Relationships with Managers and Franchisors

12 Months Ended

Dec. 31, 2023

Relationships With Managers [Abstract]

Relationships with Managers and Franchisors

We are party to a hotel management agreement at each of our hotels. 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 between 1% and 3.5% 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.”

Our management agreements generally 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.

The following is a summary of management fees for the years ended December 31, 2023, 2022 and 2021 (in thousands):


	Year Ended December 31,
	2023		2022		2021
Base management fees	$	22,543	$	20,630	$	11,542
Incentive management fees	4,444		4,790		468
Amortization of deferred income related to key money (1)	(400)		(392)		(213)
Amortization of unfavorable contract liabilities	(1,589)		(1,589)		(1,589)
Total management fees, net	$	24,998	$	23,439	$	10,208

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(1)Relates to key money received for Chicago Marriott Downtown Magnificent Mile, Westin Washington D.C. City Center and Henderson Beach Resort.

Five of our hotels earned incentive management fees for the years ended December 31, 2023 and 2021. Eleven of our hotels earned incentive management fees for the year ended December 31, 2022.

Franchise Agreements

We are party to franchise agreements for 19 of our hotels as of December 31, 2023. The franchise agreements require royalty fees based on a percentage of gross rooms revenue and, for certain hotels, an additional fee based on a percentage of gross food and beverage revenue. In addition, franchise agreements require fees for marketing, reservation or other program fees based on a percentage of the hotel's gross rooms revenue. Pursuant to these franchise agreements, we pay a royalty fee ranging between 3.5% and 7% of gross room sales, and, under certain agreements, between 1% and 3% of gross food and beverage sales.

The following is a summary of franchise fees for the years ended December 31, 2023, 2022 and 2021 (in thousands):


	Year Ended December 31,
	2023		2022		2021
Franchise fees	$	35,769	$	32,714	$	18,781
Amortization of deferred income related to key money (1)	(31)		(31)		(116)
Total franchise fees, net	$	35,738	$	32,683	$	18,665

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(1)Relates to key money received for The Lexington Hotel and Courtyard New York Manhattan/Fifth Avenue.