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Relationships with Managers | 12 Months Ended
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Dec. 31, 2017
Relationships With Managers [Abstract] |
Relationships With Managers | Relationships with Managers We are party to hotel management agreements for each of our hotels owned. 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 hotels. 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 |  | Marriott |  | 5/2004 |  | 20 years |  | Four ten-year periods
Chicago Marriott Downtown |  | Marriott |  | 3/2006 |  | 32 years |  | Two ten-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 |  | HEI Hotels & Resorts (1) |  | 8/2017 |  | 10 years |  | None
Frenchman's Reef & Morning Star Marriott Beach Resort |  | Marriott (2) |  | 9/2000 |  | 30 years |  | Two ten-year periods
The Gwen Chicago |  | HEI Hotels & Resorts |  | 6/2016 |  | 10 years |  | None
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 New York City/Times Square Central |  | Highgate Hotels |  | 1/2011 |  | 10 years |  | One five-year period
Hotel Rex |  | Viceroy Hotels & Resorts (3) |  | 10/2017 |  | 10 years |  | One five-year period
Inn at Key West |  | Ocean Properties |  | 12/2016 |  | 10 years |  | Two five-year periods
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
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
L'Auberge de Sedona |  | Two Roads Hospitality (4) |  | 12/2017 |  | 5 years |  | One five-year period
Orchards Inn Sedona |  | Two Roads Hospitality (4) |  | 12/2017 |  | 5 years |  | One five-year period
Sheraton Suites Key West |  | Ocean Properties |  | 6/2015 |  | 12 years |  | None
Shorebreak Hotel |  | Kimpton Hotel & Restaurant Group |  | 2/2015 |  | 10 years |  | None
The Lodge at Sonoma, a Renaissance Resort & Spa |  | Marriott |  | 10/2004 |  | 20 years |  | One ten-year period
Vail Marriott Mountain Resort & Spa |  | Vail Resorts |  | 6/2005 |  | 15½ years |  | None
Westin Fort Lauderdale Beach Resort |  | HEI Hotels & Resorts |  | 12/2014 |  | 10 years |  | None
Westin San Diego |  | Interstate Hotels & Resorts |  | 12/2010 |  | 5 years |  | Month-to-month
Westin Washington D.C. City Center |  | HEI Hotels & Resorts |  | 4/2015 |  | 10 years |  | None
______________
(1) | HEI Hotels & Resorts assumed management of the hotel in August 2017. The hotel was previously managed by Marriott.
(2) | We terminated the management agreement with Marriott, effective February 20, 2018. The hotel is currently closed as a result of the physical damage incurred from Hurricanes Irma and Maria.
(3) | Viceroy Hotels & Resorts assumed management of the hotel in October 2017. The hotel was previously managed by Joie de Vivre Hotels.
(4) | Two Roads Hospitality assumed management of the hotels in December 2017. The hotels were previously managed by IMH Financial Corporation.
