Relationships with Managers

We are party to hotel management agreements for our 27 hotels owned as of December 31, 2012. 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, 2012. 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
Atlanta Alpharetta Marriott	Marriott	9/2000	30 years	Two ten-year periods
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 Boston Downtown	Davidson Hotels & Resorts	11/2012	7 years	Two five-year periods
Hilton Burlington	Interstate Hotels & Resorts	12/2010	5 years	Month-to-month
Hilton Garden Inn Chelsea/New York City	Alliance Hospitality Management	9/2010	10 years	None
Hilton Minneapolis	Hilton	3/2006	20 ¾ years	None
Hotel Rex	Joie de Vivre Hotels	9/2005	5 years	Month-to-month
JW Marriott Denver at Cherry Creek	Sage Hospitality	5/2011	5 years	One five-year period
Lexington Hotel New York	Highgate Hotels	6/2011	10 years	One five-year period
Los Angeles Airport Marriott	Marriott	9/2000	40 years	Two ten-year periods
Oak Brook Hills Marriott Resort	Marriott	7/2005	30 years	None
Orlando Airport Marriott	Marriott	11/2005	30 years	None
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
Vail Marriott Mountain Resort & Spa	Vail Resorts	6/2005	15½ years	None
Westin San Diego	Interstate Hotels & Resorts	12/2010	5 years	Month-to-month
Westin Washington D.C. City Center	Interstate Hotels & Resorts	12/2010	5 years	Month-to-month

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)
Atlanta Alpharetta Marriott	3	%		25	%		5	%
Bethesda Marriott Suites	3	%		50	%	(3)	5	%	(4)
Boston Westin Waterfront	2.5	%		20	%		4	%
Chicago Marriott Downtown	3	%		20	%	(5)	5	%
Conrad Chicago	3	%	(6)	15	%		4	%
Courtyard Denver Downtown	2	%	(7)	10	%		4	%
Courtyard Manhattan/Fifth Avenue	5.5	%	(8)	25	%		4	%
Courtyard Manhattan/Midtown East	5	%		25	%		4	%
Frenchman's Reef & Morning Star Marriott Beach Resort	3	%		15	%		5.5	%
Hilton Boston Downtown	2	%		10	%		4	%
Hilton Burlington	1	%	(9)	10	%		None
Hilton Garden Inn Chelsea/New York City	2.5	%	(10)	10	%		None
Hilton Minneapolis	3	%		15	%		4	%
Hotel Rex	3	%		10	%		4	%
JW Marriott Denver at Cherry Creek	2.25	%	(11)	10	%		4	%
Lexington Hotel New York	3	%		20	%		4	%
Los Angeles Airport Marriott	3	%		25	%		5	%
Oak Brook Hills Marriott Resort	3	%		30	%		5.5	%
Orlando Airport Marriott	2	%	(12)	25	%		5	%
Renaissance Charleston	3.5	%		20	%		5	%
Renaissance Worthington	3	%		25	%		5	%
Salt Lake City Marriott Downtown	3	%		20	%		5	%
The Lodge at Sonoma, a Renaissance Resort & Spa	3	%		20	%		5	%
Torrance Marriott South Bay	3	%		20	%		5	%
Vail Marriott Mountain Resort & Spa	3	%		20	%		4	%
Westin San Diego	1	%	(9)	10	%		None
Westin Washington D.C. City Center	1	%	(9)	10	%		4	%

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(1)	As a percentage of gross revenues.


(2)	Based on a percentage of hotel operating profits above a specified return on our invested capital or specified operating profit thresholds.


(3)	The owner's priority expires in 2027.


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


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


(6)	The base management fee is reduced by the amount in which operating profits do not meet the performance guarantee. The performance guarantee was $8.3 million in 2012 and base management fees were reduced to zero.


(7)	The base management fee is 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.


(8)	The base management fee increases to 6% beginning in fiscal year 2015 for the remainder 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.

(9) The base management fee will increase to 1.5% of gross revenues beginning on July 12, 2014. Total management fees are capped at 2.5% of gross revenues.


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


(11)	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.


(12)	In July 2012, we amended the management agreement, which reduces the annual base management fee for 2012 and 2013 from 3% to 2% of gross revenues should the hotel's annual debt service amount exceed hotel operating profit with respect to each fiscal year.

The following is a summary of management fees from continuing operations for the years ended December 31, 2012, 2011 and 2010 (in thousands):



	Year Ended December 31,
	2012		2011		2010
Base management fees	$	19,365	$	16,405	$	13,920
Incentive management fees	5,550		5,226		4,750
Total management fees	$	24,915	$	21,631	$	18,670

Five of our hotels earned incentive management fees for the year ended December 31, 2012. Three of our hotels earned incentive management fees for the year ended December 31, 2011. Two hotel earned incentive management fees for the year ended December 31, 2010.

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 $1.0 million of key money during the year ended December 31, 2012, $0.7 million during the year ended December 31, 2011, and $0.6 million during the year ended December 31, 2010.

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. During the year ended December 31, 2012, we received $0.8 million in performance guarantee payments. We recorded the 2012 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 nine 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
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
Lexington Hotel New York (1)	3/2012	20 years	3% of gross room sales (2)
Courtyard Denver Downtown	7/2011	16 years	5.5% of gross room sales
Hilton Boston Downtown	7/2012	10 years	5% of gross room sales and 3% of gross food and beverage sales; program fee of 4% of gross room sales
Westin Washington D.C. City Center	12/2010	20 years	7% of gross room sales and 3% of gross food and beverage sales
Westin San Diego	12/2010	20 years	7% of gross room sales and 3% of gross food and beverage sales
Hilton Burlington	7/2012	10 years	5% of gross room sales and 3% of gross food and beverage sales; program fee of 4% of gross room sales

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(1)	The agreement begins on the date the hotel opens as a Autograph Collection hotel, which is currently projected to be mid-2013.


(2)	Increases to 4% on the first anniversary of the agreement and 5% on the second anniversary of the agreement.

We recorded $8.4 million, $5.7 million and $2.6 million of franchise fees during the fiscal years ended December 31, 2012, 2011, and 2010, respectively, which are included in other hotel expenses on the accompanying consolidated statement of operations.

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. The Oak Brook Hills Marriott Resort, Orlando Airport Marriott, and the Hilton Garden Inn Chelsea/New York City each failed its performance test at the end of 2012. We are currently evaluating whether we will exercise our termination rights with respect to any of these hotels.

In July 2012, we amended the management agreement for the Orlando Airport Marriott, which reduces the annual base management fee paid to Marriott, as manager, for each of fiscal years 2012 and 2013 from 3% to 2% of gross revenues should the hotel's annual debt service amount exceed hotel operating profit with respect to each such fiscal year. Should we exercise our termination rights based on the hotel failing the performance test in 2012 and 2013, we would be required to repay the manager the 1% unpaid base management fees, if any, resulting from such fiscal years.