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Related Party Transactions | 12 Months Ended
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Dec. 31, 2017
Related Party Transactions [Abstract] |
Related Party Transactions | Related Party Transactions We have management agreements with Remington Lodging, a related party, which is owned by our Chairman of our board of directors and Ashford Trust’s Chairman Emeritus. Under the agreements, we pay the related party a) monthly property management fees equal to the greater of $13,000 (increased annually based on consumer price index adjustments) or 3% of gross revenues as well as annual incentive management fees, if certain operational criteria are met, b) project management fees of up to 4% of project costs, c) market service fees including purchasing, design and construction management not to exceed 16.5% of project budget cumulatively, including project management fees, and d) other general and administrative expense reimbursements, approved by our independent directors, including accounting services. This related party allocates such charges to us based on various methodologies, including headcount and actual amounts incurred. At December 31, 2017, Remington Lodging managed three of our twelve hotel properties and we incurred the following fees related to the management agreements with the related party (in thousands):
| Year Ended December 31,
| 2017 |  | 2016 |  | 2015
Property management fees, including incentive property management fees | $ | 1,748 |  |  | $ | 1,503 |  |  | $ | 1,313 |
Market service and project management fees | 3,972 |  |  | 2,453 |  |  | 1,645 |
Corporate general and administrative expenses | 286 |  |  | 136 |  |  | 98 |
Total | $ | 6,006 |  |  | $ | 4,092 |  |  | $ | 3,056 |
Management agreements with Remington Lodging include exclusivity clauses that require us to engage Remington Lodging, unless our independent directors either (i) unanimously vote to hire a different manager or developer or (ii) by a majority vote elect not to engage Remington because either special circumstances exist such that it would be in our best interest not to engage Remington, or, based on Remington’s prior performance, it is believed that another manager or developer could perform the management, development or other duties materially better. Ashford LLC, a subsidiary of Ashford Inc., acts as our advisor, and as a result, we pay advisory fees to Ashford LLC. We are required to pay Ashford LLC a monthly base fee that is 1/12th of 0.70% of our total market capitalization plus the Key Money Asset Management Fee (defined in our advisory agreement as the aggregate gross asset value of all key money assets multiplied by 1/12th of 0.70%), subject to a minimum monthly base fee, as payment for managing our day-to-day operations in accordance with our investment guidelines. Total market capitalization includes the aggregate principal amount of our consolidated indebtedness (including our proportionate share of debt of any entity that is not consolidated but excluding our joint venture partners’ proportionate share of consolidated debt). We are also required to pay Ashford LLC an incentive fee that is measured annually. Each year that our annual total stockholder return exceeds the average annual total stockholder return for our peer group we will pay Ashford LLC an incentive fee over the following three years, subject to the Fixed Charge Coverage Ratio (“FCCR”) Condition, as defined in the advisory agreement. We also reimburse Ashford LLC for certain reimbursable overhead and internal audit, insurance claims advisory and asset management services, as specified in the advisory agreement. We also record equity-based compensation expense for equity grants of common stock and LTIP units awarded to our officers and employees of Ashford LLC in connection with providing advisory services equal to the fair value of the award in proportion to the requisite service period satisfied during the period. On January 24, 2017, we entered into an amended and restated advisory agreement with Ashford Inc. (the “Fourth Amended and Restated Advisory Agreement”) that amends and restates our advisory agreement discussed herein. On June 9, 2017, our stockholders approved the Fourth Amended and Restated Advisory Agreement which became effective on June 21, 2017. The material terms of the Fourth Amended and Restated Advisory Agreement include:
• | we made a cash payment to Ashford LLC of $5.0 million on June 21, 2017, which is included in “contract modification cost” on our consolidated statements of operations for year ended December 31, 2017, at which time the Fourth Amended and Restated Advisory Agreement became effective;
• | the termination fee payable to Ashford LLC has been amended by eliminating the 1.1x multiplier and tax gross up components of the fee;
• | Ashford Inc. will disclose publicly the revenues and expenses used to calculate “Net Earnings” on a quarterly basis which is used to calculate the termination fee; Ashford LLC will retain an accounting firm to provide a quarterly report to us on the reasonableness of Ashford LLC’s determination of expenses, which will be binding on the parties;
• | the right of Ashford LLC to appoint a “Designated CEO” has been eliminated;
• | the right of Ashford LLC to terminate the advisory agreement due to a change in a majority of the “Company Incumbent Board” (as defined in the current advisory agreement) has been eliminated;
• | we will be incentivized to grow our assets under a “growth covenant” in the Fourth Amended and Restated Advisory Agreement under which we will receive a deemed credit against a base amount of $45.0 million for: 3.75% of the total purchase price of each hotel acquired after the date of the Fourth Amended and Restated Advisory Agreement that was recommended by Ashford LLC, netted against 3.75% of the total sale price of each hotel sold after the date of the Fourth Amended and Restated Advisory Agreement. The difference between $45.0 million and such net credit, if any, is referred to as the “Uninvested Amount.” If the Fourth Amended and Restated Advisory Agreement is terminated, other than due to certain acts by Ashford LLC, we must pay Ashford LLC the Uninvested Amount, in addition to any termination fee payable under the Fourth Amended and Restated Advisory Agreement;
• | the Fourth Amended and Restated Advisory Agreement requires us to maintain a net worth of not less than $390 million plus 75% of the equity proceeds from the sale of securities by us after December 31, 2016 and a covenant prohibiting us from paying dividends except as required to maintain our REIT status if paying the dividend would reduce our net worth below the required minimum net worth;
• | the initial term of the Fourth Amended and Restated Advisory Agreement ends on the 10th anniversary of its effective date, subject to renewal by Ashford LLC for up to seven additional successive 10-year terms;
• | the base management fee payable to Ashford LLC will be fixed at 0.70%, and the fee will be payable on a monthly basis;
• | reimbursements of expenses to Ashford LLC will be made monthly in advance, based on an annual expense budget, with a quarterly true-up for actual expenses;
• | our right to terminate the advisory agreement due to a change of control of Ashford LLC has been eliminated;
• | our rights to terminate the advisory agreement at the end of each term upon payment of the termination fee based on the parties being unable to agree on new market-based fees or advisor’s performance have been eliminated; however, the Fourth Amended and Restated Advisory Agreement provides a mechanism for the parties to renegotiate the fees payable to Ashford LLC at the end of each term based on then prevailing market conditions, subject to floors and caps on the changes;
• | if a Change of Control (as defined in the Fourth Amended and Restated Advisory Agreement) is pending, we have agreed to deposit not less than 50%, and in certain cases 100%, of the applicable termination fee in escrow, with the payment of any remaining amounts owed to Ashford LLC secured by a letter of credit and/or first priority lien on certain assets;
• | our ability to terminate the Fourth Amended and Restated Advisory Agreement due to a material default by Ashford LLC is limited to instances where a court finally determines that the default had a material adverse effect on us and Ashford LLC fails to pay monetary damages in accordance with the Fourth Amended and Restated Advisory Agreement; and
• | if we repudiate the Fourth Amended and Restated Advisory Agreement through actions or omissions that constitute a repudiation as determined by a final non-appealable order from a court of competent jurisdiction, we will be liable to Ashford LLC for a liquidated damages amount.
