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):



	December 31, 2017				December 31, 2016
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial assets and liabilities measured at fair value:
Investment in Ashford Inc.	$	18,124	$	18,124	$	8,407	$	8,407
Derivative assets	594		594		1,149		1,149
Financial assets not measured at fair value:
Cash and cash equivalents	$	137,522	$	137,522	$	126,790	$	126,790
Restricted cash	47,820		47,820		37,855		37,855
Accounts receivable, net	14,334		14,334		18,194		18,194
Insurance receivable	8,825		8,825		—		—
Note receivable	8,098		8,020 to 8,864		8,098		8,511 to 9,407
Due from Ashford Trust OP, net	—		—		488		488
Due from AQUA U.S. Fund	—		—		2,289		2,289
Due from related party, net	349		349		377		377
Due from third-party hotel managers	4,589		4,589		7,555		7,555
Financial liabilities not measured at fair value:
Indebtedness	$	826,236	$780,243 to $862,372		$	766,964	$726,774 to $803,276
Accounts payable and accrued expenses	56,803		56,803		44,791		44,791
Dividends and distributions payable	8,146		8,146		5,038		5,038
Due to Ashford Inc.	1,703		1,703		5,085		5,085
Due to affiliate	—		—		2,500		2,500
Due to third-party hotel managers	1,709		1,709		973		973

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

Accounts receivable, net, insurance receivable, due from AQUA U.S. Fund, due from related party, net, accounts payable and accrued expenses, dividends and distributions payable, due to/from Ashford Trust OP, net, due to Ashford Inc., due to affiliate 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 December 31, 2017 and 2016. We estimated the fair value of the note receivable to be approximately 1.0% lower to 9.5% higher than the carrying value of $8.1 million at December 31, 2017, and approximately 5.1% to 16.2% higher than the carrying value of $8.1 million at December 31, 2016. 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 interest rate derivatives is determined using the net present value of expected cash flows of each derivative based on the market-based interest rate curve and adjusted for credit spreads of us and our counterparties. Fair value of credit default swaps are obtained from a third party who publishes the CMBX index composition and price data. Fair values of interest rate floors are 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 value of options on futures contracts is valued at the last reported settlement price as of the measurement date. See notes 2, 10 and 11 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 94.4% to 104.4% of the carrying value of $826.2 million at December 31, 2017, and approximately 94.8% to 104.7% of the carrying value of $767.0 million at December 31, 2016. This is considered a Level 2 valuation technique.