10-Q 1 aht2018q310q.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________

Commission file number: 001-31775

ASHFORD HOSPITALITY TRUST, INC.

(Exact name of registrant as specified in its charter)

Maryland
 
86-1062192
(State or other jurisdiction of incorporation or organization)
 
(IRS employer identification number)
 
 
 
14185 Dallas Parkway, Suite 1100
 
 
Dallas, Texas
 
75254
(Address of principal executive offices)
 
(Zip code)

(972) 490-9600
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). þ Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
¨
Accelerated filer
þ
Non-accelerated filer
¨
Smaller reporting company
¨
 
 
Emerging growth company
¨
    
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes þ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, $0.01 par value per share
 
101,038,430
(Class)
 
Outstanding at October 31, 2018


ASHFORD HOSPITALITY TRUST, INC
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2018
TABLE OF CONTENTS


 
 
 



PART I. FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS (unaudited)
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except share and per share amounts)
 
September 30, 2018
 
December 31, 2017
Assets
 
Investments in hotel properties, net
$
4,089,985

 
$
4,035,915

Cash and cash equivalents
325,839

 
354,805

Restricted cash
141,092

 
116,787

Marketable securities
24,173

 
26,926

Accounts receivable, net of allowance of $608 and $770, respectively
60,208

 
44,257

Inventories
4,223

 
4,244

Investment in unconsolidated entities
4,514

 
2,955

Deferred costs, net
3,427

 
2,777

Prepaid expenses
29,662

 
19,269

Derivative assets, net
2,969

 
2,010

Other assets
18,117

 
14,152

Intangible assets, net
9,854

 
9,943

Due from third-party hotel managers
19,277

 
17,387

Assets held for sale
—

 
18,423

Total assets
$
4,733,340

 
$
4,669,850

Liabilities and Equity
 
 
 
Liabilities:
 
 
 
Indebtedness, net
$
3,894,447

 
$
3,696,300

Accounts payable and accrued expenses
147,808

 
132,401

Dividends and distributions payable
28,095

 
25,045

Due to Ashford Inc., net
5,176

 
15,146

Due to related party, net
1,078

 
1,067

Due to third-party hotel managers
2,745

 
2,431

Intangible liabilities, net
15,572

 
15,839

Derivative liabilities, net
205

 
—

Other liabilities
19,613

 
18,376

Liabilities related to assets held for sale
—

 
13,977

Total liabilities
4,114,739

 
3,920,582

Commitments and contingencies (note 14)


 


Redeemable noncontrolling interests in operating partnership
118,663

 
116,122

Equity:
 
 
 
Preferred stock, $0.01 par value, 50,000,000 shares authorized:
 
 
 
Series D Cumulative Preferred Stock, 2,389,393 shares issued and outstanding at September 30, 2018 and December 31, 2017
24

 
24

Series F Cumulative Preferred Stock, 4,800,000 shares issued and outstanding at September 30, 2018 and December 31, 2017
48

 
48

Series G Cumulative Preferred Stock, 6,200,000 shares issued and outstanding at September 30, 2018 and December 31, 2017
62

 
62

Series H Cumulative Preferred Stock, 3,800,000 shares issued and outstanding at September 30, 2018 and December 31, 2017
38

 
38

Series I Cumulative Preferred Stock, 5,400,000 shares issued and outstanding at September 30, 2018 and December 31, 2017
54

 
54

Common stock, $0.01 par value, 400,000,000 shares authorized, 101,038,430 and 97,409,113 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively
1,010

 
974

Additional paid-in capital
1,811,391

 
1,784,997

Accumulated deficit
(1,313,327
)
 
(1,153,697
)
Total stockholders’ equity of the Company
499,300

 
632,500

Noncontrolling interests in consolidated entities
638

 
646

Total equity
499,938

 
633,146

Total liabilities and equity
$
4,733,340

 
$
4,669,850

See Notes to Consolidated Financial Statements.

2

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Revenue
 
 
 
Rooms
$
288,016

 
$
289,017

 
$
868,090

 
$
876,927

Food and beverage
49,396

 
48,313

 
164,869

 
175,005

Other hotel revenue
17,309

 
15,006

 
51,358

 
43,720

Total hotel revenue
354,721

 
352,336

 
1,084,317

 
1,095,652

Other
1,209

 
989

 
2,984

 
2,052

Total revenue
355,930

 
353,325

 
1,087,301

 
1,097,704

Expenses
 
 
 
 
 
 
 
Hotel operating expenses:
 
 
 
 
 
 
 
Rooms
64,197

 
63,950

 
187,497

 
188,857

Food and beverage
37,649

 
37,173

 
116,270

 
121,619

Other expenses
109,992

 
112,421

 
332,629

 
337,978

Management fees
13,198

 
13,027

 
40,306

 
40,100

Total hotel expenses
225,036

 
226,571

 
676,702

 
688,554

Property taxes, insurance, and other
20,774

 
18,194

 
59,363

 
55,293

Depreciation and amortization
64,923

 
60,135

 
192,536

 
185,380

Impairment charges
(27
)
 
1,785

 
1,652

 
1,785

Transaction costs
—

 
—

 
11

 
11

Advisory services fee
12,805

 
14,612

 
52,961

 
39,482

Corporate general and administrative
3,090

 
2,412

 
8,450

 
10,836

Total expenses
326,601

 
323,709

 
991,675

 
981,341

Operating income (loss)
29,329

 
29,616

 
95,626

 
116,363

Equity in earnings (loss) of unconsolidated entities
310

 
(679
)
 
892

 
(3,580
)
Interest income
1,150

 
706

 
2,779

 
1,460

Gain (loss) on sale of hotel properties
(9
)
 
15

 
394

 
14,024

Other income (expense)
(202
)
 
(273
)
 
80

 
(3,539
)
Interest expense and amortization of premiums and loan costs
(60,731
)
 
(56,963
)
 
(173,680
)
 
(167,224
)
Write-off of premiums, loan costs and exit fees
(1,572
)
 
—

 
(9,316
)
 
(1,629
)
Unrealized gain (loss) on marketable securities
68

 
(936
)
 
(758
)
 
(4,813
)
Unrealized gain (loss) on derivatives
(2,085
)
 
(1,479
)
 
(3,672
)
 
(1,804
)
Income (loss) before income taxes
(33,742
)
 
(29,993
)
 
(87,655
)
 
(50,742
)
Income tax (expense) benefit
(519
)
 
1,267

 
(2,606
)
 
507

Net income (loss)
(34,261
)
 
(28,726
)
 
(90,261
)
 
(50,235
)
(Income) loss from consolidated entities attributable to noncontrolling interest
(10
)
 
(22
)
 
8

 
(4
)
Net (income) loss attributable to redeemable noncontrolling interests in operating partnership
6,682

 
6,940

 
18,087

 
13,202

Net income (loss) attributable to the Company
(27,589
)
 
(21,808
)
 
(72,166
)
 
(37,037
)
Preferred dividends
(10,645
)
 
(11,440
)
 
(31,933
)
 
(33,352
)
Extinguishment of issuance costs upon redemption of preferred stock
—

 
(4,507
)
 
—

 
(4,507
)
Net income (loss) attributable to common stockholders
$
(38,234
)
 
$
(37,755
)
 
$
(104,099
)
 
$
(74,896
)
 
 
 
 
 
 
 
 
Income (loss) per share - basic and diluted:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Net income (loss) attributable to common stockholders
$
(0.40
)
 
$
(0.40
)
 
$
(1.09
)
 
$
(0.80
)
Weighted average common shares outstanding – basic
97,467

 
95,332

 
96,591

 
95,169

Diluted:
 
 
 
 
 
 
 
Net income (loss) attributable to common stockholders
$
(0.40
)
 
$
(0.40
)
 
$
(1.09
)
 
$
(0.80
)
Weighted average common shares outstanding – diluted
97,467

 
95,332

 
96,591

 
95,169

 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.12

 
$
0.12

 
$
0.36

 
$
0.36

See Notes to Consolidated Financial Statements.

3

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited, in thousands)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Net income (loss)
$
(34,261
)
 
$
(28,726
)
 
$
(90,261
)
 
$
(50,235
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Total other comprehensive income (loss)
—

 
—

 
—

 
—

Comprehensive income (loss)
(34,261
)
 
(28,726
)
 
(90,261
)
 
(50,235
)
Less: Comprehensive (income) loss attributable to noncontrolling interest in consolidated entities
(10
)
 
(22
)
 
8

 
(4
)
Less: Comprehensive (income) loss attributable to redeemable noncontrolling interests in operating partnership
6,682

 
6,940

 
18,087

 
13,202

Comprehensive income (loss) attributable to the Company
$
(27,589
)
 
$
(21,808
)
 
$
(72,166
)
 
$
(37,037
)
See Notes to Consolidated Financial Statements.

4

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EQUITY
(unaudited, in thousands)
 
Preferred Stock
 
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Noncontrolling
Interests In
Consolidated
Entities
 
Total
 
Redeemable Noncontrolling
Interests in
Operating
Partnership
 
Series D
 
Series F
 
Series G
 
Series H
 
Series I
 
Common Stock
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
Balance at January 1, 2018
2,389

 
$
24

 
4,800

 
$
48

 
6,200

 
$
62

 
3,800

 
$
38

 
5,400

 
$
54

 
97,409

 
$
974

 
$
1,784,997

 
$
(1,153,697
)
 
$
646

 
$
633,146

 
$
116,122

Purchases of common stock
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(249
)
 
(3
)
 
(1,595
)
 
—

 
—

 
(1,598
)
 
—

Equity-based compensation
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
13,329

 
—

 
—

 
13,329

 
8,617

Forfeitures of restricted shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(46
)
 
—

 
—

 
—

 
—

 
—

 
—

Issuance of restricted shares/units
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
1,490

 
15

 
108

 
—

 
—

 
123

 
53

Cost for issuances of preferred shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(60
)
 
—

 
—

 
(60
)
 
—

Issuance of common stock
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
2,434

 
24

 
14,612

 
—

 
—

 
14,636

 
—

Dividends declared - common shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(36,144
)
 
—

 
(36,144
)
 
—

Dividends declared - preferred shares- Series D
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(3,785
)
 
—

 
(3,785
)
 
—

Dividends declared – preferred shares- Series F
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(6,637
)
 
—

 
(6,637
)
 
—

Dividends declared – preferred shares- Series G
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(8,573
)
 
—

 
(8,573
)
 
—

Dividends declared – preferred shares- Series H
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(5,344
)
 
—

 
(5,344
)
 
—

Dividends declared – preferred shares- Series I
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(7,594
)
 
—

 
(7,594
)
 
—

Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(7,429
)
Redemption value adjustment
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(19,387
)
 
—

 
(19,387
)
 
19,387

Net income (loss)
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(72,166
)
 
(8
)
 
(72,174
)
 
(18,087
)
Balance at September 30, 2018
2,389

 
$
24

 
4,800

 
$
48

 
6,200

 
$
62

 
3,800

 
$
38

 
5,400

 
$
54

 
101,038

 
$
1,010

 
$
1,811,391

 
$
(1,313,327
)
 
$
638

 
$
499,938

 
$
118,663

See Notes to Consolidated Financial Statements.

5

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
Nine Months Ended September 30,
 
2018
 
2017
Cash Flows from Operating Activities
 
 
 
Net income (loss)
$
(90,261
)
 
$
(50,235
)
Adjustments to reconcile net income (loss) to net cash flow from operating activities:
 
 
 
Depreciation and amortization
192,536

 
185,380

Impairment charges
1,652

 
1,785

Amortization of intangibles
(178
)
 
(178
)
Recognition of deferred income
(432
)
 
(593
)
Bad debt expense
1,527

 
1,441

Deferred income tax expense (benefit)
(603
)
 
(1,683
)
Equity in (earnings) loss of unconsolidated entities
(892
)
 
3,580

(Gain) loss on sale of hotel properties, net
(394
)
 
(14,024
)
Realized and unrealized (gain) loss on marketable securities
585

 
3,991

Purchases of marketable securities
(11,434
)
 
(38,889
)
Sales of marketable securities
13,602

 
76,123

Net settlement of trading derivatives
(1,323
)
 
(3,840
)
Realized and unrealized (gain) loss on derivatives
3,672

 
6,512

Amortization of loan costs and premiums, write-off of premiums, loan costs and exit fees
23,726

 
10,783

Equity-based compensation
21,946

 
8,751

Changes in operating assets and liabilities, exclusive of the effect of acquisitions and dispositions of hotel properties:
 
 
 
Accounts receivable and inventories
(16,524
)
 
(14,169
)
Prepaid expenses and other assets
(10,775
)
 
(6,852
)
Accounts payable and accrued expenses
21,551

 
18,573

Due to/from related party
(987
)
 
(734
)
Due to/from third-party hotel managers
(1,515
)
 
(5,969
)
Due to/from Braemar OP, net
—

 
(488
)
Due to/from Ashford Inc., net
(9,970
)
 
(2,027
)
Other liabilities
1,743

 
1,213

Net cash provided by (used in) operating activities
137,252

 
178,451

Cash Flows from Investing Activities
 
 
 
Investment in unconsolidated entity
(667
)
 
(983
)
Acquisition of hotel properties and assets, net of cash and restricted cash acquired
(114,877
)
 
(110
)
Improvements and additions to hotel properties
(164,726
)
 
(164,075
)
Net proceeds from sales of assets and hotel properties
40,573

 
105,267

Liquidation of AQUA U.S. Fund
—

 
50,942

Payments for initial franchise fees
(380
)
 
(225
)
Proceeds from property insurance
651

 
2,369

Net cash provided by (used in) investing activities
(239,426
)
 
(6,815
)
Cash Flows from Financing Activities
 
 
 
Borrowings on indebtedness
2,676,881

 
180,800

Repayments of indebtedness
(2,461,279
)
 
(246,139
)
Payments for loan costs and exit fees
(55,152
)
 
(5,813
)
Payments for dividends and distributions
(72,333
)
 
(75,571
)
Purchases of common stock
(1,598
)
 
(1,273
)
Redemption of preferred stock
—

 
(80,554
)
Payments for derivatives
(3,103
)
 
(633
)
Proceeds from common stock offering
13,624

 
—

Proceeds from preferred stock offering
—

 
91,634

Preferred stock offering costs
(60
)
 
—

Other
53

 
94

Net cash provided by (used in) financing activities
97,033

 
(137,455
)
Net increase (decrease) in cash, cash equivalents and restricted cash
(5,141
)
 
34,181

Cash, cash equivalents and restricted cash at beginning of period
472,072

 
492,473

Cash, cash equivalents and restricted cash and at end of period
$
466,931


$
526,654


6

 
Nine Months Ended September 30,
 
2018
 
2017
Supplemental Cash Flow Information
 
 
 
Interest paid
$
158,832

 
$
158,443

Income taxes paid (refunded)
1,527

 
1,610

Supplemental Disclosure of Non-Cash Investing and Financing Activity
 
 
 
Accrued but unpaid capital expenditures
$
13,970

 
$
18,300

Non-cash dividends paid
123

 
—

Unsettled common stock offering proceeds
1,075

 
—

Dividends and distributions declared but not paid
28,095

 
25,520

Supplemental Disclosure of Cash, Cash Equivalents and Restricted Cash
 
 
 
Cash and cash equivalents at beginning of period
$
354,805

 
$
347,091

Cash and cash equivalents at beginning of period included in assets held for sale
78

 
976

Restricted cash at beginning of period
116,787

 
144,014

Restricted cash at beginning of period included in assets held for sale
402

 
392

Cash, cash equivalents and restricted cash at beginning of period
$
472,072

 
$
492,473

 
 
 
 
Cash and cash equivalents at end of period
$
325,839

 
$
393,527

Restricted cash at end of period
141,092

 
133,127

Cash, cash equivalents and restricted cash at end of period
$
466,931

 
$
526,654

See Notes to Consolidated Financial Statements.

7
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



1. Organization and Description of Business
Ashford Hospitality Trust, Inc., together with its subsidiaries (“Ashford Trust”), is a real estate investment trust (“REIT”) focused on investing in full-service hotels in the upscale and upper upscale segments in domestic and international markets that have revenue per available room (“RevPAR”) generally less than twice the U.S. national average, and in all methods including direct real estate, equity, and debt. We own our lodging investments and conduct our business through Ashford Hospitality Limited Partnership (“Ashford Trust OP”), our operating partnership. Ashford OP General Partner LLC, a wholly-owned subsidiary of Ashford Trust, serves as the sole general partner of our operating partnership. In this report, terms such as the “Company,” “we,” “us,” or “our” refer to Ashford Hospitality Trust, Inc. and all entities included in its consolidated financial statements.
We are advised by Ashford Hospitality Advisors LLC (“Ashford LLC”), a subsidiary of Ashford Inc., through an advisory agreement. All of the hotel properties in our portfolio are currently asset-managed by Ashford LLC. We do not have any employees. All of the services that might be provided by employees are provided to us by Ashford LLC.
As of September 30, 2018, we owned interests in the following assets:
•
118 consolidated hotel properties, including 116 directly owned and two owned through a majority-owned investment in a consolidated entity, which represent 24,930 total rooms (or 24,903 net rooms excluding those attributable to our partner);
•
90 hotel condominium units at WorldQuest Resort in Orlando, Florida (“WorldQuest”);
•
a 25.1% ownership in Ashford Inc. common stock with a carrying value of $1.8 million and a fair value of $45.4 million; and
•
a 16.3% ownership in OpenKey with a carrying value of $2.8 million.
For federal income tax purposes, we have elected to be treated as a REIT, which imposes limitations related to operating hotels. As of September 30, 2018, our 118 hotel properties were leased or owned by our wholly-owned or majority-owned subsidiaries that are treated as taxable REIT subsidiaries for federal income tax purposes (collectively, these subsidiaries are referred to as “Ashford TRS”). Ashford TRS then engages third-party or affiliated hotel management companies to operate the hotels under management contracts. Hotel operating results related to these properties are included in the consolidated statements of operations.
As of September 30, 2018, Remington Lodging & Hospitality, LLC, together with its affiliates (“Remington Lodging”), which is beneficially wholly owned by Mr. Monty J. Bennett, our Chairman, and Mr. Archie Bennett, Jr., our Chairman Emeritus, managed 80 of our 118 hotel properties and WorldQuest Resort. Third-party management companies managed the remaining hotel properties. On August 8, 2018, Ashford Inc., the parent company of the advisor, completed its acquisition of Remington Holdings, L.P.’s project management business. See note 16.
2. Significant Accounting Policies
Basis of Presentation—The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These consolidated financial statements include the accounts of Ashford Hospitality Trust, Inc., its majority-owned subsidiaries, and its majority-owned joint ventures in which it has a controlling interest. All significant inter-company accounts and transactions between consolidated entities have been eliminated in these consolidated financial statements. We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP in the accompanying unaudited consolidated financial statements. We believe the disclosures made herein are adequate to prevent the information presented from being misleading. However, the financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our 2017 Annual Report to Stockholders on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 14, 2018.
Ashford Trust OP is considered to be a variable interest entity (“VIE”), as defined by authoritative accounting guidance. A VIE must be consolidated by a reporting entity if the reporting entity is the primary beneficiary because it has (i) the power to direct the VIE’s activities that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE. All major decisions related to Ashford Trust OP that most significantly impact its economic performance, including but not limited to operating procedures with respect to business affairs and any acquisitions,

8
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

dispositions, financings, restructurings or other transactions with sellers, purchasers, lenders, brokers, agents and other applicable representatives, are subject to the approval of our wholly-owned subsidiary, Ashford Trust OP General Partner LLC, its general partner. As such, we consolidate Ashford Trust OP.
Historical seasonality patterns at some of our hotel properties cause fluctuations in our overall operating results. Consequently, operating results for the three and nine months ended September 30, 2018, are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.
The following acquisitions and dispositions affect reporting comparability of our consolidated financial statements:
Hotel Property 
 
Location 
 
Type
 
Date
Renaissance
 
Portsmouth, VA
 
Disposition
 
February 1, 2017
Embassy Suites
 
Syracuse, NY
 
Disposition
 
March 6, 2017
Crowne Plaza Ravinia
 
Atlanta, GA
 
Disposition
 
June 29, 2017
SpringHill Suites
 
Glen Allen, VA
 
Disposition
 
February 20, 2018
SpringHill Suites
 
Centreville, VA
 
Disposition
 
May 1, 2018
Residence Inn Tampa
 
Tampa, FL
 
Disposition
 
May 10, 2018
Hilton Alexandria Old Town
 
Alexandria, VA
 
Acquisition
 
June 29, 2018
Use of Estimates—The preparation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Restricted Cash—Restricted cash includes reserves for debt service, real estate taxes, and insurance, as well as excess cash flow deposits and reserves for furniture, fixtures, and equipment replacements of approximately 4% to 6% of property revenue for certain hotels, as required by certain management or mortgage debt agreement restrictions and provisions.
Impairment of Investments in Hotel Properties—Hotel properties are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Recoverability of the hotel is measured by comparison of the carrying amount of the hotel to the estimated future undiscounted cash flows, which take into account current market conditions and our intent with respect to holding or disposing of the hotel. If our analysis indicates that the carrying value of the hotel is not recoverable on an undiscounted cash flow basis, we recognize an impairment charge for the amount by which the property’s net book value exceeds its estimated fair value, or fair value, less cost to sell. In evaluating impairment of hotel properties, we make many assumptions and estimates, including projected cash flows, expected holding period, and expected useful life. Fair value is determined through various valuation techniques, including internally developed discounted cash flow models, comparable market transactions and third-party appraisals, where considered necessary. Asset write-downs resulting from property damage are recorded up to the amount of the allocable property insurance deductible in the period that the property damage occurs. See note 5.
Hotel Dispositions—Discontinued operations are defined as the disposal of components of an entity that represents strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. We believe that individual dispositions of hotel properties do not represent a strategic shift that has (or will have) a major effect on our operations and financial results as most will not fit the definition.
Assets Held for Sale—We classify assets as held for sale when we have obtained a firm commitment from a buyer, and consummation of the sale is considered probable and expected within one year. The related operations of assets held for sale are reported as discontinued if the disposal is a component of an entity that represents a strategic shift that has (or will have) a major effect on our operations and cash flows. Depreciation and amortization will cease as of the date assets have met the criteria to be deemed held for sale. See note 5.
Investments in Unconsolidated Entities—Investments in entities in which we have ownership interests ranging from 16.3% to 25.1%, at September 30, 2018, are accounted for under the equity method of accounting by recording the initial investment and our percentage of interest in the entities’ net income/loss. We review the investments in our unconsolidated entities for impairment in each reporting period pursuant to the applicable authoritative accounting guidance. An investment is impaired when its estimated fair value is less than the carrying amount of our investment. Any impairment is recorded in equity in earnings (loss) in unconsolidated entities. No such impairment was recorded for the three and nine months ended September 30, 2018 and 2017.

