Investment in Unconsolidated Entity

Ashford Inc.

On July 31, 2015, we entered into a block trade with an unaffiliated third party pursuant to a sale arrangement between the Company, Ashford Inc. and Ashford Trust. The block trade included the purchase from a third party of approximately 175,000 shares of Ashford Inc. common stock at $95.00 per share, which approximated the 120-day volume weighted average share price, for a total cost of approximately $16.6 million. The sale arrangement and block trade were evaluated and approved by the independent members of our board of directors. The block trade purchase price and other terms of the sale arrangement were the result of negotiations with the third party, and the board of directors received a fairness opinion from an independent financial advisor that the price paid for the Ashford Inc. shares by the Company was fair to the Company. We did not receive any concessions or economic benefits from Ashford Inc. pertaining to our current contractual arrangements with Ashford Inc. in connection with this block trade. The block trade settled on August 4, 2015, and the loss resulting from the block trade is recorded within “unrealized loss on investment in Ashford Inc.” in our consolidated statement of operations for year ended December 31, 2015.

Separately, on September 14, 2015, we received 19,897 shares of Ashford Inc. common stock from Ashford Inc. as part of our acquisition of the Bardessono Hotel. As of December 31, 2016 and 2015, 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 $8.4 million and $10.4 million, respectively. See notes 11 and 12.

We have elected to use the fair value option, under the applicable accounting guidance, 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 consolidated balance sheets, and changes in market value are included in “unrealized loss on investment in Ashford Inc.” on our consolidated statements of operations.

The following tables summarize the condensed balance sheets as of December 31, 2016 and 2015, and the condensed statements of operations for the years ended December 31, 2016 and 2015, of Ashford Inc. (in thousands):

Ashford Inc.

Condensed Consolidated Balance Sheets



	December 31, 2016		December 31, 2015
Total assets	$	129,797	$	166,991
Total liabilities	38,168		30,115
Redeemable noncontrolling interests	1,480		240
Total stockholders’ equity of Ashford Inc.	37,377		32,165
Noncontrolling interests in consolidated entities	52,772		104,471
Total equity	90,149		136,636
Total liabilities and equity	$	129,797	$	166,991
Our investment in Ashford Inc., at fair value	$	8,407	$	10,377

Ashford Inc.

Condensed Consolidated Statements of Operations



	Year Ended December 31,
	2016			2015
Total revenue	$	67,607		$	58,981
Total operating expenses	(70,064		)	(60,332		)
Operating loss	(2,457		)	(1,351		)
Realized and unrealized gain (loss) on investment in unconsolidated entity	(1,460		)	(2,141		)
Realized and unrealized gain (loss) on investments	(7,787		)	(7,600		)
Other	81			1,114
Income tax (expense) benefit	(780		)	(2,066		)
Net income (loss)	(12,403		)	(12,044		)
(Income) loss from consolidated entities attributable to noncontrolling interests	8,860			10,852
Net (income) loss attributable to redeemable noncontrolling interests	1,147			2
Net gain (loss) attributable to Ashford Inc.	$	(2,396	)	$	(1,190	)
Our unrealized gain (loss) on investment in Ashford Inc.	$	(1,970	)	$	(7,609	)

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 years ended December 31, 2016 and 2015, 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 was limited to our investment in the AQUA U.S. Fund.

During the second quarter of 2016, we liquidated our investment in the AQUA U.S. Fund subject to a 5% hold back which is expected to be paid upon completion of the audit of the AQUA U.S. Fund’s financial statements, or sooner at the general partner’s discretion. As of December 31, 2016, we held a receivable from the AQUA U.S. Fund of $2.3 million, included in Due from AQUA U.S. Fund on our consolidated balance sheet.

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 represented our share of the AQUA U.S. Fund’s loss for the four months ended April 30, 2016 and year ended December 31, 2015. We were 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 did share pro-rata in all other applicable expenses of the AQUA U.S. Fund. As of December 31, 2015, we owned an approximate 45.3% ownership interest in the AQUA U.S. Fund.

The following tables summarize the condensed balance sheet as of December 31, 2015, and the condensed statements of operations for the four months ended April 30, 2016 and year ended December 31, 2015, of the AQUA U.S. Fund (in thousands):

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

Condensed Balance Sheet



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

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

Condensed Statements of Operations



	Four Months Ended			Year Ended
	April 30, 2016			December 31, 2015
Total investment income	$	21		$	1,266
Net expenses	(208		)	(273		)
Net investment income (loss)	(187		)	993
Net unrealized gain (loss) on investments	2,249			(2,308		)
Net realized gain (loss) on investments	(7,777		)	(5,103		)
Net gain (loss) attributable to the AQUA U.S. Fund	$	(5,715	)	$	(6,418	)
Our equity in earnings (loss) of the AQUA U.S. Fund	$	(2,587	)	$	(2,927	)