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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015
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
 
95,474,163
(Class)
 
Outstanding at November 5, 2015




ASHFORD HOSPITALITY TRUST, INC
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2015

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 amounts)
 
September 30, 2015
 
December 31, 2014
Assets
 
Cash and cash equivalents
$
185,981

 
$
215,063

Marketable securities

 
63,217

Total cash, cash equivalents and marketable securities
185,981

 
278,280

Investments in hotel properties, net
4,305,918

 
2,128,611

Restricted cash
146,220

 
85,830

Accounts receivable, net of allowance of $585 and $241, respectively
53,037

 
22,399

Inventories
4,652

 
2,104

Note receivable, net of allowance of $7,196 and $7,522, respectively
3,695

 
3,553

Investment in unconsolidated entities
60,315

 
206,790

Deferred costs, net
34,952

 
12,588

Prepaid expenses
20,532

 
7,017

Derivative assets, net
5,572

 
182

Other assets
13,386

 
17,116

Intangible assets, net
11,393

 

Due from Ashford Prime OP, net

 
896

Due from affiliates

 
3,473

Due from third-party hotel managers
37,947

 
12,241

Total assets
$
4,883,600

 
$
2,781,080

Liabilities and Equity
 
 
 
Liabilities:
 
 
 
Indebtedness
$
3,698,385

 
$
1,954,103

Accounts payable and accrued expenses
141,404

 
71,118

Dividends payable
22,679

 
21,889

Unfavorable management contract liabilities
3,849

 
5,330

Due to Ashford Inc., net
9,893

 
8,202

Due to Ashford Prime OP, net
110

 

Due to related party, net
470

 
1,867

Due to third-party hotel managers
2,424

 
1,640

Intangible liabilities, net
16,593

 

Liabilities associated with marketable securities and other

 
6,201

Other liabilities
9,717

 
1,233

Total liabilities
3,905,524

 
2,071,583

 
 
 
 
Redeemable noncontrolling interests in operating partnership
114,741

 
177,064

 
 
 
 
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 September 30, 2015 and December 31, 2014
17

 
17

Series D Cumulative Preferred Stock, 9,468,706 shares issued and outstanding at September 30, 2015 and December 31, 2014
95

 
95

Series E Cumulative Preferred Stock, 4,630,000 shares issued and outstanding at September 30, 2015 and December 31, 2014
46

 
46

Common stock, $0.01 par value, 200,000,000 shares authorized, 119,146,765 and 124,896,765 shares issued, 95,474,163 and 89,439,624 shares outstanding at September 30, 2015 and December 31, 2014, respectively
1,192

 
1,249

Additional paid-in capital
1,704,920

 
1,706,274

Accumulated deficit
(735,087
)
 
(1,050,323
)
Treasury stock, at cost, 23,672,602 and 35,457,141 shares at September 30, 2015 and December 31, 2014, respectively
(108,640
)
 
(125,725
)
Total stockholders’ equity of the Company
862,543

 
531,633

Noncontrolling interests in consolidated entities
792

 
800

Total equity
863,335

 
532,433

Total liabilities and equity
$
4,883,600

 
$
2,781,080

See Notes to Consolidated Financial Statements.

2


ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Revenue
 
 
 
Rooms
$
294,768

 
$
164,946

 
$
787,428

 
$
489,427

Food and beverage
55,210

 
25,268

 
159,528

 
82,521

Other hotel revenue
14,097

 
7,044

 
35,402

 
20,054

Total hotel revenue
364,075

 
197,258

 
982,358

 
592,002

Advisory services revenue

 
3,127

 

 
9,266

Other
441

 
1,072

 
1,731

 
3,213

Total revenue
364,516

 
201,457

 
984,089

 
604,481

Expenses
 
 
 
 
 
 
 
Hotel operating expenses:
 
 
 
 
 
 
 
Rooms
65,402

 
37,368

 
169,290

 
108,152

Food and beverage
40,570

 
18,628

 
108,891

 
57,330

Other expenses
112,759

 
64,103

 
295,936

 
194,679

Management fees
13,324

 
7,799

 
36,366

 
23,618

Total hotel expenses
232,055

 
127,898

 
610,483

 
383,779

Property taxes, insurance, and other
17,997

 
10,421

 
47,167

 
28,958

Depreciation and amortization
58,741

 
28,338

 
149,221

 
81,022

Impairment charges
(111
)
 
(105
)
 
19,623

 
(310
)
Transaction costs
392

 
533

 
5,850

 
616

Advisory services fee
10,788

 

 
31,827

 

Corporate, general, and administrative
3,772

 
15,104

 
11,732

 
47,290

Total expenses
323,634

 
182,189

 
875,903

 
541,355

Operating income
40,882

 
19,268

 
108,186

 
63,126

Equity in earnings (loss) of unconsolidated entities
(4,369
)
 
2,831

 
(9,084
)
 
6,794

Interest income
21

 
27

 
67

 
45

Gain on acquisition of PIM Highland JV

 

 
381,835

 

Other income (expense)
(314
)
 
2,564

 
1,733

 
5,841

Interest expense and amortization of premiums and loan costs
(51,859
)
 
(29,400
)
 
(133,989
)
 
(85,563
)
Write-off of loan costs and exit fees

 
(8,319
)
 
(4,767
)
 
(10,353
)
Unrealized gain (loss) on marketable securities

 
(2,875
)
 
127

 
(3,818
)
Unrealized loss on derivatives
(2,750
)
 
(70
)
 
(6,403
)
 
(680
)
Income (loss) from continuing operations before income taxes
(18,389
)
 
(15,974
)
 
337,705

 
(24,608
)
Income tax expense
(1,721
)
 
(292
)
 
(4,635
)
 
(820
)
Income (loss) from continuing operations
(20,110
)
 
(16,266
)
 
333,070

 
(25,428
)
Income from discontinued operations

 
62

 

 
88

Gain (loss) on sale of hotel properties, net of tax
599

 

 
(531
)
 
3,491

Net income (loss)
(19,511
)
 
(16,204
)
 
332,539

 
(21,849
)
(Income) loss from consolidated entities attributable to noncontrolling interest
(3
)
 
124

 
8

 
146

Net (income) loss attributable to redeemable noncontrolling interests in operating partnership
3,193

 
2,585

 
(39,616
)
 
4,234

Net income (loss) attributable to the Company
(16,321
)
 
(13,495
)
 
292,931

 
(17,469
)
Preferred dividends
(8,490
)
 
(8,490
)
 
(25,471
)
 
(25,471
)
Net income (loss) attributable to common stockholders
$
(24,811
)
 
$
(21,985
)
 
$
267,460

 
$
(42,940
)
 
 
 
 
 
 
 
 
Income (loss) per share - basic and diluted:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to common stockholders
$
(0.26
)
 
$
(0.24
)
 
$
2.72

 
$
(0.50
)
Income from discontinued operations attributable to common stockholders

 

 

 

Net income (loss) attributable to common stockholders
$
(0.26
)
 
$
(0.24
)
 
$
2.72

 
$
(0.50
)
Weighted average common shares outstanding – basic
95,888

 
90,322

 
97,061

 
86,961

Diluted:
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to common stockholders
$
(0.26
)
 
$
(0.24
)
 
$
2.63

 
$
(0.50
)
Income from discontinued operations attributable to common stockholders

 

 

 

Net income (loss) attributable to common stockholders
$
(0.26
)
 
$
(0.24
)
 
$
2.63

 
$
(0.50
)
Weighted average common shares outstanding – diluted
95,888

 
90,322

 
115,560

 
86,961

 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.12

 
$
0.12

 
$
0.36

 
$
0.36

 
 
 
 
 
 
 
 
Amounts attributable to common stockholders:
 
 
 
 
 
 
 
Income (loss) from continuing operations, net of tax
$
(16,321
)
 
$
(13,550
)
 
$
292,931

 
$
(17,546
)
Income from discontinued operations, net of tax

 
55

 

 
77

Preferred dividends
(8,490
)
 
(8,490
)
 
(25,471
)
 
(25,471
)
Net income (loss) attributable to common stockholders
$
(24,811
)
 
$
(21,985
)
 
$
267,460

 
$
(42,940
)
See Notes to Consolidated Financial Statements.

