveys in 2023.
Community Service and Partnerships. We care about the communities in which we live and work. We stand behind our commitment to improving education, strengthening neighborhoods, and encouraging volunteer service. We actively promote volunteering by our associates. We organize and sponsor specific volunteer days throughout the year at various charities, including Ronald McDonald House of Central Florida and Give Kids the World. Associates are encouraged to volunteer on work days during work hours for these events. In addition to our donation of time, we also are a meaningful financial investor in numerous charities in the Central Florida community, including the Boys & Girls Clubs of Central Florida and Elevate Orlando (a teacher mentor program for high risk urban youth that help young women and men graduate high school with a plan for the future).
Environmental Practices and Impact. As an owner of a large number of properties throughout the United States it is important to the Company to be a good corporate citizen and a good steward of the environment. We demonstrate our commitment to be a good stewardship of the environment in a variety of ways both at our headquarters and at our properties across the country. Many of our tenants have programs that address environmental stewardship of the properties they occupy and control.
Our Headquarters. Our headquarters building is EPA’s ENERGY STAR® certified by meeting the strict energy performance standards set by the Environmental Protection Agency ("EPA"). As stated by the EPA, on average, ENERGY STAR certified buildings use 35% less energy and generate 35% fewer greenhouse gas emissions than typical buildings. In order to receive this designation, the following components must be met:
Furthermore, we encourage a culture of environmental preservation and efficient usage of environmental resources throughout the company by supporting the following green initiatives:
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We have located our headquarters where our associates can reduce their carbon footprint by using the following green transportation programs: (i) electric charging stations and designated parking spaces for hybrid vehicles, (ii) bicycle storage lockers as well as bike racks, (iii) electric commuter bike and scooter rental stations, and (iv) free commuter bus for travel throughout downtown Orlando.
Our Portfolio of Properties. The properties in our portfolio are generally leased to our tenants under long-term triple net leases with typical lease terms of 30 to 40 years including base and option terms which gives our tenants exclusive control over and the ability to institute energy conservation and environmental management programs at our properties. Our tenants are overwhelmingly large companies with sophisticated conservation and sustainability programs. These programs conserve environmental resources and limit the impact of the use of our properties on the environment, including, but not limited to, implementing green building and lighting standards, emissions reduction programs and recycling programs. Our leases typically require the tenants to fully comply with all environmental laws, rules and regulations, including any remediation requirements. Our risk management associates actively monitor any environmental conditions on our properties to make sure that the tenants are meeting their obligations to remediate or remedy any open environmental matters. On all properties that we acquire we obtain an environmental assessment from a licensed environmental consultant to understand any environmental risks and liabilities associated with a property and to ensure that the tenant will address any environmental issues on our properties. Furthermore, we have in place a portfolio environmental insurance policy that covers substantially all of properties for certain environmental risks.
When possible under our triple-net leases, we engage with our tenants to promote good environmental practices on our properties, including discussions regarding the following: (i) environmental sustainability and recycling requirements, (ii) energy efficiency requirements, including ENERGY STAR requirements, and EPA Water Sense program requirements, (iii) environmental conservation and green building requirements, in accordance with industry best practices, and (iv) energy usage reporting requirements. Furthermore, our form leases contain "green lease clauses" which require the tenants to report energy usage and emissions and we actively negotiate with tenants on all new acquisitions for their acceptance of these green lease clauses.
Climate Preparedness. We regularly monitor the status of impending natural disasters and the impact of such disasters on our properties. In the substantial majority of leases our tenants are required to carry full replacement cost coverage on all improvements located on our properties. For those properties located in a nationally designated flood zone, we typically require our tenants to carry flood insurance pursuant to the federal flood insurance program. For those properties located in an area of high earthquake risk, we typically require our tenants to carry earthquake insurance above what is typically covered in an extended coverage policy. In addition, we also carry a contingent extended coverage policy on all our properties which also provides coverage for certain casualty events, including fire and windstorm. In cases where our tenants do not provide coverage, or if a property is vacant, NNN carries the necessary direct insurance coverage.
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Some of the highlights of the Company's ongoing commitment to being a good and ethical corporate citizen include the following actions taken by the Company:
ESG Highlights |
● Adopted Proxy Access Bylaws expanding our proxy access to our stockholders. |
● Adopted Vendor Code of Conduct ensuring our vendors comply with ethical rules and commitments. |
● Adopted remote work policy providing flexibility to associates based on feedback from our Associate |
● Adopted Human Rights Policy to acknowledge our obligation to promote human rights in our relationships |
● Adopted Human Capital Policy furthering our commitment to our associates and the ethical treatment of others |
● Revised Governance and Nominating Committee Charter to make the committee explicitly responsible for |
● Elected five new independent directors in the past seven years significantly expending Board diversity in |
● Purchased carbon offsets to account for our estimated scope 1 and 2 emissions from our corporate headquarter |
● Donated over $1 million over the past 16 years to Elevate Orlando and Boys & Girls Clubs of Central Florida, |
Audit Committee
General. The Board of Directors has established an Audit Committee, which is governed by a written charter, a copy of which is available on our website at http://www.nnnreit.com. Among the duties, powers and responsibilities of the Audit Committee as provided in its charter, the Audit Committee:
Independence and Composition. The composition of the Audit Committee is subject to the independence and other requirements of the Securities Exchange Act of 1934 and the rules and regulations promulgated by the SEC thereunder (the “Exchange Act”), and the NYSE listing standards.
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The Board of Directors, upon the unanimous recommendation of the Governance and Nominating Committee, has determined that all current members of the Audit Committee are “independent,” as that term is defined in the NYSE listing standards and as required by the Exchange Act, and meet all audit committee composition requirements of the Exchange Act and the NYSE listing standards, and that each of Mses. Beall, Gulacsy and Holden and Mr. Fick qualifies as an “audit committee financial expert” as that term is defined in the Exchange Act.
Meetings. The Audit Committee met eight times in the fiscal year ended December 31, 2022. The current Audit Committee consists of Mses. Beall, Gulacsy and Holden and Messrs. Fick and Witherspoon, with Mr. Fick serving as Chairperson.
Governance and Nominating Committee
General. The Board of Directors has established a Governance and Nominating Committee, which is governed by a written charter, a copy of which is available on our website at http://www.nnnreit.com. As provided in the Governance and Nominating Committee charter, the Governance and Nominating Committee:
Selection of Director Nominees. Our corporate governance guidelines provide that the Governance and Nominating Committee will endeavor to identify individuals to serve on the Board of Directors who have expertise that is useful to us and complimentary to the background, skills and experience of other Board members. The process undertaken by the Governance and Nominating Committee is described under the section of this proxy statement entitled "PROPOSAL 1 - ELECTION OF DIRECTORS - Nominees".
The Governance and Nominating Committee also considers director nominees recommended by stockholders. See the section of this proxy statement entitled “PROPOSALS FOR NEXT ANNUAL MEETING” for a description of how stockholders desiring to make nominations for directors and/or to bring a proper subject before a meeting should do so. The Governance and Nominating Committee evaluates director candidates recommended by stockholders in the same manner as it evaluates director candidates recommended by our directors, management or employees.
Independence and Composition. The NYSE listing standards require that the Governance and Nominating Committee consist solely of independent directors. The Board of Directors, upon the unanimous recommendation of the Governance and Nominating Committee, has determined that all current members of the Governance and Nominating Committee are “independent” as that term is defined in the NYSE listing standards.
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Meetings. The Governance and Nominating Committee met four times in the fiscal year ended December 31, 2022. The current Governance and Nominating Committee consists of Ms. Beall and Messrs. Fritsch and Witherspoon, with Mr. Fritsch serving as Chairperson.
Compensation Committee
General. The Board of Directors has established a Compensation Committee, which is governed by a written charter, a copy of which is available on our website at http://www.nnnreit.com.
Processes and Procedures for Executive and Director Compensation Determinations
Our executive compensation programs and philosophy are described in greater detail under the section entitled “Compensation Discussion and Analysis.”
Independence and Composition. The NYSE listing standards require that the Compensation Committee consist solely of independent directors. The Board of Directors, upon the unanimous recommendation of the Governance and
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Nominating Committee, has determined that all current members of the Compensation Committee are “independent” as that term is defined in the NYSE listing standards.
Meetings. The Compensation Committee met four times in the fiscal year ended December 31, 2022. The current Compensation Committee consists of Ms. Holden and Messrs. Fritsch and Fick, with Ms. Holden serving as Chairperson.
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee is or was previously an officer or employee of the Company, and no executive officer of the Company serves on the board of directors of any company at which any member of the Compensation Committee is employed.
Director Compensation
The Compensation Committee periodically reviews the non-employee director compensation program, with the assistance of its independent consultant, to ensure it remains sufficiently competitive to attract and retain high caliber and experienced Board members. In doing so, consideration is given to director pay practices and values for comparable organizations, including the same industry peer group used in the review of executive compensation for named executive officers. The following table summarizes the non-employee director compensation program in effect during fiscal year 2022:
Pay Component |
Value |
Board Member Retainer |
$212,500 (up to $80,000 payable in cash) |
Board Chair Premium Retainer |
$100,000 |
Committee Service Retainers: |
|
Audit |
Chair: $25,000; Other Members: $10,000 |
Compensation |
Chair: $22,500; Other Members: $8,000 |
Governance & Nominating |
Chair: $20,000, Other Members: $8,000 |
Retainer values for board and committee service, and the Board Chair premium retainer value have been in effect since July 1, 2021. Non-employee directors may elect to receive up to $80,000 of their annual board compensation in the form of cash, with the remainder paid in shares of the Company’s common stock. All retainers are paid on a quarterly basis. Committee retainers may be paid in cash or stock at the election of the non-employee director.
The following table shows the compensation paid to our non-employee directors during fiscal year 2022:
Name |
|
Fees Earned |
|
Stock |
|
Total |
(a) |
|
(b) |
|
(c) |
|
(d) |
Pamela K. M. Beall |
|
$98,000 |
|
$132,500 |
|
$230,500 |
Steven D. Cosler |
|
$90,000 |
|
$222,500 |
|
$312,500 |
Don DeFosset (3) |
|
$28,000 |
|
$86,250 |
|
$114,250 |
David M. Fick(2) |
|
$113,000 |
|
$132,500 |
|
$245,500 |
Edward J. Fritsch |
|
$109,000 |
|
$132,500 |
|
$241,500 |
Elizabeth C. Gulacsy (2) |
|
-- |
|
$111,250 |
|
$111,250 |
Betsy D. Holden(2) |
|
-- |
|
$245,000 |
|
$245,000 |
Kamau O. Witherspoon (2) |
|
$49,000 |
|
$181,500 |
|
$230,500 |
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Pursuant to our corporate governance guidelines, each of our non-employee directors is required to own Common Stock equivalent to three times the annual total board compensation (including both the cash and equity components) within five years of becoming a board member. The Compensation Committee reviews progress toward meeting these ownership requirements annually, and each of the nominees that have served on the Board of Directors for the requisite number of years exceeds the ownership requirements.
A Deferred Fee Plan was established by the Company for the benefit of its directors and their beneficiaries. A director may elect to defer all or part of his or her director’s fees to be earned in any calendar year by filing a deferred fee agreement with the Company no later than December 15 of the previous year. A director has the option to have deferred fees paid in cash, in shares of Common Stock or in a combination of cash and Common Stock. If the director elects to have the deferred fees paid in stock, the number of shares allocated to the director’s stock account is determined based on the market value of the Common Stock on the trading day preceding the date the deferred director’s fees were earned. A director is entitled to receive the vested portion of the amounts credited to his or her deferred fee account at the time specified in such director’s fee agreement.
The following table sets forth fees deferred into shares of Common Stock, as well as dividends earned on the deferred shares by directors under the Deferred Fee Plan.
|
|
Number of Shares Credited to |
||
Name |
|
2022 |
|
Total |
Steven D. Cosler |
|
1,457 |
|
31,149 |
Don DeFosset (1) |
|
813 |
|
34,809 |
David M. Fick |
|
5,132 |
|
47,871 |
Elizabeth C. Gulacsy |
|
2,494 |
|
2,494 |
Betsy D. Holden |
|
6,045 |
|
14,822 |
Kamau O. Witherspoon |
|
4,159 |
|
4,159 |
Total |
|
20,100 |
|
135,304 |
(1) Mr. DeFosset retired from the Board effective May 12, 2022.
Code of Business Conduct, Insider Trading Policy, and Anti-Corruption Policy
Our directors, as well as our officers and employees, are also governed by our Code of Business Conduct, an Insider Trading Policy, and Anti-Corruption Policy, all of which are available on our website at http://www.nnnreit.com. Amendments to, or waivers from, a provision of the Code of Business Conduct that applies to our directors, executive officers or employees will be posted to our website within four business days following the date of such amendment or waiver.
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AUDIT COMMITTEE REPORT
The information contained in this report shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any previous or future filings under the Securities Act of 1933 (the “Securities Act”) or the Exchange Act except to the extent that the Company incorporated it by specific reference.
Management is responsible for the Company’s financial statements, internal controls and financial reporting process. The independent registered public accounting firm is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with auditing standards generally accepted in the United States of America and to issue a report thereon. The Audit Committee’s responsibility is to monitor and oversee these processes. The Audit Committee is governed by a charter, a copy of which is available on our website at http://www.nnnreit.com. The Audit Committee charter is designed to assist the Audit Committee in complying with applicable provisions of the Exchange Act and the NYSE listing standards, all of which relate to corporate governance and many of which directly or indirectly affect the duties, powers and responsibilities of the Audit Committee.
Review and Discussions with Management and Independent Registered Public Accounting Firm. In this context, the Audit Committee has met and held discussions with management and the independent registered public accounting firm. Management represented to the Audit Committee that the Company’s consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, and the Audit Committee has reviewed and discussed the audited consolidated financial statements with management and the independent registered public accounting firm. The Audit Committee has discussed with the independent auditor the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board ("PCAOB") and the SEC.
The Company’s independent registered public accounting firm also provided to the Audit Committee the written disclosures and letter required by applicable requirements of PCAOB regarding the independent accountant’s communications with the Audit Committee concerning independence, and the Audit Committee discussed with the independent registered public accounting firm that firm’s independence. The Audit Committee has reviewed the original proposed scope of the annual audit of the Company’s consolidated financial statements and the associated fees and any significant variations in the actual scope of the audit and fees.
Conclusion. Based on the review and discussions referred to above, the Audit Committee recommended that the Board of Directors include the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC.
