Related Party Transactions

Remington Lodging (prior to Ashford Inc. acquisition)

Remington Lodging was a hotel and project management company, wholly owned by our chairman, Mr. Monty J. Bennett and Mr. Archie Bennett, Jr. who is Ashford Trust’s chairman emeritus. We had master hotel and project management agreements and hotel and project management mutual exclusivity agreements with Remington Lodging.

On August 8, 2018, Ashford Inc. completed the acquisition of Remington Lodging’s project management business, Premier Project Management LLC (“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.

On November 6, 2019, Ashford Inc. completed the acquisition of Remington Lodging’s hotel management business. As a result of the acquisition, hotel management services that were previously provided by Remington Lodging are now be provided by a subsidiary of Ashford Inc. under the respective hotel management agreement with each customer, including Ashford Trust and Braemar under the Remington Hotels name.

Prior to August 8, 2018, we paid Remington Lodging: a) monthly hotel 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, primarily related to accounting services. This related party allocated such charges to us based on various methodologies, including headcount and actual amounts incurred.

Between August 8, 2018 and November 5, 2019, we paid Remington Lodging monthly hotel 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 hotel management fees, if certain operational criteria were met and other general and administrative expense reimbursements primarily related to accounting services.

The following table presents the fees related to our hotel and project management agreements with Remington Lodging prior to its transactions with Ashford Inc. (in thousands):



	Year Ended December 31,
	2019		2018		2017
Hotel management fees, including incentive hotel management fees	$	1,738	$	1,762	$	1,748
Market service and project management fees	—		3,328		3,972
Corporate general and administrative	297		333		286
Total	$	2,035	$	5,423	$	6,006

As of December 31, 2018, due to related parties, net of $224,000 represented accrued base and incentive management fees.

Ashford Inc.

Advisory Agreement

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.

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 1/12th 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 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 1/12th 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 5th 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):



	Year Ended December 31,
	2019		2018		2017
Advisory services fee
Base advisory fee	$	10,834	$	9,424	$	8,800
Reimbursable expenses ⁽¹⁾	2,289		2,072		2,017
Equity-based compensation ⁽²⁾	7,404		6,481		(1,683		)
Incentive fee	—		2,035		—
Total	$	20,527	$	20,012	$	9,134

________


⁽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.

Due from related parties, net includes a $365,000 security deposit paid to Remington Hotel Corporation, an entity indirectly owned by Mr. Monty J. Bennett and Mr. Archie Bennett, Jr., for office space allocated to us under our advisory agreement. It will be held as security for the payment of our allocated share of office space rental. If unused it will be returned to us upon lease expiration or earlier termination.

Pursuant to the Company's hotel management agreements with each hotel 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 hotel 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 hotel management companies, to fund the casualty insurance program as needed, on an allocated basis.

Ashford Securities

On September 25, 2019, Ashford Inc. announced the formation of Ashford Securities LLC (“Ashford Securities”) to raise retail 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 December 31, 2019, Braemar has funded approximately $834,000, of which $520,000 was included in “other assets” of our consolidated balance sheet.

Costs for all operating expenses of Ashford Securities that are contributed by Ashford Trust and Braemar will be expensed as incurred. These costs will be allocated initially to Ashford Trust and Braemar based on an allocation percentage of 75% to Ashford Trust and 25% to Braemar. Upon reaching the earlier of $400 million in aggregate non-listed preferred equity offerings raised or June 10, 2023, there will be a true up (the “True-up Date”) between Ashford Trust and Braemar whereby the actual capital contributions contributed by each company will be based on the actual amount of capital raised by Ashford Trust and Braemar, respectively. After the True-Up Date, the capital contributions will be allocated between Ashford Trust and Braemar quarterly based on the actual capital raised through Ashford Securities. For the year ended December 31, 2019, Braemar has expensed $314,000 of reimbursed operating expenses of Ashford Securities, which is included in “corporate, general, and administrative” in the consolidated statements of operations.