The following table summarizes the advisory services fees incurred (in thousands):
| Year Ended December 31,
| 2017 |  | 2016 |  | 2015
Advisory services fee |  |  |  |  |
Base advisory fee | $ | 8,800 |  |  | $ | 8,343 |  |  | $ | 8,648 |
Reimbursable expenses (1) | 2,017 |  |  | 2,798 |  |  | 1,827 |
Equity-based compensation (2) | (1,683 | ) |  | 3,814 |  |  | 3,592 |
Incentive fee | — |  |  | — |  |  | 3,822 |
| $ | 9,134 |  |  | $ | 14,955 |  |  | $ | 17,889 |
________
(1) | Reimbursable expenses include overhead, internal audit, insurance claims advisory and asset management services.
(2) | Equity-based compensation is associated with equity grants of Ashford Prime’s common stock, PSUs, LTIP units and Performance LTIP units awarded to officers and employees of Ashford LLC.
In accordance with our advisory agreement, our advisor, or entities in which our advisor has an interest, have a right to provide products or services to our hotel properties, provided such transactions are evaluated and approved by our independent directors. The following table summarizes the entities in which our advisor has an interest with which we or our hotel properties contracted for products and services, the fees paid by us for those services, the applicable classification on our consolidated financial statements and the amount payable to each entity (included in “due to Ashford Inc.”) (in thousands):
|  |  | Year Ended December 31, 2017 | As of December 31, 2017
Company |  | Product or Service | Transaction Amount | Investments in Hotel Properties, net (1) |  | Indebtedness, net (2) |  | Other Hotel Expenses | Due to Ashford Inc.
OpenKey |  | Mobile key app | $ | 10 |  | $ | — |  |  | $ | — |  |  | $ | 10 |  | $ | 4 |
Pure Rooms |  | “Allergy friendly” premium rooms | 45 |  | 45 |  |  | — |  |  | — |  | 45 |
Lismore Capital |  | Mortgage placement services | 224 |  | — |  |  | (224 | ) |  | — |  | — |
________
(1) | Recorded in furniture, fixtures and equipment and depreciated over the estimated useful life.
(2) | Recorded as deferred loan costs, which are included in “indebtedness, net” on our consolidated balance sheets and amortized over the initial term of the applicable loan agreement.
At December 31, 2016, the balance in “due from Ashford Trust OP, net” of $488,000 was associated with certain expenses. At December 31, 2017 and 2016, the balances in “due to Ashford Inc.” of $1.7 million and $5.1 million, respectively, is primarily associated with advisory services and hotel services fees payable. In addition, at December 31, 2016, we held a receivable from the AQUA U.S. Fund of $2.3 million, associated with the 5% hold back from the AQUA U.S. Fund. In connection with the acquisition of the Bardessono Hotel in 2015 and Ashford Inc.’s engagement to provide hotel advisory services to us, Ashford Inc. agreed to provide $2.0 million of key money consideration in the form of furniture, fixtures and equipment to be used by Ashford Prime. The hotel advisory services and the lease are considered a multiple element arrangement, in accordance with the applicable accounting guidance. As such, a portion of the base advisory fee will be allocated to lease expense equal to the estimated fair value of the lease payments that would have been made. Lease expense of $335,000, $335,000 and $99,000 was recognized for the years ended December 31, 2017, 2016 and 2015, respectively and was included in “other” hotel expense in the consolidated statements of operations. Certain employees of Remington Lodging, who perform work on behalf of Ashford Prime, were granted approximately 22,000 shares of restricted stock under the Ashford Prime Stock Plan in both 2017 and 2016. These share grants were accounted for under the applicable accounting guidance related to share-based payments granted to non-employees and are recorded as a component of “management fees” in our consolidated statements of operations. Expense of $92,000, $71,000 and $0 was recognized for the years ended December 31, 2017, 2016 and 2015, respectively. The unamortized fair value of these grants was $228,000 as of December 31, 2017, which will be recognized over a period of 1.3 years. 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 the third party of approximately 175,000 shares of Ashford Inc. common stock at a price of $95.00 per share, which approximated the 120-day volume weighted average 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 the year ended December 31, 2015.

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- Definition The entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 850 -URI http://asc.fasb.org/topic&trid=2122745 + Details
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