AUDIT COMMITTEE
David M. Fick, Chairperson
Pamela K. M. Beall
Elizabeth C. Gulacsy
Betsy D. Holden
Kamau O. Witherspoon
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Executive Officers
Our executive officers for fiscal year 2022 are listed below.
Name |
Position |
Stephen A Horn, Jr. |
President and Chief Executive Officer |
Julian E. Whitehurst |
Former President and Chief Executive Officer |
Kevin B. Habicht |
Executive Vice President, Chief Financial Officer, Assistant Secretary and Treasurer |
Michelle L. Miller |
Executive Vice President and Chief Accounting Officer |
Christopher P. Tessitore |
Executive Vice President, General Counsel and Secretary |
The backgrounds for Ms. Miller and Messrs. Tessitore and Whitehurst are set forth below. The backgrounds of Messrs. Habicht and Horn are described above at “PROPOSAL I - ELECTION OF DIRECTORS - Nominees.”
Michelle L. Miller, age 54, has served as Executive Vice President and Chief Accounting Officer since March 2016. She joined National Retail Properties in 1999 and currently leads the accounting department as well as oversees financial reporting, forecasting, lease administration and information technology. Prior to 1999, Ms. Miller worked as a Senior Manager with KPMG and focused primarily on real estate and financial institutions. She is a CPA and received her B.S. in Accounting and Finance from Florida State University in 1991. Ms. Miller is a member of the American Institute of CPAs, the Florida Institute of CPAs, Nareit and ICSC.
Christopher P. Tessitore, age 55, has served as Executive Vice President of the Company since January 2007, as General Counsel since February 2006 and as Secretary since May 2006. He also previously served as Senior Vice President and Assistant General Counsel of the Company from 2005 to 2006. Prior to March 2005, Mr. Tessitore was a shareholder at the law firm of Lowndes, Drosdick, Doster, Kantor & Reed, P.A., where he specialized in real estate acquisition, development and finance, as well as general business law. He is a member of ICSC, Nareit, and the Association of Corporate Counsel.
Julian E. Whitehurst, age 65, served as a director of the Company from February 2017, as CEO of the Company from April 2017, and as President of the Company from May 2006 until he retired on April 28, 2022. He also previously served as Chief Operating Officer of the Company from June 2004 to April 2017, as Executive Vice President of the Company from February 2003 to May 2006, as Secretary of the Company from May 2003 to May 2006, and as General Counsel from 2003 to 2006. Prior to February 2003, Mr. Whitehurst was a shareholder at the law firm of Lowndes, Drosdick, Doster, Kantor & Reed, P.A.
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Executive Summary
We design our executive compensation program to attract and retain talented and experienced executive officers and to reinforce key business objectives in support of long-term value creation. Our Compensation Committee (for purposes of this discussion, the "Committee") seeks to provide compensation that is not only competitive relative to our peer group, but also structured so as to align our executives’ short-term and long-term interests with the interests of our stockholders. Accordingly, the Committee seeks to incentivize our executive officers and emphasize pay-for-performance by basing a significant portion of compensation on achievement of critical success factors. The primary elements of our total compensation program for our named executive officers ("NEOs") include base salary, annual cash incentives and long-term equity-based incentives. We have designed a compensation program that makes a substantial percentage of executive pay variable, subject to increase and decrease based on actual versus planned corporate performance and TSRs relative to our peers. In addition, executive officers are subject to market competitive stock ownership guidelines which further aligns executive interests with stockholders.
Executive Compensation Program. In 2022, the Committee approved an executive compensation program for our NEOs consisting primarily of base salaries, annual incentive award opportunities and long-term incentive award opportunities. Annual incentives were tied to (i) the achievement of certain increased core funds from operations ("Core FFO") per share goals, excluding any impairments and executive retirement costs, (75% weighting), and (ii) a subjective assessment of contributions toward corporate strategic objectives and achievement of individual performance goals (25% weighting), which include certain ESG goals. Annual incentives are subject to downward adjustment if our debt leverage ratio exceeds a cap established by the Board. For 2022, the Committee approved long-term incentive compensation through grants of the following: (i) service-based restricted stock vesting ratably over four years (30% weighting), and (ii) performance-based restricted stock awards (or "performance shares"), the vesting of which is tied to the three-year relative TSR of the Company compared to a broad group of REIT companies as of December 31, 2024 (70% weighting).
CEO and President Transition. In connection with his promotion to Chief Executive Officer and President, the Company replaced Mr. Horn’s employment agreement dated January 2, 2014 with an employment letter (the “Employment Letter”) and the Executive Severance and Change of Control Plan (the “Executive Severance Plan”). The Employment Letter and Mr. Horn’s participation in the Executive Severance Plan became effective as of April 29, 2022. Under the Employment Letter, Mr. Horn’s salary was increased to $750,000 upon assuming the role of President and CEO. He continues to be eligible to participate in the annual and long-term incentive plans under the Company’s executive compensation program, with target award opportunities determined by the Committee. Mr. Horn received a one-time promotion grant of 10,000 service-based restricted shares upon assuming the role of President and CEO, with 60% of shares vesting after a 3-year period and the remaining 40% vesting after a 5-year period. In addition, Mr. Horn is a participant under the Executive Severance Plan with a “termination payment multiple” of two and a half times the sum of base salary plus three-year average actual bonus and a “change of control termination payment multiple” (as such terms are defined in the Executive Severance Plan) of three times the base salary plus three-year average actual bonus for certain qualifying termination of employment scenarios. For a detailed discussion of the Executive Severance Plan, see "Potential Payments Upon Termination of Change of Control".
Restricted Stock. Restricted stock grants are intended to provide our NEOs with a significant interest in the long-term performance of our stock. The Committee has elected to use awards of restricted stock instead of other equity awards, such as stock options, because, as a REIT, which pays a large portion of its annual earnings to stockholders in the form of dividends, we believe that restricted stock provides a better incentive and alignment of interest than stock options. The Committee has determined that our desired compensation objectives are better
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achieved by awarding a combination of performance-based and service-based restricted stock as opposed to granting stock options. The Company did not issue any stock options to its executive officers in 2022, and there are no outstanding stock options. Consistent with our pay for performance philosophy, 70% of the target long-term incentive award opportunity for our NEOs in 2022 was provided in the form of performance-contingent restricted stock grants.
2022 Business Results. The following are some of the highlights of our business results in 2022:
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The common stock of NNN is currently traded on the NYSE under the symbol "NNN." Set forth below is a line graph comparing the cumulative total stockholder return on NNN's common stock, based on the market price of the common stock and assuming reinvestment of dividends, with the FTSE National Association of Real Estate Investment Trusts Equity Index ("FNER") and the S&P 500 Index ("S&P 500") for the five year period commencing December 31, 2017 and ending December 31, 2022. The graph assumes an investment of $100 on December 31, 2017.
Comparison to Five-Year Cumulative Total Return
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The common stock of NNN is currently traded on the NYSE under the symbol "NNN." Set forth below is a line graph comparing the cumulative total stockholder return on NNN's common stock, based on the market price of the common stock and assuming reinvestment of dividends, with FNER and the S&P 500 for the fifteen year period commencing December 31, 2007 and ending December 31, 2022. The graph assumes an investment of $100 on December 31, 2007.
Comparison to Fifteen-Year Cumulative Total Return
2022 Compensation Highlights. The following are some of the highlights related to the 2022 compensation of our named executive officers:
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The Company believes these actions demonstrate the Committee’s commitment to aligning executive pay with performance, stockholder interests and long-term value creation.
2022 Say-on-Pay Voting Results
In 2022, we submitted our executive compensation program to an advisory vote of our stockholders (also known as “Say-on-Pay”). Approximately 93.7% of voting stockholders at the 2022 annual meeting approved our executive compensation program. The Committee considered such strong stockholder support as an endorsement of the Company’s executive compensation program and policies and the Committee intends to continue the pay-for-performance program that is currently in place in 2023. The Committee values the opinions of our stockholders and will continue to consider those opinions when making future executive compensation decisions.
Objectives of Compensation Program
We believe our success is largely attributable to the talent and dedication of our employees (whom we refer to as associates) and to the management and leadership efforts of our executive officers. Our goal is to establish a compensation program that will attract and retain talented corporate officers, motivate them to perform to their fullest potential, and align their long-term interests with the interests of our stockholders.
What Our Compensation Program is Designed to Reward and Other Policies
We believe that the most effective compensation program is one that is designed to reward the achievement of specific annual, long-term and strategic goals, and which aligns executives’ interests with those of the stockholders by rewarding performance that meets or exceeds established goals, with the ultimate objective of improving stockholder value. Our Committee evaluates both performance and compensation to ensure that we maintain our ability to attract and retain superior executive officers and that compensation provided to our executive officers is appropriately aligned with performance and key strategic objectives and remains competitive relative to the compensation paid to similarly situated executives of our peer companies. In making compensation decisions, the Committee considers the compensation practices and financial performance of REIT and other industry participants and from time to time receives assessments and advice regarding compensation practices from third party compensation consultants. In evaluating performance, the Committee considers quantitative and qualitative improvement in factors such as FFO per share based metrics, capital structure, absolute and relative stockholder returns, individual performance, and contribution to corporate goals and objectives. Additionally, the Committee takes into account our general performance, the executive officer’s past performance, the executive officer’s
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anticipated performance and contribution to our achievement of our long-term goals, and the position, level and scope of the executive officer’s responsibilities.
We believe that our compensation program for executive officers, which includes the use of performance-based and service-based restricted stock awards, results in a significant alignment of interest between these individuals and our stockholders. Under our corporate governance guidelines, within five years of becoming a Covered Person, as defined by the Committee, executive officers are required to own our Common Stock (including time-based restricted stock but not counting unvested performance shares) equal to a minimum of five times the annual base salary for the CEO and three times their annual base salary for all other Covered Persons. The Committee reviews progress toward meeting these guidelines annually and each Covered Person exceeds the stock ownership guidelines. In addition, equity grants to NEOs do not include tax gross-up provisions, and the Committee does not intend to provide tax gross-ups on any future restricted stock grants to executive officers. Additionally, we have adopted a clawback policy for our executive officers which allows the Board to recover certain incentive compensation if the Company has a material restatement of financial results, as a result of such restatement the incentive compensation would not have been earned, and the executive officer engaged in fraud or other intentional misconduct. Finally, we have adopted an anti-hedging policy that prohibits all employees, non-employee directors and executive officers from engaging in short sales of our securities, buying or selling puts or calls on our securities or otherwise engaging in hedging transactions (such as zero-cost dollars, exchange funds, and forward sale contracts) involving our securities.
Accounting and Tax Considerations
We have selected compensation elements that help us achieve the objectives of our compensation program and not because of preferential financial accounting or tax treatment. However, when awarding compensation, the Committee is mindful of the accounting impact of the compensation expense of each compensation element. In addition, Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), places a limit of $1 million per year on the amount of compensation paid to certain of our executive officers that the Company may deduct from our federal income tax return for any single taxable year. The Committee believes that stockholder interests are best served if its discretion and flexibility in awarding compensation is not restricted, even though some compensation awards may result in non-deductible compensation expenses. Therefore, the Committee has approved salaries and other awards for executive officers that were not fully deductible because of Section 162(m) and, in light of the repeal of the performance-based compensation exception to Section 162(m), expects in the future to approve additional compensation that is not deductible for income tax purposes.
Benchmarking
The Committee, with the assistance of Pearl Meyer, periodically reviews senior executive pay levels and practices disclosed by other comparable REITs to ensure that compensation opportunities provided to our NEOs remain competitive. For 2022, the Committee, determined that our Peer Group included Brixmor Property Group, Inc., Camden Property Trust, EPR Properties, Federal Realty Investment Trust, Kimco Realty Corporation, Kite Realty Group Trust, Medical Properties Trust, Inc., Omega Healthcare Investors, Realty Income Corporation, Regency Centers Corporation, Spirit Realty Capital, STORE Capital Corporation, Tanger Factory Outlet Centers, and W. P. Carey, Inc. (collectively, the “Peer Group”).
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Data Source: S&P Capital IQ
(1) As of most recently disclosed 4 quarters ($mm).
(2) As of most recently disclosed fiscal quarter ($mm).
(3) Market Cap, Enterprise Value and TSR current as of 12/31/2022.
The Peer Group for the 2022 market pay analysis consisted of 14 publicly-traded REITs, most of which have investment-grade credit ratings, operating across a variety of property sectors, with a primary focus on the retail sector, recognizing that the Company competes with REITs across all property sectors for capital and executive talent. Relative to the Peer Group, the Company’s net operating income and equity market capitalization as of December 31, 2022 were between the 50th and 75th percentile. In determining 2022 pay opportunities for executive officers, the Committee considered the compensation of our NEOs as compared to the compensation of NEOs of companies in our Peer Group. Pearl Meyer provided the Committee with a detailed analysis of the compensation of our executive officers as compared to the executive officers of companies in our Peer Group, with the overall objective of providing target total pay opportunities comparable to those provided by industry peers, and actual pay that is directionally aligned with performance relative to peers. As of December 31, 2022, our total return to stockholders was above the 75th percentile over one year and between the 25th and 50th percentiles over the three-year and five-year periods.
We believe that our compensation, benchmarked against our Peer Group, provides an appropriate mix of fixed and variable pay, balances short-term operational performance with long-term stockholder value creation, and encourages executive recruitment and retention. The Committee compared base salary and total compensation for our executive officers against the Peer Group, generally focusing on targeting aggregate total pay opportunities at or near 50th percentile market values. Compared with the Peer Group, 2022 target total direct compensation (sum of base salary plus target annual cash incentive plus target long-term incentives) was within a competitive range (defined as +/- 15%) of the Peer Group 50th percentile values for each of our current NEOs, other than Mr. Horn (who was well below the competitive range due to his recent promotion to the CEO role) and Ms. Miller (who first became an NEO in 2021 and continues to assume additional responsibilities) and was equal to 78% of the 50th percentile in the aggregate.
27
2022 Executive Compensation Components and How They Relate to Our Objectives
For the fiscal year ended December 31, 2022, base salary, annual cash incentives, cash bonus, and long-term equity-based incentives were the principal components of compensation for the NEOs. Executives also receive certain benefits and other perquisites. We believe that these compensation components provide an appropriate mix of fixed and variable pay, balance short-term operational performance with long-term stockholder value, and encourage executive recruitment and retention. The target aggregate total direct compensation mix for our current NEOs was 20% base salary, 25% short term incentive (STI or bonus) and 55% long-term incentive (LTI) compensation which is comparable with the Peer Group 50th percentile target compensation mix.
