Related Party Transactions

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, which relates to the ratio of adjusted EBITDA to fixed charges. We also reimburse Ashford LLC for certain reimbursable overhead and internal audit, risk management 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.

The following table summarizes the advisory services fees incurred (in thousands):



	Three Months Ended March 31,
	2018		2017
Advisory services fee
Base advisory fee	$	2,107	$	2,003
Reimbursable expenses ⁽¹⁾	420		547
Equity-based compensation ⁽²⁾	2,547		(1,685		)
Incentive fee	170		—
Total	$	5,244	$	865

________


⁽¹⁾	Reimbursable expenses include overhead, internal audit, risk management advisory and asset management services.


⁽²⁾	Equity-based compensation is associated with equity grants of Braemar’s common stock, PSUs, LTIP units and Performance LTIP units awarded to officers and employees of Ashford LLC.

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 Braemar. This arrangement is accounted for as a lease, in accordance with the applicable accounting guidance. As such, a portion of the base advisory fee is allocated to lease expense equal to the estimated fair value of the lease payments that would have been made. Lease expense of $84,000 and $84,000 was recognized for the three months ended March 31, 2018 and 2017, 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 Braemar, were granted approximately 22,000 and 21,000 shares of restricted stock under the Braemar Stock Plan in 2017 and 2018, respectively. 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 condensed consolidated statements of operations. For the three months ended March 31, 2018, expense related to such grants was $46,000. For the three months ended March 31, 2017, expense related to such grants was immaterial. The unamortized fair value of these grants was $426,000 as of March 31, 2018, which will be amortized over a period of 3.0 years.

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 amounts paid by us for those services, the applicable classification on our condensed consolidated financial statements and the amount payable to each entity (included in “due to Ashford Inc.”) (in thousands):



		Three Months Ended March 31, 2018						As of March 31, 2018		As of December 31, 2017
Company	Product or Service	Transaction Amount		Other Hotel Expenses		Corporate General and Administrative		Due to Ashford Inc.
OpenKey	Mobile key app	$	8	$	8	$	—	$	5	$	4
Pure Rooms	“Allergy friendly” premium rooms	9		9		—		—		45
RED Leisure	Watersports activities and travel/transportation services	180		180		—		—		—
Ashford LLC	Insurance claims services	38		—		38		38		—

At March 31, 2018 and December 31, 2017, the balance in “due to Ashford Inc.” of $224,000 and $1.7 million, respectively, is primarily associated with advisory services.