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Related Party Transactions | 9 Months Ended
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Sep. 30, 2019
Related Party Transactions [Abstract] |
Related Party Transactions | Related Party Transactions Ashford Inc. Advisory Agreement Ashford LLC, a subsidiary of Ashford Inc., acts as our advisor. Our Chairman, Mr. Monty J. Bennett, also serves as Chairman of the board of directors and Chief Executive Officer of Ashford Inc. Under our advisory agreement, we pay advisory fees to Ashford LLC. Through December 31, 2018, we were required to pay Ashford LLC a monthly base fee that is 1/12 th 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 the debt of any entity that is not consolidated but excluding our joint venture partners’ proportionate share of consolidated debt). On January 15, 2019, the Company entered into Amendment No. 1 to the Fifth Amended and Restated Advisory Agreement with Ashford Inc. (“Amendment No. 1”). Amendment No. 1 revised the formula for calculating the base fee to be equal to 1/12 th of the sum of (i) 0.70% of the total market capitalization of our company for the prior month, plus (ii) the Net Asset Fee Adjustment (as defined in our advisory agreement), if any, on the last day of the prior month during which our advisory agreement was in effect; provided, however in no event shall the base fee for any month be less than the minimum base fee as provided by our advisory agreement. The base fee is payable on the 5 th business day of each month. The minimum base fee for Braemar for each month will be equal to the greater of:
(i) | 90% of the base fee paid for the same month in the prior year; and
(ii) | 1/12 th of the G&A Ratio (as defined) multiplied by the total market capitalization of Braemar.
We are 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 exceeds the average annual total stockholder return for our peer group we 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 recorded equity-based compensation expense for equity grants of common stock and LTIP units awarded to officers and employees of Ashford LLC in connection with providing advisory services. The following table summarizes the advisory services fees incurred (in thousands):
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
Advisory services fee |  |  |  |  |  |  |
Base advisory fee | $ | 2,650 |  |  | $ | 2,508 |  |  | $ | 8,170 |  |  | $ | 6,928 |
Reimbursable expenses (1) | 645 |  |  | 529 |  |  | 1,906 |  |  | 1,448 |
Equity-based compensation (2) | 1,995 |  |  | 1,316 |  |  | 5,426 |  |  | 5,240 |
Incentive fee | (132 | ) |  | 1,380 |  |  | 77 |  |  | 2,241 |
Total | $ | 5,158 |  |  | $ | 5,733 |  |  | $ | 15,579 |  |  | $ | 15,857 |
________
(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.
Ashford Securities On September 25, 2019, Ashford Inc. announced the formation of Ashford Securities LLC (“Ashford Securities”) to raise capital in order to grow its existing and future platforms. In conjunction with the formation of Ashford Securities, Braemar has entered into a contribution agreement with Ashford Inc. pursuant to which Braemar has agreed to contribute, with Ashford Trust, up to $15.0 million to fund the operations of Ashford Securities. As of September 30, 2019, Braemar has funded approximately $165,000. Enhanced Return Funding Program Concurrent with the Amendment No. 1, on January 15, 2019, the Company also entered into the Enhanced Return Funding Program Agreement (the “ERFP Agreement”) with Ashford Inc. The “key money investments” concept previously contemplated by our advisory agreement was replaced with the ERFP Agreement. The Amended and Restated Advisory Agreement was also amended to name Ashford Inc. and its subsidiaries as the Company’s sole and exclusive provider of asset management, project management and other services offered by Ashford Inc. or any of its subsidiaries. The independent members of our board of directors and the independent members of the board of directors of Ashford Inc., with the assistance of separate and independent legal counsel, engaged to negotiate the ERFP Agreement on behalf of Ashford Inc. and Braemar, respectively. The ERFP Agreement generally provides that Ashford LLC will provide funding to facilitate the acquisition of properties by Braemar OP that are recommended by Ashford LLC, in an aggregate amount of up to $50 million (subject to increase to up to $100 million by mutual agreement). Each funding will equal 10% of the property acquisition price and will be made either at the time of the property acquisition or at any time generally within the two-year period following the date of such acquisition, in exchange for FF&E for use at the acquired property or any other property owned by Braemar OP. The initial term of the ERFP Agreement is two years (the “Initial Term”), unless earlier terminated pursuant to the terms of the ERFP Agreement. At the end of the Initial Term, the ERFP Agreement shall automatically renew for successive one-year periods (each such period a “Renewal Term”) unless either Ashford Inc. or Braemar provides