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 | % | (3) | 25 | % |  | 5 | % |
Bethesda Marriott Suites |  | 3 | % |  | 50 | % | (4) | 5 | % | (5)
Boston Westin Waterfront |  | 2.5 | % |  | 20 | % |  | 4 | % |
Chicago Marriott Downtown |  | 2 | % | (6) | 18 | % | (7) | 5 | % |
Courtyard Denver Downtown |  | 1.5 | % | (8) | 10 | % |  | 4 | % |
Courtyard Manhattan/Fifth Avenue |  | 6 | % |  | 25 | % |  | 4 | % |
Courtyard Manhattan/Midtown East |  | 1.5 | % | (9) | 15 | % |  | 4 | % |
Frenchman's Reef & Morning Star Marriott Beach Resort (10) |  | 3 | % |  | 15 | % |  | 5.5 | % |
The Gwen Chicago |  | 2 | % | (11) | 15 | % |  | 4 | % |
Hilton Boston Downtown |  | 2 | % |  | 10 | % |  | 4 | % |
Hilton Burlington |  | 1.5 | % | (12) | 10 | % |  | — |  |
Hilton Garden Inn New York City/Times Square Central |  | 3 | % |  | 20 | % |  | 4 | % |
Hotel Rex |  | 2.75 | % | (13) | 15 | % |  | 4 | % |
Inn at Key West |  | 3 | % |  | 10 | % |  | 4 | % |
JW Marriott Denver at Cherry Creek |  | 2.5 | % |  | 10 | % |  | 4 | % |
Lexington Hotel New York |  | 3 | % | (14) | 20 | % |  | 5 | % |
Renaissance Charleston |  | 3.5 | % | (15) | 20 | % |  | 5 | % |
Renaissance Worthington |  | 3 | % |  | 25 | % |  | 5 | % |
Salt Lake City Marriott Downtown |  | 1.5 | % | (16) | 20 | % |  | 5 | % |
L'Auberge de Sedona |  | 0.5 | % | (17) | 10 | % |  | 4 | % |
Orchards Inn Sedona |  | 0.5 | % | (17) | 10 | % |  | 4 | % |
Sheraton Suites Key West |  | 3 | % |  | 10 | % |  | 4 | % |
Shorebreak Hotel |  | 2.5 | % |  | 15 | % |  | 4 | % |
The Lodge at Sonoma, a Renaissance Resort & Spa |  | 3 | % |  | 20 | % |  | 5 | % |
Vail Marriott Mountain Resort & Spa |  | 3 | % |  | 20 | % |  | 4 | % |
Westin Fort Lauderdale Beach Resort |  | 2 | % |  | 15 | % |  | 4 | % |
Westin San Diego |  | 1.5 | % | (12) | 10 | % |  | 4 | % |
Westin Washington D.C. City Center |  | 2 | % |  | 15 | % |  | 4 | % |
______________
(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 base management fee decreases to 2% of gross revenues between February 2018 and January 2021.
(4) | The owner's priority expires in 2028, after which the manager will receive 50% of the hotel's operating profits.
(5) | The contribution is reduced to 1% until operating profits exceed an owner's priority of $4.4 million.
(6) | The base management fee decreased from 3.0% to 2.0% for October 2017 through September 2021 and will then revert back to 3% for the remainder of the term.
(7) | Calculated as 18% of net operating income. There is no owner's priority; however, the Company's contribution to the hotel's multi-year guest room renovation is treated as a deduction in calculating net operating income.
(8) | The base management fee is a sum of 1.5% of gross revenues and 1.5% of gross operating profit.
(9) | Prior to August 2017, the base management fee was 5% of gross revenues under the previous hotel manager. The base management fee was 1.5% of gross revenues between August 2017 and December 2017 and increases to 1.75% of gross revenues for 2018 through the remainder of the term.
(10) | We terminated the management agreement with Marriott, effective February 20, 2018. The hotel is currently closed as a result of the physical damage incurred from Hurricanes Irma and Maria.
(11) | The base management fee increases to 2.25% for 2018 through the remainder of the term.
(12) Total management fees are capped at 2.5% of gross revenues.
(13) | Prior to September 2017, the base management fee was 3% of gross revenues under the previous hotel manager.
(14) | The base management fee decreased to 2% from January 2017 through June 2017, and reverted back to 3% for the remainder of the term.
(15) | The base management fee increased to 3.5% beginning September 2017 through the remainder of the term.
(16) | The base management fee decreased from 3% to 1.5% beginning May 2016 and will increase to 2.0% in May 2018 and to 3.0% in May 2021 through the remainder of the term.
(17) | Prior to December 2017, the base management fee was 2.45% of gross revenues under the previous hotel manager. The base management fee increases to 1.0% for 2019 and 1.5% for 2020 through the remainder of the term.