9
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

Our investments in certain unconsolidated entities are considered to be variable interests in the underlying entities. Each VIE, as defined by authoritative accounting guidance, must be consolidated by a reporting entity if the reporting entity is the primary beneficiary because it has (i) the power to direct the VIE’s activities that most significantly impact the VIE’s economic performance, and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE. Because we do not have the power and financial responsibility to direct the unconsolidated entities’ activities and operations, we are not considered to be the primary beneficiary of these entities on an ongoing basis and therefore such entities should not be consolidated. In evaluating VIEs, our analysis involves considerable management judgment and assumptions.
Equity-Based Compensation—Prior to the adoption of Accounting Standards Update (“ASU”) 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”) in the third quarter of 2018, stock/unit-based compensation for non-employees was accounted for at fair value based on the market price of the shares at period end that resulted in recording expense, included in “advisory services fee” and “management fees,” equal to the fair value of the award in proportion to the requisite service period satisfied during the period. Performance stock units (“PSUs”) and performance-based Long-Term Incentive Plan (“Performance LTIP”) units granted to certain executive officers were accounted for at fair value at period end based on a Monte Carlo simulation valuation model that resulted in recording expense, included in “advisory services fee,” equal to the fair value of the award in proportion to the requisite service period satisfied during the period. Stock/unit grants to independent directors are recorded at fair value based on the market price of the shares at grant date, which amount is fully expensed as the grants of stock/units are fully vested on the date of grant.
After the adoption of ASU 2018-07 in the third quarter of 2018, stock/unit-based compensation for non-employees is measured at the grant date and expensed ratably over the vesting period based on the original measurement as of the grant date. This results in the recording of expense, included in “advisory services fee” and “management fees,” equal to the ratable amount of the grant date fair value based on the requisite service period satisfied during the period. PSUs and Performance LTIP units granted to certain executive officers vest based on market conditions and are measured at the grant date fair value based on a Monte Carlo simulation valuation model. The subsequent expense is then ratably recognized over the service period as the service is rendered regardless of when, if ever, the market conditions are satisfied. This results in recording expense, included in “advisory services fee,” equal to the ratable amount of the grant date fair value based on the requisite service period satisfied during the period. Stock/unit grants to independent directors are measured at the grant date based on the market price of the shares at grant date, which amount is fully expensed as the grants of stock/units are fully vested on the date of grant.
Recently Adopted Accounting Standards—In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 is a comprehensive new revenue recognition model, which requires a company to recognize revenue to depict the transfer of promised goods or services to a customer in an amount that reflects the consideration the company expects to receive in exchange for those goods or services. The update replaces most existing revenue recognition guidance in U.S. GAAP. The standard permits the use of either the full retrospective or cumulative effect (modified retrospective) transition method. This standard, referred to as “Topic 606,” does not materially affect the amount or timing of revenue recognition for revenues from room, food and beverage, and other hotel level sales. Additionally, we have historically disposed of hotel properties for cash sales with no contingencies and no future involvement in the hotel operations. Therefore, Topic 606 does not impact the recognition of hotel sales. We adopted this standard effective January 1, 2018, under the modified retrospective method, and the adoption of this standard did not have a material impact on our consolidated financial statements. See related disclosures in note 3.
In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which requires an entity to: (i) measure equity investments at fair value through net income, with certain exceptions; (ii) present in other comprehensive income the changes in instrument-specific credit risk for financial liabilities measured using the fair value option; (iii) present financial assets and financial liabilities by measurement category and form of financial asset; (iv) calculate the fair value of financial instruments for disclosure purposes based on an exit price and; (v) assess a valuation allowance on deferred tax assets related to unrealized losses of AFS debt securities in combination with other deferred tax assets. ASU 2016-01 provides an election to subsequently measure certain nonmarketable equity investments at cost less any impairment and adjusted for certain observable price changes. It also requires a qualitative impairment assessment of such equity investments and amends certain fair value disclosure requirements. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Certain provisions of ASU 2016-01 are eligible for early adoption. We adopted this standard effective January 1, 2018. The adoption of this standard did not have a material impact on our consolidated financial statements and related disclosures.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments - a Consensus of the Emerging Issues Task Force (“ASU 2016-15”). The new guidance is intended to reduce

10
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

diversity in practice in how certain transactions are classified in the statement of cash flows. Certain issues addressed in this guidance include - debt payments or debt extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, distributions received from equity method investments and beneficial interests in securitization transactions. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. We adopted this standard effective January 1, 2018 on a prospective basis as there were no required changes as a result of adoption. The adoption of this standard did not have a material impact on our consolidated statements of cash flows.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) - Clarifying the Definition of a Business (“ASU 2017-01”), which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether a transaction should be accounted for as an acquisition (or disposal) of an asset or a business. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017. Early adoption is permitted. We adopted this standard effective January 1, 2018. Under the new standard, certain future hotel acquisitions may be considered asset acquisitions rather than business combinations, which would affect capitalization of acquisitions costs (such costs are expensed for business combinations and capitalized for asset acquisitions). Asset acquisitions are accounted for by allocating the cost of the acquisition to the individual assets acquired and liabilities assumed on a relative fair value basis. We concluded that our hotel acquisition completed in the second quarter of 2018 is the acquisition of assets because substantially all of the fair value of the gross assets acquired were concentrated in a single identifiable asset or a group of similar identifiable assets. As such, acquisition costs were capitalized as part of the transaction. See note 4.
In February 2017, the FASB issued ASU 2017-05, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (ASU “2017-05”), which clarifies the scope of ASC Subtopic 610-20, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets and adds guidance for partial sales of nonfinancial assets. ASU 2017-05 is effective for fiscal years beginning after December 15, 2017. Early adoption is permitted. An entity may elect to apply ASU 2017-05 under a retrospective or modified retrospective method. We adopted this standard effective January 1, 2018, under the modified retrospective method. The adoption of this standard did not have a material impact on our consolidated financial statements and related disclosures.
In June 2018, the FASB issued ASU 2018-07, which expanded the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees and aligns the guidance for share-based payments to non-employees with the requirements for share-based payments granted to employees. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We adopted ASU 2018-07 effective July 1, 2018. The adoption of ASU 2018-07 has a material impact on our consolidated financial statements because the compensation expense related to our equity awards is now determined based on the grant date fair value of the awards and will be ratably recognized over the service period as the service is rendered as opposed to being marked-to-market in periods prior to adoption. For all existing equity awards, future equity-based compensation expense is based on the fair value of the awards on July 1, 2018. See the Equity-Based Compensation section included above in our Significant Accounting Policies for further details.
Recently Issued Accounting Standards—In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases (“ASU 2018-10”) and ASU 2018-11, Leases (Topic 842), Targeted Improvements (“ASU 2018-11”). The amendments in ASU 2018-10 affect only narrow aspects of the guidance issued in the amendments in ASU 2016-02, including but not limited to lease residual value guarantees, the rate implicit in the lease, lease term and purchase options. The amendments in ASU 2018-11 provide an optional transition method for adoption of the new standard, which will allow entities to continue to apply the legacy guidance in ASC 840, including its disclosure requirements, in the comparative periods presented in the year of adoption. ASU 2016-02 is effective for annual and interim periods for fiscal years beginning after December 15, 2018, which will require us to adopt these provisions in the first quarter of 2019 on a modified retrospective basis. The accounting for leases under which we are the lessor remains largely unchanged. While we continue evaluating our lease portfolio to assess the impact that ASU 2016-02 will have on our consolidated financial statements, we expect the primary impact to our consolidated financial statements upon adoption will be the recognition, on a discounted basis, of our future minimum rentals due under noncancelable leases on our consolidated balance sheets resulting in the recording of ROU assets and lease obligations. We disclosed $123.7 million in undiscounted future minimum rentals due under non-cancelable leases in note 12 of our most recent 10-K. We are involving our property managers and implementing repeatable processes to manage ongoing lease data collection and analysis, and evaluating accounting policies and internal controls that will be impacted by the new standards. We have also engaged in a third party valuation expert to assist us in determining the value of our ROU assets and operating lease liabilities including the

11
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

determination of our incremental borrowing rate. We expect to use the transition method that includes the practical expedient that allows us to adopt effective January 1, 2019 and not reevaluate or recast prior periods, however we are still evaluating the available transition methods.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The ASU sets forth an “expected credit loss” impairment model to replace the current “incurred loss” method of recognizing credit losses. The standard requires measurement and recognition of expected credit losses for most financial assets held. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for periods beginning after December 15, 2018. We are currently evaluating the impact that ASU 2016-13 will have on our consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 modifies certain disclosure requirements related to fair value measurements including requiring disclosures on changes in unrealized gains and losses in other comprehensive income for recurring Level 3 fair value measurements and a requirement to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact that ASU 2018-13 will have on the consolidated financial statements.
3. Revenue
On January 1, 2018, we adopted Topic 606 using the modified retrospective method. As the adoption of this standard did not have a material impact on our consolidated financial statements, no adjustments to opening retained earnings were made as of January 1, 2018. Results for reporting periods beginning after January 1, 2018, are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Accounting Standards Codification (“ASC”) Topic 605-Revenue Recognition.
Rooms revenue represents revenue from the occupancy of our hotel rooms and is driven by the occupancy and average daily rate charged. Rooms revenue includes revenue for guest no-shows, day use, and early/late departure fees. The contracts for room stays with customers are generally short in duration and revenues are recognized as services are provided over the course of the hotel stay.
Food & Beverage (“F&B”) revenue consists of revenue from the restaurants and lounges at our hotel properties, In-room dining and mini-bars revenue, and banquet/catering revenue from group and social functions. Other F&B revenue may include revenue from audio-visual equipment/services, rental of function rooms, and other F&B related revenue. Revenue is recognized as the services or products are provided. Our hotel properties may employ third parties to provide certain services at the property, for example, audio visual services. We evaluate each of these contracts to determine if the hotel is the principal or the agent in the transaction, and record the revenue as appropriate (i.e. gross vs. net).
Other revenue consists of ancillary revenue at the property, including attrition and cancellation fees, resort and destination fees, spas, parking, entertainment and other guest services, as well as rental revenue; primarily consisting of leased retail outlets at our hotel properties. Attrition and cancellation fees are recognized for non-cancellable deposits when the customer provides notification of cancellation within established management policy time frames. For the three and nine months ended September 30, 2018, we recorded $0 and $2.5 million of business interruption income for the St. Petersburg Hilton and Key West Crowne Plaza related to a settlement for lost profits from the BP Deepwater Horizon oil spill in the Gulf of Mexico in 2010.
Taxes collected from customers and submitted to taxing authorities are not recorded in revenue. Interest income is recognized when earned. We discontinue recording interest and amortizing discounts/premiums when the contractual payment of interest and/or principal is not received when contractually due.

12
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

The following tables presents our revenue disaggregated by geographical areas (in thousands):
 
 
Three Months Ended September 30, 2018
Primary Geographical Market
 
Number of Hotels
 
Rooms
 
Food and Beverage
 
Other Hotel
 
Other
 
Total
Atlanta, GA Area
 
9

 
$
16,843

 
$
3,800

 
$
1,379

 
$
—

 
$
22,022

Boston, MA Area
 
3

 
18,274

 
2,102

 
944

 
—

 
21,320

Dallas / Ft. Worth Area
 
7

 
14,412

 
3,333

 
921

 
—

 
18,666

Houston, TX Area
 
3

 
6,378

 
1,720

 
183

 
—

 
8,281

Los Angeles, CA Metro Area
 
6

 
19,336

 
3,382

 
1,302

 
—

 
24,020

Miami, FL Metro Area
 
3

 
5,072

 
1,652

 
232

 
—

 
6,956

Minneapolis - St. Paul, MN - WI Area
 
4

 
9,930

 
2,308

 
1,242

 
—

 
13,480

Nashville, TN Area
 
1

 
12,854

 
3,581

 
341

 
—

 
16,776

New York / New Jersey Metro Area
 
6

 
19,661

 
5,031

 
796

 
—

 
25,488

Orlando, FL Area
 
3

 
6,242

 
371

 
356

 
—

 
6,969

Philadelphia, PA Area
 
3

 
6,898

 
1,000

 
250

 
—

 
8,148

San Diego, CA Area
 
2

 
5,228

 
254

 
269

 
—

 
5,751

San Francisco - Oakland, CA Metro Area
 
6

 
21,684

 
1,862

 
658

 
—

 
24,204

Tampa, FL Area
 
2

 
4,585

 
1,263

 
257

 
—

 
6,105

Washington DC - MD - VA Area
 
9

 
28,214

 
5,142

 
2,089

 
—

 
35,445

Other Areas
 
51

 
91,492

 
12,565

 
5,815

 
—

 
109,872

Orlando WorldQuest
 
—

 
913

 
30

 
275

 
—

 
1,218

Corporate
 
—

 
—

 
—

 
—

 
1,209

 
1,209

Total
 
118

 
$
288,016

 
$
49,396

 
$
17,309

 
$
1,209

 
$
355,930

 
 
Three Months Ended September 30, 2017
Primary Geographical Market
 
Number of Hotels
 
Rooms
 
Food and Beverage
 
Other Hotel
 
Other
 
Total
Atlanta, GA Area
 
9

 
$
16,831

 
$
3,533

 
$
1,373

 
$
—

 
$
21,737

Boston, MA Area
 
3

 
17,427

 
1,992

 
903

 
—

 
20,322

Dallas / Ft. Worth Area
 
7

 
14,827

 
2,950

 
800

 
—

 
18,577

Houston, TX Area
 
3

 
6,902

 
1,954

 
169

 
—

 
9,025

Los Angeles, CA Metro Area
 
6

 
19,074

 
3,263

 
1,193

 
—

 
23,530

Miami, FL Metro Area
 
3

 
5,383

 
1,418

 
250

 
—

 
7,051

Minneapolis - St. Paul, MN - WI Area
 
4

 
10,408

 
2,457

 
1,148

 
—

 
14,013

Nashville, TN Area
 
1

 
12,820

 
3,567

 
414

 
—

 
16,801

New York / New Jersey Metro Area
 
6

 
20,301

 
4,995

 
717

 
—

 
26,013

Orlando, FL Area
 
3

 
6,743

 
415

 
179

 
—

 
7,337

Philadelphia, PA Area
 
3

 
6,601

 
960

 
237

 
—

 
7,798

San Diego, CA Area
 
2

 
5,139

 
462

 
212

 
—

 
5,813

San Francisco - Oakland, CA Metro Area
 
6

 
20,814

 
1,949

 
520

 
—

 
23,283

Tampa, FL Area
 
3

 
4,744

 
1,088

 
185

 
—

 
6,017

Washington DC - MD - VA Area
 
9

 
25,376

 
4,421

 
1,334

 
—

 
31,131

Other Areas
 
52

 
91,740

 
12,857

 
4,993

 
—

 
109,590

Orlando WorldQuest
 
—

 
1,062

 
31

 
284

 
—

 
1,377

Sold properties
 
3

 
2,825

 
1

 
95

 
—

 
2,921

Corporate
 
—

 
—

 
—

 
—

 
989

 
989

Total
 
123

 
$
289,017

 
$
48,313

 
$
15,006

 
$
989

 
$
353,325


13
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

 
 
Nine Months Ended September 30, 2018
Primary Geographical Market
 
Number of Hotels
 
Rooms
 
Food and Beverage
 
Other Hotel
 
Other
 
Total
Atlanta, GA Area
 
9

 
$
51,131

 
$
12,233

 
$
4,127

 
$
—

 
$
67,491

Boston, MA Area
 
3

 
45,046

 
5,619

 
2,625

 
—

 
53,290

Dallas / Ft. Worth Area
 
7

 
47,427

 
12,525

 
2,620

 
—

 
62,572

Houston, TX Area
 
3

 
20,599

 
6,933

 
602

 
—

 
28,134

Los Angeles, CA Metro Area
 
6

 
59,912

 
11,601

 
3,534

 
—

 
75,047

Miami, FL Metro Area
 
3

 
22,014

 
6,728

 
764

 
—

 
29,506

Minneapolis - St. Paul, MN - WI Area
 
4

 
28,228

 
7,188

 
3,613

 
—

 
39,029

Nashville, TN Area
 
1

 
38,151

 
9,430

 
1,181

 
—

 
48,762

New York / New Jersey Metro Area
 
6

 
56,696

 
17,154

 
2,159

 
—

 
76,009

Orlando, FL Area
 
3

 
21,763

 
1,160

 
887

 
—

 
23,810

Philadelphia, PA Area
 
3

 
18,587

 
3,226

 
675

 
—

 
22,488

San Diego, CA Area
 
2

 
14,224

 
755

 
744

 
—

 
15,723

San Francisco - Oakland, CA Metro Area
 
6

 
61,564

 
5,378

 
1,752

 
—

 
68,694

Tampa, FL Area
 
2

 
17,555

 
4,746

 
1,293

 
—

 
23,594

Washington DC - MD - VA Area
 
9

 
86,948

 
16,939

 
4,886

 
—

 
108,773

Other Areas
 
51

 
271,241

 
43,146

 
18,847

 
—

 
333,234

Orlando WorldQuest
 
—

 
3,486

 
107

 
920

 
—

 
4,513

Sold properties
 
3

 
3,518

 
1

 
129

 
—

 
3,648

Corporate
 
—

 
—

 
—

 
—

 
2,984

 
2,984

Total
 
121

 
$
868,090

 
$
164,869

 
$
51,358

 
$
2,984

 
$
1,087,301

 
 
Nine Months Ended September 30, 2017
Primary Geographical Market
 
Number of Hotels
 
Rooms
 
Food and Beverage
 
Other Hotel
 
Other
 
Total
Atlanta, GA Area
 
9

 
$
50,878

 
$
12,727

 
$
3,739

 
$
—

 
$
67,344

Boston, MA Area
 
3

 
44,637

 
6,036

 
2,418

 
—

 
53,091

Dallas / Ft. Worth Area
 
7

 
46,205

 
12,668

 
2,462

 
—

 
61,335

Houston, TX Area
 
3

 
21,052

 
6,538

 
532

 
—

 
28,122

Los Angeles, CA Metro Area
 
6

 
59,130

 
11,683

 
3,481

 
—

 
74,294

Miami, FL Metro Area
 
3

 
21,256

 
6,488

 
689

 
—

 
28,433

Minneapolis - St. Paul, MN - WI Area
 
4

 
27,936

 
7,358

 
3,326

 
—

 
38,620

Nashville, TN Area
 
1

 
38,687

 
14,575

 
1,266

 
—

 
54,528

New York / New Jersey Metro Area
 
6

 
55,934

 
17,863

 
1,786

 
—

 
75,583

Orlando, FL Area
 
3

 
22,824

 
1,536

 
562

 
—

 
24,922

Philadelphia, PA Area
 
3

 
18,082

 
2,951

 
601

 
—

 
21,634

San Diego, CA Area
 
2

 
14,102

 
1,174

 
549

 
—

 
15,825

San Francisco - Oakland, CA Metro Area
 
6

 
59,206

 
5,744

 
1,529

 
—

 
66,479

Tampa, FL Area
 
3

 
18,172

 
5,166

 
599

 
—

 
23,937

Washington DC - MD - VA Area
 
9

 
86,682

 
16,899

 
3,855

 
—

 
107,436

Other Areas
 
52

 
270,209

 
42,265

 
14,888

 
—

 
327,362

Orlando WorldQuest
 
—

 
3,934

 
121

 
951

 
—

 
5,006

Sold properties
 
6

 
18,001

 
3,213

 
487

 
—

 
21,701

Corporate
 
—

 
—

 
—

 
—

 
2,052

 
2,052

Total
 
126

 
$
876,927

 
$
175,005

 
$
43,720

 
$
2,052

 
$
1,097,704


14
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

4. Investments in Hotel Properties, net
Investments in hotel properties, net consisted of the following (in thousands):
 
September 30, 2018
 
December 31, 2017
Land
$
665,578

 
$
653,293

Buildings and improvements
4,033,508

 
3,895,112

Furniture, fixtures, and equipment
494,583

 
468,420

Construction in progress
30,960

 
35,273

Condominium properties
12,173

 
12,196

Total cost
5,236,802

 
5,064,294

Accumulated depreciation
(1,146,817
)
 
(1,028,379
)
Investments in hotel properties, net
$
4,089,985

 
$
4,035,915

Acquisitions
Hilton Alexandria Old Town
On June 29, 2018, the Company acquired a 100% interest in the 252-room Hilton Alexandria Old Town in Alexandria, Virginia for $111.0 million. We accounted for this transaction as an asset acquisition because substantially all of the fair value of the gross assets acquired were concentrated in a group of similar identifiable assets. We allocated the cost of the acquisition including transaction costs to the individual assets acquired and liabilities assumed on a relative fair value basis, which is considered a Level 3 valuation technique, as noted in the following table (in thousands):
Land
$
14,459

Buildings and improvements
94,535

Furniture, fixtures and equipment
2,479

 
$
111,473

Net other assets (liabilities)
$
194

The results of operations of the hotel property have been included in our results of operations as of the acquisition date. The table below summarizes the total revenue and net income (loss) of the hotel property in our consolidated statements of operations for the three and nine months ended September 30, 2018:
 
Three Months Ended September 30, 2018
 
Nine Months Ended September 30, 2018
Total revenue
$
4,523

 
$
4,523

Net income (loss)
194

 
194

5. Hotel Dispositions, Impairment Charges, Insurance Recoveries and Assets Held For Sale
Hotel Dispositions
On February 1, 2017, the Company sold the Renaissance hotel in Portsmouth, Virginia (“Renaissance Portsmouth”) for approximately $9.2 million in cash. The sale resulted in a loss of $43,000 for the year ended December 31, 2017 and is included in “gain (loss) on sale of hotel properties” in the consolidated statements of operations. The Company also repaid approximately $20.2 million of debt associated with the hotel property. See note 7.
On March 6, 2017, the Company sold the Embassy Suites in Syracuse, New York (“Embassy Suites Syracuse”) for approximately $8.8 million in cash. The sale resulted in a loss of $40,000 for the year ended December 31, 2017 and is included in “gain (loss) on sale of hotel properties” in the consolidated statements of operations. The Company also repaid approximately $20.6 million of debt associated with the hotel property. See note 7.

15
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

On June 29, 2017, the Company sold the Crowne Plaza Ravinia in Atlanta, Georgia for approximately $88.7 million in cash. The sale resulted in a gain of $14.1 million for the year ended December 31, 2017 and is included in “gain (loss) on sale of hotel properties” in the consolidated statements of operations. The Company also repaid approximately $78.7 million of debt associated with the hotel property. See note 7.
On February 20, 2018, we completed the sale of the SpringHill Suites Glen Allen for approximately $10.9 million in cash. The sale resulted in a loss of approximately $13,000 for the nine months ended September 30, 2018 and is included in “gain (loss) on sale of hotel properties” in the consolidated statements of operations. The Company also repaid approximately $7.6 million of debt associated with the hotel property. See note 7.
On May 1, 2018, we completed the sale of the SpringHill Suites Centreville for approximately $7.5 million in cash. The sale resulted in a gain of approximately $16,000 for the nine months ended September 30, 2018 and is included in “gain (loss) on sale of hotel properties” in the consolidated statements of operations. The Company also repaid approximately $6.6 million of debt associated with the hotel property. See note 7.
On May 10, 2018, we completed the sale of the Residence Inn Tampa for approximately $24.0 million in cash. The sale resulted in a gain of approximately $400,000 for the nine months ended September 30, 2018 and is included in “gain (loss) on sale of hotel properties” in the consolidated statements of operations. The Company also repaid approximately $22.5 million of debt associated with the hotel property. See note 7.
We included the results of operations for these hotel properties through the date of disposition in net income (loss). The following table includes condensed financial information from these hotel properties in the consolidated statements of operations for the three and nine months ended September 30, 2018 and 2017 (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Total hotel revenue
$
—

 
$
2,921

 
$
3,648

 
$
21,701

Total hotel operating expenses
75

 
(2,302
)
 
(2,196
)
 
(15,786
)
Operating income (loss)
75

 
619

 
1,452

 
5,915

Property taxes, insurance and other
—

 
(148
)
 
(220
)
 
(1,031
)
Depreciation and amortization
—

 
(556
)
 
(347
)
 
(4,007
)
Impairment charges
—

 
(25
)
 
(1,939
)
 
(25
)
Interest income
—

 
—

 
—

 
12

Gain (loss) on sale of hotel properties
(9
)
 
15

 
394

 
14,024

Interest expense and amortization of loan costs
—

 
(425
)
 
(525
)
 
(3,665
)
Write-off of loan costs and exit fees
—

 
—

 
(524
)
 
(98
)
Income (loss) before income taxes
66

 
(520
)
 
(1,709
)
 
11,125

(Income) loss before income taxes attributable to redeemable noncontrolling interests in operating partnership
(10
)
 
82

 
254

 
(1,750
)
Net income (loss) attributable to the Company
$
56

 
$
(438
)
 
$
(1,455
)
 
$
9,375

Impairment Charges and Insurance Recoveries
In August and September 2017, twenty-four of our hotel properties in Texas and Florida were impacted by the effects of Hurricanes Harvey and Irma. The Company holds insurance policies that provide coverage for property damage and business interruption after meeting certain deductibles at all of its hotel properties. During 2017, the Company recognized impairment charges, net of anticipated insurance recoveries of $2.0 million. Additionally, the Company recognized remediation and other costs, net of anticipated insurance recoveries of $2.8 million, included primarily in other hotel operating expenses. As of December 31, 2017, the Company recorded an insurance receivable of $267,000, net of deductibles of $4.8 million, included in “accounts receivable, net” on our consolidated balance sheet, related to the anticipated insurance recoveries. During the year ended December 31, 2017, the Company received proceeds of $612,000 for business interruption losses associated with lost profits, which has been recorded as “other” hotel revenue in our consolidated statement of operations, in excess of the deductible of $360,000.

