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Related Party Transactions

6 Months Ended

Jun. 30, 2022

As an asset manager providing advisory services to Ashford Trust and Braemar, as well as holding an ownership interest in other businesses providing products and services to the hospitality industry, including Ashford Trust and Braemar, related party transactions are inherent in our business. Details of our related party transactions are presented below.

Ashford Trust—We are party to the Second Amended and Restated Advisory Agreement with Ashford Trust. See note 3 for a description of the Second Amended and Restated Advisory Agreement.

Premier is party to a master project management agreement with Ashford Trust OP and Ashford Trust TRS, a subsidiary of Ashford Trust OP, and certain of their affiliates to provide comprehensive and cost-effective design, development, architectural, and project management services and a related mutual exclusivity agreement with Ashford Trust and Ashford Trust OP.

Remington is party to a master hotel management agreement with Ashford Trust TRS and certain of its affiliates to provide hotel management services. Ashford Trust pays the Company a monthly hotel management fee equal to the greater of $15,000 per hotel (increased annually based on consumer price index adjustments) or 3% of gross revenue (the “base fee”) as well as annual incentive hotel management fees, if certain operational criteria are met, and other general and administrative expense reimbursements. Ashford Trust pays the base fee and reimburses all expenses for Remington-managed hotels on a weekly basis for the preceding week. Remington is also party to a mutual exclusivity agreement with Ashford Trust and Ashford Trust OP.

On July 1, 2020, Lismore and Ashford Trust amended and restated the Ashford Trust Agreement with an effective date of April 6, 2020 to negotiate the refinancing, modification or forbearance of the existing mortgage and mezzanine debt on Ashford Trust’s hotels (the “Ashford Trust Agreement”). The Ashford Trust Agreement terminated effective April 6, 2022. For the three and six months ended June 30, 2022, the Company recognized revenue of $0 and $2.3 million, respectively. For the three and six months ended June 30, 2021, the Company recognized revenue of $2.3 million and $5.7 million, respectively. The six month period ended June 30, 2021 includes a $1.1 million cumulative catch-up adjustment to revenue which was previously considered constrained. As of June 30, 2022 and December 31, 2021, the Company recorded $0 and $2.4 million, respectively, as deferred income. The deferred income related to the various Lismore fees described above was recognized over the 24 month term of the agreement on a straight line basis as the service was rendered, only to the extent it was probable that a significant

reversal of revenue would not occur. Constraints relating to variable consideration were resolved generally upon the closing of a transaction or financing event and the resulting change in the transaction price was adjusted on a cumulative catch-up basis in the period a transaction or financing event closed. See the table below for details of the revenue recognized by the Company and note 3 for additional discussion of the related deferred income.

The following table summarizes the revenues and expenses related to Ashford Trust (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
REVENUES BY TYPE
Advisory services fees:
Base advisory fees (1)	$	8,612	$	7,254	$	17,347	$	14,508






Hotel management fees:
Base management fees	6,573		4,473		11,575		7,850
Incentive management fees	1,921		1,065		2,704		1,601
Total hotel management fees revenue (2)	8,494		5,538		14,279		9,451

Design and construction fees revenue (3)	2,344		634		4,816		1,037


Other revenue

Watersports, ferry and excursion services (5)	81		—		124		—
Debt placement and related fees (6)	690		2,290		2,983		5,725

Claims management services (7)	1		14		15		30


Other services (8)	328		433		676		792
Total other revenue	1,100		2,737		3,798		6,547

Cost reimbursement revenue	61,620		36,567		119,926		62,556

Total revenues	$	82,170	$	52,730	$	160,166	$	94,099

REVENUES BY SEGMENT (9)
REIT advisory	$	12,154	$	11,204	$	25,160	$	21,758
Remington	64,358		37,807		122,487		64,180
Premier	3,874		995		7,480		1,643
INSPIRE	17		—		55		—
RED	86		—		129		—
OpenKey	30		30		64		60
Corporate and other	1,651		2,694		4,791		6,458
Total revenues	$	82,170	$	52,730	$	160,166	$	94,099

