Relationships with Managers

We are party to hotel management agreements for our 26 hotels owned as of December 31, 2011. The following table sets forth the agreement date, initial term and number of renewal terms under the respective hotel management agreements for each of our owned hotels at December 31, 2011. Generally, the term of the hotel management agreements renew automatically for a negotiated number of consecutive periods upon the expiration of the initial term unless the property manager gives notice to us of its election not to renew the hotel management agreement.



Property	Manager	Date of Agreement	Initial Term	Number of Renewal Terms
Austin Renaissance (1)	Marriott	6/2005	20 years	Three ten-year periods
Atlanta Alpharetta Marriott	Marriott	9/2000	30 years	Two ten-year periods
Atlanta Westin North at Perimeter	Davidson Hotels & Resorts	6/2009	10 years	None
Bethesda Marriott Suites	Marriott	12/2004	21 years	Two ten-year periods
Boston Westin Waterfront	Starwood	5/2004	20 years	Four ten-year periods
Chicago Marriott Downtown	Marriott	3/2006	32 years	Two ten-year periods
Conrad Chicago	Hilton	11/2005	10 years	Two five-year periods
Courtyard Denver Downtown	Sage Hospitality	7/2011	5 years	One five-year period
Courtyard Manhattan/Fifth Avenue	Marriott	12/2004	30 years	None
Courtyard Manhattan/Midtown East	Marriott	11/2004	30 years	Two ten-year periods
Frenchman's Reef & Morning Star Marriott Beach Resort	Marriott	9/2000	30 years	Two ten-year periods
Hilton Garden Inn Chelsea/New York City	Alliance Hospitality Management	9/2010	10 years	None
Hilton Minneapolis	Hilton	3/2006	20 ¾ years	None
JW Marriott Denver at Cherry Creek	Sage Hospitality	5/2011	5 years	One five-year period
Los Angeles Airport Marriott	Marriott	9/2000	40 years	Two ten-year periods
Marriott Griffin Gate Resort (1)	Marriott	12/2004	20 years	One ten-year period
Oak Brook Hills Marriott Resort	Marriott	7/2005	30 years	None
Orlando Airport Marriott	Marriott	11/2005	30 years	None
Radisson Lexington Hotel New York	Highgate Hotels	6/2011	10 years	One five-year period
Renaissance Charleston	Marriott	1/2000	21 years	Two five-year periods
Renaissance Worthington	Marriott	9/2000	30 years	Two ten-year periods
Salt Lake City Marriott Downtown	Marriott	12/2001	30 years	Three fifteen-year periods
The Lodge at Sonoma, a Renaissance Resort & Spa	Marriott	10/2004	20 years	One ten-year period
Torrance Marriott South Bay	Marriott	1/2005	40 years	None
Waverly Renaissance (1)	Marriott	6/2005	20 years	Three ten-year periods
Vail Marriott Mountain Resort & Spa	Vail Resorts	6/2005	15½ years	None

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(1)	The hotel is under contract to be sold and is classified as "held for sale" and reported in discontinued operations. The sale is expected to close during the first quarter of 2012.

Under our hotel management agreements, the hotel manager receives a base management fee and, if certain financial thresholds are met or exceeded, an incentive management fee. The base management fee is generally payable as a percentage of gross hotel revenues for each fiscal year. The incentive management fee is generally based on hotel operating profits, but the fee only applies to that portion of hotel operating profits above a negotiated return on our invested capital, which we refer to as the owner's priority. We refer to this excess of operating profits over the owner's priority as “available cash flow.”