16
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

For the three and nine months ended September 30, 2018, the Company recorded revenue from business interruption losses associated with lost profits from the hurricanes of $0 and $401,000, respectively, which is included in “other” hotel revenue in our consolidated statement of operations. We received additional proceeds of $192,000 and $834,000 associated with property damage from the hurricanes during the three and nine months ended September 30, 2018. The Company will not record an insurance recovery receivable for business interruption losses associated with lost profits until the amount for such recoveries is known and the amount is realizable.
Additionally, for the three and nine months ended September 30, 2018, we recorded a $0 and $2.0 million impairment charge, respectively, at the SpringHill Suites in Centreville, Virginia (“SpringHill Suites Centreville”). We also recorded impairment adjustments of $(27,000) and $(310,000) for the three and nine months, respectively, based on changes in estimates of property damages incurred from Hurricanes Harvey and Irma. For the year ended December 31, 2017, we recorded impairment charges of $8.2 million related to the SpringHill Suites Centreville and the SpringHill Suites in Glen Allen, Virginia (“SpringHill Suites Glen Allen”) in the amounts of $4.7 million and $3.5 million, respectively. The impairment charges were based on methodologies discussed in note 2, which are considered Level 3 valuation techniques. SpringHill Suites Glen Allen was sold on February 20, 2018 and SpringHill Suites Centreville was sold on May 1, 2018. See discussion below under “Assets Held For Sale.”
Assets Held For Sale
At December 31, 2017, the SpringHill Suites Centreville and the SpringHill Suites Glen Allen were classified as held for sale in the consolidated balance sheet based on methodologies discussed in note 2.
On February 20, 2018, we completed the sale of the SpringHill Suites Glen Allen for approximately $10.9 million. The sale resulted in a loss of $13,000 for the nine months ended September 30, 2018, and is included in “gain (loss) on sale of hotel properties” in the consolidated statements of operations.
On May 1, 2018, we completed the sale of the SpringHill Suites Centreville for approximately $7.5 million in cash. We also repaid approximately $6.6 million of principal on our mortgage loan partially secured by the hotel property. The sale resulted in a gain of $16,000 for the nine months ended September 30, 2018, and is included in “gain (loss) on sale of hotel properties” in the consolidated statements of operations.
Since the sale of the hotel properties does not represent a strategic shift that has (or will have) a major effect on our operations or financial results, their results of operation were not reported as discontinued operations in the consolidated financial statements. Depreciation and amortization were ceased as of the date the assets were deemed held for sale.
The major classes of assets and liabilities related to the assets held for sale included in the consolidated balance sheets at December 31, 2017 were as follows:
 
December 31, 2017
Assets
 
Investments in hotel properties, net
$
17,732

Cash and cash equivalents
78

Restricted cash
402

Accounts receivable
127

Inventories
1

Prepaid expenses
21

Other assets
31

Due from third-party hotel managers
31

Assets held for sale
$
18,423

 
 
Liabilities
 
Indebtedness, net
$
13,221

Accounts payable and accrued expenses
662

Due to related party, net
94

Liabilities related to assets held for sale
$
13,977


17
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

6. Investment in Unconsolidated Entities
Ashford Inc.
We hold approximately 598,000 shares of Ashford Inc. common stock, which represented an approximate 25.1% ownership interest in Ashford Inc. as of September 30, 2018, with a carrying value of $1.8 million and a fair value of $45.4 million.
The following tables summarize the condensed consolidated balance sheets as of September 30, 2018 and December 31, 2017 and the condensed consolidated statements of operations of Ashford Inc. and our equity in earnings (loss) for the three and nine months ended September 30, 2018 and 2017 (in thousands):
Ashford Inc.
Condensed Consolidated Balance Sheets
(unaudited)
 
September 30, 2018
 
December 31, 2017
Total assets
$
389,818

 
$
114,810

Total liabilities
$
121,763

 
$
78,742

Series B cumulative convertible preferred stock
200,578

 
—

Redeemable noncontrolling interests
3,778

 
5,111

Total stockholders’ equity of Ashford Inc.
63,050

 
30,185

Noncontrolling interests in consolidated entities
649

 
772

Total equity
63,699

 
30,957

Total liabilities and equity
$
389,818

 
$
114,810

Our ownership interest in Ashford Inc.
$
1,763

 
$
437

Ashford Inc.
Condensed Consolidated Statements of Operations
(unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Total revenue
$
41,565

 
$
19,255

 
$
144,544

 
$
51,907

Total operating expenses
(53,069
)
 
(21,595
)
 
(150,214
)
 
(54,965
)
Operating income (loss)
(11,504
)
 
(2,340
)
 
(5,670
)
 
(3,058
)
Realized and unrealized gain (loss) on investments, net
—

 
—

 
—

 
(91
)
Interest expense and loan amortization costs
(419
)
 
(20
)
 
(770
)
 
(35
)
Other income (expense)
25

 
77

 
(50
)
 
220

Income tax (expense) benefit
13,904

 
25

 
11,593

 
(9,248
)
Net income (loss)
2,006

 
(2,258
)
 
5,103

 
(12,212
)
(Income) loss from consolidated entities attributable to noncontrolling interests
413

 
102

 
704

 
267

Net (income) loss attributable to redeemable noncontrolling interests
968

 
300

 
817

 
995

Net income (loss) attributable to Ashford Inc.
3,387

 
(1,856
)
 
6,624

 
(10,950
)
Preferred dividends
(1,675
)
 
—

 
(1,675
)
 
—

Amortization of preferred stock discount
(303
)
 
—

 
(303
)
 
—

Net income attributable to common shareholders
$
1,409

 
$
(1,856
)
 
$
4,646

 
$
(10,950
)
Our equity in earnings (loss) of Ashford Inc.
$
470

 
$
(568
)
 
$
1,326

 
$
(3,291
)

18
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

OpenKey
In 2016, the Company made investments totaling $2.3 million in OpenKey, which is controlled and consolidated by Ashford Inc., for a 13.3% ownership interest. OpenKey is a hospitality-focused mobile key platform that provides a universal smart phone app for keyless entry into hotel guest rooms. In 2018 and 2017, we made additional investments of $667,000 and $983,000, respectively. As of September 30, 2018, the Company has made investments totaling $4.0 million. Our investment is recorded as a component of “investment in unconsolidated entities” in our consolidated balance sheet and is accounted for under the equity method of accounting as we have been deemed to have significant influence over the entity under the applicable accounting guidance.
The following table summarizes our carrying value and ownership interest in OpenKey:
 
September 30, 2018
 
December 31, 2017
Carrying value of the investment in OpenKey (in thousands)
$
2,751

 
$
2,518

Ownership interest in OpenKey
16.3
%
 
16.2
%
The following table summarizes our equity in earnings (loss) in OpenKey (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Line Item
2018
 
2017
 
2018
 
2017
Equity in earnings (loss) in unconsolidated entity
$
(160
)
 
$
(111
)
 
$
(434
)
 
$
(341
)

19
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

7. Indebtedness
Indebtedness consisted of the following (in thousands):
Indebtedness
 
Collateral
 
Maturity
 
Interest Rate
 
September 30, 2018
 
December 31, 2017
Secured credit facility (3)
 
None
 
September 2019
 
Base Rate (2) + 1.65% or LIBOR (1) + 2.65%
 
$
—

 
$
—

Mortgage loan (4)
 
8 hotels
 
January 2018
 
LIBOR (1) + 4.95%
 
—

 
376,800

Mortgage loan (5) 
 
22 hotels
 
April 2018
 
LIBOR (1) + 4.39%
 
—

 
971,654

Mortgage loan (6)
 
1 hotel
 
July 2018
 
LIBOR (1) + 5.10%
 
—

 
40,500

Mortgage loan (6) (7)
 
3 hotel
 
August 2018
 
LIBOR (1) + 4.35%
 
—

 
52,530

Mortgage loan (6) 
 
6 hotels
 
August 2018
 
LIBOR (1) + 4.35%
 
—

 
280,421

Mortgage loan (6) (8)
 
17 hotels
 
October 2018
 
LIBOR (1) + 4.55%
 
—

 
450,000

Mortgage loan (6)
 
5 hotels
 
February 2019
 
LIBOR (1) + 4.75%
 
—

 
200,000

Mortgage loan (6)
 
1 hotel
 
April 2019
 
LIBOR (1) + 4.95%
 
—

 
33,300

Mortgage loan (6)
 
1 hotel
 
May 2019
 
LIBOR (1) + 5.10%
 
—

 
25,100

Mortgage loan (9)
 
1 hotel
 
June 2019
 
LIBOR (1) + 5.10%
 
43,750

 
43,750

Mortgage loan
 
1 hotel
 
July 2019
 
4.00%
 
5,267

 
5,336

Mortgage loan (10)
 
1 hotel
 
July 2019
 
LIBOR (1) + 4.15%
 
35,200

 
35,200

Mortgage loan (10)
 
8 hotels
 
July 2019
 
LIBOR (1) + 4.09%
 
144,000

 
144,000

Mortgage loan (11)
 
1 hotel
 
August 2019
 
LIBOR (1) + 4.95%
 
7,778

 
12,000

Mortgage loan (12)
 
17 hotels
 
November 2019
 
LIBOR (1) + 3.00%
 
427,000

 
427,000

Mortgage loan (4)
 
8 hotels
 
February 2020
 
LIBOR (1) + 2.92%
 
395,000

 
—

Mortgage loan (5)
 
21 hotels
 
April 2020
 
LIBOR (1) + 3.20%
 
962,575

 
—

Mortgage loan (13)
 
1 hotel
 
May 2020
 
LIBOR (1) + 2.90%
 
16,100

 
16,100

Mortgage loan (6)
 
7 hotels
 
June 2020
 
LIBOR (1) + 3.65%
 
180,720

 
—

Mortgage loan (6)
 
7 hotels
 
June 2020
 
LIBOR (1) + 3.39%
 
174,400

 
—

Mortgage loan (6)
 
5 hotels
 
June 2020
 
LIBOR (1) + 3.73%
 
221,040

 
—

Mortgage loan (6)
 
5 hotels
 
June 2020
 
LIBOR (1) + 4.02%
 
262,640

 
—

Mortgage loan (6) (14)
 
5 hotels
 
June 2020
 
LIBOR (1) + 2.73%
 
160,000

 
—

Mortgage loan (6)
 
5 hotels
 
June 2020
 
LIBOR (1) + 3.68%
 
215,120

 
—

Mortgage loan
 
1 hotel
 
November 2020
 
6.26%
 
93,891

 
95,207

Mortgage loan (15)
 
2 hotels
 
June 2022
 
LIBOR (1) + 3.00%
 
174,211

 
164,700

Mortgage loan
 
1 hotel
 
November 2022
 
LIBOR (1) + 2.00%
 
97,000

 
97,000

Mortgage loan
 
1 hotel
 
May 2023
 
5.46%
 
53,086

 
53,789

Mortgage loan (16)
 
1 hotel
 
June 2023
 
LIBOR (1) + 2.45%
 
73,450

 
—

Mortgage loan
 
1 hotel
 
January 2024
 
5.49%
 
6,913

 
7,000

Mortgage loan
 
1 hotel
 
January 2024
 
5.49%
 
10,089

 
10,216

Mortgage loan
 
1 hotel
 
May 2024
 
4.99%
 
6,444

 
6,530

Mortgage loan
 
3 hotels
 
August 2024
 
5.20%
 
65,572

 
66,224

Mortgage loan
 
2 hotels
 
August 2024
 
4.85%
 
12,114

 
12,242

Mortgage loan
 
3 hotels
 
August 2024
 
4.90%
 
24,215

 
24,471

Mortgage loan
 
2 hotels
 
February 2025
 
4.45%
 
19,962

 
20,214

Mortgage loan
 
3 hotels
 
February 2025
 
4.45%
 
51,633

 
52,284

 
 
 
 
 
 
 
 
3,939,170

 
3,723,568

Premiums, net
 
 
 
 
 
 
 
1,363

 
1,570

Deferred loan costs, net
 
 
 
 
 
 
 
(46,086
)
 
(15,617
)
 
 
 
 
 
 
 
 
$
3,894,447

 
$
3,709,521

 
 

 
 
 

 


 


Indebtedness related to assets held for sale (7)
 
1 hotel
 
August 2018
 
LIBOR (1) + 4.35%
 
—

 
5,992

Indebtedness related to assets held for sale (8)
 
1 hotel
 
October 2018
 
LIBOR (1) + 4.55%
 
—

 
7,229

Indebtedness, net
 
 
 
 
 
 
 
$
3,894,447

 
$
3,696,300

_____________________________

20
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

(1) 
LIBOR rates were 2.261% and 1.564% at September 30, 2018 and December 31, 2017, respectively.
(2) 
Base Rate, as defined in the secured credit facility agreement, is the greater of (i) the prime rate set by Bank of America, or (ii) federal funds rate + 0.5%, or (iii) LIBOR + 1.0%.
(3) 
On September 27, 2018, we established a secured credit facility with borrowing capacity of up to $100.0 million.
(4)  
On January 17, 2018, we refinanced this mortgage loan totaling $376.8 million set to mature in January 2018 with a new $395.0 million mortgage loan with a two-year initial term and five one-year extension options, subject to the satisfaction of certain conditions. The new mortgage loan is interest only and bears interest at a rate of LIBOR + 2.92%.
(5) 
On April 9, 2018, we refinanced this mortgage loan totaling $971.7 million set to mature in April 2018 with a new $985.0 million mortgage loan with a two-year initial term and five one-year extension options, subject to satisfaction of certain conditions. The new mortgage loan is interest only and bears interest at a rate of LIBOR + 3.20%. A portion of this mortgage loan relates to the Tampa Residence Inn, which was sold on May 10, 2018, resulting in a $22.5 million paydown. See note 5.
(6) 
On June 13, 2018, we refinanced seven mortgage loans totaling $1.068 billion set to mature between July 2018 and May 2019 with six new mortgage loans totaling $1.270 billion. Each new mortgage loan has a two-year initial term and five one-year extension options, subject to the satisfaction of certain conditions. The new mortgage loans are interest only.
(7) 
A portion of this mortgage loan at December 31, 2017 relates to the SpringHill Suites Centreville. The property was sold on May 1, 2018. See note 5.
(8) 
A portion of this mortgage loan at December 31, 2017 relates to the SpringHill Suites Glen Allen. The property was sold on February 20, 2018. See note 5.
(9) 
This mortgage loan has three one-year extension options, subject to satisfaction of certain conditions. The second one-year extension period began in June 2018.
(10) 
This mortgage loan has three one-year extension options subject to satisfaction of certain conditions. The second one-year extension period began in July 2018.
(11) 
This mortgage loan has two one-year extension options subject to satisfaction of certain conditions. Concurrent with the first one-year extension, which began in August 2018, a principal paydown of $4.2 million was made.
(12) 
This mortgage loan has five one-year extension options subject to satisfaction of certain conditions.
(13) 
This mortgage loan has two one-year extension options subject to satisfaction of certain conditions.
(14) 
On July 3, 2018, Ashford Hospitality Finance, one of our consolidated subsidiaries, purchased $56.3 million of this mortgage loan.
(15) 
This $181.0 million mortgage loan had an initial advance was $164.7 million in May 2017. In February, May, and June 2018, additional advances of $6.5 million, $1.1 million and $1.9 million, respectively, were used for a capital expenditures project at one of the hotels securing this mortgage loan.
(16) 
This new mortgage loan has a five-year term, is interest-only loan and bears interest at a rate of LIBOR + 2.45%.
On February 1, 2017, we repaid $20.2 million of principal on our mortgage loan partially secured by the Renaissance Portsmouth. This hotel property was sold on February 1, 2017.
On March 6, 2017, we repaid $20.6 million of principal on our mortgage loan partially secured by the Embassy Suites Syracuse. This hotel property was sold on March 6, 2017.
On May 10, 2017, we refinanced a $105.0 million mortgage loan, secured by the Renaissance Nashville in Nashville, Tennessee and the Westin in Princeton, New Jersey. The new mortgage loan totals $181.0 million, of which our initial advance was $164.7 million with future advances totaling $16.3 million as reimbursement for capital expenditures. The mortgage loan is interest only and provides for a floating interest rate of LIBOR + 3.00%. Beginning on July 1, 2020, quarterly principal payments of $750,000 are due. The stated maturity is June 2022, with no extension options.
On May 24, 2017, we refinanced a $15.7 million mortgage loan, secured by the Hotel Indigo (“Indigo Atlanta”) in Atlanta, Georgia. The new mortgage loan totals $16.1 million. The mortgage loan is interest only and provides for a floating interest rate of LIBOR + 2.90% for the first two years with a 30-year amortization schedule based on a 6% interest rate starting in the third year. The stated maturity is May 2020, with two one-year extension options.
On June 29, 2017, we repaid $78.7 million of principal on our mortgage loan partially secured by the Crowne Plaza Ravinia. This hotel property was sold on June 29, 2017.
On October 30, 2017, we refinanced our $94.7 million mortgage loan, with an outstanding balance of $94.5 million, secured by the Hilton Boston Back Bay. The new mortgage loan totals $97.0 million. The mortgage loan is non-recourse interest only and provides for a floating interest rate of LIBOR + 2.00%. The stated maturity is November 2022, with no extension options.
On October 31, 2017, we refinanced a $412.5 million mortgage loan, secured by seventeen hotels. The new mortgage loan totals $427.0 million. The mortgage loan is interest only and provides for a floating interest rate of LIBOR + 3.00%. The stated maturity is November 2019, with five one-year extension options. The new mortgage loan is secured by the following seventeen hotels: the Courtyard Alpharetta, Courtyard Bloomington, Courtyard Crystal City, Courtyard Foothill Ranch, Embassy Suites Austin, Embassy Suites Dallas, Embassy Suites Houston, Embassy Suites Las Vegas, Embassy Suites Palm Beach, Hampton Inn Evansville, Hilton Garden Inn Jacksonville, Hilton Nassau Bay, Hilton St. Petersburg, Residence Inn Evansville, Residence Inn Falls Church, Residence Inn San Diego and Sheraton Indianapolis.

21
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

On January 17, 2018, we refinanced our $376.8 million mortgage loan. The new mortgage loan totaled $395.0 million. The new mortgage loan has a two-year initial term and five one-year extension options, subject to the satisfaction of certain conditions. The mortgage loan is interest only and provides for a floating interest rate of LIBOR + 2.92%. The new mortgage loan is secured by eight hotels: Embassy Suites Portland, Embassy Suites Crystal City, Embassy Suites Orlando, Embassy Suites Santa Clara, Crowne Plaza Key West, Hilton Costa Mesa, Sheraton Minneapolis, and Historic Inns of Annapolis.
On February 20, 2018, we repaid $7.6 million of principal on our mortgage loan partially secured by the SpringHill Suites Glen Allen. This hotel property was sold on February 20, 2018.
On April 9, 2018, we refinanced our $971.7 million mortgage loan secured by 22 hotel properties. The new mortgage loan totaled $985.0 million, is interest only and provides for a floating interest rate of LIBOR + 3.20%. The stated maturity is April 2020 with five one-year extension options, subject to the satisfaction of certain conditions. The new mortgage loan is secured by the same 22 hotel properties that include: the Courtyard Boston Downtown, Courtyard Denver, Courtyard Gaithersburg, Courtyard Savannah, Hampton Inn Parsippany, Hilton Parsippany, Hilton Tampa, Hilton Garden Inn Austin, Hilton Garden Inn BWI, Hilton Garden Inn Virginia Beach, Hyatt Windwatch Long Island, Hyatt Savannah, Marriott DFW Airport, Marriott Omaha, Marriott San Antonio, Marriott Sugarland, Renaissance Palm Springs, Ritz-Carlton Atlanta, Residence Inn Tampa, Churchill, Melrose and Silversmith.
On May 1, 2018, we repaid $6.6 million of principal on our mortgage loan partially secured by the SpringHill Suites Centreville. This hotel property was sold on May 1, 2018.
On May 10, 2018, we repaid $22.5 million of principal on our mortgage loan partially secured by the Residence Inn Tampa. This hotel property was sold on May 10, 2018.

22
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

On June 13, 2018, we refinanced seven mortgage loans with existing outstanding balances totaling $1.068 billion. The new financing is comprised of six separate mortgage loans that total approximately $1.270 billion. Each has a two-year initial term with five one-year extension options, subject to the satisfaction of certain conditions. The original principal amounts of each mortgage loan and the hotel properties securing each mortgage loan are set forth in the following table:
Mortgage Loan
 
Principal Amount (in thousands)
 
Interest Rate
 
Secured Hotel Properties
A
 
$
180,720

 
LIBOR + 3.65%
 
Courtyard Columbus Tipton Lakes
 
 
 
 
 
 
Courtyard Scottsdale Old Town
 
 
 
 
 
 
Residence Inn Phoenix Airport
 
 
 
 
 
 
SpringHill Suites Manhattan Beach
 
 
 
 
 
 
SpringHill Suites Plymouth Meeting
 
 
 
 
 
 
Residence Inn Las Vegas Hughes Center
 
 
 
 
 
 
Residence Inn Newark
B
 
$
174,400

 
LIBOR + 3.39%
 
Courtyard Newark
 
 
 
 
 
 
SpringHill Suites BWI
 
 
 
 
 
 
Courtyard Oakland Airport
 
 
 
 
 
 
Courtyard Plano Legacy
 
 
 
 
 
 
Residence Inn Plano
 
 
 
 
 
 
TownePlace Suites Manhattan Beach
 
 
 
 
 
 
Courtyard Basking Ridge
C
 
$
221,040

 
LIBOR + 3.73%
 
Sheraton San Diego Mission Valley
 
 
 
 
 
 
Sheraton Bucks County
 
 
 
 
 
 
Hilton Ft. Worth
 
 
 
 
 
 
Hyatt Regency Coral Gables
 
 
 
 
 
 
Hilton Minneapolis
D
 
$
262,640

 
LIBOR + 4.02%
 
Hilton Santa Fe
 
 
 
 
 
 
Embassy Suites Dulles
 
 
 
 
 
 
Marriott Beverly Hills
 
 
 
 
 
 
One Ocean
 
 
 
 
 
 
Marriott Suites Dallas Market Center
E (1)
 
$
216,320

 
LIBOR + 4.36%
 
Marriott Memphis East
 
 
 
 
 
 
Embassy Suites Philadelphia Airport
 
 
 
 
 
 
Sheraton Anchorage
 
 
 
 
 
 
Lakeway Resort & Spa
 
 
 
 
 
 
Marriott Fremont
F
 
$
215,120

 
LIBOR + 3.68%
 
W Atlanta Downtown
 
 
 
 
 
 
Embassy Suites Flagstaff
 
 
 
 
 
 
Embassy Suites Walnut Creek
 
 
 
 
 
 
Marriott Bridgewater
 
 
 
 
 
 
Marriott Durham Research Triangle Park
_____________________________
(1)On July 3, 2018, we purchased $56.3 million of mezzanine debt related to the Pool E loan that was issued in conjunction with the June 13, 2018 refinance. The net floating interest rate after the purchase of the Pool E loan is LIBOR + 2.73%.
On June 29, 2018, in connection with the acquisition of the Hilton Alexandria Old Town in Alexandria VA, we completed the financing of a $73.5 million mortgage loan. This mortgage loan is interest only and provides for a floating interest rate of LIBOR + 2.45%. The stated maturity date of the mortgage loan is June 2023, with no extension options. The mortgage loan is secured by the Hilton Alexandria Old Town.
On July 3, 2018, we purchased $56.3 million of mezzanine debt related to the Pool E loan that was issued in conjunction with the June 13, 2018 refinance. The net floating interest rate after the purchase of the Pool E loan is LIBOR + 2.73%. The mezzanine debt receivable purchase and corresponding mezzanine debt eliminate in consolidation.
On September 27, 2018, we established a secured credit facility with a borrowing capacity of up to $100.0 million, which is secured by a pledge of 100% of the equity interests in the subsidiaries that own the hotel property for which revolving credit facility funds were used to acquire. The interest rate associated with the secured credit facility is either the base rate + 1.65% or LIBOR + 2.65% at the Company’s election. The base rate is the greater of (i) the prime rate set by Bank of America; (ii) federal funds rate + 0.5%; or (iii) LIBOR + 1.0%.

23
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

During the three and nine months ended September 30, 2018 and 2017, we recognized premium amortization as presented in the table below (in thousands):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Line Item
 
2018
 
2017
 
2018
 
2017
Interest expense - premium amortization
 
$
69

 
$
185

 
$
207

 
$
1,767

The amortization of the premium is computed using a method that approximates the effective interest method, which is included in interest expense and amortization of premiums and loan costs in the consolidated statements of operations.
We are required to maintain certain financial ratios under various debt and related agreements. If we violate covenants in any debt or related agreement, we could be required to repay all or a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all. The assets of certain of our subsidiaries are pledged under non-recourse indebtedness and are not available to satisfy the debts and other obligations of Ashford Trust or Ashford Trust OP, our operating partnership, and the liabilities of such subsidiaries do not constitute the obligations of Ashford Trust or Ashford Trust OP. As of September 30, 2018, we were in compliance in all material respects with all covenants or other requirements set forth in our debt and related agreements as amended.
8. Income (Loss) Per Share
Basic income (loss) per common share is calculated using the two-class method by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted income (loss) per common share is calculated using the two-class method, or treasury stock method if more dilutive, and reflects the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted into common shares, whereby such exercise or conversion would result in lower income per share.
The following table reconciles the amounts used in calculating basic and diluted income (loss) per share (in thousands, except per share amounts):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Income (loss) allocated to common stockholders:
 
 
 
 
 
 
 
Income (loss) attributable to the Company
$
(27,589
)
 
$
(21,808
)
 
$
(72,166
)
 
$
(37,037
)
Less: Dividends on preferred stock
(10,645
)
 
(11,440
)
 
(31,933
)
 
(33,352
)
Less: Extinguishment of issuance costs upon redemption of preferred stock
—

 
(4,507
)
 
—

 
(4,507
)
Less: Dividends on common stock
(11,897
)
 
(11,439
)
 
(35,138
)
 
(34,316
)
Less: Dividends on unvested performance stock units
(123
)
 
(98
)
 
(368
)
 
(294
)
Less: Dividends on unvested restricted shares
(206
)
 
(251
)
 
(638
)
 
(709
)
Undistributed income (loss)
(50,460
)
 
(49,543
)
 
(140,243
)
 
(110,215
)
Add back: Dividends on common stock
11,897

 
11,439

 
35,138

 
34,316

Distributed and undistributed income (loss) - basic and diluted
$
(38,563
)
 
$
(38,104
)
 
$
(105,105
)
 
$
(75,899
)
 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic and diluted
97,467

 
95,332

 
96,591

 
95,169

 
 
 
 
 
 
 
 
Basic income (loss) per share:
 
 
 
 
 
 
 
Net income (loss) allocated to common stockholders per share
$
(0.40
)
 
$
(0.40
)
 
$
(1.09
)
 
$
(0.80
)
 
 
 
 
 
 
 
 
Diluted income (loss) per share:
 
 
 
 
 
 
 
Net income (loss) allocated to common stockholders per share
$
(0.40
)
 
$
(0.40
)
 
$
(1.09
)
 
$
(0.80
)

24
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

Due to the anti-dilutive effect, the computation of diluted income (loss) per share does not reflect adjustments for the following items (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Income (loss) allocated to common stockholders is not adjusted for:
 
 
 
 
 
 
 
Income (loss) allocated to unvested restricted shares
$
206

 
$
251

 
$
638

 
$
709

Income (loss) allocated to unvested performance stock units
123

 
98

 
368

 
294

Income (loss) attributable to noncontrolling interest in operating partnership units
(6,682
)
 
(6,940
)
 
(18,087
)
 
(13,202
)
Total
$
(6,353
)
 
$
(6,591
)
 
$
(17,081
)
 
$
(12,199
)
 
 
 
 
 
 
 
 
Weighted average diluted shares are not adjusted for:
 
 
 
 
 
 
 
Effect of unvested restricted shares
119

 
368

 
124

 
284

Effect of unvested performance stock units
4

 
250

 
335

 
97

Effect of assumed conversion of operating partnership units
17,443

 
17,551

 
17,669

 
17,367

Effect of advisory services incentive fee shares
286

 
277

 
296

 
287

Total
17,852

 
18,446

 
18,424

 
18,035

9. Derivative Instruments and Hedging
Interest Rate Derivatives—We are exposed to risks arising from our business operations, economic conditions and financial markets. To manage these risks, we primarily use interest rate derivatives to hedge our debt and our cash flows. The interest rate derivatives currently include interest rate caps and interest rate floors. These derivatives are subject to master netting settlement arrangements. To mitigate the nonperformance risk, we routinely use a third party’s analysis of the creditworthiness of the counterparties, which supports our belief that the counterparties’ nonperformance risk is limited. All derivatives are recorded at fair value.
The following table presents a summary of our interest rate derivatives entered into over the applicable periods:
 
Nine Months Ended September 30,
 
2018
 
2017
Interest rate caps:
 
 
 
Notional amount (in thousands)
$
3,589,618

 
$
2,112,700

Strike rate low end of range
1.50
%
 
1.50
%
Strike rate high end of range
5.71
%
 
5.84
%
Effective date range
January 2018 - August 2018

 
February 2017 - August 2017

Maturity date range
January 2019 - July 2020

 
February 2018 - June 2019

Total cost (in thousands)
$
3,103

 
$
633

 
 
 
 
Interest rate floors:
 
 
 
Notional amount (in thousands)
$
12,000,000

 
$
4,000,000

Strike rate low end of range
1.38
%
 
1.00
%
Strike rate high end of range
2.00
%
 
1.00
%
Effective date range
July 2018

 
September 2017

Termination date range
 September 2019 - December 2019

 
March 2019

Total cost (in thousands)
$
413

 
$
163

None of these instruments were designated as cash flow hedges.