COST OF REVENUES
Cost of revenues for audio visual (4)	$	2,225	$	560	$	3,673	$	696


SUPPLEMENTAL REVENUE INFORMATION
Audio visual revenue from guests at REIT properties (4)	$	5,286	$	1,270	$	8,636	$	1,573
Watersports, ferry and excursion services revenue from guests at REIT properties (4)	52		143		64		210

________

(1) Advisory fees earned from Ashford Trust during the three and six months ended June 30, 2021, excluded $1.7 million and $3.2 million, respectively, of advisory fees that were deferred as a result of the $29.0 million annual Advisory Fee Cap. See note 3 for discussion of the advisory services revenue recognition policy.

(2) Hotel management fees revenue is reported within our Remington segment. Base management fees and incentive management fees are recognized when services have been rendered. Remington receives base management fees of 3% of gross hotel revenue for managing the hotel employees and daily operations of the hotels, subject to a specified floor (which is subject to increase annually based on increases in the consumer price index). Remington receives an incentive management fee equal to the lessor of 1% of each hotel’s annual gross revenues or the amount by which the respective hotel’s gross operating profit exceeds the hotel’s budgeted gross operating profit. See note 3 for discussion of the hotel management fees revenue recognition policy.

(3) Design and construction fees revenue primarily consists of revenue generated within our Premier segment by providing design, development, architectural, and project management services for which Premier receives fees. See note 3 for discussion of the design and construction fees revenue recognition policy.

(4) INSPIRE and RED primarily contract directly with customers to whom they provide services. INSPIRE and RED recognize the gross revenue collected from their customers by the hosting hotel or venue. Commissions retained by the hotel or venue, including Ashford Trust, for INSPIRE and RED are recognized in “cost of revenues for audio visual” and “other” operating expense, respectively, in our condensed consolidated statements of operations. See note 3 for discussion of the revenue recognition policy.

(5) Watersports, ferry and excursion services revenue includes revenue that is earned by RED for providing services directly to Ashford Trust rather than contracting with third-party customers.

(6) Debt placement and related fees are earned by Lismore for providing debt placement, modification, forbearance and refinancing services.

(7) Claims management services include revenue earned from providing insurance claim assessment and administration services.

(8) Other services revenue is primarily associated with other hotel products and services, such as mobile key applications and hypoallergenic premium rooms, provided to Ashford Trust by our consolidated subsidiaries, OpenKey and Pure Wellness.

(9) See note 17 for discussion of segment reporting.

Braemar—We are also a party to an amended and restated advisory agreement with Braemar and its operating subsidiary Braemar OP.

Premier is party to a master project management agreement with Braemar OP and Braemar TRS Corporation, a wholly owned subsidiary of Braemar OP, and certain of their affiliates to provide comprehensive and cost-effective design, development, architectural, and project management services and a related mutual exclusivity agreement with Braemar and Braemar OP.

Remington is party to a master hotel management agreement with Braemar TRS Corporation and certain of its affiliates to provide hotel management services. Braemar pays the Company a monthly hotel management fee equal to the greater of $15,000 per hotel (increased annually based on consumer price index adjustments) or 3% of gross revenue (the “base fee”) as well as annual incentive hotel management fees, if certain operational criteria are met and other general and administrative expense reimbursements. Braemar pays the base fee and reimburses all expenses for Remington-managed hotels on a weekly basis for the preceding week. Remington is also party to a mutual exclusivity agreement with Braemar and Braemar OP.

On March 20, 2020, Lismore entered into an agreement with Braemar to negotiate the refinancing, modification or forbearance of the existing mortgage and mezzanine debt on Braemar’s hotels (the “Braemar Agreement”). The Braemar Agreement terminated effective March 20, 2021. For the three and six months ended June 30, 2021, the Company recognized revenue of $0 and $853,000, respectively, related to the Braemar Agreement.