The differences in the target amounts and mix of compensation awarded to the NEOs are primarily a result of comparing each executive's compensation against corresponding market values for industry peers and giving consideration to differences in position and responsibilities among the Company’s NEOs. The responsibilities for each named executive officer during the fiscal year 2022 were as follows: (i) Mr. Whitehurst, our President and Chief Executive Officer through April 28, 2022, was responsible for developing, defining, implementing and executing the Company’s corporate strategy, policies, mission, philosophy, goals and objectives; (ii) Mr. Horn, our Executive Vice President and Chief Operating Officer through April 28, 2022, was responsible for leading our acquisition and disposition departments, and in addition, upon promotion to President and CEO, Mr. Horn was responsible for developing, defining, implementing, and executing the Company's corporate strategy, policies, mission, philosophy, goals and objectives; (iii) Mr. Habicht, our Executive Vice President, Chief Financial Officer, Treasurer and Assistant Secretary, was responsible for overseeing all capital, forecasting reporting, tax, and corporate communication matters of the Company and assisting the corporate secretary with his duties; (iv) Mr. Tessitore, our General Counsel and Secretary, was responsible for overseeing all legal matters for the Company, human resources, ESG initiatives and various risk management functions; and (v) Ms. Miller, our Executive Vice President and Chief Accounting Officer was responsible for overseeing SEC and financial reporting, lease compliance, information technology and payroll. Our Committee believes that the different levels of compensation provided to the NEOs are commensurate to the responsibilities of each executive.
Base Salary
The Committee sets and adjusts the base salaries of our NEOs based on the qualifications, experience, scope of responsibilities and past performance of each executive, the practices of and salaries awarded by our Peer Group, and other factors deemed appropriate by the Committee. The Committee approved 2022 base salary increases for our
28
NEOs ranging from 3.5% to 16.5% (or 7.2% average excluding the promotion adjustment for Mr. Horn), with Mr. Horn receiving an additional 25% increase upon his promotion to the role of President and Chief Executive Officer effective April 29, 2022. After these increases, 2022 base salaries for NEOs ranged from 81% to 106% of market median levels (92% of median levels in the aggregate).
Annual Incentive Compensation
Cash Incentive Bonus. We believe that a significant portion of the compensation of the NEOs should be provided in the form of incentive compensation. For 2022, the Committee approved annual cash incentive bonus opportunities based upon per share profitability tempered with potential reductions in bonus amounts if balance sheet leverage rose above 50% (75% weighting) and subjective assessment of each NEO's contributions toward corporate objectives, as well as of individual performance (25% weighting). Profitability was based on Core FFO per share, excluding impairments and executive retirement costs, ranging from $2.92 per share for "threshold" performance to $3.00 per share for "target" level performance to $3.08 per share for "maximum" performance, Each NEO's bonus opportunity for threshold, target and maximum performance is set forth in the table below. Straight-line interpolation is used to determine awards for results in between performance levels. The following tables represent the 2022 annual cash incentive bonus opportunities and actual earned awards expressed as a percentage of base salary.
|
Core FFO per Share (75%) |
|
||
Position |
Threshold |
Target |
Maximum |
2022 Actual |
Former President & Chief Executive Officer (1) |
56.250% |
112.50% |
225.00% |
75.00% |
President & Chief Executive Officer |
56.250% |
112.50% |
225.00% |
225.00% |
EVP, CFO, Asst. Secretary, & Treasurer |
43.125% |
86.25% |
172.50% |
172.50% |
EVP, General Counsel, & Secretary |
41.250% |
82.50% |
165.00% |
165.00% |
EVP & Chief Accounting Officer |
28.125% |
56.25% |
112.50% |
112.50% |
|
Individual Performance (25%) |
|
||
Position |
Threshold |
Target |
Maximum |
2022 Actual |
Former President & Chief Executive Officer (1) |
18.750% |
37.50% |
75.00% |
12.50% |
President & Chief Executive Officer |
18.750% |
37.50% |
75.00% |
75.00% |
EVP, CFO, Asst. Secretary, & Treasurer |
14.375% |
28.75% |
57.50% |
57.50% |
EVP, General Counsel, & Secretary |
13.750% |
27.50% |
55.00% |
55.00% |
EVP & Chief Accounting Officer |
9.375% |
18.75% |
37.50% |
37.50% |
|
Total Annual Cash Incentive Bonus Opportunity |
|
||
Position |
Threshold |
Target |
Maximum |
2022 Actual |
Former President & Chief Executive Officer (1) |
75.0% |
150.0% |
300.0% |
87.5% |
President & Chief Executive Officer |
75.0% |
150.0% |
300.0% |
300.0% |
EVP, CFO, Asst. Secretary, & Treasurer |
57.5% |
115.0% |
230.0% |
230.0% |
EVP, General Counsel, & Secretary |
55.0% |
110.0% |
220.0% |
220.0% |
EVP & Chief Accounting Officer |
37.5% |
75.0% |
150.0% |
150.0% |
(1) Mr. Whitehurst's bonus potential and actual payout were prorated for his retirement date of April 28, 2022.
Based on our actual 2022 Core FFO per share results of $3.14 per share (excluding any impairments and executive retirement costs) which was above the maximum performance hurdle, the Committee approved annual cash
29
incentive bonus awards for NEOs equal to 200.0% of target, with payouts for this component ranging from 75.0% to 225.0% of base salary. For the strategic / individual performance component, our NEOs were evaluated based on their contributions towards a series of shared corporate strategic objectives as well as individual performance goals related to their respective functions. Award determinations were based on subjective assessments by the Committee (along with input from the President & Chief Executive Officer for his direct reports) of performance relative to pre-established corporate and individual objectives. Corporate strategic objectives for 2022 were as follows:
Each of these strategic objectives were met or exceeded in 2022. Our Core FFO was $3.14 per share (excluding any impairments and executive retirement costs), acquisitions totaled $847.7 million, G&A expense was $39.2 million based on target incentive compensation and excluding executive retirement costs of $7.5 million, and our leverage ratio was 40.4%. Our 5-year annualized TSR as of December 31, 2022 of 6.1% was above the 50th percentile annualized return of 1.4% for companies included in the NAREIT ALL Equity REIT Index over the past three years.
Our NEOs also generally met or exceeded individual performance objectives tied to their respective functions. Mr. Whitehurst finalized all details for a successful CEO transition to Mr. Horn. Mr. Horn led our efforts to acquire 223 properties at an initial cash yield of 6.4%. In addition he led dispositions and leasing efforts, including the sale of 33 properties generating net proceeds of $65.2 million. He also transitioned to the role of President and CEO effective April 29, 2022 handling board relations and setting a strategic plan for the Company. Mr. Habicht successfully raised $247.1 million of common equity, positioned the balance sheet to navigate challenging capital markets and assisted in the CEO transition. Mr. Tessitore led the legal team, which manages a wide variety of matters for the Company, including property acquisitions and dispositions. Mr. Tessitore advised the Board of Directors on a wide variety of risk management and corporate governance issues. He also managed the human resources team, oversaw various DEI initiatives and projects, including but not limited to our gender pay equity project. Mr. Tessitore leads our Sustainability Team which is responsible for all environmental and sustainability initiatives and projects at the Company, as well as all ESG reporting. Mr. Tessitore also led an ESG consulting project in 2022 which focused on managing environmental matters at the Company's headquarters and on portfolio properties. Ms. Miller led the accounting (including SEC reporting, budget and forecasting and payroll), technology and lease compliance teams, developing internal staff and managing relationships with external and internal auditors. Ms. Miller led the initiative to develop internal reporting at the property level incorporating technology and asset management. She also worked closely on the ESG consulting project and monitored the potential impact of any future reporting requirements. In addition, Ms. Miller led communication with the Audit Committee on quarterly 10-Q filings, the annual 10-K, and Audit Committee meetings. Based on these accomplishments, the Committee approved awards for the strategic/individual objectives component ranging from 12.5% to 75.0% of base salary, and total combined payouts for our NEOs ranged from 87.5% to 300.0% of base salary. The Committee determined that these payments were consistent with the strong performance of the executive management team. All cash incentive awards, except for the cash incentive award for Mr. Whitehurst, are reflected in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table below. Mr. Whitehurst's pro-rated annual cash incentive award is included within the "All Other Compensation" column of the Summary Compensation Table.
30
Long-Term Incentive Compensation
For 2022, the Committee approved long-term incentive compensation opportunities for executive officers, provided through an 70%/30% weighted target value mix of performance-based restricted stock and service-based restricted stock. Total target award opportunities for NEOs ranged from 100.0% to 400.0% of base salary, varying by position, as set forth in the table below. Mr. Whitehurst's pro-rated annual cash incentive award is included within the " All Other Compensation" column of the Summary Compensation Table below.
|
2022 Target Long-Term Incentive Award Opportunity |
||
Position |
TSR Performance-Based Restricted Shares (70%) |
Service-Based Restricted Shares (30%) |
Total Target |
Former President & Chief Executive Officer (1) |
280.0% |
- |
280.0% |
President & Chief Executive Officer |
280.0% |
120.0% |
400.0% |
EVP, CFO, Asst. Secretary, & Treasurer |
161.0% |
69.0% |
230.0% |
EVP, General Counsel, & Secretary |
140.0% |
60.0% |
200.0% |
EVP & Chief Accounting Officer |
70.0% |
30.0% |
100.0% |
(1) Mr. Whitehurst was not awarded any service-based restricted shares due to his retirement on April 28, 2022.
Service-based restricted stock vests annually over a four-year period to enhance retention and promote long-term equity ownership. Performance-based restricted stock vests, if at all, at the end of three years on January 1, 2025. Vesting for TSR performance-based restricted stock is tied to our TSR relative to other companies in the NAREIT All Equity REIT Index for the three-year period ending December 31, 2024. The Committee chose this comparator group to allow for performance assessments within our applicable industry group, recognizing that we compete for investor capital with REITs across various property sectors. TSR includes stock price appreciation plus dividends over the three-year period, with calculations for the Company and comparators based on ten-day average closing stock prices leading up to the start and end of the measurement period. Performance levels and corresponding award funding levels for 2022 performance-based restricted stock grants are summarized in the following table.
|
3-Year Relative TSR and Positioning |
% of Target Award Funded |
Below Threshold |
Below 25th Percentile |
0% |
Threshold |
25th Percentile |
25% |
Target |
50th Percentile |
100% |
Maximum |
75th Percentile or Above |
200% |
For performance-based restricted share grants, 25% of the corresponding target award opportunity is earned for threshold performance, 100% for target performance, and 200% for maximum performance. No performance-based shares are earned for results below the threshold level. Straight-line interpolation is used to determine awards for results in between performance levels.
The number of shares of service-based restricted stock and performance-based restricted stock granted was based on the average closing share price of our Common Stock for ten days prior to the grant date ($43.129 per share). Accordingly, the Committee approved grants of service-based restricted stock and target grants of performance-based restricted stock to Messrs. Whitehurst (0 service-based and 58,105 performance-based shares), Horn (9,599 service-based and 22,398 performance-based shares), Habicht (9,919 service-based and 23,145 performance-based shares), Tessitore (6,469 service-based and 15,094 performance-based shares), and Ms. Miller (2,017 service-based and 4,707 performance-based shares) as shown in the Grants of Plan-Based Awards table.
In connection with the promotion of Mr. Horn to President and CEO effective April 29, 2022, the Company awarded Mr. Horn additional service-based restricted stock and performance-based restricted stock based on the
31
incremental increase in base salary using the average closing share price of our Common Stock for ten days prior to the grant date ($46.737 per share). Accordingly, the Committee approved grants of 9,115 service-based restricted stock and 21,268 target grants for performance-based shares.
Upon Mr. Horn's promotion to President and CEO the Committee also awarded Mr. Horn a one-time promotion grant of 10,000 service-based restricted shares with 60% of the shares cliff-vesting after 3-years and 40% of the shares cliff-vesting after 5-years.
Executive officers are entitled to receive dividends on unvested shares of service-based restricted stock. Dividends payable on performance-based restricted stock will accumulate and be payable to the executive officers only if and to the extent the shares vest. No tax gross-ups shall be paid to the executive officers on any service-based restricted stock nor on any performance-based restricted stock.
In 2020, the executive officers were granted a performance-based restricted stock award as part of the 2020 executive compensation plan. Vesting for this award was tied to TSR relative to all Equity REITs in the NAREIT Index for the three-year period ending December 31, 2022. The Company’s TSR during this period was at the 62.4th percentile compared to all Equity REITs in the NAREIT Index. As a result, executive officers earned approximately 149.6% of the target number of shares granted. These shares are included in the Outstanding Equity Awards at Fiscal Year End table because they did not vest until January 1, 2023.
In 2020, the executive officers were also granted performance based restricted stock with vesting tied to Core FFO per share for the three-year period ending December 31, 2022. The Company's compound annual growth in Core FFO per share (excluding impairments and executive retirement costs) for the three-year period ending December 31, 2022 of 4.4% which was between target and maximum performance hurdles of 3.0% and 5.1%, respectively. As a result, executive officers earned 166.67% of the target number of shares granted. These shares are included in the Outstanding Equity Awards at Fiscal Year End table because they did not vest until January 1, 2023.
Benefits and Other Perquisites
We provide benefits to our executive officers under the National Retail Properties, Inc. Retirement Plan. We do not sponsor a defined benefit pension plan for our executive officers or any other associates. Our NEOs are eligible to receive, on the same basis as other associates, employer matching contributions under the plan. This allows our executive officers to save for retirement on a tax-deferred basis through the Section 401(k) savings feature of the plan, with the Company-funded portion of these benefits based on matching the contributions of the executive officers.
Our NEOs are also eligible to participate in the other employee benefit and welfare plans that the Company maintains on similar terms as other associates who meet applicable eligibility criteria.
We do not consider perquisites to be a principal component of our executive officers’ compensation. Costs attributed to the perquisites and other personal benefits afforded to the named executive officers for the fiscal year ended December 31, 2022, are shown in the “Other Compensation” column of the Summary Compensation Table ("SCT") below.
We believe that our executive officer benefit and perquisite programs provided are reasonable and competitive with benefits and perquisites provided to executive officers of other REITs, and are necessary to sustain a fully competitive executive compensation program.
32
COMPENSATION COMMITTEE REPORT
The information contained in this report shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any previous or future filings under the Securities Act or the Exchange Act except to the extent that the Company incorporated it by specific reference.
The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, both filed with the SEC.