25
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

As of September 30, 2018, we held interest rate instruments as summarized in the table below:
Interest rate caps:
 
 
Notional amount (in thousands)
$
4,378,718

(1) 
Strike rate low end of range
1.50
 %
 
Strike rate high end of range
5.71
 %
 
Effective date range
October 2016 - August 2018

 
Maturity date range
October 2018 - July 2020

 
Aggregate principle balance on corresponding mortgage loans (in thousands)
$
3,492,984

 
 
 
 
Interest rate floors: (2)
 
 
Notional amount (in thousands)
$
28,750,000

(1) 
Strike rate low end of range
(0.25
)%
 
Strike rate high end of range
2.00
 %
 
Maturity date range
March 2019 - July 2020

 
_______________
(1) 
These instruments were not designated as cash flow hedges.
(2) 
Cash collateral is posted by us as well as our counterparties. We offset the fair value of the derivative and the obligation/right to return/reclaim cash collateral.
Credit Default Swap Derivatives—We use credit default swaps, tied to the CMBX index, to hedge financial and capital market risk. A credit default swap is a derivative contract that functions like an insurance policy against the credit risk of an entity or obligation. The seller of protection assumes the credit risk of the reference obligation from the buyer (us) of protection in exchange for annual premium payments. If a default or a loss, as defined in the credit default swap agreements, occurs on the underlying bonds, then the buyer of protection is protected against those losses. The only liability for us, the buyer, is the annual premium and any change in value of the underlying CMBX index (if the trade is terminated prior to maturity). For all CMBX trades completed to date, we were the buyer of protection. Credit default swaps are subject to master-netting settlement arrangements and credit support annexes. As of September 30, 2018, we held credit default swaps with notional amounts totaling $212.5 million. These credit default swaps had effective dates from February 2015 to August 2017 and expected maturity dates from October 2023 to October 2026. Assuming the underlying bonds pay off at par over their remaining average life, our total exposure for these trades was approximately $5.5 million as of September 30, 2018. Cash collateral is posted by us as well as our counterparties. We offset the fair value of the derivative and the obligation/right to return/reclaim cash collateral. The change in market value of credit default swaps is settled net through posting cash collateral or reclaiming cash collateral between us and our counterparties when the change in market value is over $250,000.
10. Fair Value Measurements
Fair Value Hierarchy—For disclosure purposes, financial instruments, whether measured at fair value on a recurring or nonrecurring basis or not measured at fair value, are classified in a hierarchy consisting of three levels based on the observability of valuation inputs in the market place as discussed below:
•
Level 1: Fair value measurements that are quoted prices (unadjusted) in active markets that we have the ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets.
•
Level 2: Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.
•
Level 3: Fair value measurements based on valuation techniques that use significant inputs that are unobservable. The circumstances for using these measurements include those in which there is little, if any, market activity for the asset or liability.
Fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts/payments and the discounted expected variable cash payments/receipts. Fair values of interest rate caps, floors, flooridors and corridors are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates fell below the strike rates of the floors or rise above the strike rates of the caps. Variable interest rates used in the calculation of projected receipts and payments on the swaps, caps, and floors are based on an expectation

26
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

of future interest rates derived from observable market interest rate curves (LIBOR forward curves) and volatilities (Level 2 inputs). We also incorporate credit valuation adjustments (Level 3 inputs) to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk.
Fair values of credit default swaps are obtained from a third party who publishes various information including the index composition and price data (Level 2 inputs). The fair value of credit default swaps does not contain credit-risk-related adjustments as the change in fair value is settled net through posting cash collateral or reclaiming cash collateral between us and our counterparty.
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. These expected future cash flows are probability-weighted projections based on the contract terms, accounting for both the magnitude and likelihood of potential payments, which are both computed using the appropriate LIBOR forward curve and market implied volatilities as of the valuation date (Level 2 inputs). 
Fair value of options on futures contracts is determined based on the last reported settlement price as of the measurement date (Level 1 inputs). These exchange-traded options are centrally cleared, and a clearinghouse stands in between all trades to ensure that the obligations involved in the trades are satisfied.
Fair values of marketable securities and liabilities associated with marketable securities, including public equity securities, equity put and call options, and other investments, are based on their quoted market closing prices (Level 1 inputs).
When a majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. However, when valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties, which we consider significant (10% or more) to the overall valuation of our derivatives, the derivative valuations in their entirety are classified in Level 3 of the fair value hierarchy. Transfers of inputs between levels are determined at the end of each reporting period. In determining the fair values of our derivatives at September 30, 2018, the LIBOR interest rate forward curve (Level 2 inputs) assumed an uptrend from 2.261% to 3.032% for the remaining term of our derivatives. Credit spreads (Level 3 inputs) used in determining the fair values of hedge and non-hedge designated derivatives assumed an uptrend in nonperformance risk for us and all of our counterparties through the maturity dates.

27
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents our assets and liabilities measured at fair value on a recurring basis aggregated by the level within which measurements fall in the fair value hierarchy (in thousands):
 
 
Quoted Market Prices (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
 
Counterparty and Cash Collateral Netting(1)
 
Total
 
 
 
 
September 30, 2018:
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives - floors
$
—

 
$
106

 
$
—

 
$
130

 
$
236

(2) 
 
Interest rate derivatives - caps
—

 
1,491

 
—

 
—

 
1,491

(2) 
 
Credit default swaps
—

 
(969
)
 
—

 
2,211

 
1,242

(2) 
 
 
—

 
628

 
—

 
2,341

 
2,969

 
 
Non-derivative assets:
 
 
 
 
 
 
 
 
 
 
 
Equity securities
24,173

 
—

 
—

 
—

 
24,173

(3) 
 
Total
$
24,173

 
$
628

 
$
—

 
$
2,341

 
$
27,142

 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities:
 
 
 
 
 
 
 
 
 
 
 
Credit default swaps
$
—

 
$
(805
)
 
$
—

 
$
600

 
$
(205
)
(4) 
 
Net
$
24,173

 
$
(177
)
 
$
—

 
$
2,941

 
$
26,937

 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017:
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives - floors
$
—

 
$
311

 
$
—

 
$
32

 
$
343

(2) 
 
Interest rate derivatives - caps
—

 
137

 
—

 
—

 
137

(2) 
 
Credit default swaps
—

 
(469
)
 
—

 
1,999

 
1,530

(2) 
 
 
—

 
(21
)
 
—

 
2,031

 
2,010

 
 
Non-derivative assets:
 
 
 
 
 
 
 
 
 
 
 
Equity securities
26,926

 
—

 
—

 
—

 
26,926

(3) 
 
Total
$
26,926

 
$
(21
)
 
$
—

 
$
2,031

 
$
28,936

 
____________________________________
(1) 
Represents net cash collateral posted between us and our counterparties.
(2) 
Reported net as “derivative assets, net” in our consolidated balance sheets.
(3) 
Reported as “marketable securities” in our consolidated balance sheets.
(4) 
Reported net as “derivative liabilities, net” in our consolidated balance sheets.

28
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

Effect of Fair-Value-Measured Assets and Liabilities on Consolidated Statements of Operations
The following tables summarize the effect of fair-value-measured assets and liabilities on the consolidated statements of operations for the three and nine months ended September 30, 2018 and 2017 (in thousands):
 
Gain (Loss) Recognized in Income
 
 
Three Months Ended September 30,
 
 
2018
 
2017
 
Assets
 
 
 
 
Derivative assets:
 
 
 
 
Interest rate derivatives - floors
$
(380
)
 
$
(291
)
 
Interest rate derivatives - caps
(38
)
 
(96
)
 
Credit default swaps
(1,029
)
(4) 
(1,380
)
(4) 
 
(1,447
)
 
(1,767
)
 
Non-derivative assets:
 
 
 
 
Equity
92

 
12

 
Total
(1,355
)
 
(1,755
)
 
Liabilities
 
 
 
 
Derivative liabilities:
 
 
 
 
Credit default swaps
(638
)
(4) 
(887
)
(4) 
Net
$
(1,993
)
 
$
(2,642
)
 
 
 
 
 
 
Total combined
 
 
 
 
Interest rate derivatives - floors
$
(380
)
 
$
(291
)
 
Interest rate derivatives - caps
(38
)
 
(96
)
 
Credit default swaps
(1,667
)
 
(1,092
)
 
Unrealized gain (loss) on derivatives
(2,085
)
(1) 
(1,479
)
(1) 
Realized gain (loss) on credit default swaps
—

(2) (4) 
(1,175
)
(2) (4) 
Unrealized gain (loss) on marketable securities
68

(3) 
(936
)
(3) 
Realized gain (loss) on marketable securities
24

(2) 
948

(2) 
Net
$
(1,993
)
 
$
(2,642
)
 
____________________________________
(1) 
Reported as “unrealized gain (loss) on derivatives” in our consolidated statements of operations.
(2) 
Included in “other income (expense)” in our consolidated statements of operations.
(3) 
Reported as “unrealized gain (loss) on marketable securities” in our consolidated statements of operations.
(4) 
Excludes costs of $272 and $257 for the three months ended September 30, 2018 and 2017, respectively, included in “other income (expense)” associated with credit default swaps.

29
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

 
Gain (Loss) Recognized in Income
 
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
Assets
 
 
 
 
Derivative assets:
 
 
 
 
Interest rate derivatives - floors
$
(618
)
 
$
(2,233
)
 
Interest rate derivatives - caps
(1,749
)
 
(613
)
 
Credit default swaps
(785
)
(4) 
(2,100
)
(4) 
Options on futures contracts
—

 
(116
)
 
 
(3,152
)
 
(5,062
)
 
Non-derivative assets:
 
 
 
 
Equity
(585
)
 
(3,991
)
 
Total
(3,737
)
 
(9,053
)
 
 
 
 
 
 
Liabilities
 
 
 
 
Derivative liabilities:
 
 
 
 
Credit default swaps
(520
)
(4) 
(1,450
)
(4) 
Net
$
(4,257
)
 
$
(10,503
)
 
 
 
 
 
 
Total combined
 
 
 
 
Interest rate derivatives - floors
$
(618
)
 
$
(2,233
)
 
Interest rate derivatives - caps
(1,749
)
 
(613
)
 
Credit default swaps
(1,305
)
 
615

 
Options on futures contracts
—

 
427

 
Unrealized gain (loss) on derivatives
(3,672
)
(1) 
(1,804
)
(1) 
Realized gain (loss) on credit default swaps
—

(2) (4) 
(4,165
)
(2) (4) 
Realized gain (loss) on options on futures contracts
—

(2) 
(543
)
(2) 
Unrealized gain (loss) on marketable securities
(758
)
(3) 
(4,813
)
(3) 
Realized gain (loss) on marketable securities
173

(2) 
822

(2) 
Net
$
(4,257
)
 
$
(10,503
)
 
____________________________________
(1) 
Reported as “unrealized gain (loss) on derivatives” in our consolidated statements of operations.
(2) 
Included in “other income (expense)” in our consolidated statements of operations.
(3) 
Reported as “unrealized gain (loss) on marketable securities” in our consolidated statements of operations.
(4) 
Excludes costs of $809 and $769 for the nine months ended September 30, 2018 and 2017, respectively, included in “other income (expense)” associated with credit default swaps.

30
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

11. Summary of Fair Value of Financial Instruments
Determining estimated fair values of our financial instruments such as notes receivable and indebtedness requires considerable judgment to interpret market data. Market assumptions and/or estimation methodologies used may have a material effect on estimated fair value amounts. Accordingly, estimates presented are not necessarily indicative of amounts at which these instruments could be purchased, sold, or settled. Carrying amounts and estimated fair values of financial instruments, for periods indicated, were as follows (in thousands):
 
September 30, 2018
 
December 31, 2017
 
Carrying Value
 
Estimated Fair Value
 
Carrying Value
 
Estimated Fair Value
Financial assets and liabilities measured at fair value:
 
 
 
 
 
 
 
Marketable securities
$
24,173

 
$
24,173

 
$
26,926

 
$
26,926

Derivative assets, net
2,969

 
2,969

 
2,010

 
2,010

Derivative liabilities, net
205

 
205

 
—

 
—

 
 
 
 
 
 
 
 
Financial assets not measured at fair value:
 
 
 
 
 
 
 
Cash and cash equivalents (1)
$
325,839

 
$
325,839

 
$
354,883

 
$
354,883

Restricted cash (1)
141,092

 
141,092

 
117,189

 
117,189

Accounts receivable, net (1)
60,208

 
60,208

 
44,384

 
44,384

Due from third-party hotel managers
19,277

 
19,277

 
17,418

 
17,418

 
 
 
 
 
 
 
 
Financial liabilities not measured at fair value:
 
 
 
 
 
 
 
Indebtedness (1)
$
3,940,533

 
$3,769,744 to $4,166,559

 
$
3,725,138

 
$3,559,993 to $3,934,727

Accounts payable and accrued expenses (1)
147,808

 
147,808

 
133,063

 
133,063

Dividends and distributions payable
28,095

 
28,095

 
25,045

 
25,045

Due to Ashford Inc., net
5,176

 
5,176

 
15,146

 
15,146

Due to related party, net (1)
1,078

 
1,078

 
1,161

 
1,161

Due to third-party hotel managers
2,745

 
2,745

 
2,431

 
2,431

____________________________________
(1) 
Includes balances associated with assets held for sale and liabilities associated with assets held for sale as of December 31, 2017.
Cash, cash equivalents and restricted cash. These financial assets bear interest at market rates and have original maturities of less than 90 days. The carrying value approximates fair value due to their short-term nature. This is considered a Level 1 valuation technique.
Accounts receivable, net, accounts payable and accrued expenses, dividends and distributions payable, due to/from related party, net, due to Ashford Inc., net and due to/from third-party hotel managers. The carrying values of these financial instruments approximate their fair values due to their short-term nature. This is considered a Level 1 valuation technique.
Marketable securities. Marketable securities consist of U.S. treasury bills, publicly traded equity securities, and put and call options on certain publicly traded equity securities. The fair value of these investments is based on quoted market closing prices at the balance sheet date. See note 10 for a complete description of the methodology and assumptions utilized in determining the fair values.
Derivative assets, net and derivative liabilities, net. Fair value of interest rate caps 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 values of credit default swap derivatives 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. Fair values of options on futures contracts are valued at their last reported settlement price as of the measurement date. See notes 9 and 10 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. 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 credit spreads.

31
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

Credit spreads take into consideration general market conditions, maturity, and collateral. We estimated the fair value of total indebtedness to be approximately 95.7% to 105.7% of the carrying value of $3.9 billion at September 30, 2018 and approximately 95.6% to 105.6% of the carrying value of $3.7 billion at December 31, 2017. This is considered a Level 2 valuation technique.
12. Redeemable Noncontrolling Interests in Operating Partnership
Redeemable noncontrolling interests in the operating partnership represents the limited partners’ proportionate share of equity in earnings/losses of the operating partnership, which is an allocation of net income/loss attributable to the common unit holders based on the weighted average ownership percentage of these limited partners’ common units of limited partnership interest in the operating partnership (“common units”) and the units issued under our Long-Term Incentive Plan (the “LTIP units”) that are vested. Each common unit may be redeemed for either cash or, at our sole discretion, up to one share of our REIT common stock, which is either (i) issued pursuant to an effective registration statement, (ii) included in an effective registration statement providing for the resale of such common stock or (iii) issued subject to a registration rights agreement.
LTIP units, which are issued to certain executives and employees of Ashford LLC as compensation, have vesting periods ranging from three to five years. Additionally, certain independent members of the board of directors have elected to receive LTIP units as part of their compensation, which are fully vested upon grant. Upon reaching economic parity with common units, each vested LTIP unit can be converted by the holder into one common unit which can then be redeemed for cash or, at our election, settled in our common stock. An LTIP unit will achieve parity with the common units upon the sale or deemed sale of all or substantially all of the assets of the operating partnership at a time when our stock is trading at a level in excess of the price it was trading on the date of the LTIP issuance. More specifically, LTIP units will achieve full economic parity with common units in connection with (i) the actual sale of all or substantially all of the assets of the operating partnership or (ii) the hypothetical sale of such assets, which results from a capital account revaluation, as defined in the partnership agreement, for the operating partnership.
The compensation committee of the board of directors of the Company approved the issuance of performance LTIP units to certain executive officers. The award agreements provide for the grant of a target number of performance-based LTIP units that will be settled in common units of Ashford Trust OP, if and when the applicable vesting criteria have been achieved following the end of the performance and service period. The target number of performance-based LTIP units may be adjusted from 0% to 200% based on achievement of specified absolute and relative total stockholder returns based on the formulas determined by the Company’s Compensation Committee on the grant date. As of September 30, 2018, there are approximately 2.4 million performance-based LTIP units, representing 200% of the target, outstanding. The performance criteria for the performance LTIP units are based on market conditions under the relevant literature, and the performance LTIP units were granted to non-employees. Upon the adoption of ASU 2018-07, the corresponding compensation cost is recognized ratably over the service period for the award as the service is rendered, based on the grant date fair value of the award, regardless of the actual outcome of the market condition as opposed to being accounted for at fair value based on the market price of the shares at each quarterly measurement date.
As of September 30, 2018, we have issued a total of 13.0 million LTIP and performance LTIP units (12.1 million after the elimination of the conversion factor in December 2017), all of which, other than approximately 737,000 units (686,000 after the elimination of the conversion factor in December 2017) (none of which are performance LTIP units) have reached full economic parity with, and are convertible into, common units.
We recorded compensation expense for performance LTIP units and LTIP units as presented in the table below (in thousands):
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Type
 
Line Item
 
2018
 
2017
 
2018
 
2017
Performance LTIP units
 
Advisory services fee
 
$
1,292

 
$
964

 
$
5,505

 
$
1,312

LTIP units
 
Advisory services fee
 
933

 
980

 
2,576

 
1,962

LTIP units - independent directors
 
Corporate, general and administrative
 
—

 
—

 
536

 
475

The unamortized cost of the unvested performance LTIP units, which was $6.5 million at September 30, 2018, will be expensed over a period of 2.5 years.
The unamortized cost of the unvested LTIP units, which was $5.5 million at September 30, 2018, will be expensed over a period of 2.5 years.

32
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

During the nine months ended September 30, 2018, there were no common units redeemed. During the nine months ended September 30, 2017, approximately 21,000 common units with an aggregate fair value of approximately $161,000 were redeemed by the holder and, at our election, we issued shares of our common stock to satisfy the redemption price.
The following table shows the redeemable noncontrolling interest in Ashford Trust (in thousands) and the corresponding approximate ownership percentage:
 
September 30, 2018
 
December 31, 2017
Redeemable noncontrolling interests
$
118,663

 
$
116,122

Adjustments to redeemable noncontrolling interests (1)
173,649

 
154,262

Ownership percentage of operating partnership
14.88
%
 
15.52
%
____________________________________
(1) 
Reflects the excess of the redemption value over the accumulated historical costs.  
We allocated net income (loss) to the redeemable noncontrolling interests and declared aggregate cash distributions to holders of common units and holders of LTIP units, as presented in the table below (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Allocated net (income) loss to the redeemable noncontrolling interests
$
6,682

 
$
6,940

 
$
18,087

 
$
13,202

Aggregate cash distributions to holders of common units and LTIP units
2,480

 
2,556

 
7,429

 
7,655

13. Equity and Equity-Based Compensation
Common Stock Dividends—For each of the 2018 and 2017 quarters, the board of directors declared quarterly dividends of $0.12 per outstanding share of common stock with an annualized target of $0.48 per share for 2018.
Restricted Stock Units—We incur stock-based compensation expense in connection with restricted stock units awarded to employees of Ashford LLC, which is included in “advisory services fee,” on our consolidated statements of operations and employees of Remington Lodging, which is included in “management fees” on our consolidated statements of operations. We also issue common stock to our independent directors, which immediately vests, and is included in “corporate general and administrative” expense on our consolidated statements of operations.
At September 30, 2018, the unamortized cost of the unvested shares of restricted stock was $10.4 million, which will be amortized over a period of 2.5 years.
The following table summarizes the stock-based compensation expense (in thousands):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Line Item
 
2018
 
2017
 
2018
 
2017
Advisory services fee
 
$
1,550

 
$
1,642

 
$
5,298

 
$
3,371

Management fees
 
287

 
222

 
870

 
439

Corporate general and administrative
 
—

 
—

 
—

 
90

 
 
$
1,837

 
$
1,864

 
$
6,168

 
$
3,900

During the nine months ended September 30, 2018 approximately $1.5 million of the compensation expense was related to the accelerated vesting of equity awards granted to one of our executive officers upon his death, in accordance with the terms of the awards.
Performance Stock Units—The compensation committee of the board of directors of the Company approved the issuance of PSUs, which have a three-year cliff vesting, to certain executive officers . The award agreements provide for the grant of a target number of PSUs that will be settled in shares of common stock of the Company, if and when the applicable vesting criteria have been achieved following the end of the performance and service period. The target number of PSUs may be adjusted from 0% to 200% based on achievement of specified absolute and relative total stockholder returns based on the formulas determined by the Company’s Compensation Committee on the grant date. The performance criteria for the PSUs are based on market conditions

33
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

under the relevant literature, and the PSUs were granted to non-employees. Upon the adoption of ASU 2018-07, the corresponding compensation cost is recognized ratably over the service period for the award as the service is rendered, based on the grant date fair value of the award, regardless of the actual outcome of the market condition as opposed to being accounted for at fair value based on the market price of the shares at each quarterly measurement date.
The following table summarizes the compensation expense (in thousands):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Line Item
 
2018
 
2017
 
2018
 
2017
Advisory services fee
 
$
1,081

 
$
806

 
$
7,161

 
$
1,102

During the nine months ended September 30, 2018, approximately $3.0 million of the compensation expense was related to the accelerated vesting of PSUs granted to one of our executive officers upon his death, in accordance with the terms of the awards.
The unamortized cost of the unvested PSUs of $6.5 million at September 30, 2018, will be expensed over a period of approximately 2.5 years.
Preferred Dividends—The board of directors declared quarterly dividends as presented below:
 
Three Months Ended September 30,
 
 
2018
 
2017
 
8.45% Series D cumulative preferred stock
$
0.5281

 
$
0.5281

 
7.375% Series F cumulative preferred stock
0.4609

 
0.4609

 
7.375% Series G cumulative preferred stock
0.4609

 
0.4609

 
7.50% Series H cumulative preferred stock
0.4688

 
0.1875

(1) 
7.50% Series I cumulative preferred stock
0.4688

 
—

 
_____________________________
(1) 
Pro-rated for the number of days the Series H cumulative preferred stock was outstanding during the quarter.
In addition to the above, on September 18, 2017, the Company redeemed its 8.55% Series A cumulative preferred stock at a redemption price of $25.00 per share, plus accrued and unpaid dividends through the redemption date, in an amount equal to $0.4631 per share, for a total redemption price of $25.4631 per share.
At-the-Market Equity Offering Program—On December 11, 2017, the Company established an “at-the-market” equity offering program pursuant to which it may, from time to time, sell shares of its common stock having an aggregate offering price of up to $100 million. The table below summarizes the issuance activity (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
Common shares issued
2,434

 
—

Gross proceed received
$
15,522

 
$
—

Commissions and other expenses
194

 
—

Net proceeds
$
15,328

 
$
—

Noncontrolling Interests in Consolidated Entities—Our noncontrolling entity partner had an ownership interest of 15% in two hotel properties and a total carrying value of $638,000 and $646,000 at September 30, 2018 and December 31, 2017, respectively. Our ownership interest is reported in equity in the consolidated balance sheets.
The below table summarizes the (income) loss allocated to noncontrolling interests in consolidating entities (in thousands):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Line Item
 
2018
 
2017
 
2018
 
2017
(Income) loss allocated to noncontrolling interests in consolidated entities
 
$
(10
)
 
$
(22
)
 
$
8

 
$
(4
)

