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 Braemar 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 (the “common units”) and units issued under our Long-Term Incentive Plan (the “LTIP units”) that are vested. Each common unit may be redeemed, by the holder, for either cash or, at our sole discretion, up to one share of our REIT common stock, which is either: (i) issued pursuant to an effective registration statement; (ii) included in an effective registration statement providing for the resale of such common stock; or (iii) issued subject to a registration rights agreement.

LTIP units, which are issued to certain executives and employees of Ashford LLC as compensation, generally 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.

The compensation committee of the board of directors of the Company approves the issuance of Performance LTIP units to certain executive officers and directors from time to time. The award agreements provide for the grant of a target number of Performance LTIP units that will be settled in common units of Braemar OP, if and when the applicable vesting criteria have been achieved following the end of the performance and service period, which is generally three years from the grant date. The number of Performance LTIP units actually earned may range from 0% to 200% of target 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. As of June 30, 2019, there were approximately 552,000 Performance LTIP units, representing 200% of the target, outstanding. The performance criteria for the Performance LTIP units are based on market conditions under the relevant literature, and the Performance LTIP units were granted to non-employees. Following the adoption of ASU 2018-07, the corresponding compensation cost is recognized ratably over the service period for the award as the service is rendered, based on the grant date fair value of the award, regardless of the actual outcome of the market condition as opposed to being accounted for at fair value based on the market price of the shares at each quarterly measurement date.

As of June 30, 2019, we have issued a total of 1.3 million LTIP units (including Performance LTIP units), net of cancellations, all of which, other than approximately 89,000 LTIP units and 60,000 Performance LTIP units issued from March 2015 to February 2019 had reached full economic parity with, and are convertible into, common units.

The following table presents compensation expense for Performance LTIP units and LTIP units (in thousands):



		Three Months Ended June 30,				Six Months Ended June 30,
Type	Line Item	2019		2018		2019		2018
Performance LTIP units	Advisory services fee	$	293	$	286	$	550	$	294
LTIP units	Advisory services fee	351		302		644		438
		$	644	$	588	$	1,194	$	732

The unamortized cost of the unvested Performance LTIP units of $1.6 million at June 30, 2019, will be expensed over a period of 2.5 years with a weighted average period of 1.1 years.

The unamortized cost of the unvested LTIP units of $2.3 million at June 30, 2019, will be amortized over a period of 2.7 years with a weighted average period of 1.9 years.

The following table presents the common units redeemed and the fair value upon redemption (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Common units converted to stock	55		—		165		—
Fair value of common units converted	$	767	$	—	$	2,201	$	—

The following table presents the redeemable noncontrolling interests in Braemar OP (in thousands) and the corresponding approximate ownership percentage of our operating partnership:



	June 30, 2019			December 31, 2018
Redeemable noncontrolling interests in Braemar OP	$	42,075		$	44,885
Adjustments to redeemable noncontrolling interests ⁽¹⁾	$	573		$	23
Ownership percentage of operating partnership	10.94		%	11.22		%

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⁽¹⁾	Reflects the excess of the redemption value over the accumulated historical cost.

We allocated net income (loss) to the redeemable noncontrolling interests and declared aggregate cash distributions to the holders of common units and holders of LTIP units, which are recorded as a reduction of redeemable noncontrolling interests in operating partnership, as illustrated in the table below (in thousands):



	Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019		2018
Net (income) loss attributable to redeemable noncontrolling interests in operating partnership	$	865	$	(1,235	)	$	1,305	$	(1,527	)
Aggregate distributions to holders of common units, LTIP units and performance LTIP units	769		822			1,547		1,644