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Commitments and Contingencies | 12 Months Ended
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Dec. 31, 2018
Commitments and Contingencies Disclosure [Abstract] |
Commitments and Contingencies | Commitments and Contingencies Litigation We are subject to various claims, lawsuits and legal proceedings, including routine litigation arising in the ordinary course of business, regarding the operation of our hotels and Company matters. While it is not possible to ascertain the ultimate outcome of such matters, management believes that the aggregate amount of such liabilities, if any, in excess of amounts covered by insurance will not have a material adverse impact on our financial condition or results of operations. The outcome of claims, lawsuits and legal proceedings brought against the Company, however, is subject to significant uncertainties. On August 13, 2018, the Company brought suit against certain of its property insurers in St. Thomas, U.S. Virgin Islands, over the amount of the coverage the insurers owe as a result of the damage caused to Frenchman's Reef by Hurricanes Irma and Maria. On September 28, 2018, certain of the Company's property insurers brought a similar suit against the Company in New York seeking a declaration that the insurers do not owe the full amount of the Company's claim. Notwithstanding the litigation, the Company and its insurers continue to engage in discussions and negotiation regarding the Company's claim. Other Matters In February 2016, the Company was notified by the franchisor of one of its hotels that as a result of low guest satisfaction scores, the Company was in default under the franchise agreement for that hotel. The Company continues to proactively work with the franchisor and the manager of the hotel and has developed and executed a plan aimed to improve guest satisfaction scores. Though the guest satisfaction scores have improved, the Company remains in default under the franchise agreement. While the franchisor has reserved all of its rights under the franchise agreement, no action to terminate the franchise agreement has been taken by the franchisor and no accrual was recorded as of December 31, 2018 or 2017. If the Company is not successful in resolving the matter, the franchisor may seek to terminate the franchise agreement and assert a claim it is owed a termination fee, including a payment for liquidated damages, which could result in a material adverse effect on the Company's business, financial condition or results of operation. Restricted Cash As of December 31, 2018 and 2017, we had $47.7 million and $40.2 million, respectively, of restricted cash, which consists of reserves for replacement of furniture and fixtures generally held by our hotel managers and cash held in escrow pursuant to lender requirements. Ground Leases Seven 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 adjacent City Creek Project. We own a 21% interest in the land under the hotel. The term of the ground lease covering the land under the hotel runs through 2056, inclusive of renewal options. The term of the ground lease covering the extension into the City Creek Project was amended during 2017 to run coterminously with the term of the ground lease covering the land under the hotel. As such, the term now runs through 2056, inclusive of renewal options.
• | The Westin Boston Waterfront is subject to a ground lease that runs until 2099. There are no renewal options.
• | The Shorebreak Hotel is subject to a ground lease that runs until 2100, inclusive of two renewal options of 25 years each and one 24-year renewal option. We own a 95.5% undivided interest in the land underlying the hotel and lease the remaining 4.5% under the ground lease.
• | The Hotel Palomar Phoenix is subject to a ground lease that runs until 2085, inclusive of three renewal options of five years each.
• | Cavallo Point is subject to a ground lease with the United States National Park Service that runs until 2066. There are no renewal options.
A portion of the parking garage relating to the Renaissance Worthington is subject to three ground leases that cover, contiguously with each other, approximately one-fourth 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 three 15-year renewal options. The remainder of the land on which the parking garage is constructed is owned by us in fee simple. A portion of the JW Marriott Denver at Cherry Creek is subject to a ground lease that covers approximately 5,500 square feet. The term of the ground lease runs through December 2030, inclusive of two 5-year renewal options. The lease may be indefinitely extended thereafter in one-year increments. The remainder of the land on which the hotel is constructed is owned by us in fee simple. We lease the buildings and sublease the underlying land containing 28 of the 70 rooms at the Orchards Inn Sedona, which expires in 2070, including all extension options. The remainder of the land underlying the hotel is owned by us in fee simple. 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, Westin Boston Waterfront Hotel, Salt Lake City Marriott Downtown, and Cavallo Point ground leases). Most of our ground leases require us to make payments for all 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 was $11.6 million, $10.2 million and $12.7 million for the years ended December 31, 2018, 2017 and 2016, respectively. Cash paid for ground rent was $4.7 million, $4.1 million and $7.0 million for the years ended December 31, 2018, 2017 and 2016, respectively. The following table reflects the current and future annual rents under our ground leases:
