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 June 30, 2016
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). þ Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act):
Large accelerated filer
þ
 
Accelerated filer
¨
Non-accelerated filer
¨
 
Smaller reporting company
¨
    
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
 
96,176,799
(Class)
 
Outstanding at August 5, 2016


ASHFORD HOSPITALITY TRUST, INC
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2016

TABLE OF CONTENTS


 
 
 


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)
 
June 30, 2016
 
December 31, 2015
Assets
 
Investments in hotel properties, net
$
4,236,009

 
$
4,419,684

Cash and cash equivalents
261,821

 
215,078

Restricted cash
161,935

 
153,680

Accounts receivable, net of allowance of $877 and $715, respectively
55,147

 
40,438

Inventories
4,765

 
4,810

Note receivable, net of allowance of $6,856 and $7,083, respectively
3,850

 
3,746

Investment in unconsolidated entities
60,696

 
62,568

Deferred costs, net
3,347

 
3,847

Prepaid expenses
24,103

 
12,458

Derivative assets, net
15,800

 
3,435

Other assets
12,159

 
10,647

Intangible assets, net
11,245

 
11,343

Due from Ashford Prime OP, net
15

 
528

Due from related party, net
2,202

 
—

Due from third-party hotel managers
18,040

 
22,869

Assets held for sale
29,831

 
—

Total assets
$
4,900,965

 
$
4,965,131

Liabilities and Equity
 
 
 
Liabilities:
 
 
 
Indebtedness, net
$
3,758,767

 
$
3,840,617

Accounts payable and accrued expenses
138,786

 
123,444

Dividends and distributions payable
23,097

 
22,678

Unfavorable management contract liabilities
2,367

 
3,355

Due to Ashford Inc., net
7,336

 
9,856

Due to related party, net
—

 
1,339

Due to third-party hotel managers
2,989

 
2,504

Intangible liabilities, net
16,297

 
16,494

Other liabilities
16,789

 
14,539

Liabilities related to assets held for sale
24,429

 
—

Total liabilities
3,990,857

 
4,034,826

Commitments and contingencies (note 14)


 


Redeemable noncontrolling interests in operating partnership
109,703

 
118,449

 
 
 
 
Equity:
 
 
 
Preferred stock, $0.01 par value, 50,000,000 shares authorized:
 
 
 
Series A Cumulative Preferred Stock, 1,657,206 shares issued and outstanding at June 30, 2016 and December 31, 2015
17

 
17

Series D Cumulative Preferred Stock, 9,468,706 shares issued and outstanding at June 30, 2016 and December 31, 2015
95

 
95

Series E Cumulative Preferred Stock, 4,630,000 shares issued and outstanding at June 30, 2016 and December 31, 2015
46

 
46

Common stock, $0.01 par value, 200,000,000 shares authorized, 96,176,799 and 95,470,903 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively
962

 
955

Additional paid-in capital
1,598,486

 
1,597,194

Accumulated deficit
(799,939
)
 
(787,221
)
Total stockholders’ equity of the Company
799,667

 
811,086

Noncontrolling interests in consolidated entities
738

 
770

Total equity
800,405

 
811,856

Total liabilities and equity
$
4,900,965

 
$
4,965,131

See Notes to Consolidated Financial Statements.

2
Table of Contents

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Revenue
 
 
 
Rooms
$
325,906

 
$
291,670

 
$
616,521

 
$
492,660

Food and beverage
69,206

 
64,765

 
132,261

 
104,318

Other hotel revenue
15,115

 
12,473

 
28,824

 
21,305

Total hotel revenue
410,227

 
368,908

 
777,606

 
618,283

Other
443

 
430

 
836

 
1,290

Total revenue
410,670

 
369,338

 
778,442

 
619,573

Expenses
 
 
 
 
 
 
 
Hotel operating expenses:
 
 
 
 
 
 
 
Rooms
67,193

 
60,735

 
130,295

 
103,888

Food and beverage
45,419

 
42,041

 
88,520

 
68,321

Other expenses
119,612

 
108,395

 
232,749

 
183,177

Management fees
14,880

 
13,385

 
28,575

 
23,042

Total hotel expenses
247,104

 
224,556

 
480,139

 
378,428

Property taxes, insurance, and other
19,293

 
17,576

 
37,905

 
29,170

Depreciation and amortization
60,079

 
52,616

 
122,241

 
90,480

Impairment charges
(116
)
 
19,840

 
(227
)
 
19,734

Transaction costs
(18
)
 
4,959

 
77

 
5,458

Advisory services fee
12,076

 
11,472

 
22,979

 
21,039

Corporate, general, and administrative
2,785

 
3,120

 
4,458

 
7,960

Total expenses
341,203

 
334,139

 
667,572

 
552,269

Operating income
69,467

 
35,199

 
110,870

 
67,304

Equity in earnings (loss) of unconsolidated entities
(287
)
 
1,907

 
(3,872
)
 
(4,715
)
Interest income
74

 
30

 
137

 
46

Gain on acquisition of PIM Highland JV and sale of hotel properties
23,094

 
—

 
22,980

 
380,705

Other income (expense)
(3,085
)
 
(2,283
)
 
(3,337
)
 
2,047

Interest expense and amortization of premiums and loan costs
(56,462
)
 
(47,495
)
 
(112,405
)
 
(82,130
)
Write-off of loan costs and exit fees
(3,941
)
 
—

 
(3,941
)
 
(4,767
)
Unrealized gain on marketable securities
—

 
1,929

 
—

 
127

Unrealized gain (loss) on derivatives
6,878

 
(1,955
)
 
13,796

 
(3,653
)
Income (loss) from continuing operations before income taxes
35,738

 
(12,668
)
 
24,228

 
354,964

Income tax expense
(603
)
 
(2,089
)
 
(1,232
)
 
(2,914
)
Net income (loss)
35,135

 
(14,757
)
 
22,996

 
352,050

(Income) loss from consolidated entities attributable to noncontrolling interest
(6
)
 
(14
)
 
32

 
11

Net (income) loss attributable to redeemable noncontrolling interests in operating partnership
(4,376
)
 