3


ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited, in thousands)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Net income (loss)
$
(19,511
)
 
$
(16,204
)
 
$
332,539

 
$
(21,849
)
Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Reclassification to interest expense

 

 

 
100

Total other comprehensive income

 

 

 
100

Comprehensive income (loss)
(19,511
)
 
(16,204
)
 
332,539

 
(21,749
)
Less: Comprehensive income (loss) attributable to noncontrolling interest in consolidated entities
(3
)
 
124

 
8

 
146

Less: Comprehensive (income) loss attributable to redeemable noncontrolling interests in operating partnership
3,193

 
2,585

 
(39,616
)
 
4,221

Comprehensive income (loss) attributable to the Company
$
(16,321
)
 
$
(13,495
)
 
$
292,931

 
$
(17,382
)
See Notes to Consolidated Financial Statements.

4


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

Noncontrolling
Interests in
Operating
Partnership
 
Series A
 
Series D
 
Series E
 
Common Stock
 
 
Accumulated
Deficit
 
Treasury Stock
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
Shares
 
Amount
 
 
Total
 
Balance at January 1, 2015
1,657

 
$
17

 
9,469

 
$
95

 
4,630

 
$
46

 
124,897

 
$
1,249

 
$
1,706,274

 
$
(1,050,323
)
 
(35,457
)
 
$
(125,725
)
 
$
800

 
$
532,433

 
$
177,064

Repurchases of common shares

 

 

 

 

 

 
(5,750
)
 
(57
)
 
(51,693
)
 

 
(53
)
 
(543
)
 

 
(52,293
)
 

Equity-based compensation

 

 

 

 

 

 

 

 
1,378

 

 

 

 

 
1,378

 
1,058

Forfeitures of restricted shares

 

 

 

 

 

 

 

 
57

 

 
(17
)
 
(40
)
 

 
17

 

Issuance of restricted shares/units

 

 

 

 

 

 

 

 
(2,745
)
 

 
1,183

 
2,745

 

 

 
35

Reissuance of treasury shares

 

 

 

 

 

 

 

 
96,159

 

 
10,530

 
14,711

 

 
110,870

 

Dividends declared- common shares

 

 

 

 

 

 

 

 

 
(35,733
)
 

 

 

 
(35,733
)
 

Dividends declared- preferred shares- Series A

 

 

 

 

 

 

 

 

 
(2,657
)
 

 

 

 
(2,657
)
 

Dividends declared- preferred shares- Series D

 

 

 

 

 

 

 

 

 
(15,001
)
 

 

 

 
(15,001
)
 

Dividends declared – preferred shares- Series E

 

 

 

 

 

 

 

 

 
(7,813
)
 

 

 

 
(7,813
)
 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 
(8,188
)
Redemption/conversion of operating partnership units

 

 

 

 

 

 

 

 
1,333

 

 
141

 
212

 

 
1,545

 
(1,545
)
Distribution of Ashford Prime OP units

 

 

 

 

 

 

 

 
(45,843
)
 

 

 

 

 
(45,843
)
 
(9,790
)
Redemption value adjustment

 

 

 

 

 

 

 

 

 
83,509

 

 

 

 
83,509

 
(83,509
)
Net income (loss)

 

 

 

 

 

 

 

 

 
292,931

 

 

 
(8
)
 
292,923

 
39,616

Balance at September 30, 2015
1,657

 
$
17

 
9,469

 
$
95

 
4,630

 
$
46

 
119,147

 
$
1,192

 
$
1,704,920

 
$
(735,087
)
 
(23,673
)
 
$
(108,640
)
 
$
792

 
$
863,335

 
$
114,741

See Notes to Consolidated Financial Statements.

5


ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
Nine Months Ended September 30,
 
2015
 
2014
Cash Flows from Operating Activities
 
Net income (loss)
$
332,539

 
$
(21,849
)
Adjustments to reconcile net income (loss) to net cash flow provided by operating activities:
 
 
 
Depreciation and amortization
149,221

 
81,262

Impairment charges
19,623

 
(310
)
Amortization of loan costs and premiums, write-off of loan costs and exit fees
16,699

 
15,901

Amortization of intangibles, net
(117
)
 

Bad debt expense
786

 

Equity in (earnings) loss of unconsolidated entities
9,084

 
(6,794
)
Distribution of earnings from unconsolidated entities
996

 
746

Gain on hotel properties
(381,304
)
 
(3,658
)
Realized and unrealized gains on marketable securities
(1,776
)
 
(1,535
)
Purchases of marketable securities
(96,322
)
 
(91,749
)
Sales of marketable securities
95,963

 
79,201

Net settlement of trading derivatives
(170
)
 
(505
)
Payments for derivatives
(9,975
)
 

Unrealized loss on derivatives
6,403

 
680

Equity-based compensation
2,436

 
16,964

Changes in operating assets and liabilities, exclusive of effect of acquisitions and dispositions of hotel properties:
 
 
 
Restricted cash
(11,980
)
 
(6,771
)
Accounts receivable and inventories
(8,410
)
 
(6,799
)
Prepaid expenses and other assets
(8,337
)
 
(4,564
)
Accounts payable and accrued expenses
19,369

 
24,355

Due from affiliates
3,473

 
(446
)
Due to/from related party
(3,923
)
 
1,224

Due to/from third-party hotel managers
(6,300
)
 
19,764

Due to/from Ashford Prime OP, net
774

 
(4,629
)
Due to/from Ashford Inc., net
1,691

 

Other liabilities
2,829

 
2,381

Net cash provided by operating activities
133,272

 
92,869

Cash Flows from Investing Activities
 
 
 
Proceeds from payments of note receivable
184

 
185

Proceeds from franchise agreement extension
2,500

 

Net proceeds from sales of hotel properties
7,502

 
22,882

Acquisition of hotel properties, net of cash acquired
(695,969
)
 
(57,726
)
Change in restricted cash related to improvements and additions to hotel properties
63,452

 
(39,283
)
Improvements and additions to hotel properties
(114,926
)
 
(91,483
)
Due from Ashford Prime OP

 
13,635

Payments for initial franchise fees
(498
)
 
(208
)
Proceeds from property insurance
385

 
1,407

Net cash used in investing activities
(737,370
)
 
(150,591
)
Cash Flows from Financing Activities
 
 
 
Borrowings on indebtedness
1,902,782

 
718,825

Repayments of indebtedness and capital leases
(1,277,606
)
 
(509,152
)
Payments of loan costs and exit fees
(38,338
)
 
(20,165
)
Payments of dividends
(68,602
)
 
(63,528
)
Repurchases of common shares
(52,293
)
 
(458
)
Payments for derivatives
(1,832
)
 
(661
)
Issuances of treasury stock
110,870

 
85,840

Distributions to noncontrolling interests in consolidated entities

 
(1,235
)
Other
35

 
50

Net cash provided by financing activities
575,016

 
209,516

Net increase (decrease) in cash and cash equivalents
(29,082
)
 
151,794

Cash and cash equivalents at beginning of period
215,063

 
128,780

Cash and cash equivalents at end of period
$
185,981


$
280,574


6


 
Nine Months Ended September 30,
 
2015
 
2014
Supplemental Cash Flow Information
 
 
 
Interest paid
$
116,463

 
$
78,508

Income taxes paid
7,033

 
1,027

Supplemental Disclosure of Non-Cash Investing and Financing Activity
 
 
 
Accrued but unpaid capital expenditures
$
6,686

 
$
5,096

Deferred compensation to be settled in shares

 
958

Dividend receivable from Ashford Prime OP

 
249

Transfer of debt to Ashford Prime OP

 
69,000

Investment in unconsolidated entity
59,338

 

Acquisition of land
3,100

 

Dividends declared but not paid
22,679

 
21,889

Sale of consolidated noncontrolling interest, settled subsequent to period end

 
1,200

Distribution of Ashford Prime OP units
55,633

 

See Notes to Consolidated Financial Statements.