34
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

14. Commitments and Contingencies
Restricted Cash—Under certain management and debt agreements for our hotel properties existing at September 30, 2018, escrow payments are required for insurance, real estate taxes, and debt service. In addition, for certain properties based on the terms of the underlying debt and management agreements, we escrow 4% to 6% of gross revenues for capital improvements.
Franchise Fees—Under franchise agreements for our hotel properties existing at September 30, 2018, we pay franchisor royalty fees between 3% and 6% of gross rooms revenue and, in some cases, 2% to 3% of food and beverage revenues. Additionally, we pay fees for marketing, reservations, and other related activities aggregating between 1% and 4% of gross rooms revenue and, in some cases, food and beverage revenues. These franchise agreements expire on varying dates between 2018 and 2047. When a franchise term expires, the franchisor has no obligation to renew the franchise. A franchise termination could have a material adverse effect on the operations or the underlying value of the affected hotel due to loss of associated name recognition, marketing support, and centralized reservation systems provided by the franchisor. A franchise termination could also have a material adverse effect on cash available for distribution to stockholders. In addition, if we breach the franchise agreement and the franchisor terminates a franchise prior to its expiration date, we may be liable for up to three times the average annual fees incurred for that property.
We incurred franchise fees of $17.9 million and $54.7 million for the three and nine months ended September 30, 2018, respectively, and $17.8 million and $52.6 million for the three and nine months ended September 30, 2017, respectively. Franchise fees are included in “other” hotel expenses in the consolidated statements of operations.
Management Fees—Under management agreements for our hotel properties existing at September 30, 2018, we pay a) monthly property management fees equal to the greater of approximately $14,000 (increased annually based on consumer price index adjustments) or 3% of gross revenues, or in some cases 2% to 7% of gross revenues, as well as annual incentive management fees, if applicable, 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 management budget cumulatively, including project management fees, and d) other general fees at current market rates as approved by our independent directors, if required. These management agreements expire from 2020 through 2038, with renewal options. If we terminate a management agreement prior to its expiration, we may be liable for estimated management fees through the remaining term and liquidated damages or, in certain circumstances, we may substitute a new management agreement.
Income Taxes— We and our subsidiaries file income tax returns in the federal jurisdiction and various states. Tax years 2014 through 2017 remain subject to potential examination by certain federal and state taxing authorities.
Potential Pension Liabilities—Upon our 2006 acquisition of a hotel property, certain employees of such hotel were unionized and covered by a multi-employer defined benefit pension plan. At that time, no unfunded pension liabilities existed. Subsequent to our acquisition, a majority of employees, who are employees of the hotel manager, Remington Lodging, petitioned the employer to withdraw recognition of the union. As a result of the decertification petition, Remington Lodging withdrew recognition of the union. At the time of the withdrawal, the National Retirement Fund, the union’s pension fund, indicated unfunded pension liabilities existed. The National Labor Relations Board (“NLRB”) filed a complaint against Remington Lodging seeking, among other things, that Remington Lodging’s withdrawal of recognition was unlawful. Pending the final determination of the NLRB complaint, including appeals, the pension fund entered into a settlement agreement with Remington Lodging on November 1, 2011, providing that (a) Remington Lodging will continue to make monthly pension fund payments pursuant to the collective bargaining agreement, and (b) if the withdrawal of recognition is ultimately deemed lawful, Remington Lodging will have an unfunded pension liability equal to $1.7 million minus the monthly pension payments made by Remington Lodging since the settlement agreement. To illustrate, if Remington Lodging - as of the date a final determination occurs - has made monthly pension payments equaling $100,000, Remington Lodging’s remaining withdrawal liability shall be the unfunded pension liability of $1.7 million minus $100,000 (or $1.6 million). This remaining unfunded pension liability shall be paid to the pension fund in annual installments of $84,000 (but may be made monthly or quarterly, at Remington Lodging’s election), which shall continue for the remainder of the twenty-(20)-year capped period, unless Remington Lodging elects to pay the unfunded pension liability amount earlier. We agreed to indemnify Remington Lodging for the payment of the unfunded pension liability, if any, as set forth in the settlement agreement.
Litigation—Palm Beach Florida Hotel and Office Building Limited Partnership, et al. v. Nantucket Enterprises, Inc. This litigation involves a landlord tenant dispute from 2008 in which the landlord, Palm Beach Florida Hotel and Office Building Limited Partnership, a subsidiary of the Company, claimed that the tenant had violated various lease provisions of the lease agreement and was therefore in default. The tenant counterclaimed and asserted multiple claims including that it had been wrongfully evicted. The litigation was instituted by the plaintiff in November 2008 in the Circuit Court of the Fifteenth Judicial Circuit, in and for Palm Beach County, Florida and proceeded to a jury trial on June 30, 2014. The jury entered its verdict awarding the tenant

35
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

total claims of $10.8 million and ruling against the landlord on its claim of breach of contract. In 2016, the Court of Appeals reduced the original $10.8 million judgment to $8.8 million and added pre-judgment interest on the wrongful eviction judgment. The case was further appealed to the Florida Supreme Court. On May 23, 2017, the trial court issued an order compelling the company that issued the supersedeas bond, RLI Insurance Company (“RLI”), to pay approximately $10.0 million. On June 1, 2017, RLI paid Nantucket this amount and sought reimbursement from the Company. On June 27, 2017, the Florida Supreme Court denied the Company’s petition for review. As a result, all of the appeals were exhausted and the judgment was final with the determination and reimbursement of attorney’s fees being the only remaining dispute. On June 29, 2017, the balance of the judgment was paid to Nantucket by the Company. On July 26, 2018, we paid $544,000 as part of a settlement on certain legal fees. The negotiations relating to the potential payment of the remaining attorney’s fees are still ongoing. As of September 30, 2018, we have accrued approximately $508,000 in legal fees, which represents the Company’s estimate of the amount of potential remaining legal fees that could be owed.
We are engaged in other various legal proceedings which have arisen but have not been fully adjudicated. The likelihood of loss from these legal proceedings, based on definitions within contingency accounting literature, ranges from remote to reasonably possible and to probable. Based on estimates of the range of potential losses associated with these matters, management does not believe the ultimate resolution of these proceedings, either individually or in the aggregate, will have a material adverse effect on our consolidated financial position or results of operations. However, the final results of legal proceedings cannot be predicted with certainty and if we fail to prevail in one or more of these legal matters, and the associated realized losses exceed our current estimates of the range of potential losses, our consolidated financial position or results of operations could be materially adversely affected in future periods.
15. Segment Reporting
We operate in one business segment within the hotel lodging industry: direct hotel investments. Direct hotel investments refer to owning hotel properties through either acquisition or new development. We report operating results of direct hotel investments on an aggregate basis as substantially all of our hotel investments have similar economic characteristics and exhibit similar long-term financial performance. As of September 30, 2018 and December 31, 2017, all of our hotel properties were domestically located.
16. 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 a percentage of our total market capitalization on a declining sliding scale plus the Net Asset Fee Adjustment, as defined in the 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 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). The range of base fees on the scale is between 0.70% and 0.50% per annum for total market capitalization that ranges from less than $6.0 billion to greater than $10.0 billion. At September 30, 2018, the quarterly base fee was 0.70% based on our current market capitalization. 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 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.

36
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

The following table summarizes the advisory services fees incurred (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Advisory services fee
 
 
 
 
 
 
 
Base advisory fee
$
9,156

 
$
8,579

 
$
26,644

 
$
25,934

Reimbursable expenses (1)
2,251

 
1,641

 
5,777

 
5,800

Equity-based compensation (2)
4,855

 
4,392

 
20,540

 
7,748

Incentive fee
(3,457
)
 
—

 
—

 
—

Total advisory services fee
$
12,805

 
$
14,612

 
$
52,961

 
$
39,482

________
(1) 
Reimbursable expenses include overhead, internal audit, risk management advisory and asset management services.
(2) 
Equity-based compensation is associated with equity grants of Ashford Trust’s common stock, LTIP units and Performance LTIP units awarded to officers and employees of Ashford LLC.
In 2016, $4.0 million of key money consideration was invested in furniture, fixtures and equipment by Ashford Inc. to be used by Ashford Trust, which represented all of the key money consideration for the Le Pavillon Hotel. 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. As a result, lease expense of $156,000 and $469,000 was recognized for the three and nine months ended September 30, 2018, respectively and $156,000 and $476,000 for the three and nine months ended September 30, 2017, respectively. These costs are included in “other” hotel expense in the consolidated statements of operations.
On August 8, 2018, Ashford Inc. completed the acquisition of Premier Project Management LLC (“Premier”), the project management business formerly conducted by certain affiliates of Remington Lodging, including construction management, interior design, architectural oversight, and the purchasing, freight management, and supervision of installation of furniture, fixtures, and equipment, and related services. As a result of Ashford Inc.’s acquisition, the project management services that were previously provided by Remington Lodging will now be provided by a subsidiary of Ashford Inc. under the respective project management agreement with each customer, including Ashford Trust and Braemar.
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 consolidated financial statements (in thousands):
 
 
 
Three Months Ended September 30, 2018
Company
 
Product or Service
Total, net
Investments in Hotel Properties, net (1)
 
Indebtedness, net (2)
 
Other Hotel Revenue
 
Other Hotel Expenses
 
Corporate, General and Administrative
OpenKey
 
Mobile key app
$
28

$
—

 
$
—

 
$
—

 
$
28

 
$
—

Pure Rooms
 
Hypoallergenic premium rooms
1,430

1,417

 
—

 
—

 
13

 
—

Lismore Capital
 
Mortgage placement services
350

—

 
(350
)
 
—

 
—

 
—

J&S Audio Visual
 
Audiovisual commissions or equipment
1,296

74

 
—

 
1,222

 
—

 
—

AIM
 
Cash management services
339

—

 
—

 
—

 
—

 
339

Premier
 
Project management services
2,491

2,491

 
—

 
—

 
—

 
—

Ashford LLC
 
Insurance claims services
17

—

 
—

 
—

 
—

 
17

________
(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.

37
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

 
 
 
Nine Months Ended September 30, 2018
Company
 
Product or Service
Total, net
Investments in Hotel Properties, net (1)
 
Indebtedness, net (2)
 
Other Hotel Revenue
 
Other Hotel Expenses
 
Corporate, General and Administrative
OpenKey
 
Mobile key app
$
81

$
—

 
$
—

 
$
—

 
$
81

 
$
—

Pure Rooms
 
Hypoallergenic premium rooms
1,919

1,903

 
—

 
—

 
16

 
—

Lismore Capital
 
Mortgage placement services
4,942

—

 
(4,942
)
 
—

 
—

 
—

J&S Audio Visual
 
Audiovisual commissions or equipment
3,441

917

 
—

 
2,524

 
—

 
—

AIM
 
Cash management services
850

—

 
—

 
—

 
—

 
850

Premier
 
Project management services
2,491

2,491

 
—

 
—

 
—

 
—

Ashford LLC
 
Insurance claims services
53

—

 
—

 
—

 
—

 
53

________
(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 amount due to Ashford Inc. (in thousands):
 
 
 
 
September 30, 2018
 
December 31, 2017
Company
 
Product or Service
 
Due to Ashford Inc.
Ashford LLC
 
Advisory services
 
$
1,915

 
$
14,547

OpenKey
 
Mobile key app
 
14

 
8

Pure Rooms
 
Hypoallergenic premium rooms
 
207

 
296

Lismore Capital
 
Mortgage placement services
 
—

 
—

J&S Audio Visual
 
Audiovisual commissions or equipment
 
1,464

 
(52
)
AIM
 
Investment management services
 
140

 
347

Premier
 
Project management services
 
1,419

 
—

Ashford LLC
 
Insurance claims services
 
17

 
—

 
 
 
 
$
5,176

 
$
15,146

Certain employees of Remington Lodging, who perform work on behalf of Ashford Trust, were granted approximately 131,000 and 177,000 shares of restricted stock under the Ashford Trust Stock Plan in 2017 and 2018, respectively. These share grants are recorded as a component of “management fees” in our consolidated statements of operations. Expense of $287,000 and $870,000 was recognized for the three and nine months ended September 30, 2018 and $222,000 and $439,000 for the three and nine months ended September 30, 2017, respectively. The unamortized cost of the unvested grants was $1.9 million as of September 30, 2018, which will be amortized over a period of 2.5 years.
On June 26, 2018, Ashford Trust entered into the Enhanced Return Funding Program Agreement and Amendment No. 1 to the Amended and Restated Advisory Agreement (the “ERFP Agreement”) with Ashford Inc. 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 and to revise the payment terms such that the base fee and reimbursable expenses will be paid monthly. The independent members of the board of directors of each of Ashford Inc. and Ashford Trust, with the assistance of separate and independent legal counsel, engaged to negotiate the ERFP Agreement on behalf of Ashford Inc. and Ashford Trust, respectively.
The ERFP Agreement generally provides that Ashford LLC will make investments to facilitate the acquisition of properties by Ashford Trust 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). The investments 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 in the following two years, in exchange for furniture, fixture and equipment for use at the acquired property or any other property owned by Ashford Trust 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 Ashford Trust provides written notice to the other at least sixty

38
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

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 Hilton Alexandria Old Town acquisition, we are entitled to receive $11.1 million from Ashford LLC in the form of future purchases of hotel furniture, fixtures, and equipment at Ashford Trust properties that will be leased to us by Ashford LLC. As of September 30, 2018, Ashford Trust had received approximately $390,000 of furniture, fixtures and equipment from Ashford LLC.
17. Subsequent Event
On October 31, 2018, the Company acquired a 100% interest in the 157-room La Posada de Santa Fe (“La Posada”) in Santa Fe, New Mexico for $50 million. As a result of the acquisition, the Company is entitled to receive $5.0 million from Ashford LLC in the form of future purchases of hotel furniture, fixtures, and equipment at Ashford Trust properties that will be leased to us by Ashford LLC.


39

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The following discussion should be read in conjunction with the unaudited financial statements and notes thereto appearing elsewhere herein. This report contains forward-looking statements within the meaning of the federal securities laws. Ashford Hospitality Trust, Inc. (the “Company,” “we,” “our” or “us”) cautions investors that any forward-looking statements presented herein, or which management may express orally or in writing from time to time, are based on management’s beliefs and assumptions at that time.
Throughout this Form 10-Q, we make forward-looking statements that are subject to risks and uncertainties. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “anticipate,” “estimate,” “approximately,” “believe,” “could,” “project,” “predict,” or other similar words or expressions. Additionally, statements regarding the following subjects are forward-looking by their nature: 
•
our business and investment strategy, including our ability to complete proposed business transactions described herein or the expected benefit of any such transactions;
•
anticipated or expected purchases or sales of assets;
•
our projected operating results;
•
completion of any pending transactions;
•
our ability to obtain future financing arrangements;
•
our understanding of our competition;
•
market trends;
•
projected capital expenditures; and
•
the impact of technology on our operations and business.
Such forward-looking statements are based on our beliefs, assumptions, and expectations of our future performance taking into account all information currently known to us. These beliefs, assumptions, and expectations can change as a result of many potential events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity, results of operations, plans, and other objectives may vary materially from those expressed in our forward-looking statements. Additionally, the following factors could cause actual results to vary from our forward-looking statements:
•
factors discussed in our Form 10-K for the year ended December 31, 2017, as filed with the Securities and Exchange Commission on March 14, 2018, including those set forth under the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” and “Properties,” as updated in our subsequent Quarterly Reports on Form 10-Q;
•
general and economic business conditions affecting the lodging and travel industry;
•
general volatility of the capital markets and the market price of our common and preferred stock;
•
changes in our business or investment strategy;
•
availability, terms, and deployment of capital;
•
availability of qualified personnel to our advisor;
•
changes in our industry and the market in which we operate, interest rates, or local economic conditions;
•
the degree and nature of our competition;
•
actual and potential conflicts of interest with Ashford LLC, Ashford Inc., Remington Lodging & Hospitality, LLC, our executive officers and our non-independent directors;
•
changes in governmental regulations, accounting rules, tax rates and similar matters;
•
legislative and regulatory changes, including changes to the Internal Revenue Code of 1986, as amended, and related rules, regulations and interpretations governing the taxation of REITs; and
•
limitations imposed on our business and our ability to satisfy complex rules in order for us to qualify as a REIT for federal income tax purposes.
When we use words or phrases such as “will likely result,” “may,” “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” or similar expressions, we intend to identify forward-looking statements. You should not place undue reliance on these forward-looking statements. We are not obligated to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

40

Overview
Based on our primary business objectives and forecasted operating conditions, our current key priorities and financial strategies include, among other things:
•
acquisition of hotel properties that will be accretive to our portfolio;
•
disposition of non-core hotel properties;
•
pursuing capital market activities to enhance long-term stockholder value;
•
preserving capital, enhancing liquidity, and continuing current cost-saving measures;
•
implementing selective capital improvements designed to increase profitability;
•
implementing effective asset management strategies to minimize operating costs and increase revenues;
•
financing or refinancing hotels on competitive terms;
•
utilizing hedges and derivatives to mitigate risks; and
•
making other investments or divestitures that our board of directors deems appropriate.
Our current investment strategy is to focus on owning predominantly full-service hotels in the upscale and upper upscale segments in domestic and international markets that have revenue per available room (“RevPAR”) generally less than twice the U.S. national average. We believe that as supply, demand, and capital market cycles change, we will be able to shift our investment strategy to take advantage of new lodging-related investment opportunities as they may develop. Our board of directors may change our investment strategy at any time without stockholder approval or notice. We will continue to seek ways to benefit from the cyclical nature of the hotel industry.
Recent Developments
On January 16, 2018, we made an additional $667,000 investment in OpenKey.
On January 17, 2018, we refinanced our $376.8 million mortgage loan. The new mortgage loan totaled $395.0 million. The new mortgage loan has a two-year initial term and five one-year extension options, subject to the satisfaction of certain conditions. The mortgage loan is interest only and provides for a floating interest rate of LIBOR + 2.92%. The new mortgage loan is secured by eight hotels: Embassy Suites Portland, Embassy Suites Crystal City, Embassy Suites Orlando, Embassy Suites Santa Clara, Crowne Plaza Key West, Hilton Costa Mesa, Sheraton Minneapolis, and Historic Inns of Annapolis.
On February 20, 2018, we completed the sale of the SpringHill Suites Glen Allen for approximately $10.9 million in cash. The sale resulted in a loss of $13,000 for the nine months ended September 30, 2018 and is included in “gain (loss) on sale of hotel properties” in the consolidated statements of operations. The Company also repaid approximately $7.6 million of debt associated with the hotel property.
On April 9, 2018, we refinanced our $971.7 million mortgage loan secured by 22 hotel properties. The new mortgage loan totaled $985.0 million, is interest only and provides for a floating interest rate of LIBOR + 3.20%. The stated maturity is April 2020 with five one-year extension options, subject to the satisfaction of certain conditions. The new mortgage loan is secured by the same 22 hotel properties that include: the Courtyard Boston Downtown, Courtyard Denver, Courtyard Gaithersburg, Courtyard Savannah, Hampton Inn Parsippany, Hilton Parsippany, Hilton Tampa, Hilton Garden Inn Austin, Hilton Garden Inn BWI, Hilton Garden Inn Virginia Beach, Hyatt Windwatch Long Island, Hyatt Savannah, Marriott DFW Airport, Marriott Omaha, Marriott San Antonio, Marriott Sugarland, Renaissance Palm Springs, Ritz-Carlton Atlanta, Residence Inn Tampa, Churchill, Melrose and Silversmith.
On May 1, 2018, we completed the sale of the SpringHill Suites Centreville for approximately $7.5 million in cash. The sale resulted in a gain of approximately $16,000 for the nine months ended September 30, 2018 and is included in “gain (loss) on sale of hotel properties” in the consolidated statements of operations. The Company also repaid approximately $6.6 million of debt associated with the hotel property.
On May 10, 2018, we completed the sale of the Residence Inn Tampa for approximately $24.0 million in cash. The sale resulted in a gain of approximately $400,000 for the nine months ended September 30, 2018 and is included in “gain (loss) on sale of hotel properties” in the consolidated statements of operations. The Company also repaid approximately $22.5 million of debt associated with the hotel property.

41

On June 13, 2018, we refinanced seven mortgage loans with existing outstanding balances totaling $1.068 billion. The new financing is comprised of six separate mortgage loans that total approximately $1.270 billion. Each has a two-year initial term with five one-year extension options, subject to the satisfaction of certain conditions. The original principal amounts of each mortgage loan and the hotel properties securing each mortgage loan are set forth in the following table:
Mortgage Loan
 
Principal Amount (in thousands)
 
Interest Rate
 
Secured Hotel Properties
A
 
$
180,720

 
LIBOR + 3.65%
 
Courtyard Columbus Tipton Lakes
 
 
 
 
 
 
Courtyard Scottsdale Old Town
 
 
 
 
 
 
Residence Inn Phoenix Airport
 
 
 
 
 
 
SpringHill Suites Manhattan Beach
 
 
 
 
 
 
SpringHill Suites Plymouth Meeting
 
 
 
 
 
 
Residence Inn Las Vegas Hughes Center
 
 
 
 
 
 
Residence Inn Newark
B
 
$
174,400

 
LIBOR + 3.39%
 
Courtyard Newark
 
 
 
 
 
 
SpringHill Suites BWI
 
 
 
 
 
 
Courtyard Oakland Airport
 
 
 
 
 
 
Courtyard Plano Legacy
 
 
 
 
 
 
Residence Inn Plano
 
 
 
 
 
 
TownePlace Suites Manhattan Beach
 
 
 
 
 
 
Courtyard Basking Ridge
C
 
$
221,040

 
LIBOR + 3.73%
 
Sheraton San Diego Mission Valley
 
 
 
 
 
 
Sheraton Bucks County
 
 
 
 
 
 
Hilton Ft. Worth
 
 
 
 
 
 
Hyatt Regency Coral Gables
 
 
 
 
 
 
Hilton Minneapolis
D
 
$
262,640

 
LIBOR + 4.02%
 
Hilton Santa Fe
 
 
 
 
 
 
Embassy Suites Dulles
 
 
 
 
 
 
Marriott Beverly Hills
 
 
 
 
 
 
One Ocean
 
 
 
 
 
 
Marriott Suites Dallas Market Center
E (1)
 
$
216,320

 
LIBOR + 4.36%
 
Marriott Memphis East
 
 
 
 
 
 
Embassy Suites Philadelphia Airport
 
 
 
 
 
 
Sheraton Anchorage
 
 
 
 
 
 
Lakeway Resort & Spa
 
 
 
 
 
 
Marriott Fremont
F
 
$
215,120

 
LIBOR + 3.68%
 
W Atlanta Downtown
 
 
 
 
 
 
Embassy Suites Flagstaff
 
 
 
 
 
 
Embassy Suites Walnut Creek
 
 
 
 
 
 
Marriott Bridgewater
 
 
 
 
 
 
Marriott Durham Research Triangle Park
_____________________________
(1)On July 3, 2018, we purchased $56.3 million of mezzanine debt related to the Pool E loan that was issued in conjunction with the June 13, 2018 refinance. The net floating interest rate after the purchase of the Pool E loan is LIBOR + 2.73%.
On June 26, 2018, Ashford Trust entered into the Enhanced Return Funding Program Agreement and Amendment No. 1 to the Amended and Restated Advisory Agreement (the “ERFP Agreement”) with Ashford Inc. 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 and to revise the payment terms such that the base fee and reimbursable expenses will be paid monthly. The independent members of the board of directors of each Ashford Inc. and Ashford Trust, with the assistance of separate and independent legal counsel, engaged to negotiate the ERFP Agreement on behalf of Ashford Inc. and Ashford Trust, respectively.
The ERFP Agreement generally provides that Ashford LLC will make investments to facilitate the acquisition of properties by Ashford Trust 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). The investments 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 in the following two years, in exchange for furniture, fixture and equipment for use at the acquired property or any other property owned by Ashford Trust 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 Ashford Trust 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.

42

As a result of the Hilton Alexandria Old Town acquisition, we are entitled to receive $11.1 million from Ashford LLC in the form of future purchases of hotel furniture, fixtures, and equipment at Ashford Trust properties that will be leased to us by Ashford LLC at no cost. As of September 30, 2018, Ashford Trust had received approximately $390,000 of furniture, fixtures and equipment from Ashford LLC and expects to receive the remaining furniture, fixtures and equipment from Ashford LLC in the fourth quarter of 2018.
On July 3, 2018, we purchased $56.3 million of mezzanine debt related to the Pool E loan that was issued in conjunction with the June 13, 2018 refinance. The net floating interest rate after the purchase of the Pool E loan is LIBOR + 2.73%.
On September 27, 2018, we established a secured credit facility with a borrowing capacity of up to $100.0 million, which is secured by a pledge of 100% of the equity interests in the subsidiaries that own the hotel property for which revolving credit facility funds were used to acquire. The interest rate associated with the secured credit facility is either the base rate + 1.65% or LIBOR + 2.65% at the Company’s election. The base rate is the greater of (i) the prime rate set by Bank of America; (ii) federal funds rate + 0.5%; or (iii) LIBOR + 1.00%.
During the three and nine months ended September 30, 2018, we issued approximately 2.4 million shares of our common stock through our “at-the-market” equity offering program resulting in gross proceeds of approximately $15.5 million and net proceeds of approximately $15.3 million after discounts and commissions to the selling agents.
On October 31, 2018 the Company acquired a 100% interest in the 157-room La Posada de Santa Fe (“La Posada”) in Santa Fe, New Mexico for $50 million. As a result of the acquisition, we are entitled to receive $5.0 million from Ashford LLC in the form of future purchases of hotel furniture, fixtures, and equipment at Ashford Trust properties that will be leased to us by Ashford LLC.
RESULTS OF OPERATIONS
Revenue per available room, or RevPAR, is a commonly used measure within the hotel industry to evaluate hotel operations. RevPAR is defined as the product of the ADR charged and the average daily occupancy achieved. RevPAR does not include revenues from food and beverage or parking, telephone, or other guest services generated by the property. Although RevPAR does not include these ancillary revenues, it is generally considered the leading indicator of core revenues for many hotels. We also use RevPAR to compare the results of our hotels between periods and to analyze results of our comparable hotels (comparable hotels represent hotels we have owned for the periods under comparison). RevPAR improvements attributable to increases in occupancy are generally accompanied by increases in most categories of variable operating costs. RevPAR improvements attributable to increases in ADR are generally accompanied by increases in limited categories of operating costs, such as management fees and franchise fees.

