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Redeemable Noncontrolling Interests in Operating Partnership

12 Months Ended

Dec. 31, 2022

Noncontrolling Interest [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 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. As of December 31, 2022, there were approximately 2.0 million Performance LTIP units, representing 200% of the target, outstanding.

With respect to the 2020 award agreements, the number of Performance LTIP units to be earned ranged 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. The performance criteria for the Performance LTIP units are based on market conditions under the relevant literature. 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. During the year end December 31, 2022, approximately 113,000 Performance LTIP units granted in 2020 were canceled due to the market conditions criteria not being met.

With respect to the 2021 and 2022 award agreements, the compensation committee shifted to a new performance metric, pursuant to which, the performance awards will be eligible to vest, from 0% to 200% of target, based on achievement of certain performance targets over the three-year performance period. The performance criteria for the 2021 and 2022 performance grants are based on performance conditions under the relevant literature. 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. The grant date fair value of the award may vary from period to period, as the number of performance grants earned may vary since the estimated probable achievement of certain performance targets may vary from period to period.

As of December 31, 2022, we have issued a total of approximately 3.5 million LTIP and Performance LTIP units, net of Performance LTIP cancellations. All LTIP and Performance LTIP units, other than approximately 569,000 LTIP units and 840,000 Performance LTIP units issued from March 2015 to May 2021, 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																		2022						2021						2020
Performance LTIP units						Advisory services fee																		$	4,301					$	1,765					$	884
LTIP units						Advisory services fee																		1,229						1,372						1,142
LTIP units						Corporate, general and administrative																		28						12						—
LTIP units - independent directors						Corporate, general and administrative																		252						164						120
Total																								$	5,810					$	3,313					$	2,146

The unamortized cost of the unvested Performance LTIP units of approximately $7.0 million at December 31, 2022 will be expensed over a period of 2.0 years with a weighted average period of 1.6 years. The unamortized cost of the unvested LTIP units of approximately $1.3 million at December 31, 2022, will be amortized over a period of 1.2 years with a weighted average period of 1.2 years.

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

			Year Ended December 31,
			2022						2021						2020
Units outstanding at beginning of year			7,158						4,277						4,538
LTIP units issued			44						469						129
Performance LTIP units issued			1,194						840						160
Common units issued for hotel acquisition			—						2,500						—
Units redeemed for shares of common stock			—						(868)						(339)
Performance LTIP units cancelled			(113)						(60)						(211)
Units outstanding at end of year			8,283						7,158						4,277
Units convertible/redeemable at end of year			5,841						5,533						3,823

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, 2022						December 31, 2021
Redeemable noncontrolling interests in Braemar OP			$	40,555					$	36,087
Adjustments to redeemable noncontrolling interests (1)			$	70					$	275
Ownership percentage of operating partnership			7.69		%				8.83		%

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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 as illustrated in the table below (in thousands):

									Year Ended December 31,
															2022						2021						2020
Net (income) loss attributable to redeemable noncontrolling interests in operating partnership															$	476					$	3,597					$	12,979
Distributions declared to holders of common units, LTIP units and Performance LTIP units															665						—						—
Performance LTIP dividend claw back upon cancellation															(4)						(38)						(270)

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

									Year Ended December 31,
															2022						2021						2020
Common units converted to common stock															—						868						339
Fair value of common units converted															$	—					$	4,122		(2)			$	390		(1)

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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.

(2)    The redemption value is the greater of historical cost or fair value. The historical cost of the converted units was $4.6 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 https://asc.fasb.org/topic&trid=2197479

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- References

No definition available.

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