7

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



1. Organization and Description of Business
Ashford Hospitality Trust, Inc., together with its subsidiaries (“Ashford Trust”), is a real estate investment trust (“REIT”) focused on investing in full service hotels in the upscale and upper-upscale segments in domestic and international markets that have revenue per available room (“RevPAR”) generally less than twice the 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.
On December 14, 2014, we executed a Letter Agreement (the “Agreement”) with PRISA III Investments ("PRISA III"). The Agreement was approved by the investment committee of Prudential Real Estate Investors ("PREI"), the investment manager of PRISA III, and fully executed and delivered to us on December 15, 2014. Pursuant to the Agreement, we agreed to purchase and PRISA III agreed to sell (the “Transaction”) all of PRISA III’s right, title and interest in and to its approximately 28.26% interest in the PIM Highland Holding LLC (“PIM Highland JV”). As of March 6, 2015, we own 100% of the PIM Highland JV. See Notes 3, 6 and 7.
On July 13, 2015, we announced that our board of directors had declared the distribution (1) to our stockholders of approximately 4.1 million shares of common stock of Ashford Prime to be received by Ashford Trust upon redemption of Ashford Prime OP common units and (2) to the common unitholders of Ashford Trust OP of our remaining common units of Ashford Prime OP. The distribution occurred on July 27, 2015, to stockholders and common unitholders of record as of the close of business of the New York Stock Exchange on July 20, 2015. As a result of the distribution, we have no ownership interest in Ashford Prime.
We are advised by Ashford Hospitality Advisors LLC (“Ashford LLC”), a subsidiary of Ashford Inc., through an advisory agreement. All of the hotels in our portfolio are currently asset-managed by Ashford LLC. We do not have any employees. All of the services that might be provided by employees are provided to us by Ashford LLC.
As of September 30, 2015, we owned interests in the following assets:
130 consolidated hotel properties, including 128 directly owned and two owned through a majority-owned investment in a consolidated entity, which represent 27,605 total rooms (or 27,578 net rooms excluding those attributable to our partners);
86 hotel condominium units at WorldQuest Resort in Orlando, Florida;
a 29.8% ownership in Ashford Inc. common stock with a carrying value of $5.9 million;
a 52.4% ownership in AIM Real Estate Hedged Equity (U.S.) Fund, LP (the “REHE Fund”) with a carrying value of $54.5 million and
a mezzanine loan with a carrying value of $3.7 million.
For federal income tax purposes, we have elected to be treated as a REIT, which imposes limitations related to operating hotels. As of September 30, 2015, our 130 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 September 30, 2015, 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 88 of our 130 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 eighty percent of the limited partner interests in Remington Lodging. The acquisition is subject to the satisfaction of various conditions, including the approval of Ashford Inc.’s stockholders. The acquisition, if completed, will not impact our management agreements with Remington Lodging.

8

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

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. These consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in our 2014 Annual Report to Stockholders on Form 10-K and Form 10-K/A filed with the Securities and Exchange Commission (“SEC”) on March 2, 2015, and March 31, 2015, respectively.
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 nine months ended September 30, 2015, are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.
On March 1, 2014, we completed the sale of the Pier House Resort to Ashford Prime (“Ashford Prime”). The results of the Pier House Resort, which we acquired on May 14, 2013, and sold on March 1, 2014, are included in our results of operations for the period from January 1, 2014, through February 28, 2014.
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, and on August 5, 2015, we acquired the Hilton Garden Inn - Wisconsin Dells. The results of these hotels 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 January 1, 2014, through March 5, 2015, we have recorded equity in earnings for our ownership percentage. Beginning March 6, 2015, we consolidated the results of operations of these 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.
Restricted Cash—Restricted cash includes reserves for debt service, real estate taxes, and insurance, as well as excess cash flow deposits and reserves for furniture, fixtures, and equipment replacements of approximately 4% to 6% of property revenue for certain hotels, as required by certain management or mortgage debt agreement restrictions and provisions. For purposes of the consolidated statements of cash flows, changes in restricted cash caused by using such funds for debt service, real estate taxes, and insurance are shown as operating activities. Changes in restricted cash caused by using such funds for furniture, fixtures, and equipment replacements are included in cash flows from investing activities.
Investments in Hotel Properties, net—Hotel properties are generally stated at cost. However, four hotel properties contributed upon Ashford Trust’s formation in 2003 are stated at the predecessor’s historical cost, net of impairment charges, if any, plus a partial step-up related to the acquisition of noncontrolling interests from third parties associated with certain of these properties. For hotel properties owned through our majority-owned entities, the carrying basis attributable to the partners’ minority ownership is recorded at the predecessor’s historical cost, net of any impairment charges, while the carrying basis attributable to our majority ownership is recorded based on the allocated purchase price of our ownership interests in the entities. All improvements and additions which extend the useful life of hotel properties are capitalized.
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