2,527

 
(2,264
)
 
(42,809
)
Net income (loss) attributable to the Company
30,753

 
(12,244
)
 
20,764

 
309,252

Preferred dividends
(8,491
)
 
(8,491
)
 
(16,981
)
 
(16,981
)
Net income (loss) attributable to common stockholders
$
22,262

 
$
(20,735
)
 
$
3,783

 
$
292,271

 
 
 
 
 
 
 
 
Income (loss) per share - basic and diluted:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Net income (loss) attributable to common stockholders
$
0.23

 
$
(0.21
)
 
$
0.04

 
$
2.96

Weighted average common shares outstanding – basic
94,474

 
99,755

 
94,309

 
97,661

Diluted:
 
 
 
 
 
 
 
Net income (loss) attributable to common stockholders
$
0.23

 
$
(0.21
)
 
$
0.04

 
$
2.86

Weighted average common shares outstanding – diluted
94,474

 
99,755

 
94,309

 
116,118

 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.12

 
$
0.12

 
$
0.24

 
$
0.24

See Notes to Consolidated Financial Statements.

3
Table of Contents

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited, in thousands)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Net income (loss)
$
35,135

 
$
(14,757
)
 
$
22,996

 
$
352,050

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Total other comprehensive income
—

 
—

 
—

 
—

Comprehensive income (loss)
35,135

 
(14,757
)
 
22,996

 
352,050

Less: Comprehensive (income) loss attributable to noncontrolling interest in consolidated entities
(6
)
 
(14
)
 
32

 
11

Less: Comprehensive (income) loss attributable to redeemable noncontrolling interests in operating partnership
(4,376
)
 
2,527

 
(2,264
)
 
(42,809
)
Comprehensive income (loss) attributable to the Company
$
30,753

 
$
(12,244
)
 
$
20,764

 
$
309,252

See Notes to Consolidated Financial Statements.

4
Table of Contents

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EQUITY
(unaudited, in thousands)
 
Preferred Stock
 
 
 
Additional
Paid In
Capital
 
 
 
Noncontrolling
Interests In
Consolidated
Entities
 
 
 

Noncontrolling
Interests in
Operating
Partnership
 
Series A
 
Series D
 
Series E
 
Common Stock
 
 
Accumulated
Deficit
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Total
 
Balance at January 1, 2016
1,657

 
$
17

 
9,469

 
$
95

 
4,630

 
$
46

 
95,471

 
$
955

 
$
1,597,194

 
$
(787,221
)
 
$
770

 
$
811,856

 
$
118,449

Purchases of common shares
—

 
—

 
—

 
—

 
—

 
—

 
(124
)
 
(1
)
 
(733
)
 
—

 
—

 
(734
)
 
—

Equity-based compensation
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
2,009

 
—

 
—

 
2,009

 
1,317

Forfeitures of restricted shares
—

 
—

 
—

 
—

 
—

 
—

 
(19
)
 
—

 
—

 
—

 
—

 
—

 
—

Issuance of restricted shares/units
—

 
—

 
—

 
—

 
—

 
—

 
845

 
8

 
(8
)
 
—

 
—

 
—

 
66

Dividends declared - common shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(23,104
)
 
—

 
(23,104
)
 
—

Dividends declared - preferred shares- Series A
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1,771
)
 
—

 
(1,771
)
 
—

Dividends declared - preferred shares- Series D
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(10,001
)
 
—

 
(10,001
)
 
—

Dividends declared – preferred shares- Series E
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(5,209
)
 
—

 
(5,209
)
 
—

Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(5,766
)
Redemption/conversion of operating partnership units
—

 
—

 
—

 
—

 
—

 
—

 
4

 
—

 
24

 
(11
)
 
—

 
13

 
(13
)
Redemption value adjustment
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
6,614

 
—

 
6,614

 
(6,614
)
Net income (loss)
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
20,764

 
(32
)
 
20,732

 
2,264

Balance at June 30, 2016
1,657

 
$
17

 
9,469

 
$
95

 
4,630

 
$
46

 
96,177

 
$
962

 
$
1,598,486

 
$
(799,939
)
 
$
738

 
$
800,405

 
$
109,703

See Notes to Consolidated Financial Statements.

5
Table of Contents

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
Six Months Ended June 30,
 
2016
 
2015
Cash Flows from Operating Activities
 
Net income
$
22,996

 
$
352,050

Adjustments to reconcile net income (loss) to net cash flow provided by operating activities:
 
 
 
Depreciation and amortization
122,241

 
90,480

Impairment charges
(227
)
 
19,734

Amortization of intangibles
(99
)
 
(68
)
Bad debt expense
693

 
466

Equity in loss of unconsolidated entities
3,872

 
4,715

Distribution of earnings from unconsolidated entities
—

 
498

Gain on acquisition of PIM Highland JV and sale of properties, net
(22,980
)
 
(380,705
)
Realized and unrealized gain on trading securities
—

 
(1,906
)
Purchases of marketable securities
—

 
(96,322
)
Sales of marketable securities
—

 
95,963

Net settlement of trading derivatives
(560
)
 
(1,420
)
Payments for derivatives
(230
)
 
(3,000
)
Realized and unrealized (gains) losses on derivatives
(11,074
)
 
3,653

Amortization of loan costs and write-off of loan costs and exit fees
15,247

 
11,771

Equity-based compensation
3,326

 
1,860

Changes in operating assets and liabilities, exclusive of effect of hotel acquisitions and dispositions of hotel properties:
 
 
 
Restricted cash
(15,874
)
 
(12,524
)
Accounts receivable and inventories
(13,646
)
 
(11,790
)
Prepaid expenses and other assets
(13,370
)
 
(6,866
)
Accounts payable and accrued expenses
15,553

 
16,079

Due to/from affiliates
—

 
3,473

Due to/from related party
(4,019
)
 
(4,056
)
Due to/from third-party hotel managers
5,314

 
(6,132
)
Due to/from Ashford Prime OP, net
513

 
(185
)
Due to/from Ashford Inc., net
(2,520
)
 
