Commitments and Contingencies

Litigation

We are involved in routine litigation arising out of the ordinary course of business, all of which is expected to be covered by insurance and is not expected to have a material adverse impact on our financial condition or results of operations. Except as described below, we are not involved in any material litigation nor, to our knowledge, is any material litigation pending or threatened against us.

Allerton Loan

We hold the senior mortgage loan secured by the Allerton Hotel, located in downtown Chicago, Illinois. In May 2011, the borrower under the loan filed for bankruptcy protection in the Northern District of Illinois under chapter 11 of Title 11 of the U.S. Code, 11 U.S.C. §§ 101 et seq., as amended. On October 29, 2012, the United States Bankruptcy Court for the Northern District of Illinois (Eastern Division) confirmed an amended plan of reorganization (the "Plan"). Pursuant to the Plan, a claim filed by the Company in New York State court against affiliates of the borrower was dismissed and all other claims between the parties related to this matter were also dismissed with prejudice. Further, pursuant to the Plan, on January 18, 2013, the borrower paid the Company $5.0 million as a paydown of the outstanding principal under the mortgage loan and entered into an amended and restated loan agreement with the Company providing for a $66.0 million loan. The loan has a term of four years, with a one-year extension option, and bears interest at a fixed rate of 5.5%.

Los Angeles Airport Marriott Litigation

During 2011, we accrued $1.7 million for our contribution to the settlement of litigation involving the Los Angeles Airport Marriott. The settlement was recorded as a corporate expense during the year ended December 31, 2011. The Company and certain other defendants reached a settlement of the matter, which involved claims by certain employees at the Los Angeles Airport Marriott. During 2012, we paid our contribution of the settlement into escrow. The Superior Court of California, Los Angeles County, granted final approval to the settlement on January 7, 2013, and, if no appeals are filed, the effective date will be March 13, 2013.

Ground Leases

Five of our hotels are subject to ground lease agreements that cover all of the land underlying the respective hotel:


•	The Bethesda Marriott Suites hotel is subject to a ground lease that runs until 2087. There are no renewal options.


•	The Courtyard Manhattan/Fifth Avenue is subject to a ground lease that runs until 2085, inclusive of one 49-year renewal option.

•

The Salt Lake City Marriott Downtown is subject to two ground leases: one ground lease covers the land under the hotel and the other ground lease covers the portion of the hotel that extends into the City Creek Project. The term of the ground lease covering the land under the hotel runs through 2056, inclusive of our renewal options, and the term of the ground lease covering the extension runs through 2017. In 2009, we acquired a 21% interest in the land under the hotel for approximately $0.9 million.


•	The Westin Boston Waterfront is subject to a ground lease that runs until 2099. There are no renewal options.


•	The Hilton Minneapolis is subject to a ground lease that runs until 2091. There are no renewal options.

In addition, the golf course that is part of the Oak Brook Hills Marriott Resort is subject to a ground lease covering approximately 110 acres. The ground lease runs through 2045 including renewal options.

Finally, a portion of the parking garage relating to the Renaissance Worthington is subject to three ground leases that cover, contiguously with each other, approximately 1/4 of the land on which the parking garage is constructed. Each of the ground leases has a term that runs through July 2067, inclusive of the three 15-year renewal options.

These ground leases generally require us to make rental payments (including a percentage of gross receipts as percentage rent with respect to the Courtyard Manhattan/Fifth Avenue ground lease) and payments for all, or in the case of the ground lease covering the Salt Lake City Marriott Downtown extension, our tenant's share of, charges, costs, expenses, assessments and liabilities, including real property taxes and utilities. Furthermore, these ground leases generally require us to obtain and maintain insurance covering the subject property.

Ground rent expense from continuing operations was $14.6 million, $14.2 million and $11.7 million for the years ended December 31, 2012, 2011 and 2010, respectively. Cash paid for ground rent from continuing operations was $8.2 million, $7.3 million and $4.6 million for the years ended December 31, 2012, 2011 and 2010, respectively.

Future minimum annual rental commitments under all non-cancelable operating leases as of December 31, 2012 are as follows (in thousands):



2013	$	9,912
2014	10,139
2015	10,129
2016	10,430
2017	10,792
Thereafter	627,034
	$	678,436

Hotel under Development

On January 18, 2011, we entered into a purchase and sale agreement to acquire, upon completion, a hotel property under development on West 42nd Street in Times Square, New York City. Upon completion by the third-party developer, the hotel is expected to contain approximately 282 guest rooms and the contractual purchase price is approximately $128 million, or approximately $450,000 per guest room. The purchase and sale agreement is for a fixed-price and we are not assuming any construction risk (including not assuming the risk of construction cost overruns). We currently expect the hotel to open in mid 2014. Upon entering into the purchase and sale agreement, we deposited $20.0 million with a third-party escrow agent. During the year ended December 31, 2012, we made $1.9 million of additional deposits. Upon the completion of certain construction milestones, we will be required to make an additional deposit of $5.0 million. All deposits are interest bearing. We will forfeit our deposits if we do not close on the acquisition of the hotel upon substantial completion of construction, unless the seller fails to meet certain conditions, including substantial completion of the hotel within a specified time frame and construction of the hotel within the contractual scope.