Investment in Unconsolidated Entity

AQUA U.S. Fund

In June 2015, for consideration of certain marketable securities, we obtained a 45.3% ownership interest in the AQUA U.S. Fund, previously named the REHE Fund. The AQUA U.S. Fund is managed by Ashford Investment Management, LLC (“AIM”), an indirect subsidiary of Ashford Inc. As of and for the three months ended March 31, 2016, the AQUA U.S. Fund was consolidated by Ashford Inc. The AQUA U.S. Fund invests substantially all of its assets in the Ashford Quantitative Alternatives Master Fund, LP (the “Master Fund”), previously named the AIM Real Estate Hedged Equity Master Fund, LP, and as a consequence of our investment in the AQUA U.S. Fund, we obtained an indirect interest in the Master Fund. Our maximum exposure of loss is limited to our investment in the AQUA U.S. Fund.

The following tables summarize the condensed balance sheets as of March 31, 2016 and December 31, 2015, and the condensed statement of operations for the three months ended March 31, 2016 of the AQUA U.S. Fund (in thousands):

Ashford Quantitative Alternative (U.S.) Fund, LP

Condensed Balance Sheets

(unaudited)



	March 31, 2016		December 31, 2015
Total assets	$	100,938	$	106,792
Partners’ capital	100,938		106,792
Total liabilities and partners’ capital	$	100,938	$	106,792
Our ownership interest in the AQUA U.S. Fund	$	45,715	$	48,365

Ashford Quantitative Alternative (U.S.) Fund, LP

Condensed Statement of Operations

(unaudited)



	Three Months Ended
	March 31, 2016
Total investment income	$	18
Net expenses	(189		)
Net investment income	(171		)
Net unrealized gain on investments	1,118
Net realized loss on investments	(6,801		)
Net loss attributable to the AQUA U.S. Fund	$	(5,854	)
Our equity in loss of the AQUA U.S. Fund	$	(2,650	)

The Master Fund generally invests in publicly traded equity securities and put and call options on publicly traded equity securities. The AQUA U.S. Fund records its investment in the Master Fund at its proportionate share of net assets. Income (loss) and distributions are allocated to the AQUA U.S. Fund’s partners based on their ownership percentage of the AQUA U.S. Fund. Our equity in loss in the AQUA U.S. Fund represents our share of the AQUA U.S. Fund’s loss for the three months ended March 31, 2016. We generally may redeem our investment in the AQUA U.S. Fund on the last business day of the month after providing written notice. As of March 31, 2016, we have no unfunded commitments. We are not obligated to pay any portion of the management fee or the performance allocation in favor of the AQUA U.S. Fund’s investment manager and general partner, respectively, but do share pro-rata in all other applicable expenses of the AQUA U.S. Fund. As of March 31, 2016 and December 31, 2015, we owned an approximate 45.3% ownership interest in the AQUA U.S. Fund.

Ashford Inc.

As of March 31, 2016, we held approximately 195,000 shares of Ashford Inc. common stock, which represented an approximate 9.7% ownership interest in Ashford Inc. and had a fair value of $8.9 million. See notes 9 and 10.

As we exercise significant influence over Ashford Inc., this investment would typically be accounted for under the equity method of accounting, under ASC 323-10 - Investments - Equity Method and Joint Ventures. However, we have elected to record our investment in Ashford Inc. using the fair value option under ASC 825-10 - Fair Value Option - Financial Assets and Financial Liabilities. We have elected to use the fair value option to account for our investment in Ashford Inc. as the fair value is readily available since Ashford Inc. common stock is traded on a national exchange. The fair value of our investment in Ashford Inc. is included in “investment in Ashford Inc., at fair value” on our condensed consolidated balance sheets, and changes in market value are included in “unrealized loss on investment in Ashford Inc.” on our condensed consolidated statement of operations.

The following tables summarize the condensed balance sheets as of March 31, 2016, and the condensed statement of operations for the three months ended March 31, 2016, of Ashford Inc. (in thousands):

Ashford Inc.

Condensed Consolidated Balance Sheets

(unaudited)



	March 31, 2016		December 31, 2015
Total assets	$	164,799	$	166,991
Total liabilities	31,997		30,115
Redeemable noncontrolling interests	1,119		240
Total stockholders’ equity of Ashford Inc.	30,565		32,165
Noncontrolling interests in consolidated entities	101,118		104,471
Total equity	131,683		136,636
Total liabilities and equity	$	164,799	$	166,991
Our investment in Ashford Inc., at fair value	$	8,884	$	10,377

Ashford Inc.

Condensed Consolidated Statement of Operations

(unaudited)



	Three Months Ended
	March 31, 2016
Total revenue	$	13,409
Total operating expenses	(13,921		)
Operating loss	(512		)
Realized and unrealized loss on investment in unconsolidated entity	(1,460		)
Realized and unrealized loss on investments	(5,684		)
Other	(102		)
Income tax expense	(640		)
Net loss	(8,398		)
Loss from consolidated entities attributable to noncontrolling interests	6,548
Net loss attributable to redeemable noncontrolling interests	118
Net loss attributable to Ashford Inc.	$	(1,732	)
Our unrealized loss on investment in Ashford Inc.	$	(1,493	)