1,129

Other liabilities
1,614

 
3,363

Net cash provided by operating activities
106,770

 
80,260

Cash Flows from Investing Activities
 
 
 
Investment in unconsolidated entity
(2,000
)
 
—

Proceeds from sale/payments of note receivable
123

 
122

Proceeds from franchise agreement extensions
—

 
2,500

Acquisition of hotel properties, net of cash acquired
—

 
(613,449
)
Change in restricted cash related to improvements and additions to hotel properties
6,354

 
58,377

Improvements and additions to hotel properties
(88,169
)
 
(72,716
)
Net proceeds from sales of assets/properties
142,792

 
7,502

Payments for initial franchise fees
(30
)
 
(298
)
Proceeds from property insurance
194

 
320

Net cash provided by (used in) investing activities
59,264

 
(617,642
)
Cash Flows from Financing Activities
 
 
 
Borrowings on indebtedness
37,500

 
1,850,282

Repayments of indebtedness
(105,888
)
 
(1,272,501
)
Payments of loan costs and exit fees
(4,575
)
 
(36,900
)
Payments of dividends and distributions
(45,432
)
 
(45,234
)
Repurchases of common shares
(734
)
 
(543
)
Payments for derivatives
(73
)
 
(1,617
)
Proceeds from common stock offering
—

 
110,870

Distributions to noncontrolling interests in consolidated entities
—

 
—

Other
66

 
35

Net cash provided by (used in) financing activities
(119,136
)
 
604,392


6
Table of Contents

 
Six Months Ended June 30,
 
2016
 
2015
Net increase in cash and cash equivalents
46,898

 
67,010

Cash and cash equivalents at beginning of period
215,078

 
215,063

Cash and cash equivalents held for sale at the end of period
(155
)
 
—

Cash and cash equivalents at end of period
$
261,821


$
282,073

Supplemental Cash Flow Information
 
 
 
Interest paid
$
100,521

 
$
70,400

Income taxes paid
1,312

 
4,638

Supplemental Disclosure of Non-Cash Investing and Financing Activity
 
 
 
Accrued but unpaid capital expenditures
$
7,817

 
$
6,321

Dividend receivable from Ashford Prime OP
—

 
498

Investment in unconsolidated entity
—

 
59,338

Acquisition of land
—

 
3,100

Dividends and distributions declared but not paid
23,097

 
23,369


See Notes to Consolidated Financial Statements.

7
Table of Contents
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 national average, and in all methods including direct real estate, equity, and debt. Other than Ashford Hospitality Trust, Inc.’s investment in Ashford Inc. common stock, 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 June 30, 2016, we owned interests in the following assets:
•
127 consolidated hotel properties, including 125 (two that are held for sale) directly owned and two owned through a majority-owned investment in a consolidated entity, which represent 26,580 total rooms (or 26,553 net rooms excluding those attributable to our partners);
•
85 hotel condominium units at WorldQuest Resort in Orlando, Florida;
•
a 29.7% ownership in Ashford Inc. common stock with a carrying value of $5.7 million;
•
a 92.7% ownership in Ashford Quantitative Alternatives (U.S.), LP (the “AQUA U.S. Fund”) previously named AIM Real Estate Hedged Equity (U.S.) Fund, LP (the “REHE Fund”) with a carrying value of $53.1 million and
•
a mezzanine loan with a carrying value of $3.9 million.
For federal income tax purposes, we have elected to be treated as a REIT, which imposes limitations related to operating hotels. As of June 30, 2016, our 127 hotel properties were leased or owned by our wholly 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 June 30, 2016, Remington Lodging & Hospitality, LLC, together with its affiliates (“Remington Lodging”), which is beneficially wholly owned by Mr. Monty J. Bennett, our Chairman and Chief Executive Officer, and Mr. Archie Bennett, Jr., our Chairman Emeritus, managed 87 of our 127 hotel properties and WorldQuest Resort. Third-party management companies managed the remaining hotel properties. On September 17, 2015, Remington Lodging and Ashford Inc. entered into an agreement pursuant to which Ashford Inc. will acquire all of the general partner interest and 80% of the limited partner interests in Remington Lodging. On April 12, 2016, Ashford Inc.’s stockholders approved the acquisition. On June 22, 2016, Ashford Inc. amended the agreement extending the date with respect to which Ashford Inc. and Remington Lodging have the right to terminate the agreement if the acquisition is not consummated by October 7, 2016. The acquisition is subject to the satisfaction of various conditions, and if completed, will not impact our management agreements with Remington Lodging.
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 entities in which it has a controlling interest. All significant intercompany 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 2015 Annual Report to

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

Stockholders on Form 10-K and Form 10-K/A filed with the Securities and Exchange Commission (“SEC”) on February 29, 2016, and March 15, 2016, respectively.
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, (ii) an implicit financial responsibility to ensure that a VIE operates as designed, and (iii) 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, 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.
The following items affect reporting comparability related to our consolidated financial statements:
•
Historical seasonality patterns at some of our properties cause fluctuations in our overall operating results. Consequently, operating results for the three and six months ended June 30, 2016, are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.
•
On February 6, 2015, we acquired the Lakeway Resort & Spa, on February 25, 2015, we acquired the Memphis Marriott East hotel, on April 29, 2015, we acquired the Hampton Inn & Suites Gainesville, on June 3, 2015, we acquired the Le Pavillon Hotel, on June 17, 2015, we acquired a 9 hotel portfolio, on July 1, 2015, we acquired the W Atlanta Downtown hotel, on July 23, 2015, we acquired the Le Meridien Minneapolis, on August 5, 2015, we acquired the Hilton Garden Inn - Wisconsin Dells, on October 15, 2015, we acquired the Hotel Indigo and on November 10, 2015, we acquired the W Minneapolis Foshay. The results of these hotel properties are included in our results of operations as of their respective acquisition dates.
•
On March 6, 2015, we acquired the remaining approximate 28.26% interest in the 28 hotels of the PIM Highland JV. For the period from January 1, 2015 through March 5, 2015, the results of the PIM Highland JV are included in equity in loss of unconsolidated entities. On March 6, 2015, we began to consolidate the results of operations of these hotel properties.
•
On June 1, 2016, we sold five hotel properties comprised of the Courtyard Edison in Edison, New Jersey, the Residence Inn Buckhead in Atlanta, Georgia, and Courtyard Lake Buena Vista, Fairfield Inn Lake Buena Vista and SpringHill Suites Lake Buena Vista in Orlando, Florida (the “Noble Five Hotels”).
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.
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. No impairment charges were recorded for investments in hotel properties for the three and six months ended June 30, 2016. We recorded impairment charges of $19.9 million for both the three and six months ended June 30, 2015. See note 4.
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. The sale of the Noble Five Hotels on June 1, 2016, does not represent a strategic shift that has (or will have) a major effect on our operations or financial results. See note 4.