Property |  | Term (1) |  | Annual Rent
Bethesda Marriott Suites |  | Through 4/2087 |  | $781,366 (2)
Courtyard Manhattan/Fifth Avenue (3) |  | 10/2007 - 9/2017 |  | $906,000
|  | 10/2017 - 9/2027 |  | $1,132,812
|  | 10/2027 - 9/2037 |  | $1,416,015
|  | 10/2037 - 9/2047 |  | $1,770,019
|  | 10/2047 - 9/2057 |  | $2,212,524
|  | 10/2057 - 9/2067 |  | $2,765,655
|  | 10/2067 - 9/2077 |  | $3,457,069
|  | 10/2077 - 9/2085 |  | $4,321,336
Salt Lake City Marriott Downtown (Ground lease for hotel) (4) |  | Through 12/2056 |  | Greater of $132,000 or 2.6% of annual gross room sales
Salt Lake City Marriott Downtown (Ground lease for extension) |  | 1/2013 - 12/2016 |  | $11,305
|  | 1/2017 - 12/2017 |  | $13,000
|  | 1/2018 - 12/2056 (5) |  | $13,500
Westin Boston Waterfront Hotel (6) (Base rent) |  | 1/2016 - 12/2020 |  | $750,000
|  | 1/2021 - 12/2025 |  | $1,000,000
|  | 1/2026 - 12/2030 |  | $1,500,000
|  | 1/2031 - 12/2035 |  | $1,750,000
|  | 1/2036 - 5/2099 |  | No base rent
Westin Boston Waterfront Hotel (Percentage rent) |  | Through 5/2015 |  | 0% of annual gross revenue
|  | 6/2016 - 5/2026 |  | 1.0% of annual gross revenue
|  | 6/2026 - 5/2036 |  | 1.5% of annual gross revenue
|  | 6/2036 - 5/2046 |  | 2.75% of annual gross revenue
|  | 6/2046 - 5/2056 |  | 3.0% of annual gross revenue
|  | 6/2056 - 5/2066 |  | 3.25% of annual gross revenue
|  | 6/2066 - 5/2099 |  | 3.5% of annual gross revenue
JW Marriott Denver at Cherry Creek |  | 1/2015 - 12/2020 |  | $50,000
|  | 1/2021 - 12/2025 |  | $55,000
|  | 1/2026 - 12/2030 (7) |  | $60,000
Shorebreak Hotel |  | Through 4/2016 |  | $115,542
|  | 5/2016 - 4/2021 (8) |  | $126,649
Orchards Inn Sedona |  | Through 6/2018 |  | $117,780
|  | 7/2018 - 12/2070 |  | $121,078 (9)
Hotel Palomar Phoenix (Base Rent) |  | Through 3/2020 |  | $16,875
|  | 4/2020 - 3/2021 |  | $33,750
|  | 4/2021 - 3/2085 |  | $34,594 (10)
Hotel Palomar Phoenix (Government Property Lease Excise Tax) (11) |  | 1/2022 - 12/2023 |  | $390,000
|  | 1/2024 - 12/2033 |  | $312,000
|  | 1/2034 - 12/2043 |  | $234,000
|  | 1/2044 - 12/2053 |  | $156,000
|  | 1/2054 - 12/2063 |  | $78,000
|  | 1/2064 - 3/2085 |  | $—
Cavallo Point (Base Rent) |  | Through 12/2018 |  | $1
|  | 1/2019 - 12/2066 |  | $67,034 (12)
Cavallo Point (13) (Percentage Rent) |  | Through 12/2018 |  | 1.0% of adjusted gross revenue over threshold
|  | 1/2019 - 12/2023 |  | 2.0% of adjusted gross revenue over threshold
|  | 1/2024 - 12/2028 |  | 3.0% of adjusted gross revenue over threshold
|  | 1/2029 - 12/2033 |  | 4.0% of adjusted gross revenue over threshold
|  | 1/2034 - 12/2066 |  | 5.0% of adjusted gross revenue over threshold
Cavallo Point (14) (Participation Rent) |  | Through 12/2066 |  | 10.0% of adjusted gross revenue over threshold
Property |  | Term (1) |  | Annual Rent
Renaissance Worthington garage ground lease |  | 8/2013 - 7/2022 |  | $40,400
|  | 8/2022 - 7/2037 |  | $46,081
|  | 8/2037 - 7/2052 |  | $51,763
|  | 8/2052 - 7/2067 |  | $57,444
__________
(1) | These terms assume our exercise of all renewal options.
(2) | Represents rent for the year ended December 31, 2018. Rent increases annually by 5.5%.
(3) | The total annual rent includes the fixed rent noted in the table plus a percentage rent equal to 5% of gross receipts for each lease year, but only to the extent that 5% of gross receipts exceeds the minimum fixed rent in such lease year. There was no such percentage rent earned during the year ended December 31, 2018.
(4) | We own a 21% interest in the land underlying the hotel and, as a result, 21% of the annual rent under the ground lease is paid to us by the hotel.
(5) | Rent will increase from the prior year's rent based on a Consumer Price Index calculation on each January 1, beginning January 1, 2019 and through the end of the lease.
(6) | Total annual rent under the ground lease is capped at 2.5% of hotel gross revenues during the initial 30 years of the ground lease.
(7) | Beginning January 2031, we have the right to renew the ground lease in one-year increments at the prior year's annual rent plus 3%.
(8) | Rent will increase on May 1, 2021 and every five years thereafter based on a Consumer Price Index calculation.
(9) | Represents rent from July 2018 through June 2019. On July 1, 2018, rent increased based on a Consumer Price Index calculation, and will continue to do so annually through the end of the lease.
(10) | Represents rent from April 2021 through March 2022. Rent increases annually each April by 2.5%.
(11) | As lessee of government property, the hotel is subject to a Government Property Lease Excise Tax ("GPLET") under Arizona state statute with payments beginning in 2022.
(12) | Base rent increases in January 2019 and resets every five years based on the average of the previous three years of adjusted gross revenues, as defined in the ground lease, multiplied by 75%.
(13) | Percentage rent is applied to annual adjusted gross revenues, as defined in the ground lease, between $30 million and the participation rent threshold. Base rent is deducted from the percentage rent.
(14) | Participation rent is applied to annual adjusted gross revenues, as defined in the ground lease, over $40 million in 2018, $42 million in 2019, and $42 million plus an annual increase based on a Consumer Price Index calculation for 2020 and every year thereafter through the end of the lease term.
Future minimum annual rental commitments under all non-cancelable operating leases as of December 31, 2018 are as follows (in thousands):
2019 | $ | 5,232 |
2020 | 4,866 |
2021 | 6,132 |
2022 | 5,122 |
2023 | 5,096 |
Thereafter | 636,770 |
| $ | 663,218 |

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