9

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

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. We recorded an impairment charge of $19.9 million for the nine months ended September 30, 2015. See Note 4. No impairment charges were recorded for investments in hotel properties for the three months ended September 30, 2015 and for the three and nine months ended September 30, 2014.
Hotel Dispositions—Effective January 1, 2015, discontinued operations are defined as the disposal of components of an entity that represents strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. We believe that individual dispositions of hotel properties do not represent a strategic shift that has (or will have) a major effect on our operations and financial results as most will not fit the definition. This new guidance was implemented prospectively only. As such, hotel property dispositions that occurred prior to December 31, 2014, will continue to be reported as discontinued operations in the statements of operations for all applicable periods presented. See Note 4.
Assets Held for Sale and Discontinued Operations—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 or group of components that represents a strategic shift that has (or will have) a major effect on our operations and cash flows.
Intangible Assets and Liabilities—Intangible assets and liabilities represent the assets and liabilities recorded on certain hotel properties’ ground lease contracts that were below or above market rates at the date of acquisition. These assets and liabilities are amortized using the straight-line method over the remaining terms of the respective lease contracts.
Note Receivable—Mezzanine loan financing, classified as note receivable, represents a loan held for investment and intended to be held to maturity. Note receivable is recorded at cost, net of unamortized loan origination costs and fees, loan purchase discounts, and allowance for losses when a loan is deemed to be impaired. Premiums, discounts, and net origination fees are amortized or accreted as an adjustment to interest income using the effective interest method over the life of the loan. We discontinue recording interest and amortizing discounts/premiums when the contractual payment of interest and/or principal is not received when contractually due. Payments received on impaired nonaccrual loans are recorded as adjustments to impairment charges. No interest income was recorded for the three and nine months ended September 30, 2015 and 2014.
Variable interest entities (“VIEs”), as defined by authoritative accounting guidance, must be consolidated by their controlling interest beneficiaries if the VIEs do not effectively disperse risks among the parties involved. Our remaining mezzanine note receivable at September 30, 2015, is secured by a hotel property and is subordinate to the controlling interest in the secured hotel property. Although the note receivable is considered to be a variable interest in the entity that owns the related hotel, we are not considered to be the primary beneficiary of the hotel property as a result of holding the loan. Therefore, we do not consolidate the hotel property for which we have provided financing. We will evaluate interests in entities acquired or created in the future to determine whether such entities should be consolidated. In evaluating VIEs, our analysis involves considerable management judgment and assumptions.
Impairment of Note Receivable—We review notes receivable for impairment each reporting period. A loan is impaired when, based on current information and events, collection of all amounts recorded as assets on the balance sheet is no longer considered probable. We apply normal loan review and underwriting procedures (as may be implemented or modified from time to time) in making that judgment.
When a loan is impaired, we measure impairment based on the present value of expected cash flows discounted at the loan’s effective interest rate against the value of the asset recorded on the balance sheet. We may also measure impairment based on a loan’s observable market price or the fair value of collateral if the loan is collateral-dependent. Loan impairments are recorded as a valuation allowance and a charge to earnings. Our assessment of impairment is based on considerable management judgment and assumptions. No impairment charges were recorded during the three and nine months ended September 30, 2015 and 2014. Valuation adjustments of $111,000 and $326,000 on previously impaired notes were credited to impairment charges during the three and nine months ended September 30, 2015 and $105,000 and $310,000 during the three and nine months ended September 30, 2014, respectively.
Investments in Unconsolidated Entities—Investments in entities in which we have ownership interests ranging from 14.4% to 52.4% 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

10

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

the carrying amount of our investment. Any impairment is recorded in equity earnings (loss) in unconsolidated entities. No such impairment was recorded in the three and nine months ended September 30, 2015 and 2014.
Our investments in certain unconsolidated entities are considered to be variable interests in the underlying entities. Variable Interest Entities (“VIE”), as defined by authoritative accounting guidance, must be consolidated by a reporting entity if the reporting entity is the primary beneficiary because it has (i) the power to direct the VIE’s activities that most significantly impact the VIE’s economic performance, (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—Marketable securities, including U.S. treasury bills, publicly traded equity securities and stocks, and put and call options on certain publicly traded securities. All of these investments are recorded at fair value. Put and call options are considered derivatives. The fair value of these investments has been determined based on the closing price as of the balance sheet date and is reported as “marketable securities” or “liabilities associated with marketable securities and other” in the consolidated balance sheets. The cost of securities sold is determined by using the high cost method. Net investment income, including interest income (expense), dividends, realized gains or losses and costs of investment, is reported as a component of “other income (expense).” Unrealized gains and losses on these investments are reported as “unrealized gain (loss) on marketable securities” in the consolidated statements of operations.
Due to/from Affiliates—Due to/from affiliates represents current receivables and payables resulting primarily from advances of shared costs incurred. Both due to/from affiliates are generally settled within a period not exceeding one year.
Due to/from Related Party—Due to/from related party represents current receivables and payables resulting from transactions related to hotel management, project management and market services with a related party. Due to/from related party is generally settled within a period not exceeding one year.
Due to/from Ashford Prime OP, net—Due to/from Ashford Prime OP represents receivables and payables resulting primarily from reimbursable expenses between the two entities. In 2014, we had receivables related to advisory fees. Both due to/from Ashford Prime OP is generally settled within a period not exceeding one year.
Due to Ashford Inc., net—Due to Ashford Inc., net, represents current payables resulting primarily from advisory services fee, including reimbursable expenses. In 2014, due to Ashford Inc., net, included payables resulting primarily from costs associated with the spin-off of Ashford Inc. Due to Ashford Inc., net, is generally settled within a period not exceeding one year.
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. Beginning with the three months ended March 31, 2014, we changed the presentation to report such reimbursements as “other” revenue as opposed to credits within “corporate, general and administrative” expense. This change had no impact on our financial condition or results of operations. As of March 6, 2015, we acquired the remaining approximate 28.26% of the PIM Highland JV which discontinued the aforementioned reimbursements.
Prior to the spin-off of Ashford Inc. in November 2014, we recognized advisory services revenue when services had been rendered. The quarterly base fee was equal to 0.7% per annum of the total market capitalization, as defined in the advisory agreement, of Ashford Prime, subject to certain minimums. Reimbursements for overhead and internal audit services were recognized when services had been rendered. We also recorded advisory services revenue for equity grants of Ashford Prime common stock and LTIP units awarded to our officers and employees in connection with providing advisory services equal to the fair value of the award in proportion to the requisite service period satisfied during the period, as well as an offsetting expense in an equal amount included in “corporate, general and administrative” expense.

11

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

Derivatives Instruments and Hedging—We use interest rate derivatives to hedge our risks and to capitalize on the historical correlation between changes in LIBOR (London Interbank Offered Rate) and RevPAR. Interest rate derivatives could include swaps, caps, floors and flooridors. We assess the effectiveness of each hedging relationship by comparing changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction. We also use credit default swaps to hedge financial and capital market risk. All of our derivatives are subject to master-netting settlement arrangements and the credit default swaps are subject to credit support annexes. For credit default swaps, cash collateral is posted by us as well as our counterparty. We offset the fair value of the derivative and the obligation/right to return/reclaim cash collateral. We also purchase options on Eurodollar futures as a hedge against our cash flows. Eurodollar futures prices reflect market expectations for interest rates on three month Eurodollar deposits for specific dates in the future, and the final settlement price is determined by three-month LIBOR on the last trading day. Options on Eurodollar futures provide the ability to limit losses while maintaining the possibility of profiting from favorable changes in the futures prices. As the purchaser, our maximum potential loss is limited to the initial premium paid for the Eurodollar option contracts, while our potential gain has no limit. 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 made good.
All derivatives are recorded at fair value in accordance with the applicable authoritative accounting guidance. Interest rate derivatives, credit default swaps and futures contracts are reported as “derivative assets, net” or “liabilities associated with marketable securities and other” in the consolidated balance sheets. Accrued interest on non-hedge designated interest rate derivatives is included in “accounts receivable, net” in the consolidated balance sheets. For interest rate derivatives designated as cash flow hedges:
a)
the effective portion of changes in fair value is initially reported as a component of “accumulated other comprehensive income (loss)” (“OCI”) in the equity section of the consolidated balance sheets and reclassified to interest expense in the consolidated statements of operations in the period during which the hedged transaction affects earnings, and
b)
the ineffective portion of changes in fair value is recognized directly in earnings as “unrealized gain (loss) on derivatives” in the consolidated statements of operations. For the three and nine months ended September 30, 2015 and 2014, there was no ineffectiveness.
For non-hedge designated interest rate derivatives, credit default swaps and futures, changes in fair value are recognized in earnings as “unrealized loss on derivatives” in the consolidated statements of operations.
Income Taxes—As a REIT, we generally are not subject to federal corporate income tax on the portion of our net income (loss) that does not relate to taxable REIT subsidiaries. However, Ashford TRS is treated as a taxable REIT subsidiary for federal income tax purposes. In accordance with authoritative accounting guidance, we account for income taxes related to Ashford TRS using the asset and liability method under which deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In addition, the analysis utilized by us in determining our deferred tax asset valuation allowance involves considerable management judgment and assumptions.
The “Income Taxes” Topic of the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification addresses the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The guidance requires us to determine whether tax positions we have taken or expect to take in a tax return are more likely than not to be sustained upon examination by the appropriate taxing authority based on the technical merits of the positions. Tax positions that do not meet the more likely than not threshold would be recorded as additional tax expense in the current period. We analyze all open tax years, as defined by the statute of limitations for each jurisdiction, which includes the federal jurisdiction and various states. We classify interest and penalties related to underpayment of income taxes as income tax expense. We and our subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and cities. Tax years 2011 through 2014 remain subject to potential examination by certain federal and state taxing authorities.
Reclassification—Certain amounts in the consolidated financial statements for the three and nine months ended September 30, 2014, have been reclassified for discontinued operations.