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

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. The definitive agreement to sell the Courtyard Palm Desert and the Residence Inn Palm Desert in Palm Desert, California, announced on June 1, 2016, is considered probable and expected to sell within one year. As such, the two hotel properties have been reclassified as held for sale assets as of June 30, 2016. Depreciation and amortization were ceased as of the date the assets were deemed held for sale. The sale of these two hotel properties does not represent a strategic shift that has (or will have) a major effect on our operations or financial results. Therefore, these two assets have not been reclassified to discontinued operations for the three and six months ended June 30, 2016. The sale is expected to close in the third quarter.
Investments in Unconsolidated Entities—Investments in entities in which we have ownership interests ranging from 12.2% to 92.7% 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 loss in unconsolidated entities. No such impairment was recorded in the three and six months ended June 30, 2016 and 2015.
Our investments in certain unconsolidated entities are considered to be variable interests in the underlying entities. VIE’s, 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, (ii) an implicit financial responsibility to ensure that a VIE operates as designed, and (iii) 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.
Marketable Securities—Prior to our investment in the AQUA U.S. Fund, we held marketable securities. Marketable securities included U.S. treasury bills, publicly traded equity securities and stocks, and put and call options on certain publicly traded securities. All of these investments were recorded at fair value. Put and call options were considered derivatives. The fair value of these investments was based on the closing price as of the balance sheet date. The cost of securities sold was determined by using the high cost method. Net investment income, including interest income (expense), dividends, realized gains or losses and costs of investment, was reported as a component of “other income (expense).” Unrealized gains and losses on these investments were reported as “unrealized gain (loss) on marketable securities” in the consolidated statements of operations.
Revenue Recognition—Hotel revenues, including room, food, beverage, and ancillary revenues such as long-distance telephone service, laundry, parking and space rentals, are recognized when services have been rendered. Taxes collected from customers and submitted to taxing authorities are not recorded in revenue. Interest income (including accretion of discounts on the mezzanine loan using the effective interest method) 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. We were reimbursed by PIM Highland JV for costs associated with managing its day-to-day operations and providing corporate administrative services such as accounting, insurance, marketing support, asset management and other services. These reimbursements were recorded as “other” revenue. As of March 6, 2015, we acquired the remaining approximate 28.26% of the PIM Highland JV which discontinued the aforementioned reimbursements.
Equity-Based Compensation—Stock/unit-based compensation for non-employees is accounted for at fair value based on the market price of the shares at period end in accordance with applicable authoritative accounting guidance that results 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 are accounted for at fair value at period end based on a Monte Carlo simulation valuation model that results 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.

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

Recently Adopted Accounting Standards—In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis (“ASU 2015-02”). The ASU amends the consolidation guidance for VIEs and general partners’ investments in limited partnerships and modifies the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities. The ASU is effective for interim and annual reporting periods beginning after December 15, 2015, with early adoption permitted. We have adopted this standard effective January 1, 2016, and the adoption of this standard did not have an impact on our financial position, results of operations or cash flows.
Recently Issued Accounting Standards—In May 2014, the 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 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In August 2015, the FASB issued ASU 2015-14, Revenue From Contracts With Customers (Topic 606): Deferral of the Effective Date, which defers the effective date to fiscal periods beginning after December 15, 2017. The FASB has also issued additional updates that further clarify the requirements of Topic 606 and provide implementation guidance. Early adoption is permitted for fiscal periods beginning after December 15, 2016. The standard permits the use of either the retrospective or cumulative effect transition method. We are evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method.
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”), to provide guidance on management's responsibility to perform interim and annual assessments of an entity’s ability to continue as a going concern. ASU 2014-15 also requires certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. ASU 2014-15 applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. We do not expect the adoption of this standard will have an impact on our financial position, results of operations or cash flows.
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 OCI 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 are evaluating the impact that ASU 2016-01 will have on our consolidated financial statements and related disclosures.
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. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are evaluating the impact that ASU 2016-02 will have on our consolidated financial statements and related disclosures.

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

3. Investments in Hotel Properties, net
Investments in hotel properties, net consisted of the following (in thousands):
 
June 30, 2016
 
December 31, 2015
Land
$
669,368

 
$
704,534

Buildings and improvements
3,930,876

 
4,026,857

Furniture, fixtures, and equipment
411,832

 
406,893

Construction in progress
26,075

 
31,235

Condominium properties
11,250

 
11,947

Total cost
5,049,401

 
5,181,466

Accumulated depreciation
(813,392
)
 
(761,782
)
Investments in hotel properties, net
$
4,236,009

 
$
4,419,684

Final Purchase Price Allocation
Hotel Indigo - Atlanta
On October 15, 2015, we acquired a 100% interest in the Hotel Indigo (“Indigo Atlanta”) in Atlanta, Georgia for total consideration of $26.9 million. As part of the transaction, we assumed a mortgage loan with a fair value of $16.6 million. See note 7. The remaining purchase price was funded in cash. We prepared a purchase price allocation of the assets acquired and liabilities assumed. The final purchase price allocation was completed with the assistance of a third party appraisal firm during the three months ended March 31, 2016. This valuation is considered a Level 3 valuation technique.
The following table summarizes the estimated fair value of the assets acquired and liabilities assumed in the acquisition (in thousands):
Land
$
3,230

