Related Party Transactions

Remington Lodging

As of December 31, 2018, we have a master property management agreement and a property management exclusivity agreement with Remington Lodging, a related party, which is wholly owned by, Monty Bennett, our Chairman of our board of directors and his father, Archie Bennett, Ashford Trust’s Chairman Emeritus. Prior to August 8, 2018, we paid Remington Lodging a) monthly property management fees equal to the greater of $14,000 (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.

On August 8, 2018, Remington Lodging sold its project management business, including construction management, interior design, architectural oversight, and the purchasing, freight management, and supervision of installation of FF&E, and related services to Ashford Inc., which wholly owns our advisor. Monty Bennett is the chief executive officer and chairman of the board of Ashford Inc.

As a result, from and after August 8, 2018 we paid Remington Lodging monthly property management fees equal to the greater of $14,000 (increased annually based on consumer price index adjustments) or 3% of gross revenues as well as annual incentive management fees, if certain operational criteria were met and other general and administrative expense reimbursements primarily related to accounting services.

At December 31, 2018, 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,
	2018		2017		2016
Property management fees, including incentive property management fees	$	1,762	$	1,748	$	1,503
Market service and project management fees	3,328		3,972		2,453
Corporate general and administrative expenses	333		286		136
Total	$	5,423	$	6,006	$	4,092

We also have a mutual exclusivity agreement with Remington Lodging, pursuant to which (i) we have agreed to engage Remington Lodging to provide management services with respect to any hotel we acquire or invest in, to the extent we have the right and/or control the right to direct the management of such hotel and (ii) Remington Lodging has agreed to grant us a right of first refusal to purchase any opportunity to develop or construct a hotel that it identifies that meets our initial investment guidelines. We are not, however, obligated to engage Remington Lodging if 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 could perform the management or other duties materially better.

Certain employees of Remington Lodging, who perform work on behalf of Braemar, were granted approximately 21,000, 22,000 and 22,000 shares of restricted stock under the Braemar Stock Plan in 2018, 2017 and 2016, 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 consolidated statements of operations. Expense of $219,000, $92,000 and $71,000 was recognized for the years ended December 31, 2018, 2017 and 2016, respectively. The unamortized compensation expense of these grants was $305,000 as of December 31, 2018, which will be recognized over a period of 2.2 years.

Ashford Inc.

Ashford LLC, a subsidiary of Ashford Inc., acts as our advisor. Our Chairman Mr. Monty Bennett, also serves as Chairman of the board of directors and Chief Executive Officer of Ashford Inc. As of December 31, 2018, Messrs. Archie Bennett, Jr. and Monty Bennett beneficially own approximately 313,014 shares of Ashford Inc.’s common stock, which represented an approximate 13.1% ownership in Ashford Inc. and 7,800,000 shares of Ashford Inc.’s Series B Cumulative Preferred Stock, which is exercisable (at an exercise price of $140 per share) into an additional approximately 1,392,857 shares of Ashford Inc. common stock, which if exercised as of December 31, 2018, would have increased Mr. Bennett and Mr. Bennett, Jr.’s ownership interest in Ashford Inc. to 45.1%.

Under our advisory agreement during 2018, 2017 and 2016 we paid advisory fees to Ashford LLC. We were required to pay Ashford LLC a monthly base fee that is 1/12th the sum of (i) 0.70% of our total market capitalization for the prior month plus the Key Money Asset Management Fee (as defined in our advisory agreement), 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 included 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 were also required to pay Ashford LLC an incentive fee that is measured annually (or for a stub period if the advisory agreement is terminated at other than year-end). Each year that our annual total stockholder return exceeded the average annual total stockholder return for our peer group we would 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 related 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 recorded 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.

On January 15, 2019, the Company entered into the Enhanced Return Funding Program Agreement and Amendment No. 1 to the Fifth Amended and Restated Advisory Agreement (the “ERFP Agreement”) with Ashford Inc. The “key money investments” previously contemplated by our advisory agreement was replaced in this agreement. See note 24.