The following table sets forth the base management fee, incentive management fee and FF&E reserve contribution, generally due and payable each fiscal year, for each of our properties:



Property	Base Management Fee(1)			Incentive Management Fee(2)			FF&E Reserve Contribution(1)
Austin Renaissance (3)	3	%		20	%	(4)	4	%	(5)
Atlanta Alpharetta Marriott	3	%		25	%	(6)	5	%
Atlanta Westin North at Perimeter	2.5	%		10	%	(7)	4	%
Bethesda Marriott Suites	3	%		50	%	(8)	5	%	(9)
Boston Westin Waterfront	2.5	%		20	%	(10)	4	%
Chicago Marriott Downtown	3	%		20	%	(11)	5	%
Conrad Chicago	3	%	(12)	15	%	(13)	4	%
Courtyard Denver Downtown	2	%	(14)	10	%	(15)	4	%
Courtyard Manhattan/Fifth Avenue	5.5	%	(16)	25	%	(17)	4	%
Courtyard Manhattan/Midtown East	5	%		25	%	(18)	4	%
Frenchman's Reef & Morning Star Marriott Beach Resort	3	%		15	%	(19)	5.5	%
Hilton Garden Inn Chelsea/New York City	2.5	%	(20)	10	%	(21)	None
Hilton Minneapolis	3	%		15	%	(22)	4	%
JW Marriott Denver at Cherry Creek	2.25	%	(23)	10	%	(24)	4	%
Los Angeles Airport Marriott	3	%		25	%	(25)	5	%
Marriott Griffin Gate Resort (3)	3	%		20	%	(26)	5	%
Oak Brook Hills Marriott Resort	3	%		30	%	(27)	5.5	%
Orlando Airport Marriott	3	%		25	%	(28)	5	%
Radisson Lexington Hotel New York	2.5	%	(29)	20	%	(30)	None
Renaissance Charleston	3.5	%		20	%	(31)	5	%
Renaissance Worthington	3	%		25	%	(32)	5	%
Salt Lake City Marriott Downtown	3	%	(33)	20	%	(34)	5	%
The Lodge at Sonoma, a Renaissance Resort & Spa	3	%		20	%	(35)	5	%
Torrance Marriott South Bay	3	%		20	%	(36)	5	%
Waverly Renaissance (3)	3	%		20	%	(37)	4	%	(5)
Vail Marriott Mountain Resort & Spa	3	%		20	%	(38)	4	%

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(1)	As a percentage of gross revenues.


(2)	Based on a percentage of hotel operating profits above a negotiated return on our invested capital as more fully described in the following footnotes.


(3)	The hotel is under contract to be sold and is classified as "held for sale" and reported in discontinued operations. The sale is expected to close during the first quarter of 2012.


(4)	Calculated as a percentage of operating profits in excess of the sum of (i) $6.0 million and (ii) 10.75% of certain capital expenditures.


(5)	The FF&E contribution increases to 4.5% beginning in January 2026 and thereafter.


(6)	Calculated as a percentage of operating profits in excess of the sum of (i) $4.1 million and (ii) 10.75% of certain capital expenditures.


(7)	Calculated as a percentage of operating profits after an owner's priority of $3.7 million in 2011, $4.2 million in 2012, $4.7 million in 2013 and $5.0 million in 2014. In 2015 and thereafter, the owner's priority adjusts annually based upon CPI. The incentive management fee cannot exceed 1.5% of total revenue.

(8)

Calculated as a percentage of operating profits in excess of the sum of (i) the payment of certain loan procurement costs, (ii) 10.75% of certain capital expenditures, (iii) an agreed-upon return on certain expenditures and (iv) the value of certain amounts paid into a reserve account established for the replacement, renewal and addition of certain hotel goods. The owner's priority expires in 2027.


(9)	The contribution is reduced to 1% until operating profits exceed an owner's priority of $3.8 million.


(10)	Calculated as a percentage of operating profits in excess of the sum of (i) actual debt service and (ii) 15% of cumulative and compounding return on equity, which resets with each sale.


(11)	Calculated as 20% of net operating income before base management fees. There is no owner's priority.


(12)	The base management fee is reduced by the amount in which operating profits do not meet the performance guarantee. The performance guarantee was $8.2 million in 2011 and base management fees were reduced to zero.