Buildings and improvements
22,135

Furniture, fixtures, and equipment
1,576

 
26,941

Indebtedness
(16,581
)
Net other assets and liabilities
425

4. Hotel Dispositions, Assets Held For Sale and Impairments
On June 1, 2016, the Company sold the Noble Five Hotels, a 5-hotel portfolio of select-service hotel properties for approximately $142.0 million in cash. The sale resulted in a gain of $23.1 million for the three and six months ended June 30, 2016 and is included in “gain on acquisition of PIM Highland JV and sale of hotel properties” in the consolidated statements of operations. The portfolio is comprised of the Courtyard Edison in Edison, New Jersey; the Residence Inn Buckhead in Atlanta, Georgia; the Courtyard Lake Buena Vista, the Fairfield Inn Lake Buena Vista and the SpringHill Suites Lake Buena Vista in Orlando, Florida. We included the results of operations for these assets through the date of disposition in net income (loss) as shown in the consolidated statements of operations for the three and six months ended June 30, 2016 and 2015, respectively.

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

The following table includes condensed financial information from these assets (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Total hotel revenue
$
7,707

 
$
11,765

 
$
21,645

 
$
25,342

Total hotel operating expenses
(5,769
)
 
(7,582
)
 
(14,182
)
 
(15,701
)
Operating income
1,938

 
4,183

 
7,463

 
9,641

Property taxes, insurance and other
(428
)
 
(609
)
 
(875
)
 
(1,212
)
Depreciation and amortization
(380
)
 
(1,644
)
 
(2,255
)
 
(3,193
)
Gain on sale of hotel properties
23,094

 
—

 
23,094

 
—

Interest expense and amortization of loan costs
(1,015
)
 
(1,536
)
 
(2,502
)
 
(3,059
)
Net income
23,209

 
394

 
24,925

 
2,177

Net income from continuing operations attributable to redeemable noncontrolling interests in operating partnership
(3,242
)
 
(50
)
 
(3,475
)
 
(271
)
Net income (loss) from continuing operations attributable to the Company
$
19,967

 
$
344

 
$
21,450

 
$
1,906

Assets Held For Sale
On June 1, 2016, we announced that we had entered into a definitive agreement for the sale of the Courtyard Palm Desert and the Residence Inn Palm Desert in Palm Desert, California for approximately $36.0 million. At June 30, 2016, the Courtyard Palm Desert and the Residence Inn Palm Desert in Palm Desert, California, were classified as held for sale in the consolidated balance sheet based on methodologies discussed in note 2. Since the sale of the properties does not represent a strategic shift that has (or will have) a major effect on our operations or financial results, their results of operations 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 sale is expected to close in the third quarter. For the three and six months ended June 30, 2016, total revenue of $2.6 million and $6.3 million, respectively, and net income of $408,000 and $1.4 million, respectively, are included in our consolidated statements of operations.
The major classes of assets and liabilities related to the assets held for sale included in the consolidated balance sheet at June 30, 2016 were as follows:
 
June 30, 2016
Assets
 
Investments in hotel properties, net
$
27,973

Cash and cash equivalents
155

Restricted cash
1,265

Accounts receivable
155

Inventories
17

Prepaid expenses
175

Other assets
38

Due from related party, net
53

Assets held for sale
$
29,831

 
 
Liabilities
 
Indebtedness, net
$
23,815

Accounts payable and accrued expenses
614

Liabilities related to assets held for sale
$
24,429


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

Hotel Impairments
In 2015, we announced a plan to commence the process to list for sale 24 select-service hotels. While we have determined this announcement did not meet the criteria to classify the 24 select-service hotels as held for sale, we have concluded that these properties were not to be held long-term. Based on our impairment assessment of individual properties, we recorded an impairment charge of $19.9 million related to two hotel properties during the three and six months ended June 30, 2015: Residence Inn in Las Vegas, Nevada and the SpringHill Suites in Gaithersburg, Maryland, in the amounts of $17.1 million and $2.8 million, respectively. The impairment charges were based on methodologies discussed in note 2, which are considered Level 3 valuation techniques. Our estimates of fair value reduced the respective carrying values of the Residence Inn in Las Vegas, Nevada and the SpringHill Suites in Gaithersburg, Maryland to $37.5 million and $15.3 million, respectively.
5. Note Receivable
At June 30, 2016 and December 31, 2015, we had one mezzanine loan receivable with a net carrying value of $3.9 million and $3.7 million, respectively, net of a valuation allowance of $6.9 million and $7.1 million, respectively. This note is secured by one hotel property, bears interest at a rate of 6.09%, and matures in 2017. All required payments on this loan are current. No impairment charges were recorded during the three and six months ended June 30, 2016 and 2015. Valuation adjustments of $116,000 and $227,000 were credited to impairment charges during the three and six months ended June 30, 2016 and $109,000 and $215,000 during the three and six months ended June 30, 2015, respectively. Ongoing payments are treated as reductions of carrying value with related valuation allowance adjustments recorded as credits to impairment charges.
6. Investment in Unconsolidated Entities
Ashford Inc.
We hold approximately 598,000 shares of Ashford Inc. common stock, which represented an approximate 29.7% ownership interest in Ashford Inc. as of June 30, 2016, with a fair value of $29.9 million.
The following tables summarize the condensed consolidated balance sheets as of June 30, 2016 and December 31, 2015 and the condensed consolidated statements of operations for the three and six months ended June 30, 2016 and 2015 of Ashford Inc. (in thousands):
Ashford Inc.
Condensed Consolidated Balance Sheets
(unaudited)
 
June 30, 2016
 
December 31, 2015
Total assets
$
126,312

 
$
166,991

Total liabilities
37,608

 
30,115

Redeemable noncontrolling interests
1,267

 
240

Total stockholders’ equity of Ashford Inc.
32,374

 
32,165

Noncontrolling interests in consolidated entities
55,063

 
104,471

Total equity
87,437

 
136,636

Total liabilities and equity
$
126,312

 
$
166,991

Our ownership interest in Ashford Inc.
$
5,742

 
$
6,616


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

Ashford Inc.
Condensed Consolidated Statements of Operations
(unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Total revenue
$
18,152

