Summary of Fair Value of Financial Instruments

Determining the estimated fair values of certain financial instruments such as notes receivable and indebtedness requires considerable judgment to interpret market data. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Accordingly, the estimates presented are not necessarily indicative of the amounts at which these instruments could be purchased, sold or settled.

The carrying amounts and estimated fair values of financial instruments were as follows (in thousands):



	June 30, 2016				December 31, 2015
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial assets and liabilities measured at fair value:
Investment in Ashford Inc.	$	9,744	$	9,744	$	10,377	$	10,377
Derivative assets	7,001		7,001		753		753
Financial assets not measured at fair value:
Cash and cash equivalents	$	130,014	$	130,014	$	105,039	$	105,039
Restricted cash	40,352		40,352		33,135		33,135
Accounts receivable, net	17,296		17,296		13,370		13,370
Note receivable	8,098		8,945 to 9,887		8,098		9,157 to 10,120
Due from related party, net	532		532		371		371
Due from third-party hotel managers	9,771		9,771		10,722		10,722
Financial liabilities not measured at fair value:
Indebtedness	$	835,980	$792,978 to $876,449		$	840,232	$801,058 to $885,379
Accounts payable and accrued expenses	58,286		58,286		43,568		43,568
Dividends and distributions payable	4,962		4,962		3,439		3,439
Due to Ashford Trust OP, net	15		15		528		528
Due to Ashford Inc.	5,907		5,907		6,369		6,369
Due to third-party hotel managers	1,193		1,193		1,158		1,158

Cash, cash equivalents and restricted cash. These financial assets bear interest at market rates and have maturities of less than 90 days. The carrying values approximate fair value due to the short-term nature of these financial instruments. This is considered a Level 1 valuation technique.

Accounts receivable, net, due from related party, net, accounts payable and accrued expenses, dividends payable, due to Ashford Trust OP, net, due to Ashford Inc. and due to/from third-party hotel managers. The carrying values of these financial instruments approximate their fair values due to the short-term nature of these financial instruments. This is considered a Level 1 valuation technique.

Note receivable. Fair value of the note receivable was determined by using similar loans with similar collateral. Since there is very little to no trading activity, we relied on our internal analysis of what we believe a willing buyer would pay for this note at June 30, 2016 and December 31, 2015. We estimated the fair value of the note receivable to be approximately 10.5% to 22.1% higher than the carrying value of $8.1 million at June 30, 2016 and approximately 13.1% to 25.0% higher than the carrying value of $8.1 million at December 31, 2015. This is considered a Level 2 valuation technique.

Investment in Ashford Inc. Fair value of the investment in Ashford Inc. is based on the quoted closing price on the balance sheet date. This is considered a Level 1 valuation technique.

Derivative assets. Fair value of the interest rate derivatives is determined using the net present value of the expected cash flows of each derivative based on the market-based interest rate curve and adjusted for credit spreads of us and the counterparties. Fair value of interest rate floors is calculated using a third-party discounted cash flow model based on future cash flows that are expected to be received over the remaining life of the floor. The fair values of options on futures contracts are valued at their last reported settlement price as of the measurement date. See notes 2, 9 and 10 for a complete description of the methodology and assumptions utilized in determining fair values.

Indebtedness. Fair value of indebtedness is determined using future cash flows discounted at current replacement rates for these instruments. Cash flows are determined using a forward interest rate yield curve. The current replacement rates are determined by using the U.S. Treasury yield curve or the index to which these financial instruments are tied, and adjusted for the credit spreads. Credit spreads take into consideration general market conditions, maturity and collateral. We estimated the fair value of the total indebtedness to be approximately 94.9% to 104.8% of the carrying value of $836.0 million at June 30, 2016 and approximately 95.3% to 105.4% of the carrying value of $840.2 million at December 31, 2015. This is considered a Level 2 valuation technique.