The following table summarizes the revenues and expenses related to Braemar (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
REVENUES BY TYPE
Advisory services fees:
Base advisory fees	$	3,227	$	2,678	$	6,166	$	5,223



Other advisory revenue (1)	130		130		258		258
Total advisory services fees revenue	3,357		2,808		6,424		5,481

Hotel management fees:
Base management fees	795		584		1,495		915
Incentive management fees	262		142		464		221
Total hotel management fees revenue (2)	1,057		726		1,959		1,136

Design and construction fees revenue (3)	1,645		350		2,965		621


Other revenue


Watersports, ferry and excursion services (5)	691		695		1,274		1,227
Debt placement and related fees (6)	—		—		190		853

Claims management services (7)	—		2		1		3


Other services (8)	30		36		72		87
Total other revenue	721		733		1,537		2,170

Cost reimbursement revenue	12,074		6,722		23,119		11,225

Total revenues	$	18,854	$	11,339	$	36,004	$	20,633

REVENUES BY SEGMENT (9)
REIT advisory	$	7,067	$	5,545	$	13,455	$	10,059
Remington	7,131		4,000		14,193		6,639
Premier	2,320		511		4,151		873
INSPIRE	22		—		41		—
RED	695		695		1,278		1,227
OpenKey	10		9		19		19
Corporate and other	1,609		579		2,867		1,816
Total revenues	$	18,854	$	11,339	$	36,004	$	20,633

COST OF REVENUES (4)
Cost of revenues for audio visual	$	1,055	$	76	$	1,756	$	99
Other	96		111		182		196

SUPPLEMENTAL REVENUE INFORMATION
Audio visual revenues from guests at REIT properties (5)	$	2,638	$	161	$	4,309	$	213
Watersports, ferry and excursion services revenue from guests at REIT properties (4)	598		479		1,211		736

________

(1) In connection with our Fourth Amended and Restated Braemar Advisory Agreement, a $5.0 million cash payment was made by Braemar upon approval by Braemar’s stockholders, which is recognized over the 10-year initial term.

(4) INSPIRE and RED primarily contract directly with third-party customers to whom they provide services. INSPIRE and RED recognize the gross revenue collected from their customers by the hosting hotel or venue. Commissions retained by the hotel or venue, including Braemar, for INSPIRE and RED are recognized in “cost of revenues for audio visual” and “other” operating expense, respectively, in our consolidated statements of operations. See note 3 for discussion of the revenue recognition policy.

(5) Watersports, ferry and excursion services revenue includes revenue that is earned by RED for providing services directly to Braemar rather than contracting with third-party customers.

(6) Debt placement and related fees are earned by Lismore for providing debt placement, modification, forbearance and refinancing services.

(7) Claims management services include revenue earned from providing insurance claim assessment and administration services.

(8) Other services revenue is primarily associated with other hotel products and services, such as mobile key applications and hypoallergenic premium rooms, provided to Braemar by our consolidated subsidiaries, OpenKey and Pure Wellness.

(9) See note 17 for discussion of segment reporting.