12

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

Recently Adopted Accounting StandardsIn April 2014, the FASB issued accounting guidance that revises the definition of discontinued operations by limiting discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results, removing the lack of continuing involvement criteria and requiring discontinued operations reporting for the disposal of an equity method investment that meets the definition of discontinued operations. The update also requires expanded disclosures for discontinued operations, including disclosure of pretax profit or loss of an individually significant component of an entity that does not qualify for discontinued operations reporting. The new accounting guidance is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2014. We adopted this accounting guidance on January 1, 2015. The adoption of this accounting guidance affects the presentation of our results of operations to the extent that the operations of disposed hotel properties are included in continuing operations.
Recently Issued Accounting StandardsIn 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. 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 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 are evaluating the effect that ASU 2015-02 will have on our consolidated financial statements and related disclosures. 
In April 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The new standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The standard is effective for annual reporting periods beginning after December 15, 2015 and interim periods within those fiscal years, with early adoption permitted. Upon adoption of the standard, we will reclassify deferred financing costs, net, from total assets to be shown net of debt in the liabilities section of our consolidated balance sheet. Adoption of this standard will only affect the presentation of our consolidated balance sheets and related disclosures.
In August 2015, the FASB issued ASU 2015-15, Interest-Imputation of Interest (Subtopic 835-30): Presentation and Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (“ASU 2015-15”) to amend SEC paragraphs of the FASB Accounting Standards Codification pursuant to an SEC Staff Announcement at the June 18, 2015 Emerging Issues Task Force meeting. The guidance in ASU 2015-03, described above, does not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. Given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. We do not expect that the adoption of this standard will have an impact on our financial position, results of operations or cash flows.
In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805) Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”), as part of its Simplification Initiative to provide guidance on management’s responsibility to adjust provisional amounts recognized in a business combination and to provide related disclosure requirements.The amendments in this Update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this Update require that the acquirer record, in the same period’s financial statements, the effect on earnings of

13

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

changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this Update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 applies to all entities that have reported provisional amounts for items in a business combination for which the accounting is incomplete by the end of the reporting period in which the combination occurs and during the measurement period has an adjustment to provisional amounts recognized during the measurement period.  ASU 2015-16 is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years, 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. 
3. Investments in Hotel Properties, net
Investments in hotel properties, net consisted of the following (in thousands):
 
September 30, 2015
 
December 31, 2014
Land
$
692,874

 
$
358,514

Buildings and improvements
3,911,063

 
2,125,656

Furniture, fixtures, and equipment
378,486

 
211,777

Construction in progress
18,693

 
11,704

Condominium properties
12,065

 
12,065

Total cost
5,013,181

 
2,719,716

Accumulated depreciation
(707,263
)
 
(591,105
)
Investments in hotel properties, net
$
4,305,918

 
$
2,128,611

Acquisitions
Lakeway Resort & Spa
On February 6, 2015, we acquired a 100% interest in the Lakeway Resort & Spa (“Lakeway Resort”) in Austin, Texas, for total consideration of $33.5 million. The acquisition was funded with 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. This valuation is considered a Level 3 valuation technique. On April 17, 2015, we completed the financing of a $25.1 million mortgage loan, secured by the Lakeway Resort. See Note 7.
The following table summarizes the estimated fair value of the assets acquired and liabilities assumed in the acquisition (in thousands):
Land
$
4,541

Buildings and improvements
24,703

Furniture, fixtures, and equipment
4,237

 
33,481

Net other assets and liabilities
(382
)
The results of operations of the hotel property have been included in our results of operations since February 6, 2015. For the three and nine months ended September 30, 2015, we have included total revenue of $3.4 million and $8.6 million, respectively, and net loss of $275,000 and $610,000, respectively, in our consolidated statements of operations. The unaudited proforma results of operations as if the acquisition had occurred on January 1, 2014 are included in the pro forma table below.

14

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

Memphis Marriott East Hotel
On February 25, 2015, we acquired a 100% interest in the Memphis Marriott East (“Memphis Marriott”) hotel in Memphis, Tennessee for total consideration of $43.5 million. The acquisition was funded with 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. This valuation is considered a Level 3 valuation technique. On March 25, 2015, we completed the financing of a $33.3 million mortgage loan, secured by the Memphis Marriott. See Note 7.
The following table summarizes the estimated fair value of the assets acquired and liabilities assumed in the acquisition (in thousands):
Land
$
6,210

Buildings and improvements
32,934

Furniture, fixtures, and equipment
4,350

 
43,494

Net other assets and liabilities
34

The results of operations of the hotel property have been included in our results of operations since February 25, 2015. For the three and nine months ended September 30, 2015, we have included total revenue of $3.2 million and $7.6 million, respectively, and net income of $77,000 and $470,000, respectively, in our consolidated statements of operations. The unaudited proforma results of operations as if the acquisition had occurred on January 1, 2014 are included in the pro forma table below.
PIM Highland JV Acquisition
As previously discussed in Note 1, we acquired the remaining approximate 28.26% interest in the PIM Highland JV. The transaction closed on March 6, 2015, for consideration of $250.1 million in cash. We recognized a gain of $381.8 million. Subsequent to the close of the transaction, $907.6 million of existing debt of the PIM Highland JV was refinanced. See Note 7. 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 subsequent to March 31, 2015. This resulted in adjustments to land, buildings and improvements, furniture, fixtures and equipment, and intangibles associated with above and below market leases. These adjustments resulted in a reduction of $1.1 million of depreciation expense for the three months ended June 30, 2015, which represents the decrease of depreciation from the date of the acquisition through March 31, 2015. These adjustments also resulted in a net reduction of approximately $16,000 of rent expense associated with intangible amortization of above and below market leases for the three months ended June 30, 2015, which represents the net decrease of rent expense from the date of acquisition through March 31, 2015. Rent expense is included in “other expenses” in the consolidated statements of operations. 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):
 
Preliminary Allocations as of March 31, 2015
 
Adjustments

 
Final Allocations as of June 30, 2015
Land
$
292,934

 
$
(7,712
)
 
$
285,222

Buildings and improvements
1,351,293

 
38,182

 
1,389,475

Furniture, fixtures, and equipment
118,878

 
(35,958
)
 
82,920

 
1,763,105

 
(5,488
)
 
1,757,617

Indebtedness
(1,120,082
)
 

 
(1,120,082
)
Intangible liabilities, net
(12,217
)
 
5,488

 
(6,729
)
Net other assets and liabilities
116,533

 

 
116,533

The results of operations of the hotel properties have been included in our results of operations since March 6, 2015. For the three and nine months ended September 30, 2015, we have included total revenue of $121.9 million and $293.2 million, respectively,