COMPENSATION COMMITTEE
Betsy D. Holden, Chairperson
Edward J. Fritsch
David M. Fick
33
Executive Compensation Tables
The following table shows total compensation paid or earned by the NEOs for the fiscal years ended December 31, 2022, 2021, and 2020.
Summary Compensation Table
Name |
|
Year |
|
Salary |
|
Stock |
|
Non- |
|
Bonus |
|
All |
|
Total |
(a) |
|
(b) |
|
(c) |
|
(d) |
|
(e) |
|
(f) |
|
(g) |
|
(h) |
Julian E. Whitehurst |
|
2022 |
|
$298,333 |
|
$3,413,088 |
|
- |
|
- |
|
$1,299,572 |
|
$5,010,993 |
Former President and Chief |
|
2021 |
|
$865,000 |
|
$4,306,835 |
|
$2,595,000 |
|
- |
|
$18,751 |
|
$7,785,586 |
Executive Officer |
|
2020 |
|
$850,000 |
|
$3,704,914 |
|
- |
|
$1,020,000 |
|
$19,252 |
|
$5,594,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen A. Horn, Jr. |
|
2022 |
|
$700,000 |
|
$3,958,062 |
|
$2,100,000 |
|
- |
|
$18,637 |
|
$6,776,699 |
President and Chief |
|
2021 |
|
$515,000 |
|
$1,474,411 |
|
$1,184,500 |
|
- |
|
$15,283 |
|
$3,189,194 |
Executive Officer |
|
2020 |
|
$435,000 |
|
$1,310,439 |
|
- |
|
$382,800 |
|
$15,591 |
|
$2,143,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin B Habicht |
|
2022 |
|
$620,000 |
|
$1,779,478 |
|
$1,426,000 |
|
- |
|
$20,116 |
|
$3,845,594 |
Executive Vice President, Chief Financial Officer, |
|
2021 |
|
$585,000 |
|
$1,674,783 |
|
$1,345,500 |
|
- |
|
$17,516 |
|
$3,622,799 |
Asst. Secretary and Treasurer |
|
2020 |
|
$575,000 |
|
$1,470,345 |
|
- |
|
$529,000 |
|
$18,016 |
|
$2,592,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher P. Tessitore |
|
2022 |
|
$465,000 |
|
$1,160,548 |
|
$1,023,000 |
|
- |
|
$18,089 |
|
$2,666,637 |
Executive Vice President, |
|
2021 |
|
$447,500 |
|
$1,114,041 |
|
$984,500 |
|
- |
|
$15,489 |
|
$2,561,530 |
General Counsel and Secretary |
|
2020 |
|
$440,000 |
|
$971,700 |
|
- |
|
$387,200 |
|
$15,989 |
|
$1,814,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michelle L. Miller |
|
2022 |
|
$290,000 |
|
$361,889 |
|
$435,000 |
|
- |
|
$33,612 |
|
$1,120,501 |
Executive Vice President and Chief Accounting Officer (3) |
|
2021 |
|
$265,000 |
|
$296,865 |
|
$397,500 |
|
- |
|
$34,801 |
|
$994,166 |
In connection with his retirement from employment with the Company on April 28, 2022, Mr. Whitehurst received the following payments and benefits in 2022:
(3) Ms. Miller became a NEO in 2021.
34
The following table sets forth certain information with respect to grants of plan-based awards to the NEOs of the Company during or for the fiscal year ended December 31, 2022.
Grants of Plan-Based Awards
Name |
|
Grant Date |
|
Estimated Future Payouts Under Equity Incentive Plan Awards |
|
All Other Stock Awards: Number of Shares of Stock or Units |
|
Grant Date Fair Value of Stock and Option Awards |
||||
|
|
|
|
Threshold |
|
Target |
|
Maximum |
|
|
|
|
(a) |
|
(b) |
|
(c) |
|
(d) |
|
(e) |
|
(f) |
|
(g) |
Julian E. Whitehurst |
|
2/15/2022 |
(2) |
14,526 |
|
58,105 |
|
116,210 |
|
- |
|
$3,413,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen A. Horn, |
|
2/15/2022 |
(1) |
- |
|
- |
|
- |
|
9,599 |
|
$406,422 |
Jr. |
|
2/15/2022 |
(2) |
5,599 |
|
22,398 |
|
44,796 |
|
- |
|
$1,315,659 |
|
|
4/29/2022 |
(1) |
- |
|
- |
|
- |
|
9,115 |
|
$417,467 |
|
|
4/29/2022 |
(2) |
5,317 |
|
21,268 |
|
42,536 |
|
- |
|
$1,360,514 |
|
|
4/29/2022 |
(3) |
- |
|
- |
|
- |
|
10,000 |
|
$458,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin B. Habicht |
|
2/15/2022 |
(1) |
- |
|
- |
|
- |
|
9,919 |
|
$419,970 |
|
|
2/15/2022 |
(2) |
5,786 |
|
23,145 |
|
46,289 |
|
- |
|
$1,359,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher P. |
|
2/15/2022 |
(1) |
- |
|
- |
|
- |
|
6,469 |
|
$273,897 |
Tessitore |
|
2/15/2022 |
(2) |
3,774 |
|
15,094 |
|
30,189 |
|
- |
|
$866,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Michelle L. Miller |
|
2/15/2022 |
(1) |
- |
|
- |
|
- |
|
2,017 |
|
$85,400 |
|
|
2/15/2022 |
(2) |
1,177 |
|
4,707 |
|
9,414 |
|
- |
|
$276,489 |
35
The following table sets forth certain information with respect to equity awards outstanding as of December 31, 2022, for each of the NEOs. All shares are valued based on the Company’s closing stock price of $45.76 per share on December 31, 2022.
Outstanding Equity Awards at Fiscal Year End
|
|
Stock Awards |
||||||
Name |
|
Number of Shares or Units of Stock That Have Not Vested |
|
Market Value of Shares or Units of Stock That Have Not Vested |
|
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested |
|
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested |
(a) |
|
(b) |
|
(c) |
|
(d) |
|
(e) |
Julian E. Whitehurst |
|
69,411 |
(1) |
$3,176,247 |
(1) |
117,813 |
(6) |
$5,391,123 |
|
|
|
|
|
|
116,210 |
(7) |
$5,317,770 |
Stephen A. Horn, Jr. |
|
65,335 |
(2) |
$2,989,730 |
(2) |
40,332 |
(6) |
$1,845,592 |
|
|
|
|
|
|
87,332 |
(7) |
$3,996,312 |
Kevin B. Habicht |
|
48,158 |
(3) |
$2,203,710 |
(3) |
45,814 |
(6) |
$2,096,449 |
|
|
|
|
|
|
46,289 |
(7) |
$2,118,185 |
Christopher P. Tessitore |
|
31,773 |
(4) |
$1,453,932 |
(4) |
30,475 |
(6) |
$1,394,536 |
|
|
|
|
|
|
30,189 |
(7) |
$1,381,449 |
Michelle L. Miller |
|
9,374 |
(5) |
$428,954 |
(5) |
8,121 |
(6) |
$371,617 |
|
|
|
|
|
|
9,414 |
(7) |
$430,785 |
The following table sets forth certain information with respect to restricted and performance-based stock that vested during the fiscal year ended December 31, 2022.
Option Exercises and Stock Vested
|
|
Stock Awards |
||
Name |
|
Number of Shares |
|
Value Realized |
(a) |
|
(d) |
|
(e) |
Julian E. Whitehurst |
|
80,875 |
|
$3,740,869 |
Stephen A. Horn, Jr. |
|
23,587 |
|
$1,134,577 |
Kevin B. Habicht |
|
34,520 |
|
$1,660,576 |
Christopher P. Tessitore |
|
21,916 |
|
$1,054,252 |
Michelle L. Miller |
|
10,277 |
|
$510,228 |
36
The following table provides information regarding the Company's equity compensation plans as of December 31, 2022.
Equity Compensation Plan Information
Plan category |
Number of securities to be |
|
Weighted average exercise |
|
Number of securities |
Equity compensation plans approved by security holders (1) |
- |
|
- |
|
346,420 |
|
|
|
|
|
|
Equity compensation plans not approved by securities holders |
- |
|
- |
|
- |
|
|
|
|
|
|
Total |
- |
|
- |
|
346,420 |
Potential Payments Upon Termination or Change of Control
For purposes of the discussion that follows, Messrs. Habicht, Tessitore and Horn and Ms. Miller are collectively referred to herein as the “Executives” and each, an “Executive.”
Employment Agreements
Effective December 1, 2008, the Company entered into new employment agreements with Messrs. Habicht and Tessitore, each as amended effective November 8, 2010, in order to comply with Section 409A of the Code. The Company entered into an employment agreement with Ms. Miller on February 15, 2018. Each employment agreement is subject to automatic successive two-year renewals unless one party provides written notice to the other party of non-renewal 60 days prior to the expiration date of the agreement. The initial expiration date for each employment agreement was as follows: (a) August 17, 2011, for Mr. Habicht; (b) January 2, 2011, for Mr. Tessitore; and (c) January 2, 2019 for Ms. Miller. Each agreement contains provisions that provide for certain payments or benefits to the Executive upon the occurrence of certain events, including death or disability, termination by the Company for “cause” or by the Executive without “good reason,” termination by the Company without “cause” or by the Executive with “good reason,” and termination upon expiration of the employment agreement. In the event the Executive is unable to perform his or her job duties due to death or disability, each agreement provides for payment of his accrued salary, a prorated performance bonus and, for a period of one year following termination of the agreement due to death, health benefits under the Company’s health plans and programs to the Executive’s dependents. In the event the Executive is terminated by the Company for “cause” or the Executive terminates his or her employment agreement without “good reason,” the Executive is entitled to his accrued salary and benefits prior to the date of termination.
Each agreement and the executive compensation program also contain severance provisions that call for payment to the Executive of the following amounts in the event that he or she is terminated without “cause” or he or she resigns for “good reason”:
37
Under each employment agreement, in the event of an Executive’s termination of employment due to death or disability, the Executive (or his or her estate or legal representative, as applicable) will receive:
Under each employment agreement and the executive compensation program, in the event the agreement naturally terminates at the end of its term because the Company elects not to renew, the Executive will be entitled to the following severance payments:
38
No executive is entitled to gross-up payments other than Messrs. Habicht and Tessitore pursuant to legacy employment agreements with the Company. The Committee does not intend to provide excise tax gross-up payments in any future employment agreements.
“Cause” is defined in each Executive’s agreement as the Executive’s:
“Good reason” is defined in each agreement, unless otherwise consented to by Executive, as:
“Change of Control” is defined in each agreement as:
39
Executive Severance Plan
In connection with Mr. Horn’s appointment as President and Chief Executive Officer of the Company, the Company replaced Mr. Horn’s original employment agreement with an employment letter and designated Mr. Horn as a participant in the Executive Severance Plan as described below.
The employment letter and Mr. Horn’s participation in the Executive Severance Plan were effective on April 29, 2022 with a “termination payment multiple” of two and one-half and a “change of control termination multiple” of three (as such terms are defined in the Executive Severance Plan). None of the other Executives are currently eligible to participate in the Executive Severance Plan. The “termination payment multiple” applies on a termination of a participant’s employment by the Company without “cause” or by the participant for “good reason” and the “change of control termination payment multiple” applies on a termination of a participant’s employment by the Company without “cause” or by the participant for “good reason”, in each case during the period beginning on the date that is three months prior to the consummation of a Change of Control of the Company and ending on the date that is 12 months after the consummation of such “change of control” of the Company (such period, the “Change of Control Protection Period”).
Death or Disability Severance Benefits. If a participant’s employment is terminated due to such participant’s death or disability, such participant will be eligible to receive: (a) a lump sum cash payment equal to a prorated portion of such participant’s annual bonus at the “target” level for the year of termination; (b) in the event of such participant’s death, (i) a lump sum cash payment equal to two months of such participant’s annual base salary, and (ii) one year of continued Company-paid health coverage; (c) vesting of any unvested time-based equity awards; and (d) vesting of any unvested performance-based equity awards at the “target” level of performance.
Termination without Cause or for Good Reason Severance Benefits. If a participant’s employment is terminated by the Company without “cause” or by such participant for “good reason”, such participant will be eligible to receive: (a) a cash payment equal to such participant’s “termination payment multiple” (or, if such termination occurs during the Change of Control Protection Period, such participant’s “change of control termination payment multiple”) multiplied by his or her annual base salary; (b) a cash payment equal to such participant’s “termination payment multiple” (or, if such termination occurs during the Change of Control Protection Period, such participant’s “change of control termination payment multiple”) multiplied by such participant’s average annual bonus for the three years of employment prior to termination (provided, however, if such participant serves as the Company’s Chief Executive Officer on his or her termination date, such termination occurs on or after the consummation of a “change of control” and such participant has not been employed for three years, then the amount payable to such participant under this
40
clause (b) will be equal to such participant’s “termination payment multiple” (or, if such termination occurs during the Change of Control Protection Period, such participant’s “change of control termination payment multiple”) multiplied by such participant’s average annual bonus for the years of employment that such participant served as the Company’s Chief Executive Officer); (c) one year of continued Company-paid health coverage; (d) in the event of such termination during the Change of Control Protection Period, a payment equal to a prorated portion of such participant’s annual bonus at the “target” level for the year of termination; (e) vesting of any unvested time-based equity awards; and (f) vesting of a pro-rated portion of any unvested performance-based equity awards based on attainment of actual performance. The cash payments in clauses (a) and (b) are payable in equal installments over a 12-month period.
Retirement Severance Benefits. If a participant’s employment is terminated due to retirement (as approved by the Board of Directors), such participant will be eligible to receive: (a) a lump sum cash payment equal to a prorated portion of such participant’s annual bonus based on attainment of actual performance for the year of termination; (b) vesting of any unvested time-based equity awards; and (c) vesting of a pro-rated portion of any unvested performance-based equity awards based on attainment of actual performance.
Change of Control Equity Benefits. On a “change of control” of the Company, a participant will be eligible to receive: (a) vesting of any unvested time-based equity awards; and (b) vesting of any unvested performance-based awards at the “target” level of performance; provided that, if the participant has previously been terminated from employment without “cause” or for “good reason” and the “change of control” occurs prior to the vesting of any such unvested performance-based equity awards, then the performance-based equity awards will vest at the “target” level of performance as of the effective date of such “change of control”.