ERFP Commitments—On June 26, 2018, the Company entered into the Ashford Trust ERFP Agreement with Ashford Trust. The independent members of the board of directors of each of the Company and Ashford Trust, with the assistance of separate and independent legal counsel, engaged to negotiate the Ashford Trust ERFP Agreement on behalf of the Company and Ashford Trust, respectively. On January 15, 2019, the Company entered into the Braemar ERFP Agreement (collectively with the Ashford Trust ERFP Agreement, the “ERFP Agreements”) with Braemar. The independent members of the board of directors of each of the Company and Braemar, with the assistance of separate and independent legal counsel, engaged to negotiate the Braemar ERFP Agreement on behalf of the Company and Braemar, respectively. Under the ERFP Agreements, the Company agreed to provide $50 million (each, an “Aggregate ERFP Amount” and collectively, the “Aggregate ERFP Amounts”) to each of Ashford Trust and Braemar (collectively, the “REITs”), respectively, in connection with each such REIT’s acquisition of hotels recommended by us, with the option to increase each Aggregate ERFP Amount to up to $100 million upon mutual agreement by the parties to the respective ERFP Agreement. Under each of the ERFP Agreements, the Company paid each REIT 10% of each acquired hotel’s purchase price in exchange for furniture, fixtures and equipment (“FF&E”) at a property owned by such REIT, which were subsequently leased by us to such REIT rent-free. Each of the REITs must provide reasonable advance notice to the Company to request ERFP funds in accordance with the respective ERFP Agreement. The ERFP Agreements required that the Company acquire the related FF&E either at the time of the property acquisition or at any time generally within two years of the respective REITs’ acquisition of the hotel property. The Company recognized the related depreciation tax deduction at the time such FF&E was purchased by the Company and placed into service at the respective REIT’s hotel properties. However, the timing of the FF&E purchased and placed into service was subject to uncertainties outside of the Company’s control that could delay the realization of any tax benefit associated with the purchase of FF&E.

In the first quarter of 2021, Ashford Trust purchased FF&E from the Company at the fair market value of $82,000 upon expiration of the underlying leases of the FF&E under the Ashford Trust ERFP Agreement. The Company recorded a loss on sale of the FF&E of $107,000 which is included within “other” operating expense in our condensed consolidated statements of operations. Additionally, on January 20, 2021, Ashford Trust sold the Le Meridien hotel in Minneapolis, Minnesota. The hotel contained FF&E with a net book value of $399,000 which was owned by the Company and leased to Ashford Trust rent-free pursuant to the Ashford Trust ERFP Agreement. The Company recorded a loss on disposal of FF&E of $271,000 within “other” operating expense in our condensed consolidated statements of operations. Pursuant to the agreement, Ashford Trust provided replacement FF&E to the Company in the third quarter of 2021 equal to the fair market value of the sold FF&E with a fair market value of $128,000, which was subsequently leased back to Ashford Trust rent-free.

On April 20, 2021, the Company received written notice from Ashford Trust of Ashford Trust’s intention not to renew the Ashford Trust ERFP Agreement. As a result, the Ashford Trust ERFP Agreement terminated in accordance with its terms on June 26, 2021. The expiration of the Ashford Trust ERFP Agreement has no impact on the Extension Agreement, which continues in full force and effect in accordance with its terms. See note 10.

During the second quarter of 2021, the Company purchased $1.6 million of FF&E from Braemar. The Company set-off the purchased FF&E against a $1.6 million outstanding receivable previously incurred by Braemar. The FF&E purchased by the Company was subsequently leased back to Braemar rent-free.

In the second quarter of 2021, Braemar purchased FF&E from the Company at the fair market value of $144,000 upon expiration of the underlying leases of the FF&E under the Braemar ERFP Agreement. The Company recorded a loss on sale of the FF&E of $267,000 which is included within “other” operating expense in our condensed consolidated statements of operations.

On November 8, 2021, the Company delivered written notice to Braemar of the Company’s intention not to renew the Braemar ERFP Agreement. As a result, the Braemar ERFP Agreement terminated in accordance with its terms on January 15, 2022.

In the first quarter of 2022, Ashford Trust purchased FF&E with a net book value of $1.1 million from the Company at the fair market value of $406,000 upon expiration of the underlying leases of the FF&E under the Ashford Trust ERFP Agreement (which continue to survive following the termination of such agreement). The Company recorded a loss on sale of the FF&E of $706,000 which is included within “other” operating expense in our condensed consolidated statement of operations.