 
$
14,489

 
$
31,561

 
$
27,607

Total operating expenses
(20,344
)
 
(10,629
)
 
(34,265
)
 
(32,381
)
Operating income (loss)
(2,192
)
 
3,860

 
(2,704
)
 
(4,774
)
Realized and unrealized loss on investment in unconsolidated entity, net
—

 
(1,066
)
 
(1,460
)
 
(1,066
)
Realized and unrealized gain (loss) on investments, net
236

 
(2,000
)
 
(5,448
)
 
(1,955
)
Other
22

 
207

 
(80
)
 
214

Income tax expense
655

 
(233
)
 
15

 
(464
)
Net income (loss)
(1,279
)
 
768

 
(9,677
)
 
(8,045
)
(Income) loss from consolidated entities attributable to noncontrolling interests
(182
)
 
3,154

 
6,366

 
4,115

Net (income) loss attributable to redeemable noncontrolling interests
355

 
(8
)
 
473

 
10

Net income (loss) attributable to Ashford Inc.
$
(1,106
)
 
$
3,914

 
$
(2,838
)
 
$
(3,920
)
Our equity in earnings (loss) of Ashford Inc.
$
(355
)
 
$
1,483

 
$
(874
)
 
$
(1,258
)
AQUA U.S. Fund
In June 2015, for consideration of certain marketable securities, we obtained a 52.4% ownership interest in the AQUA U.S. Fund, previously named the REHE Fund. The AQUA U.S. Fund, is managed by Ashford Investment Management, LLC (“AIM”), an indirect subsidiary of Ashford Inc. As of June 30, 2016 and December 31, 2015, and for the three and six months ended June 30, 2016, the AQUA U.S. Fund was consolidated by Ashford Inc. The AQUA U.S. Fund invests substantially all of its assets in the Ashford Quantitative Alternatives Master Fund, LP (the “Master Fund”), previously named the AIM Real Estate Hedged Equity Master Fund, LP, and as a consequence of our investment in the AQUA U.S. Fund, we obtained an indirect interest in the Master Fund. Our maximum exposure of loss is limited to our investment in the AQUA U.S. Fund.
The following tables summarize the consolidated balance sheets as of June 30, 2016 and December 31, 2015 and the consolidated statements of operations for the three and six months ended June 30, 2016 and 2015 of the AQUA U.S. Fund (in thousands):
Ashford Quantitative Alternatives (U.S.), LP
Condensed Balance Sheets
(unaudited)
 
 
June 30, 2016
 
December 31, 2015
Total assets
 
$
57,281

 
$
106,792

Total liabilities
 
2,311

 
—

Partners’ capital
 
54,970

 
106,792

Total liabilities and partners’ capital
 
$
57,281

 
$
106,792

Our ownership interest in the AQUA U.S. Fund
 
$
53,070

 
$
55,952


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

Ashford Quantitative Alternatives (U.S.), LP
Condensed Statement of Operations
(unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
Total investment income
 
$
34

 
$
216

 
$
52

 
$
223

Net expenses
 
(73
)
 
(33
)
 
(262
)
 
(31
)
Net investment income
 
(39
)
 
183

 
(210
)
 
192

Net unrealized gain (loss) on investments
 
(178
)
 
(3,028
)
 
940

 
(2,982
)
Net realized gain (loss) on investments
 
470

 
1,033

 
(6,331
)
 
1,030

Net income (loss) attributable to the AQUA U.S. Fund
 
$
253

 
$
(1,812
)
 
$
(5,601
)
 
$
(1,760
)
Our equity in earnings (loss) of the AQUA U.S. Fund
 
$
184

 
$
(948
)
 
$
(2,882
)
 
$
(948
)
The Master Fund generally invests in publicly traded equity securities and put and call options on publicly traded equity securities. The AQUA U.S. Fund records its investment in the Master Fund at its proportionate share of net assets. Income (loss) and distributions are allocated to the AQUA U.S. Fund’s partners based on their ownership percentage of the AQUA U.S. Fund. Our equity in loss in the AQUA U.S. Fund represents our share of the AQUA U.S. Fund’s loss for the three and six months ended June 30, 2016 and 2015. We generally may redeem our investment in the AQUA U.S. Fund on the last business day of the month after providing written notice. As of June 30, 2016, we have no unfunded commitments. We are not obligated to pay any portion of the management fee or the performance allocation in favor of the AQUA U.S. Fund’s investment manager and general partner, respectively, but do share pro rata in all other applicable expenses of the AQUA U.S. Fund. As of June 30, 2016 and December 31, 2015, we owned an approximate 92.7% and 52.4% ownership interest in the AQUA U.S. Fund, respectively.
Other
In March 2016, the Company invested $2.0 million in an unconsolidated entity that is controlled and consolidated by Ashford Inc., for a 12.2% ownership interest. 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. As of June 30, 2016, our ownership interest had a carrying value of $1.9 million. For both the three and six months ended June 30, 2016, our equity in the loss in the unconsolidated entity was $116,000.
As of December 31, 2015, we held a 14.4% subordinated beneficial interest in a trust that holds the Four Seasons property in Nevis, which had a carrying value of zero. In February 2016, the Four Seasons hotel property in Nevis was sold. No gain or loss was recognized associated with our 14.4% subordinated beneficial interest. As a result of the sale, we have no ownership interest in the hotel property as of June 30, 2016.