Conditions to Receipt of Severance. A participant must execute a letter agreement with the Company that contains non-competition, non-solicitation, non-disclosure and non-disparagement covenants. Additionally, other than in the case of a termination of employment due to death or disability, the participant’s receipt of severance payments and benefits under the Executive Severance Plan is contingent upon such participant timely signing and not revoking a release of claims in favor of the Company and such participant complying with the restrictive covenants in his or her letter agreement.
Excise Tax. In the event any of the payments or benefits provided for under the Executive Severance Plan or otherwise payable to a participant would constitute a “parachute payment” within the meaning of Section 280G of the Code and could be subject to the related excise tax, a participant will be entitled to receive either full payment of such payments or benefits or such lesser amount which would result in no portion of the payments and benefits being subject to the excise tax, which ever results in the greater amount of after-tax benefits to the participant. No excise tax gross-ups are provided for in Ms. Miller's employment agreement or in the Executive Severance Plan or in Mr. Horn’s employment letter.
“Cause” is defined in the Executive Severance Plan as the participant’s:
41
“Good Reason” is defined in the Executive Severance Plan as, unless otherwise consented to by the participant:
“Change of Control” is defined in the Executive Severance Plan as:
42
Termination Payments
The amount of compensation payable to each Executive upon any termination is shown below. All estimates for Messrs. Horn, Habicht, and Tessitore, and Ms. Miller are based on an assumed termination date of December 31, 2022. The actual payments due on terminations occurring on different dates could materially differ from the estimates in the table. All shares are valued based on the Company's closing stock price of $45.76 per share of December 31, 2022.
43
Name |
|
Benefit |
|
Termination Upon Death or Disability (1) |
|
Termination by the Company without Cause; Termination by Executive with Good Reason other than a Change of Control (2) |
|
Termination by the Company without Cause; Termination by Executive for Good Reason in connection with a Change of Control (3) |
|
Termination upon Expiration of the Employment Agreement (4) |
|
Termination Upon Retirement (5) |
Stephen A. |
|
Salary |
|
$116,667 |
|
- |
|
- |
|
- |
|
- |
|
|
Severance Payment |
|
- |
|
$4,806,083 |
|
$5,767,300 |
|
- |
|
- |
|
|
Bonus |
|
$1,050,000 |
|
- |
|
- |
|
- |
|
$1,050,000 |
|
|
Early Vesting of Equity Awards |
|
$4,267,395 |
|
$5,910,682 |
|
$5,910,682 |
|
- |
|
$4,267,395 |
|
|
Other |
|
$29,370 |
|
$29,370 |
|
$29,370 |
|
- |
|
- |
|
|
Change of Control Payment |
|
- |
|
- |
|
$1,050,000 |
|
- |
|
- |
|
|
Total |
|
$5,463,432 |
|
$10,746,135 |
|
$12,757,352 |
|
- |
|
$5,317,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin B. |
|
Salary |
|
$103,333 |
|
- |
|
- |
|
- |
|
- |
|
|
Severance Payment |
|
- |
|
$4,300,417 |
|
$4,300,417 |
|
$620,000 |
|
- |
|
|
Bonus |
|
$713,000 |
|
- |
|
- |
|
$713,000 |
|
- |
|
|
Early Vesting of Equity Awards |
|
$3,255,528 |
|
$4,311,050 |
|
$4,311,050 |
|
$3,255,528 |
|
- |
|
|
Other |
|
$30,138 |
|
$30,138 |
|
$30,138 |
|
$30,138 |
|
- |
|
|
Change of Control Payment |
|
- |
|
- |
|
$713,000 |
|
- |
|
- |
|
|
Total |
|
$4,101,999 |
|
$8,641,605 |
|
$9,354,605 |
|
$4,618,666 |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher P. Tessitore |
|
Salary |
|
$77,500 |
|
- |
|
- |
|
- |
|
- |
|
|
Severance Payment |
|
- |
|
$2,526,467 |
|
$2,526,467 |
|
$465,000 |
|
- |
|
|
Bonus |
|
$511,500 |
|
- |
|
- |
|
$511,500 |
|
- |
|
|
Early Vesting of Equity Awards |
|
$2,149,018 |
|
$2,841,879 |
|
$2,841,879 |
|
$2,149,018 |
|
- |
|
|
Other |
|
$30,138 |
|
$30,138 |
|
$30,138 |
|
$30,138 |
|
- |
|
|
Change of Control Payment |
|
- |
|
- |
|
$511,500 |
|
- |
|
- |
|
|
Total |
|
$2,768,156 |
|
$5,398,484 |
|
$5,909,984 |
|
$3,155,656 |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Michelle L. Miller |
|
Salary |
|
$48,333 |
|
- |
|
- |
|
- |
|
- |
|
|
Severance Payment |
|
- |
|
$1,200,333 |
|
$1,200,333 |
|
$290,000 |
|
- |
|
|
Bonus |
|
$217,500 |
|
- |
|
- |
|
$217,500 |
|
- |
|
|
Early Vesting of Equity Awards |
|
$624,510 |
|
$830,132 |
|
$830,132 |
|
$624,510 |
|
- |
|
|
Other |
|
$20,384 |
|
$20,384 |
|
$20,384 |
|
$20,384 |
|
- |
|
|
Change of Control Payment |
|
- |
|
- |
|
$217,500 |
|
- |
|
- |
|
|
Total |
|
$910,727 |
|
$2,050,849 |
|
$2,268,349 |
|
$1,152,394 |
|
- |
(1) The amounts shown represent the following payments:
(2) The amounts shown represent the following payments:
44
(3) The amounts shown represent the following payments:
(4) The amounts shown represent the following payments:
(5) The amounts shown represent the following payments:
Payments upon Retirement of Mr. Whitehurst
Effective as of April 28, 2022, Julian E Whitehurst retired from employment from the Company as a member of the Board of Directors (such date, the “Effective Date”). In connection with Mr. Whitehurst’s retirement, the Company and Mr. Whitehurst entered into a Retirement and Transition Agreement (the “Retirement Agreement”). Under the terms of the Retirement Agreement, Mr. Whitehurst received or will receive the following payments upon his retirement on the Effective Date:
45
In order to facilitate the transition, Mr. Whitehurst will make himself available to consult with the Company for the 20-month period following the Effective Date (the "Consulting Period"). In consideration for the consulting services, commencing on the Effective Date, the Company will pay Mr. Whitehurst a monthly fee of $60,000. On a “change in control” (as such term is defined in our 2017 Performance Incentive Plan), subject to Mr. Whitehurst’s (a) continuously providing consulting services through the effective date of the change of control, (b) compliance with his restrictive covenants (as described below) and (c) execution and non-revocation of a customary release of claims in a form reasonably acceptable to the Company, the Company will pay him a lump sum payment equal to his monthly consulting fee for the remainder of the Consulting Period and Mr. Whitehurst will cease providing consulting services to the Company.
The following table sets forth the amounts of the payments and benefits to Mr. Whitehurst described above.
Early Vesting of Equity Awards (1) |
|
Other (2) |
|
Bonus (3) |
|
Total |
$7,298,096 |
|
$516,447 |
|
$783,125 |
|
$8,597,668 |
Mr. Whitehurst will receive the foregoing payments and benefits provided he complies with non-competition, non-solicitation, non-disclosure and non-disparagement covenants described in his Retirement Agreement.
Pay Ratio
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, we are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of Mr. Horn, our President and Chief Executive Officer. The pay ratio included in this information is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K.
We determined our median employee based on total compensation including the base salary of, bonuses paid to and incentive stock awards issued to each of our 75 employees (excluding the Chief Executive Officer) as of December 31, 2022. Once we identified our median employee, we combined all of the elements of such employee’s compensation for 2022 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation of $103,310. As disclosed in the SCT, our current Chief Executive Officer’s annual total compensation for 2022 was $6,776,699. Based on the foregoing, our estimate of the ratio of the annual total compensation of our Chief Executive Officer to the median of the annual total compensation of all other employees was approximately 66 to one. Given the different methodologies that various public companies will use to determine an estimate of their pay ratio, the estimated ratio reported above should not be used as a basis for comparison between companies.
46
Pay versus Performance
The SEC adopted new disclosure on August 25, 2022 for proxy statements filed with respect to fiscal years ending on or after December 16, 2022 with a new Pay Versus Performance ("PVP") rule. The rule requires a new table and narrative disclosure comparing Compensation Actually Paid ("CAP") against company performance. The Company is required to provide additional disclosure regarding the relationship between NEO CAP and net earnings, cumulative TSR and Core FFO. In addition, the Company must provide at least three, but not more than seven, of the most important company measures used to determine NEO pay. At least three of these measures must be financial measures. Below are the tables and related footnotes for PVP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average SCT Total for |
|
Value of Initial Fixed $100 Investment Base On: |
|
|
|||||
Year |
SCT Total for CEO |
CAP to CEO (2) |
|
SCT Total for CEO |
CAP to CEO (3) |
|
Non-CEO NEOs |
Average CAP to Non-CEO NEOs |
The Company TSR |
Peer Group TSR(1) |
Net Income |
|
2022 |
$ |
$ |
|
$ |
$ |
|
$ |
$ |
$ |
$ |
$ |
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 |
$ |
$ |
|
- |
- |
|
$ |
$ |
$ |
$ |
$ |
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 |
$ |
$ |
|
- |
- |
|
$ |
$ |
$ |
$ |
$ |
$ |
Adjustments |
|
2022 |
2021 |
2020 |
Amounts reported in “Stock Awards” column of SCT |
|
($ |
($ |
($ |
Fair value of outstanding and unvested equity awards that were granted in the current year: |
|
$ |
$ |
$ |
Change in fair value for equity awards outstanding and unvested at the end of the current year that were granted in a prior year: |
|
$ |
($ |
($ |
Change in fair value for equity awards vested in the current year that were granted in a prior year: |
|
($ |
$ |
($ |
Addition for the common stock dividends paid on unvested stock awards: |
|
$ |
$ |
$ |
Adjustments |
|
2022 |
Amounts reported in “Stock Awards” column of SCT |
|
($ |
Fair value of outstanding and unvested equity awards that were granted in the current year: |
|
$ |
Change in fair value for equity awards outstanding and unvested at the end of the current year that were granted in a prior year: |
|
$ |
Change in fair value for equity awards vested in the current year that were granted in a prior year: |
|
($ |
Addition for the common stock dividends paid on unvested stock awards: |
|
$ |
47
|
|
2022 |
2021 |
2020 |
Amounts reported in “Stock Awards” column of SCT |
|
($ |
($ |
($ |
Fair value of outstanding and unvested equity awards that were granted in the current year: |
|
$ |
$ |
$ |
Change in fair value for equity awards outstanding and unvested at the end of the current year that were granted in a prior year: |
|
$ |
($ |
($ |
Fair value of stock awards granted and vested in the current year |
|
$ |
||
Change in fair value for equity awards vested in the current year that were granted in a prior year: |
|
($ |
$ |
($ |
Addition for the common stock dividends paid on unvested stock awards: |
|
$ |
$ |
$ |
2022 |
|
Messrs. Habicht and Tessitore, and Ms. Miller. |
2021 |
|
Messrs. Horn, Habicht, and Tessitore, and Ms. Miller. |
2022 |
|
Messrs. Horn, Habicht, Tessitore, and Bayer |
The reported amount of compensation actually paid to our CEO, and the reported average amount of compensation actually paid to our non-CEO executive officers, is primarily driven by the value of our executives’ unvested equity. Further, as discussed in the Compensation Discussion and Analysis, our TSR is a component metric in our long-term incentive plan, and Core FFO per share is a component metric of our cash incentive bonus. As a result, the TSR figures reported above have a strong correlation to our executives’ compensation actually paid, while Core FFO per share has a lesser degree of impact on and correlation to the compensation actually paid figures. While our TSR lagged behind the above reported peer group TSR for 2020 and 2021, our resilience in 2022 resulted in a cumulative 2022 three-year TSR on par with the reported peer group.
The following metrics represent the three most important financial performance measures as well as subjective strategic and individual goals used by the Company in setting NEO compensation for the most recent fiscal year:
|
|
|
|
|
|
|
|
48
PROPOSAL II
ADVISORY VOTE ON EXECUTIVE COMPENSATION
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) enables our stockholders to vote, on a non-binding advisory basis, to approve the compensation of our named executive officers as disclosed in this proxy statement.
As described in detail under the heading “Executive Compensation-Compensation Discussion and Analysis,” our executive compensation programs are designed to attract and retain our named executive officers, motivate them to perform to their fullest potential, and align their interests with the interests of our stockholders. Under these programs, our named executive officers are rewarded for the achievement of specific annual, long-term and strategic and corporate goals. Please read the Compensation Discussion and Analysis for additional details about our executive compensation programs and policies, including information about the fiscal 2022 compensation of our named executive officers.
The Compensation Committee continually reviews the compensation programs for our named executive officers to ensure they achieve the desired goals of aligning our executive compensation structure with our stockholders’ interests, key business objectives and current market practices. We are asking our stockholders to indicate their support for our named executive officer compensation as described in this proxy statement. This proposal, commonly known as a “say-on-pay” proposal, gives our stockholders the opportunity to express their views on our named executive officers’ compensation. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the philosophy, policies and practices described in this proxy statement. Accordingly, we will ask our stockholders to vote for the following resolution at the annual meeting:
“RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 2023 Annual Meeting of Stockholders pursuant to the rules and regulations of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the Summary Compensation Table and the related tables and disclosure.”
While this vote is advisory, and therefore not binding on the Company, the Compensation Committee or our Board of Directors, we value the opinions of our stockholders and will consider those opinions and the vote outcome when making future compensation decisions for our named executive officers.
The Board of Directors unanimously recommends a vote "FOR" the approval of the compensation of our named executive officers, as disclosed in this proxy statement.
49
PROPOSAL III
ADVISORY VOTE ON THE FREQUENCY OF ADVISORY VOTE ON EXECUTIVE COMPENSATION
The Dodd-Frank Act also enables our stockholders, on a non-binding advisory basis, to indicate how frequently we should seek an advisory vote on the compensation of our named executive officer, such as Proposal II in this Proxy Statement. This non-binding advisory vote is commonly referred to as a "say on frequency" vote. By voting on this proposal, stockholders may indicate whether they would prefer an advisory vote on named executive officer compensation once every three years, two years or one year or may abstain from voting.
Stockholders currently give their advisory vote on executive compensation every year. Our Board of Directors places value on feedback from our stockholders on names executive officer compensation. Accordingly, the Board of Directors recommends that stockholders vote in favor of an advisory vote on named executive officer compensation every year.