43

The following table summarizes changes in key line items from our consolidated statements of operations (in thousands):
 
Three Months Ended September 30,
 
Favorable/
(Unfavorable)
Change
 
Nine Months Ended September 30,
 
Favorable/
(Unfavorable)
Change
 
2018
 
2017
 
 
2018
 
2017
 
Total revenue
$
355,930

 
$
353,325

 
$
2,605

 
$
1,087,301

 
$
1,097,704

 
$
(10,403
)
Total hotel operating expenses
(225,036
)
 
(226,571
)
 
1,535

 
(676,702
)
 
(688,554
)
 
11,852

Property taxes, insurance and other
(20,774
)
 
(18,194
)
 
(2,580
)
 
(59,363
)
 
(55,293
)
 
(4,070
)
Depreciation and amortization
(64,923
)
 
(60,135
)
 
(4,788
)
 
(192,536
)
 
(185,380
)
 
(7,156
)
Impairment charges
27

 
(1,785
)
 
1,812

 
(1,652
)
 
(1,785
)
 
133

Transaction costs
—

 
—

 
—

 
(11
)
 
(11
)
 
—

Advisory services fee
(12,805
)
 
(14,612
)
 
1,807

 
(52,961
)
 
(39,482
)
 
(13,479
)
Corporate general and administrative
(3,090
)
 
(2,412
)
 
(678
)
 
(8,450
)
 
(10,836
)
 
2,386

Operating income (loss)
29,329

 
29,616

 
(287
)
 
95,626

 
116,363

 
(20,737
)
Equity in earnings (loss) of unconsolidated entities
310

 
(679
)
 
989

 
892

 
(3,580
)
 
4,472

Interest income
1,150

 
706

 
444

 
2,779

 
1,460

 
1,319

Gain (loss) on sale of hotel properties
(9
)
 
15

 
(24
)
 
394

 
14,024

 
(13,630
)
Other income (expense)
(202
)
 
(273
)
 
71

 
80

 
(3,539
)
 
3,619

Interest expense and amortization of loan costs
(60,731
)
 
(56,963
)
 
(3,768
)
 
(173,680
)
 
(167,224
)
 
(6,456
)
Write-off of premiums, loan costs and exit fees
(1,572
)
 
—

 
(1,572
)
 
(9,316
)
 
(1,629
)
 
(7,687
)
Unrealized gain (loss) on marketable securities
68

 
(936
)
 
1,004

 
(758
)
 
(4,813
)
 
4,055

Unrealized gain (loss) on derivatives
(2,085
)
 
(1,479
)
 
(606
)
 
(3,672
)
 
(1,804
)
 
(1,868
)
Income tax (expense) benefit
(519
)
 
1,267

 
(1,786
)
 
(2,606
)
 
507

 
(3,113
)
Net income (loss)
(34,261
)
 
(28,726
)
 
(5,535
)
 
(90,261
)
 
(50,235
)
 
(40,026
)
(Income) loss from consolidated entities attributable to noncontrolling interests
(10
)
 
(22
)
 
12

 
8

 
(4
)
 
12

Net (income) loss attributable to redeemable noncontrolling interests in operating partnership
6,682

 
6,940

 
(258
)
 
18,087

 
13,202

 
4,885

Net income (loss) attributable to the Company
$
(27,589
)
 
$
(21,808
)
 
$
(5,781
)
 
$
(72,166
)
 
$
(37,037
)
 
$
(35,129
)
All hotel properties owned during the three months ended September 30, 2018 and 2017 have been included in our results of operations during the respective periods in which they were owned. Based on when a hotel property was acquired or disposed, operating results for certain hotel properties are not comparable for the three months ended September 30, 2018 and 2017. The hotel properties listed below are not comparable hotel properties for the periods indicated and all other hotel properties are considered comparable hotel properties. The following acquisitions and dispositions affect reporting comparability related to our consolidated financial statements:
Hotel Property
 
Location 
 
Type
 
Date
Renaissance (1)
 
Portsmouth, VA
 
Disposition
 
February 1, 2017
Embassy Suites (1)
 
Syracuse, NY
 
Disposition
 
March 6, 2017
Crowne Plaza Ravinia (1)
 
Atlanta, GA
 
Disposition
 
June 29, 2017
SpringHill Suites (1)
 
Glen Allen, VA
 
Disposition
 
February 20, 2018
SpringHill Suites (1)
 
Centreville, VA
 
Disposition
 
May 1, 2018
Residence Inn Tampa (1)
 
Tampa, FL
 
Disposition
 
May 10, 2018
Hilton Alexandria Old Town
 
Alexandria, VA
 
Acquisition
 
June 29, 2018
____________________________________
(1) 
Collectively reported as “Hotel Dispositions”

44

The following table illustrates the key performance indicators of all hotel properties and WorldQuest owned for the periods indicated:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
RevPAR (revenue per available room)
$
124.49

 
$
124.33

 
$
126.62

 
$
125.12

Occupancy
77.91
%
 
79.60
%
 
77.52
%
 
78.52
%
ADR (average daily rate)
$
159.78

 
$
156.19

 
$
163.34

 
$
159.34

The following table illustrates the key performance indicators of the 117 comparable hotel properties and WorldQuest that were included for the full three and nine months ended September 30, 2018 and 2017, respectively:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
RevPAR (revenue per available room)
$
124.35

 
$
125.00

 
$
126.76

 
$
126.42

Occupancy
77.85
%
 
79.69
%
 
77.55
%
 
78.78
%
ADR (average daily rate)
$
159.73

 
$
156.85

 
$
163.45

 
$
160.47

Comparison of the Three Months Ended September 30, 2018 and 2017
Net Income (Loss) Attributable to the Company. Net loss attributable to the Company increased $5.8 million, from $21.8 million for the three months ended September 30, 2017 (the “2017 quarter”) to $27.6 million for the three months ended September 30, 2018 (the “2018 quarter”) as a result of the factors discussed below.
Revenue. Rooms revenue from our hotel properties and WorldQuest decreased $1.0 million, or 0.3%, to $288.0 million in the 2018 quarter compared to the 2017 quarter. This decrease is primarily attributable to lower rooms revenue of $2.8 million related to our Hotel Dispositions and $1.4 million from our comparable hotel properties and WorldQuest, partially offset by higher rooms revenue of $3.3 million related to the acquisition of the Hilton Alexandria Old Town. Our comparable hotel properties experienced an increase of 1.8% in room rates and a decrease of 184 basis points in occupancy.
Food and beverage revenue increased $1.1 million, or 2.2%, to $49.4 million. This increase is attributable to higher food and beverage revenue of $955,000 related to the acquisition of the Hilton Alexandria Old Town and $129,000 at our comparable hotel properties and WorldQuest. The Hotel Dispositions did not generate food and beverage revenue in the 2017 quarter.
Other hotel revenue, which consists mainly of Internet access, parking and spa, increased $2.3 million, or 15.3%, to $17.3 million. This increase is attributable to higher other hotel revenue of $307,000 as a result of the acquisition of the Hilton Alexandria Old Town and $2.1 million from our comparable hotel properties and WorldQuest. This increase was partially offset by lower other hotel revenue of $94,000 related to our Hotel Dispositions. Other non-hotel revenue increased $220,000, or 22.2%, to $1.2 million in the 2018 quarter as compared to the 2017 quarter.
Hotel Operating Expenses. Hotel operating expenses decreased $1.5 million, or 0.7%, to $225.0 million. Hotel operating expenses consist of direct expenses from departments associated with revenue streams and indirect expenses associated with support departments and management fees. Direct expenses decreased $347,000 in the 2018 quarter as compared to the 2017 quarter, which was comprised of a decrease of $1.0 million from our Hotel Dispositions and $641,000 at our comparable hotel properties and WorldQuest, partially offset by an increase of $1.3 million as a result of the acquisition of the Hilton Alexandria Old Town. Direct expenses were 30.0% of total hotel revenue for the 2018 quarter and 30.3% for the 2017 quarter. Indirect expenses and management fees decreased $1.2 million in the 2018 quarter as compared to the 2017 quarter, which was comprised of a decrease of $1.4 million from our Hotel Dispositions and $913,000 at our comparable hotel properties and WorldQuest, partially offset by an increase of $1.1 million as a result of the acquisition of the Hilton Alexandria Old Town.
Property Taxes, Insurance and Other. Property taxes, insurance and other increased $2.6 million, or 14.2%, to $20.8 million during the 2018 quarter compared to the 2017 quarter, which was primarily due to an increase of $2.4 million at our comparable hotel properties and WorldQuest and $293,000 as a result of the acquisition of the Hilton Alexandria Old Town, partially offset by a $148,000 decrease from our Hotel Dispositions.
Depreciation and Amortization. Depreciation and amortization increased $4.8 million, or 8.0%, to $64.9 million during the 2018 quarter compared to the 2017 quarter, which was primarily due to an increase of $4.6 million at our comparable hotel properties

45

and WorldQuest and $734,000 from the acquisition of the Hilton Alexandria Old Town, partially offset by a decrease of $556,000 from our Hotel Dispositions.
Impairment Charges. We recorded an impairment charge of $1.8 million in the 2017 quarter for damages to hotel properties from Hurricanes Harvey and Irma.
Advisory Services Fee. Advisory services fee decreased $1.8 million, or 12.4%, to $12.8 million in the 2018 quarter compared to the 2017 quarter. The advisory services fee represents fees incurred in connection with the advisory agreement between Ashford Inc. and the Company. For the 2018 quarter, the advisory services fee was comprised of a base advisory fee of $9.2 million, equity-based compensation of $4.9 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc., reimbursable expenses of $2.3 million and a credit to incentive fee of $3.5 million. For the 2017 quarter, the advisory services fee was comprised of a base advisory fee of $8.6 million, reimbursable expenses of $1.6 million and equity-based compensation of $4.4 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc.
Corporate General and Administrative. Corporate general and administrative expense increased $678,000, or 28.1%, to $3.1 million during the 2018 quarter compared to the 2017 quarter. The increase was primarily attributable to higher public company costs, office expenses, professional fees and other miscellaneous expenses of $385,000 and higher transaction, acquisition and management conversion costs of $293,000 in the 2018 quarter compared to the 2017 quarter, primarily related to costs associated with the ERFP Agreement.
Equity in Earnings (Loss) of Unconsolidated Entities. Equity in earnings (loss) of unconsolidated entities changed $989,000, from an equity in loss of $679,000 in the 2017 quarter to equity in earnings of $310,000 in the 2018 quarter. The 2018 quarter included equity in earnings of $470,000 from Ashford Inc., partially offset by an equity in loss of $160,000 from OpenKey. The 2017 quarter included equity in loss of $568,000 from Ashford Inc. and $111,000 from OpenKey.
Interest Income. Interest income was $1.2 million and $706,000 for the 2018 quarter and the 2017 quarter, respectively.
Gain (Loss) on Sale of Hotel Properties. Gain (loss) on sale of hotel properties consisted of a loss of $9,000 and a gain of $15,000 in the 2018 and 2017 quarters, respectively.
Other Income (Expense). Other expense decreased $71,000, or 26.0%, to $202,000 during the 2018 quarter compared to the 2017 quarter. In the 2018 quarter, we recorded expense of $272,000 related to CMBX premiums and usage fees, and miscellaneous other expense of $94,000, partially offset by realized gain on marketable securities of $24,000 and dividend income of $140,000. In the 2017 quarter, we recognized a realized loss of $1.2 million related to the termination of a CMBX tranche and $257,000 of expense related to CMBX premiums and usage fees, partially offset by a realized gain of $948,000 related to marketable securities, dividend income of $109,000 and miscellaneous income of $102,000.
Interest Expense and Amortization of Loan Costs. Interest expense and amortization of loan costs increased $3.8 million, or 6.6%, to $60.7 million during the 2018 quarter compared to the 2017 quarter. The increase is primarily due to higher interest expense and amortization of loan costs of $3.3 million due to higher LIBOR rates and higher amortization of loan costs from refinances at our comparable hotels properties and $926,000 as a result of the acquisition of the Hilton Alexandria Old Town, partially offset by lower interest expense and amortization of loan costs of $425,000 from our Hotel Dispositions. The average LIBOR rates in the 2018 quarter and the 2017 quarter were 2.11% and 1.23%, respectively.
Write-off of Premiums, Loan Costs and Exit Fees. Write-off of premiums, loan costs and exit fees were $1.6 million for the 2018 quarter. There were no write-off of premiums, loan costs and exit fees for the 2017 quarter.
Unrealized Gain (Loss) on Marketable Securities. Unrealized gain (loss) on marketable securities was $68,000 unrealized gain in the 2018 quarter and a $936,000 unrealized loss in the 2017 quarter, which are based on changes in closing market prices during the quarter.
Unrealized Gain (Loss) on Derivatives. Unrealized loss on derivatives increased $606,000, from $1.5 million in the 2017 quarter to $2.1 million in the 2018 quarter. In the 2018 quarter, we recognized unrealized losses of $1.7 million, $380,000 and $38,000 associated with CMBX tranches, interest rate floors and interest rate caps, respectively. In the 2017 quarter, we recognized unrealized losses of $2.3 million, $291,000 and $96,000 associated with CMBX tranches, interest rate floors and interest rate caps, respectively. These unrealized losses were partially offset by an unrealized gain of $1.2 million associated with the reclassification to other income (expense) for the recognition of a realized loss from a CMBX tranche termination. The fair value of interest rate floors and interest rate derivatives are primarily based on movements in the LIBOR forward curve and the passage of time. The fair value of options on futures contracts is determined based on the last reported settlement price as of the measurement date. The fair value of credit default swaps is based on the change in value of CMBX indices.

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Income Tax (Expense) Benefit. Income tax (expense) benefit changed $1.8 million, from an income tax benefit of $1.3 million in the 2017 quarter to income tax expense of $519,000 in the 2018 quarter. This change was primarily due to an increase in profitability and taxable income recognized by our TRS entities, which was partially due to the renewal of a significant portion of the Company’s TRS leases in January 2018 and also partially due to having utilized all of our available TRS net operating losses.
(Income) Loss from Consolidated Entities Attributable to Noncontrolling Interests. Our noncontrolling interest partner in consolidated entities was allocated income of $10,000 and $22,000 for the 2018 quarter and the 2017 quarter, respectively.
Net (Income) Loss Attributable to Redeemable Noncontrolling Interests in Operating Partnership. Redeemable noncontrolling interests in operating partnership decreased $258,000, from a net loss of $6.9 million in the 2017 quarter to $6.7 million in the 2018 quarter. Redeemable noncontrolling interests represented ownership interests of 14.88% and 15.73% in the operating partnership at September 30, 2018 and 2017, respectively.
Comparison of the Nine Months Ended September 30, 2018 and 2017
Net Income (Loss) Attributable to the Company. Net loss attributable to the Company increased $35.1 million from $37.0 million for the nine months ended September 30, 2017 (the “2017 period”) to $72.2 million for the nine months ended September 30, 2018 (the “2018 period”) as a result of the factors discussed below.
Revenue. Rooms revenue from our hotel properties and WorldQuest decreased $8.8 million, or 1.0%, to $868.1 million in the 2018 period compared to the 2017 period. This decrease is attributable to lower rooms revenue of $14.5 million from our Hotel Dispositions, partially offset by higher room revenue of $3.3 million from the acquisition of the Hilton Alexandria Old Town and $5.6 million from our comparable hotel properties and WorldQuest. Our comparable hotel properties experienced an increase of 1.9% in room rates and a decrease of 123 basis points in occupancy.
Food and beverage revenue decreased $10.1 million, or 5.8%, to $164.9 million in the 2018 period compared to the 2017 period. This decrease is attributable to lower food and beverage revenue of $6.9 million from our comparable hotel properties and WorldQuest and $3.2 million from our Hotel Dispositions, partially offset by an increase of $955,000 as a result of the acquisition of the Hilton Alexandria Old Town.
Other hotel revenue, which consists mainly of Internet access, parking, spa and business interruption revenue, increased $7.6 million, or 17.5%, to $51.4 million in the 2018 period compared to the 2017 period. This increase is primarily attributable to higher other revenue of $307,000 as a result of the acquisition of the Hilton Alexandria Old Town and $8.0 million from our comparable hotel properties and WorldQuest, which included $2.5 million of business interruption income for the St. Petersburg Hilton and Key West Crowne Plaza related to a settlement for lost profits from the BP Deepwater Horizon oil spill in the Gulf of Mexico in 2010 and $401,000 of business interruption income related to Hurricane Irma. This increase was partially offset by lower other revenue of $358,000 from our Hotel Dispositions. Other non-hotel revenue increased $932,000, or 45.4%, to $3.0 million in the 2018 period.
Hotel Operating Expenses. Hotel operating expenses decreased $11.9 million, or 1.7%, to $676.7 million in the 2018 period compared to the 2017 period. Hotel operating expenses consist of direct expenses from departments associated with revenue streams and indirect expenses associated with support departments and management fees. Direct expenses decreased $9.8 million in the 2018 period compared to the 2017 period, which was comprised of a decrease of $6.4 million from our Hotel Dispositions and $4.7 million from our comparable hotel properties and WorldQuest, partially offset by an increase of $1.3 million as a result of the acquisition of the Hilton Alexandria Old Town. Direct expenses were 29.2% of total hotel revenue for 2018 and 29.8% for the 2017 period. Indirect expenses and management fees decreased $2.0 million in the 2018 period compared to the 2017 period, which was comprised of a decrease of $7.2 million from our Hotel Dispositions and a decrease of $4.1 million related to an additional accrual in the 2017 period related to the final judgment in the lawsuit captioned Palm Beach Florida Hotel and Office Building Limited Partnership, et al. v. Nantucket Enterprises, Inc. These decreases were partially offset by an increases of $1.1 million from the acquisition of the Hilton Alexandria Old Town and $8.2 million from our comparable hotel properties and WorldQuest.
Property Taxes, Insurance and Other. Property taxes, insurance and other increased $4.1 million or 7.4%, to $59.4 million in the 2018 period compared to the 2017 period, which was primarily due to an increase of $293,000 as a result of the acquisition of the Hilton Alexandria Old Town and $4.9 million at our comparable hotel properties and WorldQuest, partially offset by a decrease of $810,000 from our Hotel Dispositions.
Depreciation and Amortization. Depreciation and amortization increased $7.2 million or 3.9%, to $192.5 million in the 2018 period compared to the 2017 period, which was primarily due to $734,000 from the acquisition of the Hilton Alexandria Old Town and $10.8 million at our comparable hotel properties and WorldQuest, partially offset by a decrease of $3.7 million from our Hotel Dispositions.

47

Impairment Charges. Impairment charges decreased $133,000, or 7.5%, to $1.7 million in the 2018 period compared to the 2017 period. We recorded an impairment charge of $1.7 million in the 2018 period which was comprised of a $2.0 million impairment charge at the SpringHill Suites Centreville, partially offset by impairment credits of $310,000 from changes in estimates of property damage incurred from Hurricanes Harvey and Irma. We recorded an impairment charge of $1.8 million in the 2017 quarter for damages to hotel properties from Hurricanes Harvey and Irma.
Transaction Costs. Transaction costs were $11,000 in both the 2018 period and the 2017 period.
Advisory Services Fee. Advisory services fee increased $13.5 million, or 34.1%, to $53.0 million in the 2018 period compared to the 2017 period. The advisory services fee represents fees incurred in connection with the advisory agreement between Ashford Inc. and the Company. In the 2018 period, the advisory services fee was comprised of a base advisory fee of $26.6 million, equity-based compensation of $20.5 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc. and reimbursable expenses of $5.8 million. During the nine months ended September 30, 2018, approximately $4.5 million of the equity-based compensation expense was related to the accelerated vesting of equity awards granted to one of our executive officers upon his death, in accordance with the terms of the awards. In the 2017 period, the advisory services fee was comprised of a base advisory fee of $25.9 million, equity-based compensation of $7.7 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc. and reimbursable expenses of $5.8 million.
Corporate General and Administrative. Corporate general and administrative expense decreased $2.4 million, or 22.0%, to $8.5 million in the 2018 period compared to the 2017 period. The decrease was primarily attributable to lower transaction, acquisition and management conversion costs of $2.3 million and lower public company costs, office expenses, professional fees and other miscellaneous expenses of $88,000 in the 2018 period compared to the 2017 period.
Equity in Earnings (Loss) of Unconsolidated Entities. Equity in earnings (loss) of unconsolidated entities changed $4.5 million from an equity in loss of $3.6 million in the 2017 period to equity in earnings of $892,000 in the 2018 period. The 2018 period included equity in earnings of $1.3 million from Ashford Inc. partially offset by an equity in loss of $434,000 from OpenKey. The 2017 period included equity in loss of $3.3 million from Ashford Inc. and $341,000 from OpenKey, partially offset by equity in earnings of $52,000 from the AQUA U.S. Fund.
Interest Income. Interest income was $2.8 million and $1.5 million in the 2018 and 2017 periods, respectively.
Gain (Loss) on Sale of Hotel Properties. Gain on the sale of hotel properties was $394,000 and $14.0 million in the 2018 and 2017 periods, respectively. The gain in the 2018 period related to gains from the sales of the Tampa Residence Inn and SpringHill Suites Centreville, partially offset by a loss from the sale of the SpringHill Suites Glen Allen. The gain in the 2017 period was related to a gain from the sale of the Crowne Plaza Ravinia, partially offset by losses from the sales of the Renaissance Portsmouth and Embassy Suites Syracuse.
Other Income (Expense). Other income (expense) changed $3.6 million, from expense of $3.5 million in the 2017 period to income of $80,000 in the 2018 period. In the 2018 period, we recorded dividend income of $425,000, a realized gain on marketable securities of $173,000 and other miscellaneous income of $291,000; partially offset by expense of $809,000 related to CMBX premiums and usage fees. In the 2017 period, we recognized realized losses of $4.2 million related to the termination of CMBX tranches, $543,000 on the maturities of options on futures contracts and $769,000 of CMBX premiums and usage fees. These expenses were partially offset by dividend income of $986,000, a realized gain of $822,000 on marketable securities and other miscellaneous income of $131,000.
Interest Expense and Amortization of Loan Costs. Interest expense and amortization of loan costs increased $6.5 million, or 3.9%, to $173.7 million in the 2018 period compared to the 2017 period. The increase is primarily due to higher interest expense and amortization of loan costs of $9.6 million due to higher LIBOR rates and higher amortization of loan costs from refinances at our comparable hotel properties and $926,000 from the acquisition of the Hilton Alexandria Old Town, partially offset by lower interest expense and amortization of loan costs of $3.1 million from our Hotel Dispositions. The average LIBOR rates in the 2018 period and the 2017 period were 1.89% and 1.04%, respectively.
Write-off of Premiums, Loan Costs and Exit Fees. Write-off of premiums, loan costs and exit fees increased $7.7 million to $9.3 million in the 2018 period compared to the 2017 period. In the 2018 period, we incurred write-off of loan costs and exit fees of approximately $9.3 million consisting of the write-off of unamortized loan costs of approximately $3.3 million and exit fees of approximately $6.0 million as a result of loan refinances and hotel property sales. In the 2017 period, we incurred write-off of premiums, loan costs and exit fees consisting of $1.5 million to refinance a mortgage loan secured by the Nashville Renaissance and Princeton Westin and other fees of $148,000.