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

and net income of $547,000 and $10.8 million, respectively, in our consolidated statements of operations. The unaudited proforma results of operations as if the acquisition had occurred on January 1, 2014 are included in the pro forma table below.
Hampton Inn & Suites - Gainesville
On April 29, 2015, we acquired a 100% interest in the Hampton Inn & Suites (“Hampton Inn Gainesville”) in Gainesville, Florida for total consideration of $25.2 million. The acquisition was funded with 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. This valuation is considered a Level 3 valuation technique. On June 24, 2015, we completed the financing of a $21.2 million mortgage loan, secured by the Hampton Inn Gainesville. See Note 7.
The following table summarizes the estimated fair value of the assets acquired and liabilities assumed in the acquisition (in thousands):
Land
$
3,695

Buildings and improvements
19,002

Furniture, fixtures, and equipment
1,139

 
23,836

Intangible assets
1,412

Net other assets and liabilities
(150
)
The results of operations of the hotel property have been included in our results of operations since April 29, 2015. For the three and nine months ended September 30, 2015, we have included total revenue of $1.5 million and $2.4 million, respectively, and net loss of $3,000 and net income of $200,000, respectively, in our consolidated statements of operations. The unaudited proforma results of operations as if the acquisition had occurred on January 1, 2014 are included in the pro forma table below.
Le Pavillon Hotel
On June 3, 2015, we acquired a 100% interest in the Le Pavillon Hotel (“Le Pavillon”) in New Orleans, Louisiana for total consideration of $62.5 million. The acquisition was funded with cash. Subsequent to the close of the transaction, we completed the financing of a $43.8 million mortgage loan. See Note 7. 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. 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
$
10,933

Buildings and improvements
46,761

Furniture, fixtures, and equipment
4,788

 
62,482

Net other assets and liabilities
486

The results of operations of the hotel property have been included in our results of operations since June 3, 2015. For the three and nine months ended September 30, 2015, we have included total revenue of $2.7 million and $3.7 million, respectively, and net loss of $963,000 and $1.1 million, respectively, in our consolidated statements of operations. The unaudited proforma results of operations as if the acquisition had occurred on January 1, 2014 are included in the pro forma table below.
Princeton Westin - Land Acquisition
On June 4, 2015, we acquired a 100% interest in the land underlying the Princeton Westin hotel in Princeton, New Jersey for total consideration of $6.5 million. The acquisition was funded with $3.4 million of cash and the surrender of $3.1 million of prepaid rent related to the lease agreement that is being terminated. We prepared a purchase price allocation of the assets acquired. The final purchase price allocation was completed with the assistance of a third party appraisal firm. This valuation is considered a Level 3 valuation technique.

16

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

The following table summarizes the estimated fair value of the asset acquired in the acquisition (in thousands):
Land
$
6,475

The Rockbridge Hotel Portfolio
On June 17, 2015, we acquired a 100% interest in a 9-hotel portfolio (“Rockbridge Portfolio”) for total consideration of $225.0 million. The acquisition was funded with cash. Subsequent to the close of the transaction, we completed the financing on loans totaling $179.2 million. See Note 7. 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. 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
$
18,551

Buildings and improvements
190,952

Furniture, fixtures, and equipment
15,451

 
224,954

Net other assets and liabilities
(298
)
The results of operations of the hotel properties have been included in our results of operations since June 17, 2015. For the three and nine months ended September 30, 2015, we have included total revenue of $13.3 million and $15.4 million, respectively, and net loss of $385,000 and $375,000, respectively, in our consolidated statements of operations. The unaudited proforma results of operations as if the acquisition had occurred on January 1, 2014 are included in the pro forma table below.
W Atlanta Downtown Hotel
On July 1, 2015, we acquired a 100% interest in the W Atlanta Downtown (“W Atlanta”) in Atlanta, Georgia for total consideration of $56.8 million. Subsequent to the close of the transaction, we completed the financing of a $40.5 million mortgage loan. See Note 7. We have allocated the assets acquired and liabilities assumed on a preliminary basis using the estimated fair value information currently available. This valuation is considered a Level 3 valuation technique. We are in the process of obtaining necessary information and evaluating the values assigned to investment in hotel properties and property level working capital balances. Thus, the balances reflected below are subject to change and could result in adjustments. Any change to the amounts recorded within the investments in hotel properties will also impact depreciation and amortization expense.
The following table summarizes the preliminary fair value of the assets acquired and liabilities assumed in the acquisition (in thousands):
Land
$
2,353

Buildings and improvements
51,758

Furniture, fixtures, and equipment
2,626

 
56,737

Net other assets and liabilities
1,358

The results of operations of the hotel properties have been included in our results of operations since July 1, 2015. For both the three and nine months ended September 30, 2015, we have included total revenue of $5.4 million and net loss of $421,000, in our consolidated statements of operations. The unaudited proforma results of operations as if the acquisition had occurred on January 1, 2014 are included in the pro forma table below.

17

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

Le Meridien Minneapolis Hotel
On July 23, 2015, we acquired a 100% interest in the Le Meridien Chambers Minneapolis (“Le Meridien Minneapolis”) in Minneapolis, Minnesota for total consideration of $15.0 million. The acquisition was funded with cash. We have allocated the assets acquired and liabilities assumed on a preliminary basis using the estimated fair value information currently available. This valuation is considered a Level 3 valuation technique. We are in the process of obtaining necessary information and evaluating the values assigned to investment in hotel properties and property level working capital balances. Thus, the balances reflected below are subject to change and could result in adjustments. Any change to the amounts recorded within the investments in hotel properties will also impact depreciation and amortization expense.
The following table summarizes the preliminary fair value of the assets acquired and liabilities assumed in the acquisition (in thousands):
Land
$
2,752

Buildings and improvements
11,583

Furniture, fixtures, and equipment
665

 
15,000

Net other assets and liabilities
215

The results of operations of the hotel properties have been included in our results of operations since July 23, 2015. For both the three and nine months ended September 30, 2015, we have included total revenue of $1.4 million and net income of $305,000, in our consolidated statements of operations. The unaudited proforma results of operations as if the acquisition had occurred on January 1, 2014 are included in the pro forma table below.
Hilton Garden Inn - Wisconsin Dells
On August 5, 2015, we acquired a 100% interest in the Hilton Garden Inn - Wisconsin Dells in Wisconsin Dells, Wisconsin for total consideration of $15.2 million. The acquisition was funded with cash. Subsequent to the close of the transaction, we completed the financing of a $12.0 million mortgage loan. See Note 7. We have allocated the assets acquired and liabilities assumed on a preliminary basis using the estimated fair value information currently available. This valuation is considered a Level 3 valuation technique. We are in the process of obtaining necessary information and evaluating the values assigned to investment in hotel properties and property level working capital balances. Thus, the balances reflected below are subject to change and could result in adjustments. Any change to the amounts recorded within the investments in hotel properties will also impact depreciation and amortization expense.
The following table summarizes the preliminary fair value of the assets acquired and liabilities assumed in the acquisition (in thousands):
Land
$
867

Buildings and improvements
13,917

Furniture, fixtures, and equipment
401

 
15,185

Net other assets and liabilities
(39
)
The results of operations of the hotel properties have been included in our results of operations since August 5, 2015. For both the three and nine months ended September 30, 2015, we have included total revenue of $1.1 million and net income of $284,000, in our consolidated statements of operations. The unaudited proforma results of operations as if the acquisition had occurred on January 1, 2014 are included in the pro forma table below.
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 $26.4 million. As part of the transaction, we assumed a mortgage loan of approximately $16.0 million. See Note 17. The results of operations of the hotel property will be included in our results of operations beginning October 15, 2015. The