written notice to the other at least sixty days in advance of the expiration of the Initial Term or Renewal Term, as applicable, that such notifying party intends not to renew the ERFP Agreement. As a result of the Ritz-Carlton, Lake Tahoe acquisition, Braemar was entitled to receive $10.3 million from Ashford LLC in the form of future purchases of FF&E at Braemar hotel properties that will be leased to us by Ashford LLC rent free. As of September 30, 2019, Ashford LLC has remitted payments of $10.3 million to the Company as further described below. On June 26, 2019, the Company sold $1.4 million of hotel FF&E from a Braemar hotel property to Ashford LLC which was subsequently leased back to the Company rent free. In accordance with ASC 842, the Company evaluated the transaction and concluded that the transaction qualified as a sale. As a result, the Company recorded a gain of $9,000 for the nine months ended September 30, 2019. The gain is recorded in “gain (loss) on disposition of assets and sale of hotel property” in our condensed consolidated statements of operations. On July 1, 2019, the Company sold the remaining $8.9 million of hotel FF&E from another Braemar hotel property to Ashford LLC which was subsequently leased back to the Company rent free. The transaction also qualified as a sale and the Company recorded a gain of $23,000 for the three and nine months ended September 30, 2019. The gain is recorded in “gain (loss) on disposition of assets and sale of hotel property” in our condensed consolidated statements of operations. Under the applicable accounting guidance in ASC 842, the Company has not recorded an operating lease right-of-use asset, an operating lease liability or lease expense for rents as the related party lease has no economic substance because the related party lease is provided rent free. Project Management Agreement In connection with Ashford Inc.’s August 8, 2018 acquisition of Remington Lodging’s project management business, we entered into a project management agreement with Ashford Inc.’s indirect subsidiary, Premier Project Management LLC (“Premier”), pursuant to which Premier provides project management services to our hotels, including construction management, interior design, architectural services, and the purchasing, freight management, and supervision of installation of FF&E and related services. Pursuant to the project management agreement, we pay Premier: (a) project management fees of up to 4% of project costs; and (b) for the following services as follows: (i) architectural (6.5% of total construction costs); (ii) construction management for projects without a general contractor (10% of total construction costs); (iii) interior design (6% of the purchase price of the FF&E designed or selected by Premier); and (iv) FF&E purchasing (8% of the purchase price of FF&E purchased by Premier; provided that if the purchase price exceeds $2.0 million for a single hotel in a calendar year, then the purchasing fee is reduced to 6% of the FF&E purchase price in excess of $2.0 million for such hotel in such calendar year). In accordance with our advisory agreement, our advisor, or entities in which our advisor has an interest, has a right to provide products or services to us or 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 condensed consolidated financial statements (in thousands):
|  |  | Three Months Ended September 30, 2019
Company |  | Product or Service | Total | Investments in Hotel Properties, net (1) |  | Indebtedness, net (2) |  | Other Hotel Revenue |  | Other Hotel Expenses |  | Advisory Services Fee |  | Property Taxes, Insurance and Other |  | Write-off of Premiums, Loan Costs and Exit Fees
Ashford LLC |  | Insurance claims services | $ | 25 |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 25 |  |  | $ | — |
J&S Audio Visual |  | Audio visual services | 183 |  | — |  |  | — |  |  | 183 |  |  | — |  |  | — |  |  | — |  |  | — |
Lismore Capital |  | Mortgage placement services | 933 |  | — |  |  | (720 | ) |  | — |  |  | — |  |  | — |  |  | — |  |  | 213 |
OpenKey |  | Mobile key app | 21 |  | — |  |  | — |  |  | — |  |  | 21 |  |  | — |  |  | — |  |  | — |
Premier |  | Project management services | 2,838 |  | 2,699 |  |  | — |  |  | — |  |  | — |  |  | 139 |  |  | — |  |  | — |
Pure Wellness |  | Hypoallergenic premium rooms | 67 |  | 55 |  |  | — |  |  | — |  |  | 12 |  |  | — |  |  | — |  |  | — |
RED Leisure |  | Watersport activities and travel/transportation services | 326 |  | — |  |  | — |  |  | — |  |  | 326 |  |  | — |  |  | — |  |  | — |
|  |  | Three Months Ended September 30, 2018
Company |  | Product or Service | Total | Investments in Hotel Properties, net (1) |  | Other Hotel Expenses |  | Property Taxes, Insurance and Other
Ashford LLC |  | Insurance claims services | $ | 31 |  | $ | — |  |  | $ | — |  |  | $ | 31 |
OpenKey |  | Mobile key app | 5 |  | — |  |  | 5 |  |  | — |
Premier |  | Project management services | 1,125 |  | 1,125 |  |  | — |  |  | — |
Pure Wellness |  | Hypoallergenic premium rooms | 128 |  | 117 |  |  | 11 |  |  | — |