(13)	The owner's priority is calculated as 103% of the prior year cash flow.


(14)	The base management fee will increase to 2.5% of gross revenues if the hotel achieves operating results in excess of 7% of our invested capital and 3% of gross revenues if the hotel achieves operating profits in excess of 8% of our invested capital.


(15)	Calculated as a percentage of operating profits in excess of 12% of our invested capital and an additional 5% of operating profits in excess of 15% of our invested capital.


(16)	The base management fee is 5.5% of gross revenues through fiscal year 2014 and 6% for fiscal year 2015 through the expiration of the agreement. Prior to 2015, the base management fee may increase to 6.0% at the beginning of the fiscal year following the achievement of operating profits equal to or above $5.0 million.


(17)	Calculated as a percentage of operating profits in excess of the sum of (i) $5.5 million and (ii) 12% of certain capital expenditures, less 5% of the total real estate tax bill (for as long as the hotel is leased to a party other than the manager).


(18)	Calculated as a percentage of operating profits in excess of the sum of (i) $7.9 million and (ii) 10.75% of certain capital expenditures.


(19)	Calculated as a percentage of operating profits in excess of the sum of (i) $13.0 million and (ii) 10.75% of certain capital expenditures


(20)	The base management fee will increase to 2.75% in September 2013 for the remaining term of the agreement.


(21)	Calculated as a percentage of operating profits in excess of the sum of (i) $8.3 million plus (ii) 12% of certain capital expenditures plus (iii) 12% of working capital provided by the owner. The incentive management fee payable in any year can be reduced by 25% if the actual House Profit margin is less than budget or if the trailing 12-month RevPAR Index is less than the previous year.


(22)	Calculated as a percentage of operating profits in excess of the sum of (i) $11.6 million and (ii) 11% of certain capital expenditures.


(23)	The base management fee is 2.75% of gross revenues if the hotel achieves operating profits in excess of 7% of our invested capital and 3.25% of gross revenues if the hotel achieves operating profits in excess of 8% of our invested capital.


(24)	Calculated as a percentage of operating profits in excess of 11% of our invested capital and an additional 5% of operating profits in excess of 12% of our invested capital.


(25)	Calculated as a percentage of operating profits in excess of the sum of (i) $10.4 million and (ii) 10.75% of certain capital expenditures.


(26)	Calculated as a percentage of operating profits in excess of the sum of (i) $6.2 million and (ii) 10.75% of certain capital expenditures.


(27)	Calculated as a percentage of operating profits in excess of the sum of (i) $8.1 million and (ii) 10.75% of certain capital expenditures. The percentage of operating profits will decrease to 20% beginning in fiscal year 2022.


(28)	Calculated as a percentage of operating profits in excess of the sum of (i) $9.0 million and (ii) 10.75% of certain capital expenditures. The percentage of operating profits will decrease to 20% beginning in fiscal year 2022.


(29)	The base management fee will increase to 3% beginning June 2012 and thereafter.


(30)	Calculated as a percentage of operating profits in excess of 8% of our invested capital. Total management fees cannot exceed 4% of gross revenues.


(31)	Calculated as a percentage of operating profits in excess of the sum of (i) $2.6 million and (ii) 10% of certain capital expenditures.


(32)	Calculated as a percentage of operating profits in excess of the sum of (i) $7.6 million and (ii) 10.75% of certain capital expenditures.

(33) Following the opening of two new Marriott-branded hotels in Salt Lake City, the base management fee will decrease to 1.5% for the first two years following the first hotel opening and 2.0% for the next three years.


(34)	Calculated as a percentage of operating profits in excess of the sum of (i) $6.1 million and (ii) 10.75% of capital expenditures.


(35)	Calculated as a percentage of operating profits in excess of the sum of (i) $3.6 million and (ii) 10.75% of capital expenditures.


(36)	Calculated as a percentage of operating profits in excess of the sum of (i) $7.5 million and (ii) 10.75% of certain capital expenditures.