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Unrealized Gain (Loss) on Marketable Securities. Unrealized loss on marketable securities was $758,000 and $4.8 million in the 2018 and 2017 periods, respectively, which was based on changes in closing market prices during the period.
Unrealized Gain (Loss) on Derivatives. Unrealized loss on derivatives increased $1.9 million, or 103.5%, from $1.8 million in the 2017 period to $3.7 million in the 2018 period. In the 2018 period, we recognized unrealized losses of $1.7 million from interest rate caps, $1.3 million from CMBX tranches and $618,000 from interest rate floors. In the 2017 period, we recognized unrealized losses of $3.6 million, $2.2 million and $613,000 associated with the remaining CMBX tranches, interest rate floors and interest rate caps, respectively, partially offset by unrealized gains of $4.2 million associated with the reclassification to other income (expense) for the recognition of realized losses from CMBX tranche terminations and $427,000 associated with the reclassification to other income (expense) for maturities of options on futures contracts. The fair value of interest rate floors and interest rate derivatives are primarily based on movements in the LIBOR forward curve and the passage of time. The fair value of options on futures contracts is determined based on the last reported settlement price as of the measurement date. The fair value of credit default swaps is based on the change in value of CMBX indices.
Income Tax (Expense) Benefit. Income tax benefit (expense) changed $3.1 million, or 614.0% from a benefit of $507,000 in the 2017 period to expense of $2.6 million in the 2018 period. The change in income tax benefit (expense) is primarily due to an increase in taxable income recognized by our TRS entities, which was partially due to the renewal of a significant portion of the Company’s TRS leases in January 2018 and is also partially due to having utilized all of our available TRS net operating losses.
(Income) Loss from Consolidated Entities Attributable to Noncontrolling Interests. Our noncontrolling interest partner in consolidated entities was allocated a loss of $8,000 and income of $4,000 in the 2018 and 2017 periods, respectively.
Net (Income) Loss Attributable to Redeemable Noncontrolling Interests in Operating Partnership. Noncontrolling interests in operating partnership were allocated a net loss of $18.1 million and $13.2 million in the 2018 and 2017 periods, respectively. Redeemable noncontrolling interests represented ownership interests of 14.88% and 15.73% in the operating partnership at September 30, 2018 and 2017, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Our cash position from operations is affected primarily by macro industry movements in occupancy and rate as well as our ability to control costs. Further, interest rates can greatly affect the cost of our debt service as well as the value of any financial hedges we may put in place. We monitor industry fundamentals and interest rates very closely. Capital expenditures above our reserves will affect cash flow as well.
Certain of our loan agreements contain cash trap provisions that may get triggered if the performance of our hotels decline. When these provisions are triggered, substantially all of the profit generated by our hotels is deposited directly into lockbox accounts and then swept into cash management accounts for the benefit of our various lenders. This could affect our liquidity and our ability to make distributions to our stockholders.
Also, we have entered into certain customary guaranty agreements pursuant to which we guaranty payment of any recourse liabilities of our subsidiaries or joint ventures that may result from non-recourse carve-outs, which include, but are not limited to fraud, misrepresentation, willful misconduct resulting in waste, misappropriations of rents following an event of default, voluntary bankruptcy filings, unpermitted transfers of collateral, and certain environmental liabilities. Certain of these guarantees represent a guaranty of material amounts, and if we are required to make payments under those guarantees, our liquidity could be adversely affected.
On December 5, 2017, the board of directors reapproved a stock repurchase program (the “Repurchase Program”) pursuant to which the board of directors granted a repurchase authorization to acquire shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”) having an aggregate value of up to $200 million. The board of director’s authorization replaced any previous repurchase authorizations. No shares were repurchased during the three and nine months ended September 30, 2018 pursuant to the Repurchase Program.
On December 11, 2017, we entered into equity distribution agreements with UBS Securities LLC, Morgan Stanley & Co. LLC, B. Riley FBR, Inc., Robert W. Baird & Co. Incorporated, D.A. Davidson & Co., Deutsche Bank Securities Inc. and Janney Montgomery Scott LLC, each acting as a sales agent (the “Equity Distribution Agreements”). Pursuant to the Equity Distribution Agreements, we may sell from time to time through the sales agents shares of our common stock having an aggregate offering price of up to $100.0 million. Sales of shares of our common stock, if any, may be made in negotiated transactions or transactions that are deemed to be “at-the-market” offerings as defined in Rule 415 of the Securities Act, including sales made directly on the New York Stock Exchange, the existing trading market for our common stock, or sales made to or through a market maker other than on an exchange or through an electronic communications network. We will pay each of the sales agents a commission, which in each case shall not be more than 2.0% of the gross sales price of the shares of our common stock sold through such sales agent.

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During the three and nine months ended September 30, 2018, we issued approximately 2.4 million shares of our common stock through our “at-the-market” equity offering program resulting in gross proceeds of approximately $15.5 million and net proceeds of approximately $15.3 million after discounts and commissions to the selling agents.
On January 17, 2018, we refinanced our $376.8 million mortgage loan. The new mortgage loan totaled $395.0 million. The new mortgage loan has a two-year initial term and five one-year extension options, subject to the satisfaction of certain conditions. The mortgage loan is interest only and provides for a floating interest rate of LIBOR + 2.92%. The new mortgage loan is secured by eight hotels: Embassy Suites Portland, Embassy Suites Crystal City, Embassy Suites Orlando, Embassy Suites Santa Clara, Crowne Plaza Key West, Hilton Costa Mesa, Sheraton Minneapolis, and Historic Inns of Annapolis.
On February 20, 2018, we repaid $7.6 million of principal on our mortgage loan partially secured by the SpringHill Suites Glen Allen as a result of the sale of the hotel property.
On April 9, 2018, we refinanced our $971.7 million mortgage loan secured by 22 hotel properties. The new mortgage loan totaled $985.0 million, is interest only and provides for a floating interest rate of LIBOR + 3.20%. The stated maturity is April 2020 with five one-year extension options, subject to the satisfaction of certain conditions. The new mortgage loan is secured by the same 22 hotel properties that include: the Courtyard Boston Downtown, Courtyard Denver, Courtyard Gaithersburg, Courtyard Savannah, Hampton Inn Parsippany, Hilton Parsippany, Hilton Tampa, Hilton Garden Inn Austin, Hilton Garden Inn BWI, Hilton Garden Inn Virginia Beach, Hyatt Windwatch Long Island, Hyatt Savannah, Marriott DFW Airport, Marriott Omaha, Marriott San Antonio, Marriott Sugarland, Renaissance Palm Springs, Ritz-Carlton Atlanta, Residence Inn Tampa, Churchill, Melrose and Silversmith.
On May 1, 2018, we completed the sale of the SpringHill Suites Centreville for approximately $7.5 million in cash. We also repaid approximately $6.6 million of principal on our mortgage loan partially secured by the hotel property.
On May 10, 2018, we completed the sale of the Residence Inn Tampa for approximately $24.0 million in cash. We also repaid approximately $22.5 million of debt associated with the hotel property.

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On June 13, 2018, we refinanced seven mortgage loans with existing outstanding balances totaling $1.068 billion. The new financing is comprised of six separate mortgage loans that total approximately $1.270 billion. Each has a two-year initial term with five one-year extension options, subject to the satisfaction of certain conditions. The original principal amounts of each mortgage loan and the hotel properties securing each mortgage loan are set forth in the following table:
Mortgage Loan
 
Principal Amount (in thousands)
 
Interest Rate
 
Secured Hotel Properties
A
 
$
180,720

 
LIBOR + 3.65%
 
Courtyard Columbus Tipton Lakes
 
 
 
 
 
 
Courtyard Scottsdale Old Town
 
 
 
 
 
 
Residence Inn Phoenix Airport
 
 
 
 
 
 
SpringHill Suites Manhattan Beach
 
 
 
 
 
 
SpringHill Suites Plymouth Meeting
 
 
 
 
 
 
Residence Inn Las Vegas Hughes Center
 
 
 
 
 
 
Residence Inn Newark
B
 
$
174,400

 
LIBOR + 3.39%
 
Courtyard Newark
 
 
 
 
 
 
SpringHill Suites BWI
 
 
 
 
 
 
Courtyard Oakland Airport
 
 
 
 
 
 
Courtyard Plano Legacy
 
 
 
 
 
 
Residence Inn Plano
 
 
 
 
 
 
TownePlace Suites Manhattan Beach
 
 
 
 
 
 
Courtyard Basking Ridge
C
 
$
221,040

 
LIBOR + 3.73%
 
Sheraton San Diego Mission Valley
 
 
 
 
 
 
Sheraton Bucks County
 
 
 
 
 
 
Hilton Ft. Worth
 
 
 
 
 
 
Hyatt Regency Coral Gables
 
 
 
 
 
 
Hilton Minneapolis
D
 
$
262,640

 
LIBOR + 4.02%
 
Hilton Santa Fe
 
 
 
 
 
 
Embassy Suites Dulles
 
 
 
 
 
 
Marriott Beverly Hills
 
 
 
 
 
 
One Ocean
 
 
 
 
 
 
Marriott Suites Dallas Market Center
E (1)
 
$
216,320

 
LIBOR + 4.36%
 
Marriott Memphis East
 
 
 
 
 
 
Embassy Suites Philadelphia Airport
 
 
 
 
 
 
Sheraton Anchorage
 
 
 
 
 
 
Lakeway Resort & Spa
 
 
 
 
 
 
Marriott Fremont
F
 
$
215,120

 
LIBOR + 3.68%
 
W Atlanta Downtown
 
 
 
 
 
 
Embassy Suites Flagstaff
 
 
 
 
 
 
Embassy Suites Walnut Creek
 
 
 
 
 
 
Marriott Bridgewater
 
 
 
 
 
 
Marriott Durham Research Triangle Park
_____________________________
(1)On July 3, 2018, we purchased $56.3 million of mezzanine debt related to the Pool E loan that was issued in conjunction with the June 13, 2018 refinance. The net floating interest rate after the purchase of the Pool E loan is LIBOR + 2.73%.
On June 29, 2018, in connection with the acquisition of the Hilton Alexandria Old Town in Alexandria VA, we completed the financing of a $73.5 million mortgage loan. This mortgage loan is interest only and provides for a floating interest rate of LIBOR + 2.45%. The stated maturity date of the mortgage loan is June 2023, with no extension options. The mortgage loan is secured by the Hilton Alexandria Old Town.
On July 3, 2018, we purchased $56.3 million of mezzanine debt related to the Pool E loan that was issued in conjunction with the June 13, 2018 refinance. The debt was eliminated upon consolidation. The net floating interest rate after the purchase for the Pool E loan is LIBOR + 2.73%.
On September 27, 2018, we established a secured credit facility with a borrowing capacity of up to $100.0 million, which is secured by a pledge of 100% of the equity interests in the subsidiaries that own the hotel property for which revolving credit facility funds were used to acquire. The interest rate associated with the secured credit facility is either the base rate + 1.65% or LIBOR + 2.65% at the Company’s election. The base rate is the greater of (i) the prime rate set by Bank of America; (ii) federal funds rate + 0.5%; or (iii) LIBOR + 1.00%.

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Secured Credit Facility
We have a one-year, senior secured revolving credit facility in the amount of $100 million. We believe the secured credit facility will provide us with financial flexibility to fund future acquisitions.
The secured credit facility is provided by Bank of America, N.A. Ashford Hospitality Limited Partnership, as the borrower. We guarantee the secured credit facility, which is secured by a pledge of 100% of the equity interests in the subsidiaries that own the hotel property for which revolving credit facility funds were used to acquire. The proceeds of the secured revolving credit facility may be used for property acquisitions.
The secured credit facility also contains customary terms, covenants, negative covenants, events of default, limitations and other conditions for credit facilities of this type. Subject to certain exceptions, we are subject to restrictions on incurring additional indebtedness, mergers and fundamental changes, sales or other dispositions of property, changes in the nature of our business and investments.
We also are subject to certain financial covenants, as set forth below, which are tested by the borrower on a consolidated basis (net of the amounts attributable to the noncontrolling interest held by our partner in a majority-owned consolidated entity) and include, but are not limited to, the following:
•
the ratio of total funded indebtedness (less unrestricted cash in excess of $15 million) to EBITDA shall not be greater than 9.75 to 1.0. Our ratio was 8.8 at September 30, 2018.
•
the ratio of EBITDA to fixed charges for the previous 4 consecutive fiscal quarters shall not be less than 1.25 to 1.0. Our ratio was 1.56 at September 30, 2018.
•
tangible net worth shall not at any time be less than 75% of the consolidated tangible net worth on the closing date of the secured credit facility plus 75% of the net proceeds of all new equity issuances of the consolidated group.
All financial covenants are tested and certified by the borrower on a quarterly basis. We were in compliance with all covenants at September 30, 2018.
The secured credit facility includes customary events of default and the occurrence of an event of default will permit the lenders to terminate commitments to lend under the secured revolving credit facility and accelerate payment of all amounts outstanding thereunder. If a default occurs and is continuing, we will be precluded from making distributions on our shares of common stock (other than those required to allow us to qualify and maintain our status as a REIT, so long as such default does not arise from a payment default or event of insolvency).
The interest rate associated with the borrowings under the secured credit facility is either the base rate + 1.65% or LIBOR + 2.65% at the Company’s election. The base rate is the greater of (i) the prime rate set by Bank of America; (ii) federal funds rate + 0.5%; or (iii) LIBOR + 1.00%.
The secured credit facility is a one-year interest-only facility with all outstanding principal being due at maturity on September 26, 2019. Borrowings must be repaid within 180 days.
We intend to repay any indebtedness incurred under our secured credit facility from time to time out of net cash provided by operations and from the net proceeds of issuances of additional equity and debt securities or sale of assets, as market conditions permit.
As of both November 2, 2018 and September 30, 2018, no amounts were outstanding under the secured credit facility.
Sources and Uses of Cash
Our principal sources of funds to meet our cash requirements include: cash on hand, cash flow from operations, capital market activities, property refinancing proceeds and asset sales. Additionally, our principal uses of funds are expected to include possible operating shortfalls, owner-funded capital expenditures, dividends, new investments, and debt interest and principal payments. Items that impacted our cash flow and liquidity during the periods indicated are summarized as follows:
Net Cash Flows Provided by (Used in) Operating Activities. Net cash flows provided by operating activities, pursuant to our consolidated statements of cash flows, which includes changes in balance sheet items, were $137.3 million and $178.5 million for the nine months ended September 30, 2018 and 2017, respectively. Cash flows from operations were impacted by changes in hotel operations, our hotel acquisition in 2018, our hotel dispositions in 2017 and 2018 as well as the timing of collecting receivables from hotel guests, paying vendors, settling with related parties and settling with hotel managers.

52

Net Cash Flows Provided by (Used in) Investing Activities. For the nine months ended September 30, 2018, net cash flows used in investing activities were $239.4 million. Cash outflows primarily consisted of $164.7 million for capital improvements made to various hotel properties, $114.9 million primarily for the purchase of the Hilton Alexandria Old Town hotel, and an additional $667,000 investment in OpenKey. Cash outflows were partially offset by cash inflows of $40.6 million from proceeds primarily received from the sales of the SpringHill Suites Glen Allen, SpringHill Suites Centreville, and Residence Inn Tampa and $651,000 of proceeds from property insurance claims. For the nine months ended September 30, 2017, net cash flows used in investing activities were $6.8 million. Cash outflows primarily consisted of $164.1 million for capital improvements made to various hotel properties, and an additional $983,000 investment in OpenKey. Cash outflows were partially offset by $50.9 million of proceeds associated with the liquidation of our interests in the AQUA U.S. Fund, $105.3 million attributable to the net cash proceeds received from the sales of the Renaissance Portsmouth, Embassy Suites Syracuse and Crowne Plaza Ravinia and $2.4 million of proceeds from property insurance claims.
Net Cash Flows Provided by (Used in) Financing Activities. For the nine months ended September 30, 2018, net cash flows provided by financing activities were $97.0 million. Cash inflows of $2.7 billion from borrowings on indebtedness and $13.6 million of proceeds from common stock offerings. Cash inflows were partially offset by cash outflows of $2.5 billion for repayments of indebtedness, $72.3 million for dividend payments to common and preferred stockholders and unitholders, $55.2 million for payments of loan costs and exit fees, $3.1 million of payments for derivatives, and $1.6 million for the repurchase of common stock. For the nine months ended September 30, 2017, net cash flows used in financing activities were $137.5 million. Cash outflows primarily consisted of $246.1 million for repayments of indebtedness, $80.6 million for the redemption of preferred stock, $75.6 million for dividend payments to common and preferred stockholders and unitholders, $5.8 million for payments of loan costs and exit fees, $1.3 million for the repurchase of common stock and $633,000 of payments for derivatives. Cash outflows were partially offset by cash inflows of $180.8 million of borrowings on indebtedness and $91.6 million of proceeds from preferred stock offerings.
We are required to maintain certain financial ratios under various debt and derivative agreements. If we violate covenants in any debt or derivative agreement, we could be required to repay all or a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all. Presently, our existing financial debt covenants primarily relate to maintaining minimum net worth and leverage ratios and liquidity. As of September 30, 2018, we were in compliance in all material respects with all covenants or other requirements set forth in our debt and related agreements.
Mortgage and mezzanine loans are nonrecourse to the borrowers, except for customary exceptions or carve-outs that trigger recourse liability to the borrowers in certain limited instances. Recourse obligations typically include only the payment of costs and liabilities suffered by lenders as a result of the occurrence of certain bad acts on the part of the borrower. However, in certain cases, carve-outs could trigger recourse obligations on the part of the borrower with respect to repayment of all or a portion of the outstanding principal amount of the loans. We have entered into customary guaranty agreements pursuant to which we guaranty payment of any recourse liabilities of the borrowers that result from non-recourse carve-outs (which include, but are not limited to, fraud, misrepresentation, willful conduct resulting in waste, misappropriations of rents following an event of default, voluntary bankruptcy filings, unpermitted transfers of collateral, and certain environmental liabilities). In the opinion of management, none of these guaranty agreements, either individually or in the aggregate, are likely to have a material adverse effect on our business, results of operations, or financial condition as of September 30, 2018.
Based on our current level of operations, management believes that our cash flow from operations and our existing cash balances should be adequate to meet upcoming anticipated requirements for interest and principal payments on debt (excluding any potential final maturity principal payments), working capital, and capital expenditures for the next 12 months and dividends required to maintain our status as a REIT for federal income tax purposes. With respect to upcoming maturities, we will continue to proactively address the refinancing or repayment of our 2019 and 2020 maturities. No assurances can be given that we will obtain additional financings or, if we do, what the amount and terms will be. Our failure to obtain future financing under favorable terms could adversely impact our ability to execute our business strategy. In addition, we may selectively pursue debt financing on individual properties.
We are committed to an investment strategy where we will opportunistically pursue hotel-related investments as suitable situations arise. Funds for future hotel-related investments are expected to be derived, in whole or in part, from cash on hand, future borrowings under a credit facility or other loans, or proceeds from additional issuances of common stock, preferred stock, or other securities, asset sales, and joint ventures. However, there can be no assurance that we will successfully make additional investments. We may, when conditions are suitable, consider additional capital raising opportunities.
Our existing hotel properties are mostly located in developed areas with competing hotel properties. Future occupancy, ADR, and RevPAR of any individual hotel could be materially and adversely affected by an increase in the number or quality of competitive hotel properties in its market area. Competition could also affect the quality and quantity of future investment opportunities.

53

Dividend Policy. During the three month periods ended September 30, 2018 and 2017, the board of directors declared quarterly dividends of $0.12 per share of outstanding common stock. In December 2017, the board of directors approved our 2018 dividend policy which anticipates a quarterly dividend payment of $0.12 per share for the remainder of 2018. However, the adoption of a dividend policy does not commit our board of directors to declare future dividends. The board of directors will continue to review our dividend policy on a quarterly basis. We may incur indebtedness to meet distribution requirements imposed on REITs under the Internal Revenue Code to the extent that working capital and cash flow from our investments are insufficient to fund required distributions. Alternatively, we may elect to pay dividends on our common stock in cash or a combination of cash and shares of securities as permitted under federal income tax laws governing REIT distribution requirements. We may pay dividends in excess of our cash flow.
SEASONALITY
Our properties’ operations historically have been seasonal as certain properties maintain higher occupancy rates during the summer months, while certain other properties maintain higher occupancy rates during the winter months. This seasonality pattern can cause fluctuations in our quarterly lease revenue under our percentage leases. We anticipate that our cash flows from the operations of our properties will be sufficient to enable us to make quarterly distributions to maintain our REIT status. To the extent that cash flows from operations are insufficient during any quarter due to temporary or seasonal fluctuations in lease revenue, we expect to utilize other cash on hand or borrowings to fund required distributions. However, we cannot make any assurances that we will make distributions in the future.
OFF-BALANCE SHEET ARRANGEMENTS
In the normal course of business, we form partnerships or joint ventures that operate certain hotels. We evaluate each partnership and joint venture to determine whether the entity is a Variable Interest Entity (“VIE”). If the entity is determined to be a VIE, we assess whether we are the primary beneficiary and need to consolidate the entity. For further discussion of the company’s VIEs, see note 2 to our consolidated financial statements.
CONTRACTUAL OBLIGATIONS
There have been no material changes since December 31, 2017, outside of the ordinary course of business, to contractual obligations specified in the table of contractual obligations included in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2017 Form 10-K.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our accounting policies that are critical or most important to understanding our financial condition and results of operations and that require management to make the most difficult judgments are described in our 2017 Form 10-K. There have been no material changes in these critical accounting policies.
NON-GAAP FINANCIAL MEASURES
The following non-GAAP presentations of EBITDA, EBITDAre, Adjusted EBITDAre, FFO and AFFO are presented to help our investors evaluate our operating performance.
EBITDA is defined as net income (loss) before interest expense and amortization of premiums and loan costs, net, income taxes, depreciation and amortization, equity in earnings/loss of unconsolidated entities and after the Company’s portion of EBITDA of unconsolidated entities. In addition, we include impairment charges on real estate, gain/loss on sale of hotel properties and our portion of impairment charges on real estate and gain/loss on sale of hotel properties of unconsolidated entities to calculate EBITDAre, as defined by NAREIT.
We then further adjust EBITDAre to exclude certain additional items such as uninsured hurricane related costs, write-off of premiums, loan costs and exit fees, other income/expense, net, transaction, acquisition and management conversion costs, legal judgment and related legal costs, dead deal costs, software implementation costs and non-cash items such as amortization of unfavorable contract liabilities, non-cash stock/unit-based compensation, unrealized gains/losses on marketable securities, derivative instruments, investment in securities investment fund, as well as our portion of adjustments to EBITDAre of unconsolidated entities.
We present EBITDA, EBITDAre and Adjusted EBITDAre because we believe they reflect more accurately the ongoing performance of our hotel assets and other investments and provide more useful information to investors as they are indicators of our ability to meet our future debt payment requirements, working capital requirements and they provide an overall evaluation of our financial condition. EBITDA, EBITDAre and Adjusted EBITDAre as calculated by us may not be comparable to EBITDA, EBITDAre and Adjusted EBITDAre reported by other companies that do not define EBITDA, EBITDAre and Adjusted EBITDAre

54

exactly as we define the terms. EBITDA, EBITDAre and Adjusted EBITDAre do not represent cash generated from operating activities determined in accordance with GAAP, and should not be considered as an alternative to operating income or net income determined in accordance with GAAP as an indicator of performance or as an alternative to cash flows from operating activities as determined by GAAP as an indicator of liquidity.
Beginning with the three months ended March 31, 2018, we have started reporting EBITDA for real estate, or EBITDAre, as defined by NAREIT, and Adjusted EBITDAre. Previously, we reported Adjusted EBITDA. Adjusted EBITDAre is calculated in a similar manner as Adjusted EBITDA, with the exception of the adjustment for the consolidated noncontrolling interest’s pro rata share of Adjusted EBITDA. The rationale for including 100% of EBITDAre for consolidated noncontrolling interests is that the full amount of any debt of these entities is reported in our consolidated balance sheet and therefore metrics using total debt to EBITDAre provide a better understanding of the Company’s leverage. This is also consistent with NAREIT’s definition of EBITDAre. All prior periods have been adjusted to conform to the current period presentation.
The following table reconciles net income (loss) to EBITDA, EBITDAre and Adjusted EBITDAre (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Net income (loss)
$
(34,261
)
 
$
(28,726
)
 
$
(90,261
)
 
$
(50,235
)
Interest expense and amortization of premiums and loan costs, net
60,731

 
56,963

 
173,680

 
167,224

Depreciation and amortization
64,923

 
60,135

 
192,536

 
185,380

Income tax expense (benefit)
519

 
(1,267
)
 
2,606

 
(507
)
Equity in (earnings) loss of unconsolidated entities
(310
)
 
679

 
(892
)
 
3,632

Company’s portion of EBITDA of unconsolidated entities (Ashford Inc.)
(1,607
)
 
(384
)
 
959

 
(20
)
Company’s portion of EBITDA of unconsolidated entities (OpenKey)
(158
)
 
(113
)
 
(419
)
 
(361
)
EBITDA
89,837

 
87,287

 
278,209

 
305,113

Impairment charges on real estate
(27
)
 
1,785

 
1,652

 
1,785

(Gain) loss on sale of hotel properties
9

 
(15
)
 
(394
)
 
(14,024
)
EBITDAre
89,819

 
89,057

 
279,467

 
292,874

Amortization of unfavorable contract liabilities
(39
)
 
(363
)
 
(117
)
 
(1,151
)
Uninsured hurricane related costs
(43
)
 
3,711

 
(271
)
 
3,711

Write-off of premiums, loan costs and exit fees
1,572

 
—

 
9,316

 
1,629

Other (income) expense, net
10

 
273

 
(80
)
 
3,539

Transaction, acquisition and management conversion costs
391

 
202

 
596

 
3,770

Legal judgment and related legal costs
1

 
27

 
928

 
4,091

Unrealized (gain) loss on marketable securities
(68
)
 
936

 
758

 
4,813

Unrealized (gain) loss on derivatives
2,085

 
1,479

 
3,672

 
1,804

Dead deal costs
52

 
5

 
55

 
9

Software implementation costs
—

 
—

 
—

 
1,034

Non-cash stock/unit-based compensation
5,143

 
4,613

 
21,946

 
8,751

Company’s portion of (gain) loss of AQUA U.S. Fund
—

 
—

 
—

 
(52
)
Company’s portion of adjustments to EBITDAre of unconsolidated entities (Ashford Inc.)
2,814

 
1,703

 
4,997

 
3,752

Company’s portion of adjustments to EBITDAre of unconsolidated entities (OpenKey)
4

 
2

 
12

 
4

Adjusted EBITDAre
$
101,741

 
$
101,645

 
$
321,279

 
$
328,578


55

We calculate FFO and AFFO in the following table. FFO is calculated on the basis defined by NAREIT, which is net income (loss) attributable to common stockholders, computed in accordance with GAAP, excluding gains or losses on properties, and extraordinary items as defined by GAAP, plus depreciation and amortization of real estate assets, impairment charges on real estate assets, and after adjustments for unconsolidated entities and noncontrolling interests in the operating partnership. Adjustments for unconsolidated entities are calculated to reflect FFO on the same basis. NAREIT developed FFO as a relative measure of performance of an equity REIT to recognize that income-producing real estate historically has not depreciated on the basis determined by GAAP. Our calculation of AFFO excludes extinguishment of issuance costs upon redemption of preferred stock, write-off of loan costs and exit fees, uninsured hurricane related costs, other income/expense, net transaction, acquisition and management conversion costs, legal judgment and related legal costs, dead deal costs, software implementation costs and non-cash items such as non-cash stock/unit-based compensation, amortization of loan costs, unrealized gains/losses on marketable securities, derivative instruments, investment in securities investment fund, as well as our portion of adjustments to FFO related to unconsolidated entities. We exclude items from AFFO that are either non-cash or are not part of our core operations in order to provide a period-over-period comparison of our operating results. We consider FFO and AFFO to be appropriate measures of our ongoing normalized operating performance as a REIT. We compute FFO in accordance with our interpretation of standards established by NAREIT, which may not be comparable to FFO reported by other REITs that either do not define the term in accordance with the current NAREIT definition or interpret the NAREIT definition differently than us. FFO and AFFO do not represent cash generated from operating activities as determined by GAAP and should not be considered as an alternative to a) GAAP net income or loss as an indication of our financial performance or b) GAAP cash flows from operating activities as a measure of our liquidity, nor is it indicative of funds available to satisfy our cash needs, including our ability to make cash distributions. However, to facilitate a clear understanding of our historical operating results, we believe that FFO and AFFO should be considered along with our net income or loss and cash flows reported in the consolidated financial statements.

