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Redeemable Noncontrolling Interests in Operating Partnership
3 Months Ended
Mar. 31, 2016
Redeemable Noncontrolling Interest, Equity, Carrying Amount [Abstract]  
Redeemable Noncontrolling Interests in Operating Partnership
Redeemable Noncontrolling Interests in Operating Partnership
Redeemable noncontrolling interests in the operating partnership represents the limited partners’ proportionate share of equity and their allocable share of equity in earnings/losses of Ashford Prime OP, which is an allocation of net income/loss attributable to the common unitholders based on the weighted average ownership percentage of these limited partners’ common units of limited partnership interest in the operating partnership (“common units”) and units issued under our Long-Term Incentive Plan (the “LTIP units”) that are vested. Beginning one year after issuance, each common unit may be redeemed, by the holder, for either cash or, at our sole discretion, one share of our common stock.
LTIP units, which are issued to certain executives and employees of Ashford LLC as compensation, have vesting periods of three years. Additionally, certain independent members of the board of directors have elected to receive LTIP units as part of their compensation, which are fully vested upon grant. Upon reaching economic parity with common units, each vested LTIP unit can be converted by the holder into one common unit which can then be redeemed for cash or, at our election, settled in our common stock. An LTIP unit will achieve parity with the common units upon the sale or deemed sale of all or substantially all of the assets of our operating partnership at a time when our stock is trading at a level in excess of the price it was trading on the date of the LTIP issuance. More specifically, LTIP units will achieve full economic parity with common units in connection with (i) the actual sale of all or substantially all of the assets of our operating partnership or (ii) the hypothetical sale of such assets, which results from a capital account revaluation, as defined in the partnership agreement, for our operating partnership.
On June 8, 2015, the compensation committee of the board of directors of the Company approved performance-based LTIP units to certain executive officers. The award agreements provide for the grant of a target number of approximately 195,000 performance-based LTIP units that will be settled in common units of the Ashford Prime OP, if and when the applicable vesting criteria have been achieved following the end of the performance and service period, which began on January 1, 2015 and ends on December 31, 2017. The target number of performance-based LTIP units may be adjusted from 0% to200% based on achievement of a specified relative total stockholder return based on the formula determined by the Company’s Compensation Committee on the grant date. A total of 389,000 performance-based LTIP units representing 200% of the target were issued. The performance criteria for the performance-based LTIP units are based on market conditions under the relevant literature, and the performance-based LTIP units were granted to non-employees. The unamortized fair value of performance-based LTIP units of $1.4 million at March 31, 2016 will be expensed over a period of 1.75 years. A credit to compensation expense of $324,000 was recorded for the three months ended March 31, 2016 due to a lower fair value at March 31, 2016, as compared to December 31, 2015, and is included in “advisory service fee” on our condensed consolidated statements of operations. No compensation expense was recorded for the three months ended March 31, 2015.
As of March 31, 2016, we have issued a total of 754,000 LTIP units (including performance-based LTIP units), all of which, other than approximately 3,000 units issued in March 2015 and 6,000 units issued May 2015, respectively, had reached full economic parity with, and are convertible into, common units. During the three months ended March 31, 2016, 800 LTIP units vested. There were no forfeitures in 2016. For the three months ended March 31, 2016, expense of $86,000 was recorded related to LTIP units. For the three months ended March 31, 2015, a compensation expense of $402,000 was recorded related to the LTIP units. All of these are associated with LTIP units issued to Ashford LLC’s employees, which amounts are included in “advisory service fee” on our consolidated statements of operations. The fair value of the unrecognized cost of LTIP units (including performance-based LTIP units) was $2.7 million at March 31, 2016, will be amortized over a period of 2.0 years.
During the three months ended March 31, 2016, no common units were redeemed by the holders. During the three months ended March 31, 2015, approximately 232,000 common units with an aggregate fair value of $4.0 million at redemption were redeemed by the holders and, at our election, we issued cash at an average price of $17.33 per unit to satisfy the redemption price. Additionally, 30,000 common units with an aggregate fair value of $515,000 at redemption were converted to shares of our common stock.
Redeemable noncontrolling interests in Ashford Prime OP as of March 31, 2016 and December 31, 2015, were $50.9 million and $61.8 million, respectively, which represented ownership of our operating partnership of 12.75% and 12.75%, respectively. The carrying value of redeemable noncontrolling interests as of March 31, 2016 and December 31, 2015, included adjustments of $1.6 million and $12.5 million, respectively, to reflect the excess of redemption value over the accumulated historical costs. For the three months ended March 31, 2016, we allocated net loss of $150,000 to the redeemable noncontrolling interests. For the three months ended March 31, 2015, we allocated net loss of $72,000 to the redeemable noncontrolling interests. We declared aggregate cash distributions to holders of common units and holders of LTIP units of $516,000 and $435,000 for the three months ended March 31, 2016 and 2015, respectively. These distributions are recorded as a reduction of redeemable noncontrolling interests in operating partnership.
On February 1, 2016, Prime GP, as general partner of Ashford Prime OP, entered into the Second Amended and Restated Agreement of Limited Partnership of Ashford Hospitality Prime Limited Partnership (the “Amended Partnership Agreement”). The Amended Partnership Agreement broadens in various ways the rights of the general partner. As consideration for the limited partners of Ashford Prime OP to approve the Amended Partnership Agreement, we agreed to create and provide qualified limited partners the opportunity to purchase shares of Series C Preferred Stock of the Company (the “Series C Preferred Stock”). See note 12.
On April 7, 2016, in response to feedback from the investor community, the Company determined to refrain from issuing the Series C Preferred Stock unless and until the issuance of the Series C Preferred Stock, in a form and manner that complies with all applicable state and federal laws and stock exchange rules, shall have been approved by the Company’s stockholders (the “Series C Approval”). Accordingly, Ashford Prime OP General Partner LLC, Ashford Prime OP’s general partner, has agreed to reverse the amendments made in the Amended Partnership Agreement unless and until the Series C Approval has been sought and obtained.