While this vote is advisory, and therefore not binding on the Company, the Compensation Committee or our Board of Directors values the opinions of our stockholders and will consider those opinions and the vote outcome when determining how frequently to hold an advisory vote on executive compensation. The Board may decide that it is in the best interest of our stockholders and the Company to hold an advisory vote on executive compensation more or less frequently than the option advised by our stockholders. The option - three years, two years or one year - that receives the most votes will be deemed advised by our stockholders.
The Board of Directors unanimously recommends a vote "FOR" EVERY YEAR for the frequency of presenting an advisory vote on executive compensation.
50
PROPOSAL IV
APPROVAL OF AN AMENDMENT TO THE COMPANY'S 2017 PERFORMANCE INCENTIVE PLAN
We are seeking stockholder approval to amend our 2017 Performance Incentive Plan (the “Plan”) to increase the number of shares of common stock of the Company (the “Shares”) reserved for issuance under the Plan from 1,800,000 Shares to 4,800,000 Shares, as well as, to increase certain limits under the Plan. Our continuing ability to offer equity incentive awards under an equity incentive plan is critical to our ability to attract, motivate and retain qualified personnel.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE AMENDMENT TO THE COMPANY’S 2017 PERFORMANCE INCENTIVE PLAN.
Background
The Plan was initially adopted by our Board of Directors on February 14, 2017 and by our stockholders on May 25, 2017. The share reserve under the Plan is now 1,800,000 Shares. If stockholders approve this proposal, the amendment to the Plan will become effective as of the date of stockholder approval. If stockholders do not approve this proposal, the amendment to the Plan to increase the available Shares thereunder will not take effect, and the Plan will continue to be administered in its current form until its expiration on May 25, 2027 (or until such time as the Shares available for issuance thereunder have been depleted, whichever occurs first). As of February 28, 2023, there were only 148,959 shares available for future grant under the Plan. If the share pool increase proposal is not approved, we will be unable to maintain our current equity grant practices and, therefore, we will be at a significant competitive disadvantage in attracting, motivating and retaining talented individuals who contribute to our success. For example, we may also be compelled to provide additional cash-based incentives in lieu of future equity grants, which may not align the interests of our executives and employees with those of our stockholders as effectively as equity incentive awards.
Description of, and Reasons for, Amendment. The amendment to the Plan approved by our Board of Directors and submitted for stockholder approval includes:
As discussed in this Proxy Statement under “Director Compensation” and “Compensation Discussion and Analysis,” awards under the Plan are an integral part of our non-employee director and executive compensation programs and our efforts to align the interests of our management team with those of our stockholders. The proposed increases in the share reserve and the limits under the Plan will allow us to continue these efforts.
Promotion of Good Corporate Governance Practices. The Plan also includes a number of corporate governance best practices. These include, but are not limited to, the following:
51
Shares Available for Future Awards
As of February 28, 2023, 148,959 Shares remained available for grant under the Plan. In determining the number of additional Shares requested for authorization, the Board of Directors and the Compensation Committee carefully considered our anticipated future equity needs, our historical equity compensation practices (including our historical “burn rate,” as discussed below) and the advice of Pearl Meyer. The number of additional Shares being requested for authorization under the amendment to the Plan is 3,000,000 Shares.
As of February 28, 2023, there were 296,291 time-based restricted Shares outstanding and 736,083 performance-based restricted Shares outstanding. As of February 28, 2023, there were no stock options outstanding.
Considerations for the Approval of the Amendment to the Plan
The following is a list of some of the primary factors to be considered by stockholders in connection with approving the amendment to the Plan:
Modest Share Usage and Stockholder Dilution. When determining the number of additional Shares authorized for issuance under the amendment to the Plan, the Board of Directors and the Compensation Committee carefully considered the potential dilution to our current stockholders as measured by our “burn rate,” “overhang” and projected future share usage.
52
Attract and Retain Talent. We grant equity incentive awards to our executives and employees. Approving the amendment to the Plan will enable us to continue to recruit, retain and motivate top talent at many levels within our Company necessary to our success.
Summary of the Plan
The Plan authorizes the issuance of options to purchase shares of common stock and the grant of bonus stock awards, restricted common stock awards, restricted stock units, stock appreciation rights (“SARs”), deferred shares, performance shares, performance units and cash bonus awards. Set forth below is a summary of the material terms of the Plan, including the effect of the proposed amendment to the Plan. The statements contained in the summary are intended only to summarize the Plan, as proposed to be amended, and are qualified in their entirety by reference to the Plan itself. For a more complete description of the terms of the Plan, you should read a copy of the Plan which has been filed electronically with the SEC and, together with this Proxy Statement, can be accessed on the SEC’s website at www.sec.org. A copy of the proposed amendment to the Plan is attached to this Proxy Statement as Annex A.
Summary
Administration. Administration of the Plan has been delegated to the Board of Directors unless the Board of Directors delegates all or any portion of its authority to administer the Plan to a committee (the “Committee”). The Committee shall consist solely of two or more independent, non-employee directors who are “outside directors” within the meaning of Section 162(m). To the extent not prohibited by our charter or bylaws and as permitted under the Maryland General Corporation Law, the Committee, in its discretion, may delegate to one or more officers of the Company, all of part of the Committee’s authority and duties with respect to grants and awards to individuals who are not subject to the reporting and other provisions of Section 16 of the Exchange Act.
Eligibility. All of our officers and employees, and those of our subsidiaries and affiliates (as such terms are defined in the Plan), are eligible to participate in the Plan. Our Directors and other persons who provide consulting services to us and our affiliates are also eligible to participate in the Plan.
Maximum Shares and Individual Award Limits. Under the Plan, subject to adjustment and other than with respect to substitute awards (i.e., awards granted as replacements for awards granted by a company or a business that we acquire or with which we combine), the maximum number of shares of common stock that may be subject to awards is 4,800,000. There is no provision for automatically increasing either the number of shares of common stock or the number of performance units allocated to the Plan without further approval by the stockholders. No one participant
53
may receive in any one calendar year (i) options and SARs that relate to more than 500,000 shares of common stock, (ii) performance units that relate to more than 500,000 shares of common stock for each full or fractional year included in the performance period for the grant of performance units during such calendar year, (iii) performance units denominated in cash which could result in a payout to the participant of more than $7,000,000, and (iv) performance awards which could result in a payout to the participant of more than $7,000,000. In addition, no Director may receive in any one calendar year more than $700,000 in the aggregate in equity-based awards and cash compensation. The maximum number of shares that may be issued as incentive stock options is 1,000,000. These limitations, and the terms of outstanding awards, may be adjusted without the approval of our stockholders as the Committee determines is appropriate in the event of a stock dividend, stock split, reclassification of stock or similar event. If an option terminates, expires or becomes un-exercisable, or shares of common stock subject to a stock award, grant of performance shares or performance units, grant of deferred shares or SAR are forfeited, the shares subject to such option, stock award, grant of performance shares, grant of deferred shares or SAR are available under the first sentence of this paragraph for future awards under the Plan. In addition, shares that are issued under any type of award under the Plan and that are repurchased or reacquired by us at the lesser of fair market value and the original purchase price for such shares are also available under the first sentence of this paragraph for future awards under the Plan. All shares subject to SARs that are exercised and settled in shares and all shares that are withheld by the Company or tendered to the Company in satisfaction of the tax withholdings, exercise price or purchase price due with respect to a SAR or option will not again be available for future issuance under the Plan. Finally, to the extent that an award is settled in cash or a form other than shares of common stock, the shares of common stock that would have been delivered had there been no such cash or other settlement will not be counted against the shares available for issuance under the Plan.
Stock Options. The Plan provides for the grant of both options intended to qualify as incentive stock options under Section 422 of the Code and options not intended to so qualify. The Committee approves the participants who are granted options and, consistent with the terms of the Plan, prescribes the terms of each option, including the vesting rules for such option. The option exercise price for options cannot be less than the common stock’s fair market value on the date the option is granted. Generally, the option price may be paid in cash, cash equivalents acceptable to the Committee, shares of common stock held by the participant at the time of exercise, payment through a broker-dealer sale and remittance procedure, a combination of cash and shares of common stock, or pursuant to any other method provided for in the option agreement. Options may be exercised in accordance with requirements set by the Committee. The maximum period in which an option may be exercised is fixed by the Committee, provided that the maximum period cannot exceed ten years. Options that are intended to qualify as incentive stock options must meet the requirements of Section 422 of the Code. Options generally are nontransferable except in the event of the participant’s death, but the Committee may allow the transfer of non-qualified stock options. Unless provided otherwise in a participant’s stock option agreement and subject to the maximum exercise period for the option, an option generally ceases to be exercisable upon the earlier of three months following the participant’s termination of service with us or our affiliate or the expiration date under the terms of the participant’s stock option agreement. The right to exercise an option expires immediately upon the participant’s termination of service with us if the termination is for cause or is a voluntary termination any time after an event that would be grounds for termination for cause. Upon death or disability, the option exercise period is extended to the earlier of one year from the participant’s termination of service or the expiration date under the terms of the participant’s stock option agreement.
Stock Awards and Performance-based Compensation. The Committee also approves the participants who are granted bonus, restricted common stock or restricted stock unit awards and, consistent with the terms of the Plan, establishes the terms of each bonus, restricted common stock or restricted stock unit award. A bonus, restricted common stock or restricted stock unit award may be subject to payment by the participant of a purchase price for the shares of common stock subject to the award, and may be subject to vesting requirements or transfer restrictions or both, if so provided by the Committee. Those requirements may include, for example, a requirement that the participant complete a specified period of employment with the Company or its affiliate or the achievement of certain
54
performance objectives. Any such performance objectives may be based on individual participant performance, our performance or the performance of our affiliates, subsidiaries, divisions, departments or functions, and may be measured on an absolute or relative basis. In the case of a performance objective for an award intended to qualify as “performance-based compensation” under Section 162(m), the performance objectives are limited to specified levels of or increases in the Company’s or a business unit’s revenue, sales, return on equity, earnings per share, total earnings, earnings growth, return on capital, return on assets, economic value added, net operating income, net earnings (either before or after one or more of the following: interest, taxes, depreciation, amortization, other non-cash expenses and non-recurring expenses), gross margin return on investment, increase in the fair market value of the common stock (including but not limited to growth measures and total stockholder return), funds from operations, funds from operations per share, recurring or core funds from operations, adjusted funds from operations, gross or net operating profit, gross or net operating margin, occupancy levels, costs or expenses, debt leverage levels and coverage ratios (including interest and fixed charge), dividend payout ratios, net asset value, cash flow (including, but not limited to, operating cash flow and free cash flow), cash flow return on investments (which equals net cash flow divided by total capital), internal rate of return, increase in net present value, expense targets, obtaining additional or retaining existing customer contracts or implementation or completion of projects (including acquisitions and financing transactions). Generally, the Committee has the discretion to modify the performance objectives or the related minimum acceptable level of achievement if the Committee determines that a change in the business, operations, corporate structure or capital structure of the Company or the manner in which the Company conducts its business or other events or circumstances render the performance objectives unsuitable.
Stock Appreciation Rights. The Committee also approves the participants who receive SARs under the Plan. A SAR entitles the participant to receive a payment of up to the amount by which the fair market value of a share of common stock on the date of exercise exceeds the fair market value for a share of common stock at the time of grant of the award. The per share exercise price of a SAR cannot be less than the common stock’s fair market value on the date the SAR is granted. A SAR is exercisable at such times and subject to such conditions as may be established by the Committee. However, no SAR may be exercisable more than ten years from the grant date. A SAR may be granted either alone or in tandem with other awards under the Plan. The amount payable upon the exercise of a SAR may be settled in cash or by the issuance of shares of common stock.
Deferred Shares. The Plan also authorizes the grant of deferred shares, i.e., the right to receive a future delivery of shares of common stock, if certain conditions are met. The Committee approves the participants who are granted awards of deferred shares and establishes the terms of each grant. The conditions established for earning the grant of deferred shares may include, for example, a requirement that certain performance objectives, such as those described above, be achieved.
Other Stock Based Awards. The Committee may also make other awards based on the common stock and settled in common stock. The conditions for earning other stock-based awards are established by the Committee and may include that certain performance objectives, such as those described above, be achieved.
Performance Shares and Performance Units. The Plan also permits the grant of performance shares and performance units to participants selected by the Committee. A performance share is an award designated in a specified number of shares of common stock that is payable in whole or in part, if and to the extent certain performance objectives are achieved. A performance unit is a cash bonus equal to $1.00 per unit awarded that is payable in whole or in part, if and to the extent certain performance objectives are achieved. A grant of performance units may be settled by payment of cash, shares of common stock or a combination of cash and shares and may grant to the participant or reserve to the administrator the right to elect among these alternatives. A grant of performance shares or performance units may provide for the accrual of dividend or other distribution equivalents in cash or additional shares of common stock, provided that such dividends or other distribution equivalents are not payable until the underlying performance shares or performance units, as applicable, vest and are earned and are only payable to the extent so earned.
55
Performance Awards. The Committee may also authorize grants of awards in the form of a cash bonus, which will become payable upon the achievement of specified performance objectives, such as those described above, and upon such terms and conditions as the Committee may determine.
Change in Capitalization. The number of shares of common stock covered by outstanding awards, the number of shares of common stock that have been authorized for issuance under the Plan, the exercise or purchase price of each outstanding award, the maximum number of shares of common stock that may be granted subject to awards to any participant in a calendar year, and the like, shall be proportionally adjusted by the Committee in the event of a subdivision or consolidation of shares or other capital readjustment, extraordinary dividend, the payment of a stock dividend, or other increase or reduction of the number of shares of the common stock outstanding without receiving consideration therefore in money, services or property. Such adjustment shall be made by the Committee and its determination shall be final, binding and conclusive.
Merger, Consolidation or Asset Sale. Except as otherwise specified in an award agreement, in the event of a change of control (as defined in the Plan), the Committee may, in its sole discretion, take any one or more of the following actions with respect to any outstanding awards: (i) continuation or assumption of such outstanding awards by the Company (if it is the surviving corporation) or by the surviving corporation of its parent; (ii) substitution or replacement by the surviving corporation or its parent of awards with substantially the same terms and value for such outstanding awards; (iii) acceleration of the vesting of such awards and the lapse of any restrictions thereon or right to exercise such outstanding awards immediately prior to or as of the date of the change of control, and the expiration of such outstanding awards to the extent not timely exercised by the date of the change of control or other date thereafter designated by the Committee; (iv) in the case of a performance unit, performance share or performance award, determination of the level of attainment of the applicable performance condition(s); or (v) cancellation of such award in consideration of a payment.