56

The following table reconciles net income (loss) to FFO and Adjusted FFO (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Net income (loss)
$
(34,261
)
 
$
(28,726
)
 
$
(90,261
)
 
$
(50,235
)
(Income) loss from consolidated entities attributable to noncontrolling interest
(10
)
 
(22
)
 
8

 
(4
)
Net (income) loss attributable to redeemable noncontrolling interests in operating partnership
6,682

 
6,940

 
18,087

 
13,202

Preferred dividends
(10,645
)
 
(11,440
)
 
(31,933
)
 
(33,352
)
Extinguishment of issuance costs upon redemption of preferred stock
—

 
(4,507
)
 
—

 
(4,507
)
Net income (loss) attributable to common stockholders
(38,234
)
 
(37,755
)
 
(104,099
)
 
(74,896
)
Depreciation and amortization of real estate
64,865

 
60,075

 
192,363

 
185,197

(Gain) loss on sale of hotel properties
9

 
(15
)
 
(394
)
 
(14,024
)
Net income (loss) attributable to redeemable noncontrolling interests in operating partnership
(6,682
)
 
(6,940
)
 
(18,087
)
 
(13,202
)
Equity in (earnings) loss of unconsolidated entities
(310
)
 
679

 
(892
)
 
3,632

Impairment charges on real estate
(27
)
 
1,785

 
1,652

 
1,785

Company’s portion of FFO of unconsolidated entities (Ashford Inc.)
470

 
(570
)
 
1,391

 
(3,265
)
Company’s portion of FFO of unconsolidated entities (OpenKey)
(160
)
 
(116
)
 
(426
)
 
(366
)
FFO available to common stockholders and OP unitholders
19,931

 
17,143

 
71,508

 
84,861

Extinguishment of issuance costs upon redemption of preferred stock
—

 
4,507

 
—

 
4,507

Write-off of premiums, loan costs and exit fees
1,572

 
—

 
9,316

 
1,629

Uninsured hurricane related costs
(43
)
 
3,711

 
(271
)
 
3,711

Other (income) expense
10

 
273

 
(80
)
 
3,539

Transaction, acquisition and management conversion costs
391

 
202

 
596

 
3,770

Legal judgment and related legal costs
1

 
27

 
928

 
4,091

Unrealized (gain) loss on marketable securities
(68
)
 
936

 
758

 
4,813

Unrealized (gain) loss on derivatives
2,085

 
1,479

 
3,672

 
1,804

Dead deal costs
52

 
5

 
55

 
9

Software implementation costs
—

 
—

 
—

 
1,034

Non-cash stock/unit-based compensation
5,143

 
4,613

 
21,946

 
8,751

Amortization of loan costs
6,673

 
2,549

 
14,612

 
10,917

Company’s portion of (gain) loss of AQUA U.S. Fund
—

 
—

 
—

 
(52
)
Company’s portion of adjustments to FFO of unconsolidated entities (Ashford Inc.)
(1,453
)
 
1,580

 
730

 
6,130

Company’s portion of adjustments to FFO of unconsolidated entities (OpenKey)
4

 
2

 
12

 
4

Adjusted FFO available to common stockholders and OP unitholders
$
34,298

 
$
37,027

 
$
123,782

 
$
139,518



57

HOTEL PORTFOLIO
The following table presents certain information related to our hotel properties as of September 30, 2018:
Hotel Property 
 
Location 
 
Service Type
 
Total Rooms 
 
% Owned
 
Owned Rooms
Fee Simple Properties
 
 
 
 
 
 
 
 
 
 
Embassy Suites
 
Austin, TX
 
Full service
 
150

 
100
 
150

Embassy Suites
 
Dallas, TX
 
Full service
 
150

 
100
 
150

Embassy Suites
 
Herndon, VA
 
Full service
 
150

 
100
 
150

Embassy Suites
 
Las Vegas, NV
 
Full service
 
220

 
100
 
220

Embassy Suites
 
Flagstaff, AZ
 
Full service
 
119

 
100
 
119

Embassy Suites
 
Houston, TX
 
Full service
 
150

 
100
 
150

Embassy Suites
 
West Palm Beach, FL
 
Full service
 
160

 
100
 
160

Embassy Suites
 
Philadelphia, PA
 
Full service
 
263

 
100
 
263

Embassy Suites
 
Walnut Creek, CA
 
Full service
 
249

 
100
 
249

Embassy Suites
 
Arlington, VA
 
Full service
 
267

 
100
 
267

Embassy Suites
 
Portland, OR
 
Full service
 
276

 
100
 
276

Embassy Suites
 
Santa Clara, CA
 
Full service
 
258

 
100
 
258

Embassy Suites
 
Orlando, FL
 
Full service
 
174

 
100
 
174

Hilton Garden Inn
 
Jacksonville, FL
 
Select service
 
119

 
100
 
119

Hilton Garden Inn
 
Austin, TX
 
Select service
 
254

 
100
 
254

Hilton Garden Inn
 
Baltimore, MD
 
Select service
 
158

 
100
 
158

Hilton Garden Inn
 
Virginia Beach, VA
 
Select service
 
176

 
100
 
176

Hilton Garden Inn
 
Wisconsin Dells, WI
 
Select service
 
128

 
100
 
128

Hilton
 
Houston, TX
 
Full service
 
242

 
100
 
242

Hilton
 
St. Petersburg, FL
 
Full service
 
333

 
100
 
333

Hilton
 
Santa Fe, NM
 
Full service
 
158

 
100
 
158

Hilton
 
Bloomington, MN
 
Full service
 
300

 
100
 
300

Hilton
 
Costa Mesa, CA
 
Full service
 
486

 
100
 
486

Hilton
 
Boston, MA
 
Full service
 
390

 
100
 
390

Hilton
 
Parsippany, NJ
 
Full service
 
353

 
100
 
353

Hilton
 
Tampa, FL
 
Full service
 
238

 
100
 
238

Hilton
 
Alexandria, VA
 
Full service
 
252

 
100
 
252

Hampton Inn
 
Lawrenceville, GA
 
Select service
 
85

 
100
 
85

Hampton Inn
 
Evansville, IN
 
Select service
 
140

 
100
 
140

Hampton Inn
 
Parsippany, NJ
 
Select service
 
152

 
100
 
152

Hampton Inn
 
Buford, GA
 
Select service
 
92

 
100
 
92

Hampton Inn
 
Phoenix, AZ
 
Select service
 
106

 
100
 
106

Hampton Inn - Waterfront
 
Pittsburgh, PA
 
Select service
 
113

 
100
 
113

Hampton Inn - Washington
 
Pittsburgh, PA
 
Select service
 
103

 
100
 
103

Hampton Inn
 
Columbus, OH
 
Select service
 
145

 
100
 
145

Marriott
 
Beverly Hills, CA
 
Full service
 
260

 
100
 
260

Marriott
 
Durham, NC
 
Full service
 
225

 
100
 
225

Marriott
 
Arlington, VA
 
Full service
 
701

 
100
 
701

Marriott
 
Bridgewater, NJ
 
Full service
 
347

 
100
 
347

Marriott
 
Dallas, TX
 
Full service
 
265

 
100
 
265

Marriott
 
Fremont, CA
 
Full service
 
357

 
100
 
357

Marriott
 
Memphis, TN
 
Full service
 
232

 
100
 
232

Marriott
 
Irving, TX
 
Full service
 
491

 
100
 
491

Marriott
 
Omaha, NE
 
Full service
 
300

 
100
 
300


58

Hotel Property 
 
Location 
 
Service Type
 
Total Rooms 
 
% Owned
 
Owned Rooms
Marriott
 
San Antonio, TX
 
Full service
 
251

 
100
 
251

Marriott
 
Sugarland, TX
 
Full service
 
300

 
100
 
300

SpringHill Suites by Marriott
 
Jacksonville, FL
 
Select service
 
102

 
100
 
102

SpringHill Suites by Marriott
 
Baltimore, MD
 
Select service
 
133

 
100
 
133

SpringHill Suites by Marriott
 
Kennesaw, GA
 
Select service
 
90

 
100
 
90

SpringHill Suites by Marriott
 
Buford, GA
 
Select service
 
97

 
100
 
97

SpringHill Suites by Marriott
 
Charlotte, NC
 
Select service
 
136

 
100
 
136

SpringHill Suites by Marriott
 
Durham, NC
 
Select service
 
120

 
100
 
120

SpringHill Suites by Marriott
 
Manhattan Beach, CA
 
Select service
 
164

 
100
 
164

SpringHill Suites by Marriott
 
Plymouth Meeting, PA
 
Select service
 
199

 
100
 
199

Fairfield Inn by Marriott
 
Kennesaw, GA
 
Select service
 
86

 
100
 
86

Courtyard by Marriott
 
Bloomington, IN
 
Select service
 
117

 
100
 
117

Courtyard by Marriott - Tremont
 
Boston, MA
 
Select service
 
315

 
100
 
315

Courtyard by Marriott
 
Columbus, IN
 
Select service
 
90

 
100
 
90

Courtyard by Marriott
 
Denver, CO
 
Select service
 
202

 
100
 
202

Courtyard by Marriott
 
Louisville, KY
 
Select service
 
150

 
100
 
150

Courtyard by Marriott
 
Gaithersburg, MD
 
Select service
 
210

 
100
 
210

Courtyard by Marriott
 
Crystal City, VA
 
Select service
 
272

 
100
 
272

Courtyard by Marriott
 
Ft. Lauderdale, FL
 
Select service
 
174

 
100
 
174

Courtyard by Marriott
 
Overland Park, KS
 
Select service
 
168

 
100
 
168

Courtyard by Marriott
 
Savannah, GA
 
Select service
 
156

 
100
 
156

Courtyard by Marriott
 
Foothill Ranch, CA
 
Select service
 
156

 
100
 
156

Courtyard by Marriott
 
Alpharetta, GA
 
Select service
 
154

 
100
 
154

Courtyard by Marriott
 
Oakland, CA
 
Select service
 
156

 
100
 
156

Courtyard by Marriott
 
Scottsdale, AZ
 
Select service
 
180

 
100
 
180

Courtyard by Marriott
 
Plano, TX
 
Select service
 
153

 
100
 
153

Courtyard by Marriott
 
Newark, CA
 
Select service
 
181

 
100
 
181

Courtyard by Marriott
 
Manchester, CT
 
Select service
 
90

 
85
 
77

Courtyard by Marriott
 
Basking Ridge, NJ
 
Select service
 
235

 
100
 
235

Courtyard by Marriott
 
Wichita, KS
 
Select service
 
128

 
100
 
128

Courtyard by Marriott - Billerica
 
Boston, MA
 
Select service
 
210

 
100
 
210

Homewood Suites
 
Pittsburgh, PA
 
Select service
 
148

 
100
 
148

Marriott Residence Inn
 
Lake Buena Vista, FL
 
Select service
 
210

 
100
 
210

Marriott Residence Inn
 
Evansville, IN
 
Select service
 
78

 
100
 
78

Marriott Residence Inn
 
Orlando, FL
 
Select service
 
350

 
100
 
350

Marriott Residence Inn
 
Falls Church, VA
 
Select service
 
159

 
100
 
159

Marriott Residence Inn
 
San Diego, CA
 
Select service
 
150

 
100
 
150

Marriott Residence Inn
 
Salt Lake City, UT
 
Select service
 
144

 
100
 
144

Marriott Residence Inn
 
Las Vegas, NV
 
Select service
 
256

 
100
 
256

Marriott Residence Inn
 
Phoenix, AZ
 
Select service
 
200

 
100
 
200

Marriott Residence Inn
 
Plano, TX
 
Select service
 
126

 
100
 
126

Marriott Residence Inn
 
Newark, CA
 
Select service
 
168

 
100
 
168

Marriott Residence Inn
 
Manchester, CT
 
Select service
 
96

 
85
 
82

Marriott Residence Inn
 
Jacksonville, FL
 
Select service
 
120

 
100
 
120

Marriott Residence Inn
 
Stillwater, OK
 
Select service
 
101

 
100
 
101

TownePlace Suites by Marriott
 
Manhattan Beach, CA
 
Select service
 
143

 
100
 
143

One Ocean
 
Atlantic Beach, FL
 
Full service
 
193

 
100
 
193

Sheraton Hotel
 
Ann Arbor, MI
 
Full service
 
197

 
100
 
197

Sheraton Hotel
 
Langhorne, PA
 
Full service
 
186

 
100
 
186


59

Hotel Property 
 
Location 
 
Service Type
 
Total Rooms 
 
% Owned
 
Owned Rooms
Sheraton Hotel
 
Minneapolis, MN
 
Full service
 
220

 
100
 
220

Sheraton Hotel
 
Indianapolis, IN
 
Full service
 
378

 
100
 
378

Sheraton Hotel
 
Anchorage, AK
 
Full service
 
370

 
100
 
370

Sheraton Hotel
 
San Diego, CA
 
Full service
 
260

 
100
 
260

Hyatt Regency
 
Coral Gables, FL
 
Full service
 
253

 
100
 
253

Hyatt Regency
 
Hauppauge, NY
 
Full service
 
358

 
100
 
358

Hyatt Regency
 
Savannah, GA
 
Full service
 
351

 
100
 
351

Renaissance
 
Nashville, TN
 
Full service
 
673

 
100
 
673

Annapolis Historic Inn
 
Annapolis, MD
 
Full service
 
124

 
100
 
124

Lakeway Resort & Spa
 
Austin, TX
 
Full service
 
168

 
100
 
168

Silversmith
 
Chicago, IL
 
Full service
 
144

 
100
 
144

The Churchill
 
Washington, DC
 
Full service
 
173

 
100
 
173

The Melrose
 
Washington, DC
 
Full service
 
240

 
100
 
240

Le Pavillon
 
New Orleans, LA
 
Full service
 
226

 
100
 
226

The Ashton
 
Ft. Worth, TX
 
Full service
 
39

 
100
 
39

Westin
 
Princeton, NJ
 
Full service
 
296

 
100
 
296

W
 
Atlanta, GA
 
Full service
 
237

 
100
 
237

W
 
Minneapolis, MN
 
Full service
 
229

 
100
 
229

Le Meridien
 
Minneapolis, MN
 
Full service
 
60

 
100
 
60

Hotel Indigo
 
Atlanta, GA
 
Full service
 
140

 
100
 
140

Ritz-Carlton
 
Atlanta, GA
 
Full service
 
444

 
100
 
444

Ground Lease Properties
 
 
 
 
 
 
 
 
 
 
Crowne Plaza (1)
 
Key West, FL
 
Full service
 
160

 
100
 
160

Crowne Plaza (2)
 
Annapolis, MD
 
Full service
 
196

 
100
 
196

Hilton (3)
 
Ft. Worth, TX
 
Full service
 
294

 
100
 
294

Renaissance (4)
 
Palm Springs, CA
 
Full service
 
410

 
100
 
410

Total
 
 
 
 
 
24,930

 
 
 
24,903

________
(1) 
The ground lease expires in 2084.
(2) 
The ground lease expires in 2114.
(3) 
The ground lease expires in 2040.
(4) 
The ground lease expires in 2059 with one 25-year extension option.

60

ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Our primary market risk exposure consists of changes in interest rates on borrowings under our debt instruments. The analysis below presents the sensitivity of the market value of our financial instruments to selected changes in market interest rates.
At September 30, 2018, our total indebtedness of $3.9 billion included $3.6 billion of variable-rate debt. The impact on our results of operations of a 25-basis point change in interest rate on the outstanding balance of variable-rate debt at September 30, 2018 would be approximately $9.0 million annually. Interest rate changes have no impact on the remaining $349.2 million of fixed-rate debt.
The above amounts were determined based on the impact of hypothetical interest rates on our borrowings and assume no changes in our capital structure. As the information presented above includes only those exposures that existed at September 30, 2018, it does not consider exposures or positions that could arise after that date. Accordingly, the information presented herein has limited predictive value. As a result, the ultimate realized gain or loss with respect to interest rate fluctuations will depend on exposures that arise during the period, the hedging strategies at the time, and the related interest rates.
We use credit default swaps, tied to the CMBX index, to hedge financial and capital market risk. We have entered into credit default swap transactions, excluding those that have terminated, for notional amounts totaling $212.5 million, to hedge financial and capital market risk. A credit default swap is a derivative contract that functions like an insurance policy against the credit risk of an entity or obligation. The seller of protection assumes the credit risk of the reference obligation from the buyer (us) of protection in exchange for annual premium payments. If a default or a loss, as defined in the credit default swap agreements, occurs on the underlying bonds, then the buyer of protection is protected against those losses. The only liability for us, the buyer, is the annual premium and any change in value of the underlying CMBX index (if the trade is terminated prior to maturity). For all CMBX trades completed to date, we were the buyer of protection. Credit default swaps are subject to master-netting settlement arrangements and credit support annexes. Assuming the underlying bonds pay off at par over their remaining average life, our total exposure for these trades was approximately $5.5 million at September 30, 2018.
We hold interest rate floors with notional amounts totaling $28.8 billion and strike rates ranging from (0.25)% to 2.0%. Our total exposure is capped at our initial upfront costs totaling $10.2 million. These instruments have termination dates ranging from March 2019 to July 2020.
ITEM 4.
CONTROLS AND PROCEDURES
Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of September 30, 2018 (the “Evaluation Date”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective (i) to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms; and (ii) to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
There have been no changes in our internal controls over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

61

PART II. OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
Litigation—Palm Beach Florida Hotel and Office Building Limited Partnership, et al. v. Nantucket Enterprises, Inc. This litigation involves a landlord tenant dispute from 2008 in which the landlord, Palm Beach Florida Hotel and Office Building Limited Partnership, a subsidiary of the Company, claimed that the tenant had violated various lease provisions of the lease agreement and was therefore in default. The tenant counterclaimed and asserted multiple claims including that it had been wrongfully evicted. The litigation was instituted by the plaintiff in November 2008 in the Circuit Court of the Fifteenth Judicial Circuit, in and for Palm Beach County, Florida and proceeded to a jury trial on June 30, 2014. The jury entered its verdict awarding the tenant total claims of $10.8 million and ruling against the landlord on its claim of breach of contract. In 2016, the Court of Appeals reduced the original $10.8 million judgment to $8.8 million and added pre-judgment interest on the wrongful eviction judgment. The case was further appealed to the Florida Supreme Court. On May 23, 2017, the trial court issued an order compelling the company that issued the supersedeas bond, RLI Insurance Company (“RLI”), to pay approximately $10.0 million. On June 1, 2017, RLI paid Nantucket this amount and sought reimbursement from the Company. On June 27, 2017, the Florida Supreme Court denied the Company’s petition for review. As a result, all of the appeals were exhausted and the judgment was final with the determination and reimbursement of attorney’s fees being the only remaining dispute. On June 29, 2017, the balance of the judgment was paid to Nantucket by the Company. On July 26, 2018, we paid $544,000 as part of a settlement on certain legal fees. The negotiations relating to the potential payment of the remaining attorney’s fees are still ongoing. As of September 30, 2018, we have accrued approximately $508,000 in legal fees, which represents the Company’s estimate of the amount of potential remaining legal fees that could be owed.
We are engaged in other various legal proceedings which have arisen but have not been fully adjudicated. The likelihood of loss from these legal proceedings, based on definitions within contingency accounting literature, ranges from remote to reasonably possible and to probable. Based on estimates of the range of potential losses associated with these matters, management does not believe the ultimate resolution of these proceedings, either individually or in the aggregate, will have a material adverse effect on our consolidated financial position or results of operations. However, the final results of legal proceedings cannot be predicted with certainty and if we fail to prevail in one or more of these legal matters, and the associated realized losses exceed our current estimates of the range of potential losses, our consolidated financial position or results of operations could be materially adversely affected in future periods.
ITEM 1A.
RISK FACTORS
The discussion of our business and operations should be read together with the risk factors contained in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the Securities and Exchange Commission, which describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties have the potential to affect our business, financial condition, results of operations, cash flows, strategies, or prospects in a material and adverse manner.
We may not realize the anticipated benefits of the Enhanced Return Funding Program.
On June 26, 2018, we entered into the ERFP Agreement with Ashford Inc. and Ashford LLC, which generally provides that Ashford LLC, a subsidiary of Ashford Inc. will make investments to facilitate the acquisition of properties by us 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). The investments by Ashford LLC will equal 10% of the property acquisition price and will be made, either at the time of the property acquisition or at any time in the following two years from the date of such acquisition, in exchange for furniture, fixture and equipment for use at the acquired property or any other property owned by us. For instance, in connection with our acquisition of the Hilton Old Town Alexandria on June 29, 2018, Ashford LLC is obligated to provide us with approximately $11.1 million in exchange for furniture, fixtures and equipment at our properties. As of September 30, 2018, Ashford Trust had received approximately $390,000 of furniture, fixtures or equipment under the ERFP Agreement. Ashford LLC, however, is not obligated to make an investment under the ERFP Agreement if its unrestricted cash balance, after taking into account the cash amount required for such investment, would be less than $15.0 million. In addition, there can be no assurance that when furniture, fixture and equipment is identified by us in connection with an ERFP investment that Ashford LLC will make the required payment to us on a timely basis or at all. Ashford LLC’s delay or failure to make the payment under the ERFP Agreement would negatively impact our ability to realize the intended benefits under the ERFP Agreement, which could result in a material adverse effect of our business, results of operations and financial condition. Furthermore, we may choose not to enforce, or to enforce less vigorously, our rights under the

62

ERFP Agreement because of our desire to maintain our ongoing relationship with Ashford Inc. and Ashford LLC, and legal action against either party is likely to impact that relationship.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchases of Equity Securities by the Issuer
The following table provides the information with respect to purchases and forfeitures of shares of our common stock during each of the months in the third quarter of 2018:
Period
 
Total
Number of
Shares
Purchased
 
Average
Price Paid
Per Share
 
Total Number of
Shares Purchased as
Part of Publicly
Announced Plan (1)
 
Maximum Dollar
Value of Shares That
May Yet Be Purchased
Under the Plan
Common stock:
 
 
 
 
 
 
 
 
July 1 to July 31
 
6,840

 
$
—

(2) 
—

 
$
200,000,000

August 1 to August 31
 
—

 
—

 
—

 
200,000,000

September 1 to September 30
 
657

 
—

(2) 
—

 
200,000,000

Total
 
7,497

 
$
—

 
—

 
 
____________________
(1) 
On December 5, 2017, the board of directors reapproved a stock repurchase program (the “Repurchase Program”) pursuant to which the board of directors granted a repurchase authorization to acquire shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”) having an aggregate value of up to $200 million. The board of director’s authorization replaced any previous repurchase authorizations.
(2) 
There is no cost associated with the forfeiture of 6,840 and 657 restricted shares of our common stock in July and September, respectively.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.
MINE SAFETY DISCLOSURES
None.
ITEM 5.
OTHER INFORMATION
None.


63

ITEM 6.
EXHIBITS
Exhibit
 
Description
3.1
 
 
 
 
 
3.2
 
 
 
 
 
3.3
 
 
 
 
 
12*
 
 
 
 
 
31.1*
 
 
 
 
 
31.2*
 
 
 
 
 
32.1*
 
 
 
 
 
32.2*
 
 
 
 
 
The following materials from the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2018 are formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements Comprehensive Income (Loss); (iii) Consolidated Statement of Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to the Consolidated Financial Statements. In accordance with Rule 402 of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act of 1933 or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
 
 
101.INS
 
XBRL Instance Document
Submitted electronically with this report.
101.SCH
 
XBRL Taxonomy Extension Schema Document
Submitted electronically with this report.
101.CAL
 
XBRL Taxonomy Calculation Linkbase Document
Submitted electronically with this report.
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
Submitted electronically with this report.
101.LAB
 
XBRL Taxonomy Label Linkbase Document.
Submitted electronically with this report.
101.PRE
 
XBRL Taxonomy Presentation Linkbase Document.
Submitted electronically with this report.
___________________________________
* Filed herewith.

64

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ASHFORD HOSPITALITY TRUST, INC.
Date:
November 2, 2018
By:
/s/ DOUGLAS A. KESSLER
 
 
 
 
Douglas A. Kessler
 
 
 
 
President and Chief Executive Officer
 
 
 
 
 
 
Date:
November 2, 2018
By:
/s/ DERIC S. EUBANKS
 
 
 
 
Deric S. Eubanks
 
 
 
 
Chief Financial Officer
 

65