Ashford Securities—On December 31, 2020, an Amended and Restated Contribution Agreement (the “Amended and Restated Contribution Agreement”) was entered into by the Company, Ashford Trust and Braemar with respect to expenses to be reimbursed by Ashford Securities. Beginning on the effective date of the Amended and Restated Contribution Agreement, costs to fund the operations of Ashford Securities were allocated based upon an allocation percentage of 50% to the Company, 50% to Braemar and 0% to Ashford Trust. Upon reaching the earlier of $400 million in aggregate non-listed preferred equity offerings or other debt or equity offerings through Ashford Securities or June 10, 2023, there will be an amended and restated true up (the “Amended and Restated True-Up Date”) among the Company, Ashford Trust and Braemar whereby the actual expense reimbursement paid by each company will be based on the actual amount of capital raised by the Company, Ashford Trust and Braemar, respectively, through Ashford Securities. After the Amended and Restated True-Up Date, the expense reimbursements will be allocated among the Company, Ashford Trust and Braemar quarterly based on the actual capital raised through Ashford Securities. On January 27, 2022, the Company entered into a Second Amended and Restated Contribution Agreement with Ashford Trust and Braemar which provided for an additional $18 million in expenses to be reimbursed with all expenses allocated 10% to the Company, 45% to Ashford Trust, and 45% to Braemar.

As of June 30, 2022, Ashford Trust and Braemar have funded approximately $4.7 million and $4.9 million, respectively. The Company recognized $664,000 and $1.2 million of cost reimbursement revenue from Ashford Trust for the three and six months ended June 30, 2022, respectively, in our condensed consolidated statements of operations. The Company recognized $1.6 million and $2.6 million of cost reimbursement revenue from Braemar for the three and six months ended June 30, 2022, respectively, in our condensed consolidated statements of operations. The Company recognized $553,000 and $897,000 of cost reimbursement revenue from Braemar for the three and six months ended June 30, 2021, respectively, in our condensed consolidated statements of operations. Cost reimbursement revenue for the three and six months ended June 30, 2022 includes $839,000 and $1.2 million of dealer manager fees earned by Ashford Securities for the placement of Braemar’s non-listed preferred equity offerings.

Other Related Party Transactions—The Company leases office space from Remington Hotel Corporation (“RHC”), an affiliate owned by the Bennetts, at our corporate headquarters in Dallas, Texas. For the three and six months ended June 30, 2022, we recorded $838,000 and $1.7 million, respectively, in rent expense related to our corporate office lease with RHC. For the three and six months ended June 30, 2021, we recorded $838,000 and $1.7 million, respectively, in rent expense related to our corporate office lease with RHC.

Ashford Inc.’s Risk Management department collects funds from the Ashford Trust and Braemar properties and their respective management companies in an amount equal to the actuarial forecast of that year’s expected casualty claims and associated fees. These funds are deposited into restricted cash and used to pay casualty claims throughout the year as they are incurred. The claim liability related to the restricted cash balance is included in current “other liabilities” in our condensed consolidated balance sheets. See note 2.

Ashford Trust held a 15.81% and 16.65% noncontrolling interest in OpenKey as of June 30, 2022 and December 31, 2021, respectively, and Braemar held a 7.85% and 7.77% noncontrolling interest in OpenKey as of June 30, 2022 and December 31, 2021. Braemar invested $164,000 in OpenKey during the three and six months ended June 30, 2022.

The Company or its affiliates provide to the Bennetts or their permitted designees certain services, including, but not limited to, accounting, tax and administrative services pursuant to that certain Transition Cost Sharing Agreement entered into on November 6, 2019 in connection with Company’s acquisition of Remington from the Bennetts. The gross amount of expenses and reimbursements for these transition services for the three and six months ended June 30, 2022 was $96,000 and $190,000, respectively. The gross amount of expenses and reimbursements for these transition services for the three and six months ended June 30, 2021 was $94,000 and $201,000, respectively. The expenses and reimbursements for transition services are recorded on a net basis and, therefore, the reimbursed activity does not impact our condensed consolidated statements of operations for the three and six months ended June 30, 2022 and 2021.