18

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

unaudited proforma results of operations as if the acquisition had occurred on January 1, 2014 are included in the pro forma table below.
Intangible Assets and Intangible Liabilities
The intangible assets and intangible liabilities of our new acquisitions noted above represent the above-market rate leases and below-market rate leases that were determined based on the comparison of rent due under the lease contracts assumed in the acquisitions to market rates for the remaining duration of the lease contracts and are amortized over their respective lease terms with expiration dates ranging from 2024 to 2102. For the three and nine months ended September 30, 2015, net amortization related to intangibles was a reduction in lease expense of $117,000.
Estimated future net amortization expense for intangible assets and intangible liabilities for each of the next five years is as follows (in thousands):
 
Intangible Assets
 
Intangible Liabilities
2015
$
49

 
$
99

2016
197

 
395

2017
197

 
395

2018
197

 
395

2019
197

 
395

Thereafter
10,556

 
14,914

Total
$
11,393

 
$
16,593

Pro Forma Financial Results
The following table reflects the unaudited pro forma results of operations as if all acquisitions had occurred and the applicable indebtedness was incurred on January 1, 2014 and the removal of $5.8 million of non-recurring transaction costs and gain on acquisition of the PIM Highland JV of $381.8 million. The table also reflects the removal of equity in earnings in unconsolidated entities of $2.1 million for the three months ended September 30, 2014, respectively, and the removal of equity in loss in unconsolidated entities of $3.8 million and equity in earnings in unconsolidated entity of $6.1 million for the nine months ended September 30, 2015 and 2014, respectively. These adjustments are directly attributable to the transactions for the three and nine months ended September 30, 2015 and 2014 (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Total revenue
$
367,189

 
$
355,565

 
$
1,116,208

 
$
1,058,486

Net loss
(18,703
)
 
(21,483
)
 
(61,803
)
 
(39,570
)
4. Hotel Dispositions and Impairment Charges
Effective January 1, 2015, discontinued operations according to ASU 2014-08 are defined as the disposal of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. As a result, operations of hotels sold subsequent to December 31, 2014, that are not considered strategic shifts, will continue to be reported in continuing operations, while gains/losses on disposition will be included in gain/loss on sale of property, after continuing operations. For transactions that have been classified as discontinued operations for periods prior to ASU 2014-08, we will continue to present the operating results as discontinued operations in the statements of operations for all applicable periods presented.
In March 2015, we completed the sale of the Hampton Inn hotel in Terre Haute, Indiana. We included operations for this hotel through the date of disposition in income (loss) from continuing operations as shown in the consolidated statements of operations for the nine months ended September 30, 2015 and the three and nine months ended September 30, 2014, as disposition of this hotel does not represent a strategic shift in our business.


19

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

The following table includes condensed financial information from this hotel (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Total hotel revenue
$

 
$
795

 
$
361

 
$
2,015

Total hotel operating expenses

 
(485
)
 
(308
)
 
(1,362
)
Operating income

 
310

 
53

 
653

Property taxes, insurance and other

 
(41
)
 
(40
)
 
(129
)
Depreciation and amortization

 
(198
)
 
(164
)
 
(526
)
Interest expense and amortization of loan costs

 
(35
)
 

 
(292
)
Income (loss) from continuing operations

 
36

 
(151
)
 
(294
)
Loss on sale of hotel property

 

 
(1,130
)
 

Net income (loss)

 
36

 
(1,281
)
 
(294
)
Net (income) loss from continuing operations attributable to redeemable noncontrolling interests in operating partnership

 
(5
)
 
147

 
38

Loss from continuing operations attributable to the Company
$

 
$
31

 
$
(1,134
)
 
$
(256
)
In June 2015, we announced a plan to commence the process to list for sale a portfolio of approximately 24 select-service hotels. While we have determined this announcement does not meet the criteria to classify the approximately 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 in the second quarter of 2015. The impairment charge occurred at the 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.
In July 2015, as previously discussed, we announced that our board of directors declared the distribution (1) to our stockholders of approximately 4.1 million shares of common stock of Ashford Prime to be received by Ashford Trust upon redemption of Ashford Prime OP common units and (2) to the common unitholders of Ashford Trust OP of our remaining common units of Ashford Prime OP. As a result of the distribution, we no longer retain an interest in Ashford Prime. The previously deferred gain of $599,000 from the sale of the Pier House Resort in March 2014 was recognized during the three and nine months ended September 30, 2015.

20

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

In November 2014, we completed the sale of the Homewood Suites hotel in Mobile, Alabama. Since this hotel sold prior to our adoption of ASU 2014-08, we will continue to present the operating results as discontinued operations in the statements of operations for all applicable periods presented. The following table includes condensed financial information from this hotel for the three and nine months ended September 30, 2014 (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2014
Hotel revenues
$
688

 
$
2,149

Hotel operating expenses
(464
)
 
(1,394
)
Operating income
224

 
755

Property taxes, insurance and other
(30
)
 
(94
)
Depreciation and amortization
(83
)
 
(240
)
Interest expense and amortization of loan costs
(49
)
 
(333
)
Income from discontinued operations before income taxes
62

 
88

Income tax expense

 

Income (loss) from discontinued operations
62

 
88

Income from discontinued operations attributable to redeemable noncontrolling interests in operating partnership
(7
)
 
(11
)
Income from discontinued operations attributable to the Company
$
55

 
$
77

5. Note Receivable
At September 30, 2015 and December 31, 2014, we had one mezzanine loan receivable with a net carrying value of $3.7 million and $3.6 million, respectively, net of a valuation allowance of $7.2 million and $7.5 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. 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
We held a 71.74% common equity interest and a $25.0 million, or 50%, preferred equity interest earning an accrued but unpaid 15% annual return with priority over common equity distributions in PIM Highland JV, a 28-hotel portfolio venture. Although we had majority ownership in PIM Highland JV, all major decisions related to the joint venture, including establishment of policies and operating procedures with respect to business affairs and incurring obligations and expenditures, were subject to the approval of an executive committee, which was comprised of four persons with us and our partner each designating two of those persons. As a result, we utilized the equity accounting method with respect to the PIM Highland JV.
As previously discussed, pursuant to the Agreement, we agreed to purchase and PRISA III agreed to sell all of PRISA III’s right, title and interest in and to its approximately 28.26% interest in the PIM Highland JV. As of March 6, 2015, we own 100% of the PIM Highland JV. Prior to the acquisition of the remaining approximate 28.26% interest in the PIM Highland JV, we had a carrying value of $144.8 million at December 31, 2014. The acquisition-date fair value of the previous equity interest was $522.8 million and is included in the measurement of the consideration transferred. We recognized a gain of $381.8 million as a result of remeasuring our equity interest in PIM Highland JV before the business combination. See Note 3 for unaudited pro forma results of operations and Note 7 for indebtedness related to the PIM Highland JV.