RED Leisure |  | Watersport activities and travel/transportation services | 180 |  | — |  |  | 180 |  |  | — |
|  |  | Nine Months Ended September 30, 2019
Company |  | Product or Service | Total | Investments in Hotel Properties, net (1) |  | Indebtedness, net (2) |  | Other Hotel Revenue |  | Other Hotel Expenses |  | Advisory Services Fee |  | Property Taxes, Insurance and Other |  | Write-off of Premiums, Loan Costs and Exit Fees
Ashford LLC |  | Insurance claims services | $ | 90 |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 90 |  |  | $ | — |
J&S Audio Visual |  | Audio visual services | 383 |  | — |  |  | — |  |  | 383 |  |  | — |  |  | — |  |  | — |  |  | — |
Lismore Capital |  | Debt placement services | 1,208 |  | — |  |  | (995 | ) |  | — |  |  | — |  |  | — |  |  | — |  |  | 213 |
OpenKey |  | Mobile key app | 33 |  | — |  |  | — |  |  | — |  |  | 33 |  |  | — |  |  | — |  |  | — |
Premier |  | Project management services | 8,078 |  | 7,674 |  |  | — |  |  | — |  |  | — |  |  | 404 |  |  | — |  |  | — |
Pure Wellness |  | Hypoallergenic premium rooms | 143 |  | 108 |  |  | — |  |  | — |  |  | 35 |  |  | — |  |  | — |  |  | — |
RED Leisure |  | Watersport activities and travel/transportation services | 686 |  | — |  |  | — |  |  | — |  |  | 686 |  |  | — |  |  | — |  |  | — |
|  |  | Nine Months Ended September 30, 2018
Company |  | Product or Service | Total | Investments in Hotel Properties, net (1) |  | Indebtedness, net (2) |  | Other Hotel Expenses |  | Property Taxes, Insurance and Other
Ashford LLC |  | Insurance claims services | $ | 100 |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 100 |
Lismore Capital |  | Debt placement services | 999 |  | — |  |  | (999 | ) |  | — |  |  | — |
OpenKey |  | Mobile key app | 17 |  | — |  |  | — |  |  | 17 |  |  | — |
Premier |  | Project management services | 1,125 |  | 1,125 |  |  | — |  |  | — |  |  | — |
Pure Wellness |  | Hypoallergenic premium rooms | 147 |  | 117 |  |  | — |  |  | 30 |  |  | — |
RED Leisure |  | Watersport activities and travel/transportation services | 540 |  | — |  |  | — |  |  | 540 |  |  | — |
________
(1) | Recorded in FF&E 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 due to Ashford Inc. (in thousands):
|  |  |  | Due to Ashford Inc.
Company |  | Product or Service |  | September 30, 2019 |  | December 31, 2018
Ashford LLC |  | Advisory services |  | $ | 1,830 |  |  | $ | 2,264 |
Ashford LLC |  | Insurance claims services |  | 25 |  |  | 37 |
J&S Audio Visual |  | Audio visual services |  | 185 |  |  | — |
OpenKey |  | Mobile key app |  | — |  |  | 13 |
Premier |  | Project management services |  | 2,651 |  |  | 1,657 |
Pure Wellness |  | Hypoallergenic premium rooms |  | 58 |  |  | 30 |
|  |  |  | $ | 4,749 |  |  | $ | 4,001 |
In 2015, $2.0 million of key money consideration was invested in FF&E by Ashford LLC to be used by Braemar, which represented all of the key money consideration for the Bardessono Hotel. Upon adoption of ASC 842, we evaluated this arrangement, which is accounted for as a lease that will expire in 2020. Under the applicable accounting guidance in ASC 842, as the related party lease is provided rent-free, there is no economic substance related to the lease which results in not recording an operating lease right-of-use asset, an operating lease liability or lease expense for rents. Remington Lodging On August 8, 2018, Ashford Inc. completed the acquisition of Premier. As a result of Ashford Inc.’s acquisition, the project management services are no longer provided by Remington Lodging and are now provided by a subsidiary of Ashford Inc. under the respective project management agreement with each customer, including Ashford Trust and Braemar. Remington Lodging continues to provide property management services to the Company with respect to three of our thirteen hotel properties. At September 30, 2019, Remington Lodging managed three of our thirteen hotel properties and we incurred the following fees related to the management agreements with the related party (in thousands):
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
Property management fees, including incentive property management fees | $ | 455 |  |  | $ | 438 |  |  | $ | 1,322 |  |  | $ | 1,334 |
Market service and project management fees | — |  |  | 831 |  |  | — |  |  | 3,328 |
Corporate general and administrative expenses | 84 |  |  | 85 |  |  | 262 |  |  | 250 |
Total | $ | 539 |  |  | $ | 1,354 |  |  | $ | 1,584 |  |  | $ | 4,912 |
Certain employees of Remington Lodging, who perform work on behalf of Braemar, were granted shares of restricted stock under the Braemar Stock Plan. 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 (in thousands).
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
Management fees | $ | 36 |  |  | $ | 53 |  |  | $ | 116 |  |  | $ | 164 |
The unamortized compensation expense of these grants was $234,000 as of September 30, 2019, which will be amortized over a period of 2.4 years.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 850 -URI http://asc.fasb.org/topic&trid=2122745 + Details
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