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Hotel Management Agreements and Leases | 3 Months Ended
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Mar. 31, 2015
Hotel Management Agreements and Leases |
Hotel Management Agreements and Leases | Note 11. Hotel Management Agreements and Leases As of March 31, 2015, 289 of our hotels are leased to our TRSs and managed by independent hotel operating companies and three are leased to third parties. Marriott No. 1 agreement. Our management agreement with Marriott International, Inc., or Marriott, for 53 hotels provides that as of March 31, 2015 we are paid a n annual minimum return of $68,094 to the extent that gross revenues of the hotels, after payment of hotel operating expenses and funding of the FF&E reserve, are sufficient to do so. We do not have any security deposits or guarantees for the 53 hotels included in our Marriott No. 1 agreement. Accordingly, the returns we receive from these hotels managed by Marriott are limited to available hotel cash flows after payment of operating expenses and funding of the FF&E reserve. We realized returns of $17,006 and $15,036 during the three months ended March 31, 2015 and March 31, 2014, respectively, under this agreement. Marriott’s management and incentive fees are only earned after we receive our minimum returns. We $1,175 for capital improvements at certain of the hotels included in our Marriott No. 1 agreement during the three months ended March 31, 2015. We currently expect to fund $3,000 for capital improvements during the remainder of 2015 under this agreement. As we fund these improvements, the annual minimum returns payable to us increase by 10% of the amounts funded. Marriott No. 234 agreement. Our management agreement with Marriott for 68 hotels provides that as of March 31, 2015 we are paid a n annual minimum return of $106,198. We realized returns of $25,006 and $23,806 during the three months ended March 31, 2015 and 2014, respectively, under this agreement. Pursuant to our Marriott No. 234 agreement, Marriott has provided us with a limited guarantee for shortfalls up to 90% of our minimum returns through 2019. Marriott was not required to make any guarantee payments to us during the three months ended March 31, 2015, because the hotels generated net operating results in excess of the guarantee threshold amount (90% of the minimum returns due to us). The available balance of the guarantee was $30,672 as of March 31, 2015. We funded $3,000 for capital improvements at certain of the hotels included in our Marriott No. 234 agreement during the three months ended March 31, 2015. We currently expect to fund $10,500 for capital improvements during the remainder of 2015 under this agreement. As we fund these improvements, the annual minimum returns payable to us increase by 9% of the amounts funded. Marriott No. 5 agreement. We lease one hotel in Kauai, Hawaii to Marriott. This lease is guaranteed by Marriott and we realized $2,529 and $2,501 of rent for this hotel during the three months ended March 31, 2015 and 2014, respectively. The guarantee provided by Marriott with respect to the one hotel leased by Marriott is unlimited. InterContinental agreement. Our management agreement with InterContinental for 92 hotels provides that as of March 31, 2015, we are paid annual minimum returns and rents of $143,598. We realized returns and rents of $35,314 and 34,875 during the three months ended March 31, 2015 and 2014, respectively, under this agreement. Pursuant to our InterContinental agreement, InterContinental has provided us with a security deposit to cover minimum payment shortfalls, if any. During the three months ended March 31, 2015, we were paid all minimum returns and rents due to us and our available security deposit was replenished by $810 for the payments we received during the period in excess of the minimum payments due for the period. Under this agreement, InterContinental is required to maintain a minimum security deposit of $37,000. On January 6, 2014, we entered into a letter agreement with InterContinental under which the minimum security deposit balance required to be maintained during 2015 will be reduced by two dollars for every dollar of additional security deposit InterContinental provides to us. During the first quarter of 2015, InterContinental provided us $2,772 of additional security deposits, which reduced the minimum security deposit amount required to $31,456. The available balance of this security deposit was $36,549 as of March 31, 2015. On March 16, 2015, we amended our management agreement with InterContinental in connection with our acquisition of a Holiday Inn & Suites® branded hotel located in Rosemont, IL. As a result of the amendment, the annual minimum returns due to us increased by $2,840 ( 8% of our investment in the hotel). We currently expect to fund approximately $7,000 under our InterContinental agreement to renovate this hotel. In March 2015, we entered an agreement to acquire a Crowne Plaza branded hotel in Denver, CO. Upon acquisition of this hotel, we expect to add it to our InterContinental agreement. See Note 7 for further information regarding this pending acquisition. We currently expect to fund $17,000 for capital improvements to certain hotels, including the Rosemont hotel, under our InterContinental agreement during 2015. We did not make any of these fundings during the three months