21

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

The following tables summarize the consolidated balance sheet as of December 31, 2014 and the consolidated statements of operations for the period from January 1, 2015 through March 5, 2015 and the three and nine months ended September 30, 2014 of the PIM Highland JV (in thousands):
PIM Highland JV
Condensed Consolidated Balance Sheet
 
December 31, 2014
Total assets
$
1,394,806

Total liabilities
1,166,682

Members’ equity
228,124

Total liabilities and members’ equity
$
1,394,806

 
 
Our ownership interest in PIM Highland JV
$
144,784

PIM Highland JV
Condensed Consolidated Statements of Operations
 
Three Months Ended September 30,
 
Period from January 1 to March 5,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Total revenue
$

 
$
118,659

 
$
76,695

 
$
353,562

Total operating expenses

 
(99,074
)
 
(69,949
)
 
(294,740
)
Operating income

 
19,585

 
6,746

 
58,822

Interest income and other

 
17

 
17

 
43

Interest expense, amortization and write-offs of deferred loan costs, discounts and premiums and exit fees

 
(14,570
)
 
(10,212
)
 
(44,904
)
Other expenses

 

 

 
(44
)
Income tax expense

 
(1,163
)
 
(1,222
)
 
(2,816
)
Net income (loss)
$

 
$
3,869

 
$
(4,671
)
 
$
11,101

Our equity in earnings (loss) of PIM Highland JV
$

 
$
2,128

 
$
(3,836
)
 
$
6,102

As previously discussed, we announced that our board of directors had declared the distribution (1) to our stockholders of approximately 4.1 million shares of common stock of Ashford Prime to be received by Ashford Trust upon redemption of Ashford Prime OP common units and (2) to the common unitholders of Ashford Trust OP of our remaining common units of Ashford Prime OP. The distribution occurred on July 27, 2015, to stockholders and common unitholders of record as of the close of business of the New York Stock Exchange on July 20, 2015. As a result of the distribution, we have no ownership interest in Ashford Prime. At December 31, 2014, we held a 14.9% ownership interest in Ashford Prime OP.

22

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

The following tables summarize the condensed consolidated balance sheets as of December 31, 2014 and the condensed consolidated statements of operations for the three and nine months ended September 30, 2015 and 2014, of Ashford Prime OP (in thousands):
Ashford Hospitality Prime Limited Partnership
Condensed Consolidated Balance Sheet
 
December 31, 2014
Total assets
$
1,229,508

Total liabilities
805,510

Partners’ capital
423,998

Total liabilities and partners’ capital
$
1,229,508

Our ownership interest in Ashford Prime OP
$
54,907

Ashford Hospitality Prime Limited Partnership
Condensed Consolidated Statements of Operations
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Total revenue
$
90,759

 
$
84,784

 
$
261,385

 
$
230,557

Total operating expenses
(77,503
)
 
(70,086
)
 
(220,796
)
 
(196,270
)
Operating income
13,256

 
14,698

 
40,589

 
34,287

Equity in loss of unconsolidated entity
(3,399
)
 

 
(4,219
)
 

Interest income
12

 
10

 
21

 
20

Other income (expense)
(59
)
 

 
1,233

 

Interest expense and amortization and write-offs of loan costs
(9,348
)
 
(10,137
)
 
(28,114
)
 
(29,159
)
Unrealized loss on investments
(5,621
)
 

 
(5,621
)
 

Unrealized gain (loss) on derivatives
(2,061
)
 
3

 
(2,101
)
 
(63
)
Income tax expense
(62
)
 
(185
)
 
(371
)
 
(622
)
Net income (loss)
(7,282
)
 
4,389

 
1,417

 
4,463

(Income) loss from consolidated entities attributable to noncontrolling interests
(1,090
)
 
154

 
(1,068
)
 
741

Net income (loss) attributable to Ashford Prime OP
$
(8,372
)
 
$
4,543

 
$
349

 
$
5,204

Our equity in earnings (loss) of Ashford Prime OP
$
(453
)
 
$
703

 
$
874

 
$
692

On February 27, 2014, we announced that our Board of Directors had approved a plan to spin-off our asset management business into a separate publicly traded company in the form of a taxable special distribution. The spin-off was completed on November 12, 2014, with a pro-rata taxable distribution of Ashford Inc.’s common stock to our common stockholders of record as of November 11, 2014. The distribution was comprised of one share of Ashford Inc. common stock for every 87 shares of our common stock held by our stockholders. In addition for each common unit of our operating partnership, the holder received a common unit of the operating limited liability company subsidiary of Ashford Inc. Each holder of common units of the operating limited liability company of Ashford Inc. could exchange up to 99% of those units for shares of Ashford Inc. stock at the rate of one share of Ashford Inc. common stock for every 55 common units. The exchange occurred on November 12, 2014, simultaneously with the distribution to common stockholders. Following the spin-off, we continue to hold approximately 598,000 shares of Ashford Inc. common stock for the benefit of our common stockholders, which represented an approximate 30.1% ownership interest in Ashford Inc. at the time of the spin-off. In connection with the spin-off, we entered into an advisory agreement with Ashford Inc.

23

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

The following tables summarize the condensed balance sheets as of September 30, 2015 and December 31, 2014 and the condensed statements of operations for the three and nine months ended September 30, 2015 and 2014 of Ashford Inc. (in thousands):
Ashford Inc.
Condensed Balance Sheets
 
September 30, 2015
 
December 31, 2014
Total assets
$
173,821

 
$
49,230

Total liabilities
45,444

 
33,912

Redeemable noncontrolling interests in Ashford LLC
286

 
424

Total stockholders’ equity of Ashford Inc.
26,091

 
14,981

Noncontrolling interests in consolidated entities
102,000

 
(87
)
Total equity
128,091

 
14,894

Total liabilities and equity
$
173,821

 
$
49,230

Our ownership interest in Ashford Inc.
$
5,857

 
$
7,099

Ashford Inc.
Condensed Statements of Operations
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Total revenue
$
14,496

 
$
3,020

 
$
42,103

 
$
9,245

Total operating expenses
(13,219
)
 
(11,882
)
 
(45,600
)
 
(40,360
)
Operating income (loss)
1,277

 
(8,862
)
 
(3,497
)
 
(31,115
)
Unrealized loss on investment in unconsolidated entity
(1,954
)
 

 
(3,020
)
 

Unrealized loss on investments
(7,861
)
 

 
(10,851
)
 

Realized gain on investments
35

 

 
1,070

 

Other
385

 

 
599

 

Income tax expense
(1,036
)
 
(9
)
 
(1,500
)
 
(44
)
Net loss
(9,154
)
 
(8,871
)
 
(17,199
)
 
(31,159
)
Loss from consolidated entities attributable to noncontrolling interests
9,208

 
170

 
13,323

 
170

Net loss attributable to redeemable noncontrolling interests in Ashford LLC

 

 
10

 

Net income (loss) attributable to Ashford Inc.
$
54

 
$
(8,701
)
 
$
(3,866
)
 
$
(30,989
)
Our equity in earnings (loss) of Ashford Inc.
$
16

 
$

 
$
(1,242
)
 
$

In June 2015, for consideration of certain marketable securities, we obtained a 52.4% ownership interest in the REHE Fund. The REHE Fund is managed by Ashford Investment Management, LLC (“AIM”), an indirect subsidiary of Ashford Inc. As of and for the nine months ended September 30, 2015, the REHE Fund was consolidated by Ashford Inc. The REHE Fund invests substantially all of its assets in the AIM Real Estate Hedged Equity Master Fund, LP (the “Master Fund”), and as a consequence of our investment in the REHE Fund, we obtained an indirect interest in the Master Fund. Our maximum exposure of loss is limited to our investment in the REHE Fund.

24

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

The following tables summarize the consolidated balance sheet as of  September 30, 2015 and the consolidated statements of operations for the three and nine months ended September 30, 2015 of the REHE Fund (in thousands):
AIM Real Estate Hedged Equity (U.S.) Fund, LP
Condensed Balance Sheet
 
 
September 30, 2015
Total assets
 
$
103,954

Total liabilities
 
11

Partners’ capital
 
103,943

Total liabilities and partners’ capital
 
$
103,954

Our ownership interest in the AIM REHE Fund
 
$
54,458