(37)	Calculated as a percentage of operating profits in excess of the sum of (i) $10.3 million and (ii) 10.75% of certain capital expenditures.


(38)	Calculated as a percentage of operating profits in excess of the sum of (i) $7.4 million and (ii) 11% of certain capital expenditures. The incentive management fee rises to 25% if the hotel achieves operating profits in excess of 15% of our invested capital.

We incurred $22.0 million, $19.1 million and $16.8 million of management fees from continuing operations during the years ended December 31, 2011, 2010, and 2009, respectively. The total management fees from continuing operations for the year ended December 31, 2011 consisted of $5.2 million of incentive management fees and $16.8 million of base management fees. The total management fees from continuing operations for the year ended December 31, 2010 consisted of $4.8 million of incentive management fees and $14.3 million of base management fees. The total management fees from continuing operations for the year ended December 31, 2009 consisted of $4.0 million of incentive management fees and $12.8 million of base management fees.

Key Money

Marriott has contributed to us certain amounts in exchange for the right to manage hotels we have acquired and in connection with the completion of certain brand enhancing capital projects. We refer to these amounts as “key money.” Previously, Marriott provided us with key money of approximately $22 million in the aggregate in connection with the acquisitions of six of our hotels and in exchange for the renovation of certain hotels.

During 2011, Marriott provided us with $5.3 million of key money in connection with our renovation and repositioning project at the Frenchman's Reef and Morning Star Marriott Beach Resort. Key money is classified as deferred income in the accompanying consolidated balance sheets and amortized against management fees on the accompanying consolidated statements of operations. We amortized $0.7 million of key money during the year ended December 31, 2011, and $0.6 million during each of the years ended December 31, 2010 and 2009.

During 2011, we amended the management agreement for the Conrad Chicago to include a performance guarantee for the remaining term of the agreement, which ends in 2015. During the year ended December 31, 2011, we received $0.7 million in performance guarantee payments. We recorded the 2011 performance guarantee payments as key money due to the certainty of receipt at the time we entered into the amended management agreement.

Franchise Agreements

The following table sets forth the terms of the hotel franchise agreements for our six franchised hotels:



	Date of Agreement	Term	Franchise Fee
Vail Marriott Mountain Resort & Spa	6/2005	16 years	6% of gross room sales plus 3% of gross food and beverage sales
Atlanta Westin North at Perimeter	5/2006	20 years	7% of gross room sales plus 2% of food and beverage sales
Hilton Garden Inn Chelsea/New York City	9/2010	17 years	Royalty fee of 5% of gross room sales and program fee of 4.3% of gross room sales
JW Marriott Denver at Cherry Creek	5/2011	15 years	6% of gross room sales and 3% of gross food and beverage sales
Radisson Lexington Hotel New York	1/2000	20 years(1)	2.75% of gross room sales (3% of gross room sales beginning April 2012 and thereafter)
Courtyard Denver Downtown	7/2011	16 years	5.5% of gross room sales

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(1)	An amendment to the franchise agreement permits two 60-day franchise agreement termination windows at the owner's discretion beginning March 1, 2012 and January 31, 2015.

We recorded $5.7 million, $2.6 million and $1.9 million of franchise fees during the fiscal years ended December 31, 2011, 2010, and 2009, respectively.

Performance Termination Provisions

Our management agreements provide us with termination rights upon a manager's failure to meet certain financial performance criteria. Our termination rights may, in certain cases, be waived in exchange for consideration from the manager, such as a cure payment. During 2011, the Conrad Chicago failed the performance test under the management agreement. We amended the management agreement to include a performance guarantee for the remaining term of the the agreement, which ends in 2015. The Orlando Airport Marriott failed the performance test under the management agreement at the end of 2011. We are currently evaluating whether we will exercise our termination right. Based on our forecast and the hotel's budget, the Oak Brook Hills Marriott Resort is at risk of failing its performance test at the end of 2012.