ended March 31, 2015. As we fund these improvements, the annual minimum returns payable to us increase by 8% of the amounts funded. Sonesta agreement. Our management agreement with Sonesta provides that we are paid a n annual minimum return ( $72,796 as of March 31, 2015) equal to 8% of our invested capital, as defined in the management agreement, to the extent that gross revenues of the hotels, after payment of hotel operating expenses and certain base management fees to Sonesta, are sufficient to do so. We do not have any security deposits or guarantees for our hotels managed by Sonesta. Accordingly, the returns we receive from hotels managed by Sonesta are limited to available hotel cash flows after payment of operating expenses. Sonesta’s incentive management fees, but not its other fees, are only earned after we receive our minimum returns. We realized returns of $8,061 and $2,096 during the three months ended March 31, 2015 and 2014, respectively, under this agreement. Our Sonesta agreement does not require FF&E escrow deposits. Under our Sonesta agreement, we are required to fund capital expenditures made at our hotels. We funded $13,320 for renovations and other capital improvements to hotels included in our Sonesta agreement during the three months ended March 31, 2015. We currently expect to fund approximately $13,680 for renovations and other capital improvements during the remainder of 2015 under this agreement. The annual minimum returns due to us under the Sonesta agreement increase by 8% of the amounts funded in excess of threshold amounts, as defined therein. See Note 10 for further information regarding our relationship with Sonesta. Wyndham agreement. Our management agreement with Wyndham Hotel Group, or Wyndham, for 22 hotels provides that as of March 31, 2015, we are paid annual minimum returns and rents of $27,548. We realized returns of $6,863 and $6,535 during the three months ended March 31, 2015 and 2014, respectively, under this agreement. Pursuant to our Wyndham agreement, Wyndham has provided us with a limited guarantee, which is limited to $35,656 ( $2,660 remaining at March 31, 2015), subject to an annual payment limit of $17,828 and which expires on July 28, 2020. During the three months ended March 31, 2015, Wyndham mad e $3,922 of guarantee payments to us. The guarantee provided by Wyndham with respect to the lease with Wyndham Vacation Resorts, Inc., or Wyndham Vacation, for part of one hotel is unlimited. We funded $1,505 for renovations and other capital improvements to hotels included in our Wyndham agreement during the three months ended March 31, 2015. We currently expect to fund approximately $7,495 for renovations and other capital improvements during the remainder of 2015 under this agreement. As we fund these improvements, the annual minimum returns payable to us increase by 8% of the amounts funded. Other management agreement and lease matters. As of May 6, 2015, all payments due to us from our managers and tenants under our other operating agreements were current. Minimum return and minimum rent payments due to us under some of these other hotel management agreements and leases are supported by guarantees. The guarantee provided by Hyatt Hotels Corporation, or Hyatt, with respect to the 22 hotels managed by Hyatt is limited to $50,000 ( $11,971 remaining at March 31, 2015). The guarantee provided by Carlson Hotels Worldwide, or Carlson, with respect to the 11 hotels managed by Carlson is limited to $40,000 ( $22,217 remaining at March 31, 2015). Guarantees and security deposits generally. Certain of our managed hotels had net operating results that were, in the aggregate, $15,492 and $28,095, less than the minimum returns due to us in the three months ended March 31, 2015 and 2014, respectively. When the managers of these hotels fund the shortfalls under the terms of our operating agreements or their guarantees, we reflect such fundings (including security deposit applications) in our condensed consolidated statements of income and comprehensive income as a reduction of hotel operating expenses. The reduction to hotel operating expenses was $4,006 and $10,876 in the three months ended March 31, 2015 and 2014, respectively. We had shortfalls at certain of our managed hotel portfolios not funded by the managers of these hotels under the terms of our operating agreements of $11,486 and $17,219 in the three months ended March 31, 2015 and 2014, respectively, which represents the unguaranteed portions of our minimum returns from Marriott and from Sonesta. When we reduce the amounts of the security deposits we hold for any of our operating agreements for payment deficiencies, we record income equal to the amounts by which the deposit is reduced up to the minimum returns or minimum rent due to us. Reducing the security deposits does not result in additional cash flow to us of the deficiency amounts, but reducing amounts of security deposits may reduce the refunds due to the respective lessees or managers who have provided us with these deposits upon expiration of the respective lease or management agreement. The security deposits are non-interest bearing and are not held in escrow. Certain of our guarantees and our security deposits may be replenished by future cash flows from the applicable hotel operations pursuant to the terms of the respective agreements.

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