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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
 
June 30, 2016
 
December 31, 2015
Mortgage loan (3)
 
7 hotels
 
August 2016
 
LIBOR (1) + 4.35%
 
$
301,000

 
$
301,000

Mortgage loan (3) 
 
5 hotels
 
August 2016
 
LIBOR (1) + 4.38%
 
62,900

 
62,900

Mortgage loan (3)
 
1 hotel
 
August 2016
 
LIBOR (1) + 4.20%
 
37,500

 
37,500

Secured revolving credit facility (4)
 
None
 
October 2016
 
Base Rate (2) + 2.00% or LIBOR (1) + 3.00%
 
—

 
—

Mortgage loan (3)
 
8 hotels
 
January 2017
 
LIBOR (1) + 4.95%
 
376,800

 
376,800

Mortgage loan (5)
 
5 hotels
 
February 2017
 
LIBOR (1) + 4.75%
 
200,000

 
200,000

Mortgage loan (6)
 
24 hotels
 
April 2017
 
LIBOR (1) + 4.39%
 
1,070,560

 
1,070,560

Mortgage loan (3)
 
1 hotel
 
April 2017
 
LIBOR (1) + 4.95%
 
33,300

 
33,300

Mortgage loan
 
5 hotels
 
April 2017
 
5.95%
 
109,492

 
110,302

Mortgage loan
 
5 hotels
 
April 2017
 
5.95%
 
—

 
99,144

Mortgage loan
 
5 hotels
 
April 2017
 
5.95%
 
149,752

 
150,860

Mortgage loan
 
7 hotels
 
April 2017
 
5.95%
 
119,784

 
120,671

Mortgage loan (3)
 
1 hotel
 
May 2017
 
LIBOR (1) + 5.10%
 
25,100

 
25,100

Mortgage loan (3)
 
1 hotel
 
June 2017
 
LIBOR (1) + 5.10%
 
43,750

 
43,750

Mortgage loan
 
1 hotel
 
June 2017
 
5.98%
 
15,868

 
16,002

Mortgage loan (3)
 
8 hotels
 
July 2017
 
LIBOR (1) + 4.09%
 
144,000

 
144,000

Mortgage loan (3)
 
1 hotel
 
July 2017
 
LIBOR (1) + 4.15%
 
35,200

 
35,200

Mortgage loan (3)
 
1 hotel
 
July 2017
 
LIBOR (1) + 5.10%
 
40,500

 
40,500

Mortgage loan (6) (9)
 
17 hotels
 
December 2017
 
LIBOR (1) + 5.52%
 
412,500

 
375,000

Mortgage loan
 
1 hotel
 
January 2018
 
4.38%
 
97,103

 
98,016

Mortgage loan
 
2 hotels
 
January 2018
 
4.44%
 
106,222

 
107,054

Mortgage loan (7)
 
1 hotel
 
July 2018
 
LIBOR (1) + 4.50%
 
21,200

 
21,200

Mortgage loan (7)
 
1 hotel
 
August 2018
 
LIBOR (1) + 4.95%
 
12,000

 
12,000

Mortgage loan (8)
 
1 hotel
 
July 2019
 
LIBOR (1) + 3.75%
 
5,492

 
5,524

Mortgage loan
 
1 hotel
 
November 2020
 
6.26%
 
97,659

 
98,420

Mortgage loan
 
1 hotel
 
May 2023
 
5.46%
 
55,110

 
55,524

Mortgage loan
 
1 hotel
 
January 2024
 
5.49%
 
10,454

 
10,529

Mortgage loan
 
1 hotel
 
January 2024
 
5.49%
 
7,163

 
7,214

Mortgage loan
 
1 hotel
 
May 2024
 
4.99%
 
6,693

 
6,745

Mortgage loan
 
3 hotels
 
August 2024
 
5.20%
 
67,520

 
67,520

Mortgage loan
 
2 hotels
 
August 2024
 
4.85%
 
12,500

 
12,500

Mortgage loan
 
3 hotels
 
August 2024
 
4.90%
 
24,980

 
24,980

Mortgage loan
 
3 hotels
 
February 2025
 
4.45%
 
53,741

 
54,110

Mortgage loan
 
2 hotels
 
February 2025
 
4.45%
 
23,983

 
24,147

Mortgage loan
 
2 hotels
 
February 2025
 
4.45%
 
20,777

 
20,919

 
 
 
 
 
 
 
 
3,800,603

 
3,868,991

Premiums, net
 
 
 
 
 
 
 
4,581

 
5,626

Deferred loan costs, net
 
 
 
 
 
 
 
(22,601
)
 
(34,000
)
Total indebtedness
 
 
 
 
 
 
 
$
3,782,583

 
$
3,840,617

Indebtedness related to assets held for sale (10)
 
2 hotels
 
February 2025
 
4.45%
 
23,983

 
 
Deferred loan costs, net
 
 
 
 
 
 
 
(167
)
 
 
Indebtedness, net
 
 
 
 
 
 
 
$
3,758,767

 
 
____________________________________
(1) LIBOR rates were 0.465% and 0.430% at June 30, 2016 and December 31, 2015, respectively.
(2) Base Rate, as defined in the secured revolving credit facility agreement is the greater of (i) the prime rate set by Bank of America, (ii) federal funds rate + 0.5% or (iii) LIBOR + 1.0%.
(3) This mortgage loan has three one-year extension options subject to satisfaction of certain conditions.
(4) Our borrowing capacity under our secured revolving credit facility is $100.0 million.

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

(5) This mortgage loan has three one-year extension options subject to satisfaction of certain conditions and a LIBOR floor of 0.20%. The first one-year extension period began in February 2016.
(6) This mortgage loan has four one-year extension options subject to satisfaction of certain conditions.
(7) This mortgage loan has two one-year extension options subject to satisfaction of certain conditions.
(8) This mortgage loan provides for an interest rate of LIBOR + 3.75% with a 0.25% LIBOR floor for the first 18 months. Beginning February 2016, the interest rate is fixed at 4.0%.
(9) These mortgage loans are collateralized by the same properties.
(10) This loan relates to the Courtyard Palm Desert and the Residence Inn Palm Desert in Palm Desert, California. See notes 4 and 17.
On December 2, 2015, we refinanced three mortgage loans totaling $273.5 million. The initial amount of the new loan was $375.0 million. On March 1, 2016, we increased the loan amount by $37.5 million. The loan balance is now $412.5 million, which is interest only and provides for a floating interest rate of LIBOR + 5.52%. The stated maturity is December 2017, with four one-year extension options. The new loan is secured by 17 hotel properties. The SpringHill Suites in Jacksonville, Florida is now unencumbered.
During the three and six months ended June 30, 2016 we recognized premium amortization of $524,000 and $1.0 million, respectively, and during the three and six ended June 30, 2015 we recognized $484,000 and $611,000, respectively. The amortization of the premium is computed using 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. Presently, our existing financial covenants are non-recourse and primarily relate to maintaining minimum debt coverage ratios, maintaining an overall minimum net worth, maintaining a maximum loan to value ratio, and maintaining an overall minimum total assets. As of June 30, 2016, 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.

