Investment in Unconsolidated Entities

We hold 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 have 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, are subject to the approval of an executive committee, which is comprised of four persons with us and our partner each designating two of those persons. As a result, we utilize the equity accounting method with respect to PIM Highland JV, which had a carrying value of $145.4 million and $139.3 million at September 30, 2014 and December 31, 2013, respectively.

Mortgage and mezzanine loans securing PIM Highland JV are non-recourse to the borrowers, except for customary exceptions or carve-outs that trigger recourse liability to the borrowers in certain limited instances. Recourse obligations typically include only the payment of costs and liabilities suffered by the lenders as a result of the occurrence of certain bad acts on the part of the borrower. However, in certain cases, the carve-outs could trigger recourse obligations on the part of the borrower with respect to repayment of all or a portion of the outstanding principal amount of the loans. We have entered into customary guaranty agreements pursuant to which we guaranty payment of any recourse liabilities of the borrowers that result from non-recourse carve-outs (which include, but are not limited to, fraud, misrepresentation, willful conduct resulting in waste, misappropriations of rents following an event of default, voluntary bankruptcy filings, unpermitted transfers of collateral, and certain environmental liabilities). In the opinion of management, none of these guaranty agreements, either individually or in the aggregate, are likely to have a material adverse effect on our business, results of operations, or financial condition.

The following tables summarize the consolidated balance sheets as of September 30, 2014 and December 31, 2013 and the consolidated statements of operations for the three and nine months ended September 30, 2014 and 2013 of the PIM Highland JV (in thousands):

PIM Highland JV

Condensed Consolidated Balance Sheets



	September 30, 2014		December 31, 2013
Total assets	$	1,400,684	$	1,390,782
Total liabilities	1,172,636		1,173,841
Members’ equity	228,048		216,941
Total liabilities and members’ equity	$	1,400,684	$	1,390,782

Our ownership interest in PIM Highland JV	$	145,405	$	139,302

PIM Highland JV

Condensed Consolidated Statements of Operations



	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Total revenue	$	118,659		$	104,226		$	353,562		$	324,762
Total expenses	(99,074		)	(100,422		)	(294,740		)	(292,487		)
Operating income	19,585			3,804			58,822			32,275
Interest income and other	17			14			43			55
Interest expense, amortization and write-offs of deferred loan costs, discounts and premiums and exit fees	(14,570		)	(16,238		)	(44,904		)	(48,089		)
Other expenses	—			—			(44		)	—
Income tax expense	(1,163		)	(881		)	(2,816		)	(2,379		)
Net income (loss)	$	3,869		$	(13,301	)	$	11,101		$	(18,138	)
Our equity in earnings (loss) of PIM Highland JV	$	2,128		$	(10,105	)	$	6,102		$	(14,626	)

On June 17, 2013, we announced that our Board of Directors had approved a plan to spin-off an 80% ownership interest in an 8-hotel portfolio, totaling 3,146 rooms (2,912 net rooms excluding those attributable to our partners), to holders of our common stock in the form of a taxable special distribution. The distribution was comprised of common stock in Ashford Prime, a newly formed company into which we contributed the portfolio interests. The distribution was made on November 19, 2013, on a pro rata basis to holders of our common stock as of November 8, 2013, with each of our common shareholders receiving one share of Ashford Prime common stock for every five shares of our common stock held by such stockholder as of the close of business on November 8, 2013. We maintained a 20% ownership interest in Ashford Prime OP at the time of the spin-off. Our ownership interest in Ashford Prime OP was 14.4% at September 30, 2014.

The following tables summarize the condensed consolidated balance sheets as of September 30, 2014 and December 31, 2013 and the condensed consolidated statements of operations for the three and nine months ended September 30, 2014 and the condensed combined consolidated statements of operations for the three and nine months ended September 30, 2013 of Ashford Prime OP (in thousands):

Ashford Hospitality Prime Limited Partnership

Condensed Balance Sheets



	September 30, 2014		December 31, 2013
Total assets	$	1,252,996	$	962,419
Total liabilities	805,130		659,292
Partners’ capital	447,866		303,127
Total liabilities and partners’ capital	$	1,252,996	$	962,419
Our ownership interest in Ashford Prime OP	$	55,589	$	56,243

Ashford Hospitality Prime Limited Partnership

Condensed Statements of Operations



	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Total revenue	$	84,784		$	60,960		$	230,557		$	178,388
Total expenses	(70,086		)	(51,595		)	(196,270		)	(150,547		)
Operating income	14,698			9,365			34,287			27,841
Interest income	10			5			20			19
Interest expense and amortization and write-offs of loan costs	(10,137		)	(8,380		)	(29,159		)	(26,542		)
Unrealized gain (loss) on derivatives	3			(9		)	(63		)	(31		)
Income tax expense	(185		)	(952		)	(622		)	(2,255		)
Net income (loss)	4,389			29			4,463			(968		)
Loss from consolidated entities attributable to noncontrolling interests	154			371			741			575
Net income (loss) attributable to Ashford Prime OP	$	4,543		$	400		$	5,204		$	(393	)
Our equity in earnings of Ashford Prime OP	$	703		$	—		$	692		$	—

Additionally, as of September 30, 2014 and December 31, 2013, we had a 14.4% subordinated beneficial interest in a trust that holds the Four Seasons hotel property in Nevis, which had a zero carrying value.