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 Fifth 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 December 31, 2019, Ashford LLC has remitted payments of $10.3 million to the Company as further described below.

On June 26, 2019 and July 1, 2019, the Company sold $1.4 million and $8.9 million, respectively, of hotel FF&E from Braemar hotel properties to Ashford LLC which was subsequently leased back to the Company rent free. In accordance with ASC 842, the Company evaluated the transactions and concluded that the transaction qualified as a sale. As a result, the Company recorded gains of $9,000 and $23,000, respectively, for the year ended December 31, 2019. The gains are recorded in “gain (loss) on insurance settlement, disposition of assets and sale of hotel properties” in our 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.

In 2015, prior to the inception of the ERFP program, $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 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.

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).

Hotel Management Agreement

On November 6, 2019, Ashford Inc. completed the acquisition of Remington Lodging’s hotel management business. Following the acquisition, hotel management services are provided by Remington Hotels, a subsidiary of Ashford Inc., under the respective hotel management agreement with each customer, including Ashford Trust and Braemar.

At December 31, 2019, Remington Hotels managed three of our thirteen hotel properties.

After the Ashford Inc. acquisition, we pay monthly hotel 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.

We also have a mutual exclusivity agreement with Remington Hotels, pursuant to which (i) we have agreed to engage Remington Hotels 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 Hotels 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 Hotels 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 such related party because either special circumstances exist such that it would be in the best interest of our Company not to engage such related party, or, based on related party’s prior performance, it is believed that another manager could perform the management or other duties materially better.

Summary of Transactions

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 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 consolidated financial statements (in thousands):



		Year Ended December 31, 2019
Company	Product or Service	Total		Investments in Hotel Properties, net ⁽¹⁾		Indebtedness, net ⁽²⁾			Other Hotel Revenue		Other Hotel Expenses		Management fees		Property Taxes, Insurance and Other		Advisory Services Fee		Corporate General and Administrative		Write-off of Premiums, Loan Costs and Exit Fees
Ashford LLC	Insurance claims services	$	135	$	—	$	—		$	—	$	—	$	—	$	135	$	—	$	—	$	—
J&S Audio Visual	Audio visual services	560		—		—			560		—		—		—		—		—		—
Lismore Capital	Debt placement services	1,208		—		(995		)	—		—		—		—		—		—		213
OpenKey	Mobile key app	34		—		—			—		34		—		—		—		—		—
Premier	Project management services	10,123		9,584		—			—		—		—		—		539		—		—
Pure Wellness	Hypoallergenic premium rooms	194		148		—			—		46		—		—		—		—		—
RED Leisure	Watersports activities and travel/transportation services	946		—		—			—		946		—		—		—		—		—
Remington Hotels	Hotel management services ⁽³⁾	572		—		—			—		323		249		—		—		—		—



		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	Debt 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		—



		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	Debt placement services	$	224	$	—	$	(224	)	$	—	$	—
OpenKey	Mobile key app	10		—		—			10		—
Pure Wellness	Hypoallergenic premium rooms	45		45		—			—		—

________


⁽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.


⁽³⁾	Other hotel expenses include incentive hotel management fees and other hotel management costs.

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



		Due to Ashford Inc.
Company	Product or Service	December 31, 2019		December 31, 2018
Ashford LLC	Advisory services	$	1,606	$	2,264
Ashford LLC	Insurance claims services	44		37
J&S Audio Visual	Audio visual services	173		—
OpenKey	Mobile key app	—		13
Pure Wellness	Hypoallergenic premium rooms	3		30
Premier	Project management services	2,433		1,657
RED Leisure	Watersports activities and travel/transportation services	85		—
		$	4,344	$	4,001

As of December 31, 2019, due from related parties, net included a net receivable from Remington Hotels in the amount of $185,000 primarily related to advances made by Braemar and accrued base and incentive management fees.