The following is a summary of management fees for the years ended December 31, 2017, 2016 and 2015 (in thousands):
| Year Ended December 31,
| 2017 |  | 2016 |  | 2015
Base management fees | $ | 22,265 |  |  | $ | 24,480 |  |  | $ | 25,491 |
Incentive management fees | 6,259 |  |  | 7,810 |  |  | 7,405 |
Amortization of deferred income related to key money | (4,840 | ) |  | (432 | ) |  | (548 | )
Amortization of unfavorable contract liabilities | (1,715 | ) |  | (1,715 | ) |  | (1,715 | )
Total management fees, net | $ | 21,969 |  |  | $ | 30,143 |  |  | $ | 30,633 |
Ten of our hotels earned incentive management fees for the year ended December 31, 2017. Nine of our hotels earned incentive management fees for the year ended December 31, 2016. Seven of our hotels earned incentive management fees for the year ended December 31, 2015. Performance Termination Provisions Our management agreements provide us with termination rights upon a manager's failure to meet certain financial performance criteria and manager's decision not to cure the failure by making a cure payment. Key Money Our managers and franchisors have contributed to us certain amounts in exchange for the right to manage or franchise hotels we have acquired and in connection with the completion of certain brand enhancing capital projects. We refer to these amounts as “key money.” Key money is classified as deferred income in the accompanying consolidated balance sheets and amortized against management fees or franchise fees on the accompanying consolidated statements of operations. During 2015, Starwood provided us with $3.0 million of key money in connection with our renovation associated with the brand conversion of the hotel formerly known as the Conrad Chicago to The Gwen, a Luxury Collection Hotel. The key money was amortized against franchise fees over the period of the renovation—January 2016 through April 2017. We amortized $5.8 million of key money during the year ended December 31, 2017, $2.9 million during the year ended December 31, 2016, and $1.0 million during the year ended December 31, 2015. In connection with the change in hotel manager of the Courtyard Manhattan/Midtown East, we recognized $1.9 million of accelerated amortization of key money during the year ended December 31, 2017. In connection with the termination of the hotel manager of Frenchman's Reef & Morning Star Marriott Beach Resort, we accelerated the amortization of key money from the date of our notice of termination in 2017 through the effective termination date of February 20, 2018. We recognized an additional $2.6 million of amortization of key money during the year ended December 31, 2017 in connection with this acceleration. The remaining $2.2 million of unamortized key money related to Frenchman's Reef & Morning Star Marriott Beach Resort as of December 31, 2017 will be amortized during the first quarter of 2018. Franchise Agreements The following table sets forth the terms of the hotel franchise agreements for our 13 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
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 |  | 3/2012 |  | 20 years |  | 5% of gross room sales
Courtyard Denver Downtown |  | 7/2011 |  | 16 years |  | 4.5% of gross room sales (1)
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 |  | 3% of gross room sales and 3% of gross food and beverage sales; program fee of 4% of gross room sales (2)
Hilton Garden Inn New York/Times Square Central |  | 6/2011 |  | 22 years |  | 5% of gross room sales; program fee of 4.3% of gross room sales
Westin Fort Lauderdale Beach Resort |  | 12/2014 |  | 20 years |  | 6% of gross room sales and 2% of gross food and beverage sales
The Gwen Chicago |  | 5/2015 |  | 20 years |  | 4.5% of gross room sales
Sheraton Suites Key West |  | 2/2006 |  | 20 years |  | 5% of gross room sales
Courtyard Manhattan/Midtown East |  | 8/2017 |  | 25 years |  | 6% of gross room sales
______________
(1) | Prior to October 2017, the franchise fee was 5.5% of gross room sales. The franchise fee reverts back to 5.5% of gross room sales beginning October 2019.
(2) | Prior to July 2017, the franchise fee was 5% of gross room sales. The franchise fee will increase to 4% of gross room sales beginning August 2019 and to 5% of gross room sales beginning August 2020 through the remainder of the term.
The following is a summary of franchise fees for the years ended December 31, 2017, 2016 and 2015 (in thousands):
| Year Ended December 31,
| 2017 |  | 2016 |  | 2015
Franchise fees | $ | 24,890 |  |  | $ | 24,237 |  |  | $ | 22,192 |
Amortization of deferred income related to key money | (920 | ) |  | (2,420 | ) |  | (170 | )
Total franchise fees, net | $ | 23,970 |  |  | $ | 21,817 |  |  | $ | 22,022 |
Total franchise fees are included in other hotel expenses on the accompanying consolidated statements of operations.

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