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Hotel Management Agreements and Leases | 9 Months Ended
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Sep. 30, 2015
Hotel Management Agreements and Leases |
Hotel Management Agreements and Leases | Note 11. Hotel Management Agreements and Leases As of September 30, 2015, 299 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 September 30, 2015 we are to be paid an annual minimum return of $68,277 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 our minimum returns from the 53 hotels included in our Marriott No. 1 agreement. Accordingly, the minimum 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. Marriott’s management and incentive fees are only earned after we receive our minimum returns. We realized minimum returns of $17,046 and $16,938 during the three months ended September 30, 2015 and 2014, respectively, and minimum returns of $51,080 and $50,745 during the nine months ended September 30, 2015 and 2014, respectively, under this agreement. We also realized additional returns of $3,149 during the three and nine months ended September 30, 2015, which represents our share of hotel cash flows in excess of the minimum returns due for the period. We funded $3,005 for capital improvements at certain of the hotels included in our Marriott No. 1 agreement during the nine months ended September 30, 2015. We currently expect to fund $1,000 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 September 30, 2015 we are to be paid an annual minimum return of $106,243. We realized returns of $26,553 and $29,232 during the three months ended September 30, 2015 and 2014, respectively, and returns of $79,586 and $79,368 during the nine months ended September 30, 2015 and 2014, respectively, under this agreement. Pursuant to our Marriott No. 234 agreement, Marriott has provided us with a security deposit to cover minimum return payment shortfalls, if any. During the three and nine months ended September 30, 2015, our available security deposit was replenished by $3,658 and $7,389, respectively, from the hotel cash flows in excess of the minimum returns due for the period. The available balance of this deposit was $7,389 as of September 30, 2015. Pursuant to our Marriott No. 234 agreement, Marriott has also provided us with a limited guarantee which expires in 2019 for shortfalls up to 90% of our minimum returns, after the available security deposit has been depleted. Marriott was not required to make any guarantee payments to us during the three and nine months ended September 30, 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 September 30, 2015. We funded $3,500 for capital improvements at certain of the hotels included in our Marriott No. 234 agreement during the nine months ended September 30, 2015. As we funded these improvements, the annual minimum returns payable to us increase by 9% of the amounts funded. We currently do not expect to make any fundings for capital improvements during the remainder of 2015 under this agreement. 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 September 30, 2015 and 2014, respectively, and $7,587 and $7,503 of rent during the nine months ended September 30, 2015 and 2014, respectively. The guarantee provided by Marriott with respect to this leased hotel is unlimited. InterContinental agreement. Our management agreement with InterContinental for 93 hotels provides that as of September 30, 2015, we are to be paid annual minimum returns and rents of $149,778. We realized minimum returns and rents of $37,444 and $34,875 during the three months ended September 30, 2015 and 2014, respectively, and minimum returns and rents of $109,461 and $104,624 during the nine months ended September 30, 2015 and 2014, respectively, under this agreement. We also realized additional returns of $2,607 and $5,784 under this agreement during the three and nine months ended September 30, 2015, respectively, from the hotel cash flows in excess of our minimum payments due for the periods. Pursuant to our InterContinental agreement, InterContinental has provided us with a security deposit to cover minimum payment shortfalls, if any. During the three and nine months ended September 30, 2015, our available security deposit was replenished by $4,992 and $12,709, respectively, from the hotel cash flows in excess of the minimum payments due for the period. The available balance of this security deposit was $45,675 as of September 30, 2015. Under this agreement, InterContinental is required to maintain a minimum security deposit of $37,000. In January 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. We refunded the additional security deposit to InterContinental in July 2015. On each of March 16, 2015 and May 15, 2015, we amended our management agreement with InterContinental in connection with our acquisitions of two hotels. As a result of the amendments, the annual minimum returns due to us increased by an aggregate of 8% of our investment in the two hotels. We currently expect to fund $34,750 for capital improvements to certain hotels under our InterContinental agreement during the remainder of 2015 and in 2016. We did not make any fundings for capital improvements