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

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 June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Income (loss) allocated to common stockholders:
 
 
 
 
 
 
 
Income (loss) attributable to the Company
$
30,753

 
$
(12,244
)
 
$
20,764

 
$
309,252

Less: Dividends on preferred stock
(8,491
)
 
(8,491
)
 
(16,981
)
 
(16,981
)
Less: Dividends on common stock
(11,340
)
 
(11,971
)
 
(22,673
)
 
(23,935
)
Less: Dividends on unvested performance stock units
(40
)
 
—

 
(80
)
 
—

Less: Dividends on unvested restricted shares
(203
)
 
(176
)
 
(351
)
 
(341
)
Less: Undistributed income allocated to unvested performance stock units
(6
)
 
—

 
—

 
—

Less: Undistributed income allocated to unvested shares
(187
)
 
—

 
—

 
(2,691
)
Undistributed income (loss)
10,486

 
(32,882
)
 
(19,321
)
 
265,304

Add back: Dividends on common stock
11,340

 
11,971

 
22,673

 
23,935

Distributed and undistributed income (loss) - basic
$
21,826

 
$
(20,911
)
 
$
3,352

 
$
289,239

Add back: Income allocated to operating partnership units
—

 
—

 
—

 
42,809

Distributed and undistributed net income (loss) - diluted
$
21,826

 
$
(20,911
)
 
$
3,352

 
$
332,048

 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
94,474

 
99,755

 
94,309

 
97,661

Effect of assumed conversion of operating partnership units
—

 
—

 
—

 
18,457

Weighted average shares outstanding - diluted
94,474

 
99,755

 
94,309

 
116,118

 
 
 
 
 
 
 
 
Basic income (loss) per share:
 
 
 
 
 
 
 
Net income (loss) allocated to common stockholders per share
$
0.23

 
$
(0.21
)
 
$
0.04

 
$
2.96

 
 
 
 
 
 
 
 
Diluted income (loss) per share:
 
 
 
 
 
 
 
Net income (loss) allocated to common stockholders per share
$
0.23

 
$
(0.21
)
 
$
0.04

 
$
2.86

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 June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Income (loss) allocated to common stockholders is not adjusted for:
 
 
 
 
 
 
 
Income allocated to unvested restricted shares
$
390

 
$
176

 
$
351

 
$
3,032

Income allocated to unvested performance stock units
46

 
—

 
80

 
—

Income (loss) attributable to noncontrolling interest in operating partnership units
4,376

 
(2,527
)
 
2,264

 
—

Total
$
4,812

 
$
(2,351
)
 
$
2,695

 
$
3,032

 
 
 
 
 
 
 
 
Weighted average diluted shares are not adjusted for:
 
 
 
 
 
 
 
Effect of unvested restricted shares
396

 
347

 
262

 
389

Effect of unvested performance stock units
30

 
—

 
15

 
—

Effect of assumed conversion of operating partnership units
18,844

 
18,542

 
18,943

 
—

Total
19,270

 
18,889

 
19,220

 
389


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

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 and interest rate floors 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.
For the six months ended June 30, 2016, we entered into interest rate caps with notional amounts totaling $237.5 million and strike rates ranging from 2.25% to 4.50%. These interest rate caps had effective dates from February 2016 to March 2016, and maturity dates from February 2017 to December 2017, and a total cost of $73,000. These instruments were not designated as cash flow hedges. These instruments cap the interest rates on our mortgage loans with principal balances of $237.5 million and maturity dates from February 2017 to December 2017.
For the six months ended June 30, 2015, we entered into interest rate caps with notional amounts totaling $1.7 billion and strike rates ranging from 1.50% to 3.00%. These interest rate caps had effective dates from January 2015 to June 2015, and maturity dates from January 2017 to July 2018, for a total cost of $1.6 million. These instruments were not designated as cash flow hedges. We also entered into interest rate floors with notional amounts totaling $6.0 billion and strike rates ranging from (0.25)% to 0%. These interest rate floors had effective dates from April 2015 to July 2015, and maturity dates from April 2020 to July 2020, for a total cost of $9.4 million.
As of June 30, 2016, we had interest rate caps with notional amounts totaling $2.8 billion and strike rates ranging from 1.5% to 4.5%. These instruments had maturity dates ranging from August 2016 to August 2018. As of June 30, 2016, we had interest rate floors with notional amounts totaling $6.0 billion and strike rates ranging from (0.25)% to 0%. These instruments had maturity dates ranging from April 2020 to July 2020.
Credit Default Swap Derivatives—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 $4.6 million as of June 30, 2016. 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.
Options on Futures Contracts—In March 2016, we purchased an option on Eurodollar futures for upfront costs of $250,000, including commissions of $20,000, and a maturity date of June 2017.
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.

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

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 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 June 30, 2016, the LIBOR interest rate forward curve (Level 2 inputs) assumed an uptrend from 0.465% to 0.730% 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.

21
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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
 
 
 
 
June 30, 2016:
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives - floors
$
—

 
$
14,729

 
$
—

 
$
—

 
$
14,729

(2) 
 
Interest rate derivatives - caps
—

 
13

 
—

 
—

 
13

(2) 
 
Credit default swaps
—

 
3,779

 
—

 
(3,071
)
 
708

(2) 
 
Options on futures contracts
350

 
—

 
—

 
—

 
350

(2) 
 
Total
$
350

 
$
18,521

 
$
—

 
$
(3,071
)
 
$
15,800

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015: