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Redeemable Noncontrolling Interests in Operating Partnership

12 Months Ended

Dec. 31, 2020

Noncontrolling Interest [Abstract]

Redeemable Noncontrolling Interests in Operating Partnership

Redeemable Noncontrolling Interests in Operating PartnershipRedeemable 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 may authorize 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, when and to the extent 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 December 31, 2020, there were approximately 220,000 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. During the years ended December 31, 2020, 2019 and 2018, approximately 211,000, 281,000 and 312,000 Performance LTIP units were cancelled due to the market condition criteria not being met, respectively.

On March 16, 2020, the Company announced that in light of the uncertainty created by the effects of COVID-19, the annual cash retainer for each independent director serving on the Company’s board of directors would be temporarily reduced by 25% and would continue in effect until the board of directors determined in its discretion that the effects of COVID-19 had subsided. The Company also disclosed at that time that any amounts relinquished pursuant to the reduction in fees may be paid in the future, as determined by the board of directors in its discretion. On August 6, 2020, the Company announced that for fiscal year 2020, the independent directors will receive the full value of their annual cash retainer (without reduction). The full value of such cash retainer will be paid 25% in either fully vested shares of common stock or LTIP units (at each director’s election) and 75% in cash; however, each independent director may also elect to take all or any portion of such 75% in either fully vested shares of common stock or LTIP units. The remaining quarterly installments of such retainer will be adjusted so that, for fiscal 2020 in the aggregate, each independent director will have received the full value of the annual cash retainer in the mix of cash and fully vested common stock (or LTIP units) so elected. This arrangement does not apply to any additional cash retainers for committee service or service as lead director, or meeting fees, which will continue to be paid in cash.

On May 22, 2020, September 28, 2020 and December 15, 2020, approximately 17,000, 8,000 and 4,000 LTIP units, respectively, were issued to independent directors, with fair values of approximately $44,000, $20,000 and $19,000, respectively, which vested immediately upon grant and have been expensed during the year ended December 31, 2020. These grants represented a portion of the annual cash retainer for each independent director serving on the Company’s board of directors.

As of December 31, 2020, we have issued a total of approximately 1.1 million LTIP units (including Performance LTIP units), net of cancellations, all of which, other than approximately 104,000 LTIP units and 60,000 Performance LTIP units issued from March 2015 to December 2020, 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):

																		Year Ended December 31,
Type						Line Item																		2020						2019						2018
Performance LTIP units						Advisory services fee																		$	884					$	1,144					$	785
LTIP units						Advisory services fee																		1,142						1,354						976
LTIP units - independent directors						Corporate, general and administrative																		120						103						61
Total																								$	2,146					$	2,601					$	1,822

The unamortized cost of the unvested Performance LTIP units of $409,000 at December 31, 2020 will be expensed over a period of 2.0 years with a weighted average period of 1.7 years. The unamortized cost of the unvested LTIP units of $771,000 at December 31, 2020, will be amortized over a period of 2.2 years with a weighted average period of 1.4 years.

A summary of the activity of the units in our operating partnership is as follows (in thousands):

			Year Ended December 31,
			2020						2019						2018
Units outstanding at beginning of year			4,538						4,833						4,790
LTIP units issued			129						91						144
Performance LTIP units issued			160						60						211
Units redeemed for shares of common stock			(339)						(165)						—
Performance LTIP units cancelled			(211)						(281)						(312)
Units outstanding at end of year			4,277						4,538						4,833
Units convertible/redeemable at end of year			3,823						4,027						4,045

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

			December 31, 2020						December 31, 2019
Redeemable noncontrolling interests in Braemar OP			$	27,655					$	41,570
Adjustments to redeemable noncontrolling interests (1)			$	167					$	65
Ownership percentage of operating partnership			9.43		%				10.96		%

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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):

									Year Ended December 31,
															2020						2019						2018
Net (income) loss attributable to redeemable noncontrolling interests in operating partnership															$	12,979					$	1,207					$	751
Distributions declared to holders of common units, LTIP units and Performance LTIP units															—						3,050						2,854
Performance LTIP dividend claw back upon cancellation															(270)						—						—

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

									Year Ended December 31,
															2020						2019						2018
Common units converted to common stock															339						165						—
Fair value of common units converted															$	390		(1)			$	2,201					$	—

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(1)    The redemption value is the greater of historical cost or fair value. The historical cost of the converted units was $3.5 million.

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- Definition

The entire disclosure for noncontrolling interest in consolidated subsidiaries, which could include the name of the subsidiary, the ownership percentage held by the parent, the ownership percentage held by the noncontrolling owners, the amount of the noncontrolling interest, the location of this amount on the balance sheet (when not reported separately), an explanation of the increase or decrease in the amount of the noncontrolling interest, the noncontrolling interest share of the net Income or Loss of the subsidiary, the location of this amount on the income statement (when not reported separately), the nature of the noncontrolling interest such as background information and terms, the amount of the noncontrolling interest represented by preferred stock, a description of the preferred stock, and the dividend requirements of the preferred stock.

+ References

Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 810
-URI http://asc.fasb.org/topic&trid=2197479

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- References

No definition available.

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