Commitments and Contingencies

12 Months Ended

Dec. 31, 2023

Commitments and Contingencies Disclosure [Abstract]

Operating Leases

As of December 31, 2023, 13 of Company's hotel properties were subject to ground lease agreements that cover the land underlying the respective hotels. The ground leases are classified as operating leases. The total ground lease expense was $16.7 million for the year ended December 31, 2023, which consisted of $11.9 million of fixed lease expense and $4.8 million of variable lease expense. The total ground lease expense was $15.9 million for the year ended December 31, 2022, which consisted of $11.9 million of fixed lease expense and $4.0 million of variable lease expense. The total ground lease expense was $13.1 million for the year ended December 31, 2021, which consisted of $11.6 million of fixed lease expense and $1.5 million of variable lease expense. The total ground lease expense is included in property tax, insurance and other in the accompanying consolidated statements of operations and comprehensive income (loss).

The Company's ground leases consisted of the following (in thousands):


		Ground Lease Expense
		For the year ended December 31,
Hotel Property Name	Term Expiration (1)	2023		2022		2021

Wyndham Boston Beacon Hill (2)	2028	$	929	$	803	$	556
Wyndham San Diego Bayside	2029	5,315		5,009		4,042
DoubleTree Suites by Hilton Orlando Lake Buena Vista	2057	815		1,005		666
Residence Inn Palo Alto Los Altos (3)	2033	86		86		86
Wyndham Pittsburgh University Center	2083	726		726		726


Marriott Louisville Downtown	2153 (4)	—		—		—
Embassy Suites San Francisco Airport Waterfront	2059	1,850		1,646		1,239
Wyndham New Orleans French Quarter	2065	487		487		487

Courtyard Charleston Historic District	2096	1,052		1,044		1,019
Courtyard Austin Downtown Convention Center and Residence Inn Downtown Convention Center	2100	1,025		922		555

Courtyard Waikiki Beach	2112	4,121		3,922		3,742
Moxy Denver Cherry Creek	2115	272		258		5
		$	16,678	$	15,908	$	13,123

(1) Assumes the exercise of any remaining extension options.

(2) In January 2024, the Company acquired a fee simple interest in this hotel property for approximately $125.0 million.

(3) The ground lease underlying a portion of this hotel property is part of a municipal utility district’s water pipeline right-of-way.

(4) The lease may be extended for up to four twenty-five year terms at the Company's option.

The future lease payments for the Company's operating leases are as follows (in thousands):


	December 31, 2023
2024	$	10,427
2025	10,443
2026	11,091
2027	11,598
2028	11,094
Thereafter	538,093
Total future lease payments	592,746
Imputed interest	(470,158)
Lease liabilities	$	122,588

The following table presents certain information related to the Company's operating leases as of December 31, 2023:


Weighted average remaining lease term	62 years
Weighted average discount rate	7.29	%

Restricted Cash Reserves

The Company is obligated to maintain cash reserve funds for future capital expenditures, real estate taxes, insurance, and debt obligations where lenders hold restricted cash due to cash trap events. The management agreements, franchise agreements and/or mortgage loan documents require the Company to reserve cash ranging typically from 3.0% to 5.0% of the individual hotel’s revenues for future capital expenditures (including the periodic replacement or refurbishment of FF&E). Any unexpended amounts will remain the property of the Company upon termination of the management agreements, franchise agreements or mortgage loan documents. As of December 31, 2023 and 2022, approximately $38.7 million and $28.2 million, respectively, was available in the restricted cash reserves for future capital expenditures, real estate taxes, and insurance. As of December 31, 2022, there was also approximately $26.9 million of restricted cash held by a lender due to a cash trap event, and during the first quarter of 2023, all of the restrictions on this cash were removed.

Litigation

Neither the Company nor any of its subsidiaries is currently involved in any regulatory or legal proceedings that management believes will have a material and adverse effect on the Company's financial position, results of operations or cash flows.

Management Agreements

As of December 31, 2023, 96 of the Company's consolidated hotel properties were operated pursuant to management agreements with initial terms ranging from three to 25 years, with 15 different management companies as noted in the table below. This number includes 35 consolidated hotel properties that receive the benefits of a franchise agreement pursuant to management agreements with Hilton, Hyatt, or Marriott.


Management Company						Number of Hotel Properties

Aimbridge Hospitality						31
Colwen Management, Inc.						1
Concord Hospitality Enterprises Company						1
Crestline Hotels and Resorts						1
Davidson Hotels and Resorts						2
Hilton Management and affiliates						21
HEI Hotels and Resorts						2
Hersha Hospitality Management						7
Highgate Hotels						3
Hyatt Corporation and affiliates						11

InnVentures (1)						3


Marriott International, Inc.						3
Pyramid						1
Sage Hospitality						5

White Lodging Services						4

						96

(1) InnVentures is a subsidiary of Highgate Hotels.

Each management company receives a base management fee between 1.5% and 3.5% of hotel revenues. Management agreements that include the benefits of a franchise agreement incur a base management fee between 1.75% and 7.0% of hotel revenues. The management companies are also eligible to receive an incentive management fee if hotel operating income, as defined in the management agreements, exceeds certain thresholds. The incentive management fee is generally calculated as a percentage of hotel operating income after the Company has received a priority return on its investment in the hotel.

Management fees are included in management and franchise fee expense in the accompanying consolidated statements of operations and comprehensive income (loss). For the years ended December 31, 2023, 2022 and 2021, the Company incurred management fee expense of approximately $41.7 million, $34.7 million and $10.1 million, respectively.

Franchise Agreements

As of December 31, 2023, 59 of the Company's consolidated hotel properties were operated under franchise agreements with initial terms ranging from one to 30 years. This number excludes 35 consolidated hotel properties that receive the benefits of a franchise agreement pursuant to management agreements with Hilton, Hyatt, or Marriott. In addition, two hotels are not operated with a hotel brand so they do not have franchise agreements. Franchise agreements allow the hotel properties to operate under the respective brands. Pursuant to the franchise agreements, the Company pays a royalty fee between 2.0% and 6.0% of room revenue, plus additional fees for marketing, central reservation systems and other franchisor costs between 1.0% and 4.3% of room revenue. Certain hotels are also charged a royalty fee between 1.5% and 3.0% of food and beverage revenues.

Franchise fees are included in management and franchise fee expense in the accompanying consolidated statements of operations and comprehensive income (loss). For the years ended December 31, 2023, 2022 and 2021, the Company incurred franchise fee expense of approximately $65.7 million, $60.9 million and $43.2 million, respectively.