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



	Year Ended December 31,
	2018		2017			2016
Advisory services fee
Base advisory fee	$	9,424	$	8,800		$	8,343
Reimbursable expenses ⁽¹⁾	2,072		2,017			2,798
Equity-based compensation ⁽²⁾	6,481		(1,683		)	3,814
Incentive fee	2,035		—			—
Total	$	20,012	$	9,134		$	14,955

________


⁽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.

Pursuant to the Company's property management agreements with each property management company, the Company bears the economic burden for casualty insurance coverage. Under the advisory agreement, Ashford Inc. secures casualty insurance policies to cover Braemar, Ashford Trust, their property managers, as needed, and Ashford Inc. The total loss estimates included in such policies are based on the collective pool of risk exposures from each party. Ashford Inc.'s risk management department manages the casualty insurance program. At the beginning of each year, Ashford Inc.'s risk management department collects funds from Braemar, Ashford Trust and their respective property management companies, to fund the casualty insurance program as needed, on an allocated basis.

In connection with Ashford Inc.’s August 2018 acquisition of Remington Lodging’s project management business, we entered into a project management agreement with Premier Project Management LLC (“Premier”), a wholly owned subsidiary of Ashford Inc. From and after August 8, 2018, we paid Premier (a) project management fees of up to 4% of project costs and (b) market service fees at current market rates with respect to construction management, interior design, FF&E purchasing, FF&E expediting/freight management, FF&E warehousing and FF&E installation and supervision not to exceed 16.5% of project budget cumulatively, including project management fees. See note 24.

In connection with Ashford Inc.’s acquisition of Premier from Remington Lodging in August 2018, we entered into the Mutual Exclusivity Agreement dated as of August 8, 2018 with Braemar OP and Premier, pursuant to which Premier gave us a first right of refusal to purchase any lodging-related investments identified by Premier and any of its affiliates that met our initial investment criteria, and we agreed to engage Premier to provide project management for hotels we acquired or invested in, to the extent that we had the right or controlled the right to direct such matters.

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 tables summarize the entities in which our advisor has an interest with which we or our hotel properties contracted for products and services, the amounts recorded by us for those services and the applicable classification on our financial statements (in thousands):



		Year Ended December 31, 2018
Company	Product or Service	Total		Investments in Hotel Properties, net ⁽¹⁾		Indebtedness, net⁽²⁾			Other Hotel Expenses		Corporate General and Administrative
Ashford LLC	Insurance claims services	$	137	$	—	$	—		$	—	$	137
Lismore Capital	Mortgage placement services	999		—		(999		)	—		—
OpenKey	Mobile key app	33		12		—			21		—
Pure Wellness	Hypoallergenic premium rooms	265		228		—			37		—
Premier	Project management services	3,958		3,958		—			—		—
RED Leisure	Watersports activities and travel/transportation services	720		—		—			720		—

________


⁽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.



		Year Ended December 31, 2017
Company	Product or Service	Total		Investments in Hotel Properties, net ⁽¹⁾		Indebtedness, net ⁽²⁾			Other Hotel Expenses		Corporate General and Administrative
Lismore Capital	Mortgage placement services	$	224	$	—	$	(224	)	$	—	$	—
OpenKey	Mobile key app	10		—		—			10		—
Pure Wellness	Hypoallergenic premium rooms	45		45		—			—		—

________


⁽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.

The following table summarizes the components of due to Ashford Inc. (in thousands):



		Due to Ashford Inc.
Company	Product or Service	December 31, 2018		December 31, 2017
Ashford LLC	Advisory services	$	2,264	$	1,654
Ashford LLC	Insurance claims services	37		—
OpenKey	Mobile key app	13		4
Pure Wellness	Hypoallergenic premium rooms	30		45
Premier	Project management services	1,657		—
		$	4,001	$	1,703

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 FF&E 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 $335,000, $335,000 and $335,000 was recognized for the years ended December 31, 2018, 2017 and 2016, respectively and was included in “other” hotel expense in the consolidated statements of operations.