Cancellation or Clawback of Awards. The Committee may, to the extent permitted by applicable law and stock exchange rules or by any of our policies, cancel or require reimbursement of any awards granted, shares issued or cash received upon the vesting, exercise or settlement of any awards granted under the Plan or the sale of shares underlying such awards.
Prohibition on Repricing and Cash Buyout. Subject to the adjustment provision described above, the Committee may not reduce the exercise price of any option or SAR, cancel any option or SAR in exchange for another option or SAR with a lower exercise price or cancel any “out-of-the money” options or SARs in exchange for cash or another award.
Amendment and Termination. No awards may be granted under the Plan after May 25, 2027, which is the tenth anniversary of the date on which the Plan was approved by stockholders. The Board of Directors may amend or terminate the Plan at any time, but an amendment will not become effective without the approval of our stockholders if it increases the aggregate number of shares of common stock that may be issued under the Plan, materially increases the benefits accruing under the Plan to participants, changes the class of employees eligible to receive incentive stock options, modifies the Plan’s prohibition on repricing or cash buyouts of options or SARs or stockholder approval is required by any applicable law, regulation or rule, including any rule of the New York Stock Exchange. No amendment or termination shall, without a participant’s consent, adversely affect any rights of such participant under any award outstanding at the time such amendment is made.
Federal Income Tax Aspects of the Plan
The following is a brief summary of the federal income tax aspects of awards that may be made under the Plan based on existing U.S. federal income tax laws. This summary provides only the basic tax rules. It does not describe a number of special tax rules, including foreign taxes, state and local income taxes, payroll taxes and the alternative
56
minimum tax. This summary is not tax advice, and it does not discuss all aspects of federal taxation that may be relevant to the Company and participants. Accordingly, the Company urges each participant to consult his or her own tax advisor as to the specific tax consequences of participation in the Plan under federal, state, local and other applicable laws.
Incentive Stock Options. The recipient of an incentive stock option generally will not be taxed upon grant of the option. Federal income taxes are generally imposed only when the shares of stock from exercised incentive stock options are disposed of, by sale or otherwise. If the incentive stock option recipient does not sell or dispose of the stock until more than one year after the receipt of the stock and two years after the option was granted, then, upon sale or disposition of the stock, the difference between the exercise price and the market value of the stock as of the date of exercise will be treated as a capital gain, and not ordinary income. If a recipient fails to hold the stock for the minimum required time, at the time of the disposition of the stock, the recipient will recognize ordinary income in the year of disposition in an amount equal to any excess of the market value of the common stock on the date of exercise (or, if less, the amount realized or disposition of the shares) over the exercise price paid for the shares. Any further gain (or loss) realized by the recipient generally will be taxed as short-term or long-term gain (or loss) depending on the holding period. The Company will not receive a tax deduction for incentive stock options which are taxed to a recipient as capital gains; however, the Company will receive a tax deduction if the sale of the stock does not qualify for capital gains tax treatment.
Nonqualified Stock Options. The recipient of stock options not qualifying as incentive stock options generally will not be taxed upon the grant of the option, provided that the option is granted with an exercise price no less than the fair market value of the stock on the date of grant. Federal income taxes are generally due from a recipient of nonqualified stock options when the stock options are exercised. The difference between the exercise price of the option and the fair market value of the stock purchased on such date is taxed as ordinary income. Thereafter, the tax basis for the acquired stock is equal to the amount paid for the stock plus the amount of ordinary income recognized by the recipient. The Company will be entitled to a tax deduction equal to the amount of ordinary income realized by the option recipient by reason of the exercise of the option.
Other Awards. The payment of other awards under the Plan will generally be treated as ordinary compensation income at the time of payment or, in the case of bonus or restricted common stock subject to a vesting requirement, at the time substantial vesting occurs. A recipient who receives bonus or restricted shares which are not substantially vested may, within 30 days of the date the shares are transferred, elect in accordance with Section 83(b) of the Code to recognize ordinary compensation income at the time of transfer of the shares. The amount of ordinary compensation income is equal to the amount of any cash and the amount by which the then fair market value of any common stock received by the participant exceeds the purchase price, if any, paid by the participant.
Vote Required and Recommendation
To approve the amendment to the Plan, a majority of the shares present and voting must vote “FOR” the approval of the amendment to the Plan. Unless you direct otherwise, if you grant a proxy your shares will be voted “FOR” the proposal to approve the Plan.
The Board of Directors unanimously recommends that you vote "FOR" approval of the amendment to the National Retail Properties, Inc. 2017 Performance Incentive Plan.
New Plan Benefits
The number of awards that an employee or a non-employee director may receive under the Plan is in the discretion of the Compensation Committee (as the plan administrator) and, therefore, cannot be determined in advance.
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The following table sets forth (i) the aggregate number of Shares subject to awards of time-based restricted Shares and performance-based restricted Shares granted under the Plan during the fiscal year ended December 31, 2022 and (ii) the dollar value of such Shares based on $45.32 per Share, the closing price of a Share on NYSE on February 28, 2023. No other equity awards were granted under the Plan during the fiscal year ended December 31, 2022.
|
|
|
|
|
Name of Individual or Group |
|
Dollar Value of Shares Subject to Stock Awards ($) |
|
Number of Shares Subject to Stock Awards (#) (1) |
Julian E. Whitehurst |
|
$5,226,637 |
|
116,210 |
|
|
|
|
|
Stephen A Horn, Jr. |
|
$5,259,205 |
|
116,046 |
|
|
|
|
|
Kevin B. Habicht |
|
$2,547,346 |
|
56,208 |
|
|
|
|
|
Christopher P. Tessitore |
|
$1,661,341 |
|
36,658 |
|
|
|
|
|
Michelle L. Miller |
|
$518,053 |
|
11,431 |
|
|
|
|
|
All current executive officers as a group |
|
$9,985,945 |
|
220,343 |
|
|
|
|
|
All non-employee directors as a group |
|
$1,495,696 |
|
33,003 |
|
|
|
|
|
All other employees (including current officers |
|
$3,346,882 |
|
73,850 |
|
|
|
|
|
|
|
|
|
|
(1) The number of shares in this column is comprised of both performance-based and time-based restricted Shares,
including the following:
58
PROPOSAL V
RATIFICATION OF
ERNST & YOUNG LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee appointed Ernst & Young LLP to serve as the Company’s principal independent registered public accounting firm to audit the Company’s financial statements for the year ending December 31, 2023, to review quarterly interim results and to perform other appropriate accounting services. We are requesting ratification of such appointment by the stockholders.
Ernst & Young LLP has acted as our independent registered public accounting firm for our three most recent fiscal years and our Audit Committee currently believes that we should continue our relationship with Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2023. Although ratification by our stockholders is not a prerequisite to the power of the Audit Committee to appoint Ernst & Young LLP as our independent registered public accounting firm, our Board of Directors and the Audit Committee believe such ratification to be advisable and in the best interest of the Company. Accordingly, stockholders are being requested to ratify, confirm, and approve the appointment of Ernst & Young LLP as our independent registered public accounting firm to conduct the annual audit of our consolidated financial statements and internal control over financial reporting for the year ending December 31, 2023. If the stockholders do not ratify the appointment of Ernst & Young LLP, the appointment of Ernst & Young LLP as our independent registered public accounting firm will be reconsidered by the Audit Committee; however, the Audit Committee has no obligation to change its appointment based on stockholder ratification. If the appointment of Ernst & Young LLP is ratified, the Audit Committee will continue to conduct an ongoing review of Ernst & Young LLP’s scope of engagement, pricing and work quality, among other factors, and will retain the right to replace Ernst & Young LLP at any time.
A representative of Ernst & Young LLP will be present at the annual meeting and will be provided with the opportunity to make a statement if desired. Such representative will also be available to respond to appropriate questions.
Fiscal 2022 and 2021 Audit Firm Summary. During the fiscal years ended December 31, 2022 and 2021, we retained Ernst & Young LLP to provide services in the following categories and amounts:
|
|
Fiscal Year 2022 |
|
Fiscal Year 2021 |
Audit Fees (1) |
|
$1,549,846 |
|
$1,632,714 |
Audit Related Fees (2) |
|
- |
|
- |
Total Audit and Audit Related Fees |
|
$1,549,846 |
|
$1,632,714 |
Tax Fees (3) |
|
$35,425 |
|
$36,250 |
All Other Fees |
|
- |
|
- |
Total Fees |
|
$1,585,271 |
|
$1,668,964 |
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Accountants. Consistent with SEC policies regarding auditor independence, the Audit Committee has responsibility for appointing, setting compensation and overseeing the work of the independent accountants. In recognition of this
59
responsibility, the Audit Committee has established a policy to pre-approve all audit and permissible non-audit services provided by the independent accountants.
Prior to engagement of the independent accountants for the next year’s audit, management will submit to the Audit Committee for approval an aggregate of services expected to be rendered during that year for each of the services described above in the captions Audit Fees, Audit Related Fees and Tax Fees.
Prior to engagement, the Audit Committee pre-approves these services by category of service. The fees are budgeted and the Audit Committee requires the independent accountants and management to report actual fees versus the budget periodically throughout the year by category of service. During the year, circumstances may arise when it may become necessary to engage the independent accountants for additional services not contemplated in the original pre-approval. In those instances, the Audit Committee requires specific pre-approval before engaging the independent accountants.
For the fiscal years ended December 31, 2022 and 2021, the Audit Committee pre-approved 100% of services described above in the captions Audit Related Fees, Tax Fees and All Other Fees. For the fiscal year ended December 31, 2022, no hours expended on Ernst & Young LLP’s engagement to audit our financial statements were attributed to work performed by persons other than full-time, permanent employees of Ernst & Young LLP.
Pursuant to our Audit Committee charter, the Audit Committee may delegate pre-approval authority to the Chairperson of the Audit Committee, who shall promptly advise the remaining members of the Audit Committee of such approval at the next regularly scheduled meeting.
The Board of Directors unanimously recommends a vote "FOR" ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2023.
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SECURITY OWNERSHIP
The following tables set forth, as of February 28, 2023 (except as described in the footnotes), based on 182,086,562 shares of common stock outstanding on that date, the number and percentage of outstanding shares of Common Stock beneficially owned by all persons known by the Company to own beneficially more than five percent of the Company’s Common Stock, by each director and nominee, by each of the persons named in the Summary Compensation Table under “Executive Compensation,” above, and by all officers and directors as a group, based upon information furnished to the Company by such stockholders, officers and directors. Unless otherwise noted below, the persons named in the tables have sole voting and sole investment power with respect to each of the shares beneficially owned by such person.
|
|
Amount and |
|
|
|
|
Beneficial |
|
Percent |
Stockholders Holding 5% or More |
|
Common Stock |
|
of Class |
The Vanguard Group, Inc.(1) |
|
26,777,900 |
|
14.7% |
100 Vanguard Blvd. |
|
|
|
|
Malvern, PA 19355 |
|
|
|
|
State Street Corporation(2) |
|
21,995,639 |
|
12.1% |
State Street Financial Center |
|
|
|
|
One Lincoln Street |
|
|
|
|
Boston, MA 02111 |
|
|
|
|
BlackRock, Inc.(3) |
|
20,125,181 |
|
11.1% |
55 East 52nd Street |
|
|
|
|
New York, NY 10055 |
|
|
|
|
FMR LLC(4) |
|
9,718,287 |
|
5.3% |
245 Summer Street |
|
|
|
|
Boston, MA 02210 |
|
|
|
|
(1) Based on the information provided pursuant to a statement on a Schedule 13G/A filed with the SEC on February 9, 2023, The Vanguard Group, Inc. (“Vanguard”) has sole power to vote or direct the vote, and sole power to dispose or direct the disposition of 0 and 26,381,516 shares of our common stock, respectively, and shared power to vote or direct the vote and shared power to dispose or direct the disposition of 221,462 and 396,384 shares of our common stock, respectively. Vanguard is an investment advisor in accordance with Section 13d-1(b)(1)(ii)(E) of the Exchange Act.
(2) Based on the information provided pursuant to a statement on a Schedule 13G/A filed with the SEC on February 10, 2023, State Street Corporation does not have the power to vote or direct the vote of any shares of our common stock, or to dispose or direct the disposition of any shares of our common stock. State Street Corporation has the shared power to vote or direct the vote of 19,489,064 and the shared power to dispose or direct the disposition of 21,995,639 shares of our common stock.
(3) Based on the information provided pursuant to a statement on a Schedule 13G/A filed with the SEC on January 23, 2023, BlackRock, Inc. has sole power to vote or direct the vote of 19,475,978 shares of our common stock, and sole power to dispose or direct the disposition of 20,125,181 shares of our common stock. BlackRock, Inc. does not have the shared power to vote or direct the vote of or the shared power to dispose or direct the disposition of any shares of our common stock.
(4) Based on the information provided pursuant to a statement on a Schedule 13G/A filed with the SEC on February 9, 2023, FMR LLC has sole power to vote or direct the vote of 9,711,571 shares of our common stock, and sole power to dispose or direct the disposition of 9,718,287 shares of our common stock. FMR LLC does not have the shared power to vote or direct the vote of or the shared power to dispose or direct the disposition of any shares of our common stock.
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Name of Beneficial Owner |
|
Amount and |
|
Percent |
|||
Pamela K. M. Beall(5) |
|
|
25,297 |
|
|
|
* |
Steven D. Cosler(5) |
|
|
43,735 |
|
(7) |
|
* |
David M. Fick(5) |
|
|
49,139 |
|
(8) |
|
* |
Edward J. Fritsch(5) |
|
|
53,254 |
|
|
|
* |
Elizabeth C. Gulacsy(5) |
|
|
3,283 |
|
(9) |
|
* |
Kevin B. Habicht(5)(6) |
|
|
256,615 |
|
(10) |
|
* |
Betsy D. Holden(5) |
|
|
19,487 |
|
(11) |
|
* |
Stephen A. Horn, Jr.(5)(6) |
|
|
398,172 |
|
(12) |
|
* |
Michelle L. Miller(6) |
|
|
58,118 |
|
(13) |
|
* |
Christopher P. Tessitore(6) |
|
|
178,595 |
|
(14) |
|
* |
Kamau O. Witherspoon (5) |
|
|
5,176 |
|
(15) |
|
* |
All directors and executive officers as a group (11 persons) |
|
|
1,090,871 |
|
|
|
0.6% |
(*) Less than one percent.
The Audit Committee is charged with monitoring and reviewing the material facts of any transactions with related parties and either approving or disapproving the entry into such transactions. The Audit Committee has adopted a written policy governing transactions with related parties. In determining whether to approve or ratify a transaction with a related party, the Audit Committee will take into account, among other factors it deems appropriate, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related party's interest in the transaction.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented at the annual meeting other than those stated above. If any other business should come before the annual meeting, the person(s) named in the enclosed Proxy will vote thereon as he or they determine to be in the best interests of the Company.
PROPOSALS FOR NEXT ANNUAL MEETING
Any stockholder proposal pursuant to Rule 14a-8 under the Exchange Act or stockholder director nomination pursuant to the proxy access provisions of the Company’s bylaws to be considered for inclusion in the Company’s proxy materials for the 2024 annual meeting of stockholders must be received by notice delivered to the Secretary of the Company at the Company’s office at 450 South Orange Avenue, Suite 900, Orlando, Florida 32801, no later than December 5, 2023, and, in the case of a proxy access nomination, no earlier than November 5, 2023. However, if the 2024 annual meeting of stockholders is held (i) more than 30 days before or after the anniversary of the 2023 annual
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meeting of stockholders, then any stockholder proposal pursuant to Rule 14a-8 must be received within a reasonable time before the 2024 annual meeting of stockholders begins to enable the Company to print and mail its proxy materials, or (ii) prior to March 4, 2024 or after May 3, 2024, any notice of a proxy access director nomination must be given by the later of the close of business on the date 180 days prior to the date of the 2024 annual meeting of stockholders or the 10th day on which public announcement of the date of the 2024 annual meeting of stockholders is first made. The submission of a stockholder proposal or proxy access nomination does not guarantee that it will be included in the Company’s proxy statement. Any notice of a proxy access nomination must contain the information required by the Company’s bylaws, and the stockholder(s) and nominee(s) must comply with the information and other requirements in therein relating to the inclusion of stockholder nominees in the Company’s proxy materials.
The Company’s bylaws include separate advance notice provisions applicable to stockholders desiring to bring nominations for directors before an annual stockholders’ meeting other than pursuant to the proxy access provisions of the Company’s bylaws or to bring proposals before an annual stockholders’ meeting other than pursuant to Rule 14a-8. These advance notice provisions require that, among other things, stockholders give timely written notice to the Secretary of the Company as the address set forth above regarding such nominations or proposals and provide the information and satisfy the other requirements set forth in the Company’s bylaws. To be timely, a stockholder who intends to present nominations or a proposal at the 2024 annual meeting of stockholders other than pursuant to the Company bylaws’ proxy access provisions or Rule 14a-8 must provide the information set forth in the Company’s bylaws to the Secretary of the Company at the address set forth above no earlier than December 5, 2023. However, if the 2024 annual meeting of stockholders is held more than 30 days before or after the anniversary of the 2023 annual meeting of stockholders, then the information must be received within a reasonable time before the 2024 annual meeting of stockholders begins to enable the Company to print and mail its proxy materials.
In addition to satisfying the foregoing requirements under the Company's bylaws, to comply with the universal proxy rules, stockholders who intend to solicit proxies in support of nominees other than the Company's nominees to the Board of Directors at the 2024 annual meeting of stockholders must satisfy the requirements of Rule 14a-19 under the Exchange Act, including by providing notice and the information required thereunder no later than March 17, 2024. However, if the 2024 annual meeting of stockholders is held more than 30 days before or after the anniversary of the 2023 annual meeting of stockholders, then such notice and the information required thereunder must be received by the later of 60 days prior to the date of the 2024 annual meeting of stockholders or the 10th day following the day on which we first publicly announce the date of the 2024 annual meeting of stockholders.
If a stockholder fails to meet these deadlines, we may exclude the nominations or proposal from inclusion in the Company’s proxy materials or for consideration at the 2024 annual meeting of stockholders.
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ANNUAL REPORT
A copy of the 2022 Annual Report of the Company on Form 10-K, which contains all of the financial information (including the Company’s audited financial statements and financial statement schedules) and certain general information regarding the Company, may be obtained without charge by writing to Christopher P. Tessitore, Secretary, National Retail Properties, Inc., 450 South Orange Avenue, Suite 900, Orlando, Florida 32801.
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NATIONAL RETAIL PROPERTIES, INC.
450 SOUTH ORANGE AVENUE, SUITE 900
ORLANDO, FL 32801
VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site. You will be prompted to enter the 16-digit Control Number which is located below to obtain your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FURTHER STOCKHOLDER COMMUNICATIONS
If you would like to reduce the costs incurred by National Retail Properties, Inc., in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access stockholder communications electronically in future years.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call. You will be prompted to enter the 16-digit Control Number which is located below and then follow the simple instructions the Vote Voice provides you.
VOTE BY MAIL
Mark, sign, and date your proxy card and return it in the postage-paid envelope we have provided or return it to National Retail Properties, Inc., c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
PROXY
NATIONAL RETAIL PROPERTIES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Stephen A. Horn, Jr., Kevin B. Habicht, and Christopher P. Tessitore, and any of them, attorneys and proxies, with full power of substitution and revocation, to vote, as designated on the reverse side, all shares of common stock that the undersigned is entitled to vote, with all powers that the undersigned would possess if personally present at the annual meeting (including all adjournments thereof) of stockholders of National Retail Properties, Inc. (the “Meeting”) to be held on May 16, 2023, at 8:30 a.m. local time, at 450 South Orange Avenue, Suite 900, Orlando, Florida 32801.
The shares represented by this Proxy when properly executed will be voted in the manner directed herein by the undersigned stockholder. If no direction is specified, the shares represented by this Proxy will be voted FOR each of Proposals I, II, IV and V and for every "1 YEAR" on the advisory vote on the frequency of future advisory votes by stockholders on the compensation of our named executive officers in Proposal III, contained herein. In addition, the proxies may vote in their discretion on such other matters as may properly come before this Meeting.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE PROXY STATEMENT OF NATIONAL RETAIL PROPERTIES, INC.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
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ANNEX A
NATIONAL RETAIL PROPERTIES, INC.
2017 PERFORMANCE INCENTIVE PLAN
The National Retail Properties, Inc. 2017 Performance Incentive Plan is intended to promote the best interests of the Corporation and its stockholders by (i) assisting the Corporation and its Affiliates in the recruitment and retention of persons with ability and initiative, (ii) providing an incentive to such persons to contribute to the growth and success of the Corporation’s businesses by affording such persons equity participation in the Corporation and (iii) associating the interests of such persons with those of the Corporation and its Affiliates and stockholders.
As used in this Plan the following definitions shall apply:
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(i) If the Common Stock is traded on the New York Stock Exchange or is listed on a another national securities exchange or market, the closing price for the day of determination as quoted on such market or exchange which is the primary market or exchange for trading of the Common Stock or, if no trading occurs on such date, the last day on which trading occurred, or such other appropriate date as determined by the Committee in its discretion, as reported in The Wall Street Journal or such other source as the Committee deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high and the low asked prices for the Common Stock for the day of determination; or
(iii) In the absence of an established market for the Common Stock, Fair Market Value shall be determined by the Committee in good faith.
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To the extent not prohibited by the charter or bylaws of the Corporation and as permitted under the general corporation law of the jurisdiction of incorporation of the Corporation, the Committee, in its discretion, may delegate to one or more officers of the Corporation, all or part of the Committee’s authority and duties with respect to grants and awards to individuals who are not subject to the reporting and other provisions of Section 16 of the Exchange Act. The Committee may revoke or amend the terms of a delegation at any time but such action shall not invalidate any prior actions of the Committee’s delegates that were consistent with the terms of this Plan.
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The express grant in this Plan of any specific power to the Committee shall not be construed as limiting any power or authority of the Committee; provided that a Committee of the Board (or its delegate) may not exercise any right or power reserved to the Board. Any decision made, or action taken, by the Committee or in connection with the administration of this Plan shall be final, conclusive and binding on all persons having an interest in this Plan.
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The shares of Common Stock evidenced by this certificate may not be sold or transferred prior to ________, 20__, in the absence of a written statement from the Corporation to the effect that the Corporation is aware of the facts of such sale or transfer.
The blank contained in this legend shall be filled in with the date that is the later of (i) one (1) year and one (1) day after the date of the exercise of such Incentive Stock Option or (ii) two (2) years and one (1) day after the grant of such Incentive Stock Option.
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The Corporation or an Affiliate shall have the right, before any certificate for any Common Stock is delivered, to deduct or withhold from any payment owed to a Participant any amount that is necessary in order to satisfy any withholding requirement that the Corporation or Affiliate in good faith believes is imposed upon it in connection with federal, state, or local taxes, including transfer taxes, as a result of the issuance of, or lapse of restrictions on, such Common Stock, or otherwise require such Participant to make provision for payment of any such withholding amount. Subject to such conditions as may be established by the Committee, the Committee may permit a Participant to (i) have Common Stock otherwise issuable under an Option or Stock Award withheld up to but not in excess of the maximum statutory withholding rate requirements for supplemental income, (ii) tender back to the Corporation shares of Common Stock received pursuant to an Award up to but not in excess of the maximum statutory withholding rate requirements for supplemental income, (iii) deliver to the Corporation previously acquired Common Stock, (iv) have funds withheld from payments of wages, salary or other cash compensation due the Participant, or (v) pay the Corporation or its Affiliate in cash, in order to satisfy part or all of the obligations for any taxes required to be withheld or otherwise deducted and paid by the Corporation or its Affiliate with respect to the Option or Stock Award.
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The Board may amend or terminate this Plan from time to time; provided, however, stockholder approval shall be required for any amendment (i) that increases the aggregate number of shares of Common Stock that may be issued under this Plan, except as contemplated by Section 5.A or 9.B; (ii) that changes, amends or modifies the class of employees eligible to receive Incentive Stock Options; (iii) that materially increases the benefits accruing under this Plan to Participants; (iv) that modifies the restrictions of Section 3.B(viii) to permit repricing or buyouts of Options or Stock Appreciation Rights; or (v) where stockholder approval is required by the terms of any applicable law, regulation or rule, including the rules of any market on which the Corporation shares are traded or exchange on which the Corporation shares are listed. Except as specifically permitted by this Plan or any Stock Option Agreement, Stock Award Agreement or Performance Agreement or as required to comply with applicable law, regulation or rule, no amendment shall, without a Participant’s consent, adversely affect any rights of such Participant under any Option or Stock Award outstanding at the time such amendment is made; provided, however, that an amendment that may cause an Incentive Stock Option to become a Nonqualified Stock Option shall not be treated as adversely affecting the rights of the Participant.
This Plan shall be effective upon approval of this Plan by the stockholders of the Corporation, subject to its approval by the stockholders of the Corporation within twelve (12) months of adoption of this Plan by the Board. In the event that the stockholders of the Corporation shall not approve this Plan within such twelve (12) month period, this Plan shall terminate. Unless and until this Plan has been approved by the stockholders of the Corporation, no Option or Stock Award may be exercised, and no shares of Common Stock may be issued under this Plan. In the event that the stockholders of the Corporation shall not approve this Plan within such twelve (12) month period, this Plan and any previously granted Option or Stock Award shall terminate.
Unless previously terminated, this Plan will terminate ten (10) years after the date this Plan is approved by the stockholders, except that Awards that are granted under this Plan prior to its termination will continue to be administered under the terms of this Plan until the Awards terminate or are exercised.
IN WITNESS WHEREOF, the Corporation has caused this Plan to be executed by a duly authorized officer as of the date of adoption of this Plan by the Board of Directors.
NATIONAL RETAIL PROPERTIES, INC.
By: /s/ Julian E. Whitehurst
Name: Julian E. Whitehurst
Title: President and Chief Operating Officer
Date: February 14, 2017
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ANNEX A
AMENDMENT NO. 1
TO THE
NATIONAL RETAIL PROPERTIES, INC. 2017 PERFORMANCE INCENTIVE PLAN
THIS AMENDMENT NO. 1 TO THE NATIONAL RETAIL PROPERTIES, INC. 2017 PERFORMANCE INCENTIVE PLAN (this “Amendment”), dated as of February 16, 2023, is made and adopted by National Retail Properties, Inc., a Maryland corporation (the “Corporation”). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Plan (as defined below).
RECITALS
WHEREAS, the Corporation has adopted the National Retail Properties, Inc. 2017 Performance Incentive Plan (the “Plan”);
WHEREAS, the Corporation desires to amend the Plan to increase the number of shares of common stock reserved for issuance thereunder and certain other limits under the Plan; and
WHEREAS, pursuant to Section 13 of the Plan, the Plan may be amended by the Board of Directors of the Corporation, provided that stockholder approval is required for any amendment that increases the number of shares of the Corporation’s common stock that may be issued under the Plan, except as otherwise contemplated by the Plan.
NOW, THEREFORE, in consideration of the foregoing, the Corporation hereby amends the Plan as follows:
“A. Share Reserve and Limitations on Grants. Subject to adjustment as provided in Section 9 and except for substitute awards described in Section 4.C, the maximum aggregate number of shares of Common Stock that may be issued under this Plan shall not exceed 4,800,000 shares of Common Stock. In addition, no Participant may receive under this Plan in any one calendar year (i) Options and Stock Appreciation Rights that relate to more than 500,000 shares of Common Stock, (ii) Performance Units that relate to more than 500,000 shares of Common Stock for each full or fractional year included in the Performance Period for the grant of Performance Units during such calendar year, (iii) Performance Units denominated in cash which could result in a payout to the Participant of more than $7,000,000, and (iv) Performance Awards which could result in a payout to the Participant of more than $7,000,000. No Director may receive in any one calendar year more than $700,000 in the aggregate in (x) Awards (as calculated by the Award’s fair value as determined in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, or any successor thereto as of the grant date) and (y) cash compensation (including, retainers and cash-based awards). The maximum number of shares available for issuance with respect to Incentive Stock Options shall be 1,000,000. This limitation shall be applied as of any date by taking into account the number of shares available to be made the subject of new Awards as of such date, plus the
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number of shares previously issued under this Plan and the number of shares subject to outstanding Awards as of such date.”
This Amendment shall be and is hereby incorporated in and forms a part of the Plan. All other terms and provisions of the Plan shall remain unchanged except as specifically modified herein.
To record the amendment of the Plan, National Retail Properties, Inc. has executed this document this 16th day of February, 2023.
NATIONAL RETAIL PROPERTIES, INC
By: /s/ Stephen A. Horn, Jr.
Name: Stephen A. Horn, Jr.
Title: President
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