to these hotels during the nine months ended September 30, 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 to be paid an annual minimum return equal to 8% of our invested capital, as defined in the management agreement ($81,433 as of September 30, 2015), to the extent that gross revenues of the hotels, after payment of hotel operating expenses and certain 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 $13,186 and $8,424 during the three months ended September 30, 2015 and 2014, respectively, and returns of $39,985 and $21,724 during the nine months ended September 30, 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 $42,8 70 for renovations and other capital improvements to hotels included in our Sonesta agreement during the nine months ended September 30, 2015. We currently expect to fund approximately $55,000 for renovations and other capital improvements during the remainder of 2015 and in 2016 under this agreement, including $45,000 related to the nine hotels we acquired in July 2015. 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 September 30, 2015, we are to be paid annual minimum returns and rents of $27,843. We realized returns and rents of $6,931 and $6,80 5 during the three months ended September 30, 2015 and 2014, respectively, and returns and rents of $20,700 and $20,044 during the nine months ended September 30, 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 ($5,287 remaining at September 30, 2015), subject to an annual payment limit of $17,828 and which expires on July 28, 2020. During the nine months ended September 30, 2015, Wyndham mad e $1,295 of net 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 $5,296 for renovations and other capital improvements to hotels included in our Wyndham agreement during the nine months ended September 30, 2015. We currently expect to fund approximately $3,700 for capital improvements to certain hotels during the remainder of 2015 and in 2016 under this agreement. As we fund these improvements, the annual minimum returns and rents payable to us increase by 8% of the amounts funded. TA agreements. See Note 10 for information about our TA agreements. Other management agreement and lease matters. As of November 8, 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 ($14,893 remaining at September 30, 2015). The guarantee provided by Carlson Hotels Worldwide, or Carlson, with respect to the 11 hotels managed by Carlson is limited to $40,000 ($25,580 remaining at September 30, 2015). Guarantees and security deposits generally. Certain of our managed hotel portfolios had net operating results that exceeded the minimum returns due to us for the three and nine months ended September 30, 2015. Certain of our managed hotel portfolios had net operating results that were, in the aggregate, $6,560 and $8,782 less than the minimum returns due to us for the three months ended September 30, 2015 and 2014, respectively, and $17,395 and $30,963 le ss than the minimum returns due to us for the nine months ended September 30, 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 comprehensive income as a reduction of hotel operating expenses. When we reduce the amounts of the security deposits we hold for any of our operating agreements for payment deficiencies, it does not result in additional cash flow to us of the deficiency amounts, but reduces the refunds due to the respective lessees or managers who have provided us with these deposits upon expiration of the respective management agreement. The security deposits are non-interest bearing and are not held in escrow. There was no reduction to hotel operating expenses for the three months ended September 30, 2015 for shortfalls funded by our hotel managers. Hotel operating expenses were reduced due to such fundings by $42 for the three months ended September 30, 2014 and by $1,295 and $5,052 for the nine months ended September 30, 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 $6,560 and $8,740 in the three months ended September 30, 2015 and 2014, respectively, and $16,100 and $25,911 in the nine months ended September 30, 2015 and 2014, respectively, which represent the unguaranteed portions of our minimum returns from Sonesta. Certain of our managed hotel portfolios had net operating results that were in the aggregate, $28,969 and $17,329 more than the minimum returns due to us in the three months ended September 30, 2015 and 2014, respectively, and $65,973 and $24,408 more than the minimum returns due to us in the nine months ended September 30, 2015 and 2014, respectively. Certain of our guarantees and our security deposits may be replenished by future cash flows from the applicable hotel operations in excess of the minimum returns due to us pursuant to the terms of the respective agreements. When our guarantees and our security deposits are replenished by cash flows from hotel operations, we reflect such replenishments in our condensed consolidated statements of comprehensive income as an increase to hotel operating expenses. We had $11,970 and $4,150 of guarantee and security deposit replenishments in the three months ended September 30, 2015 and 2014, respectively. We had $27,551 and $6,447 of guarantee and security deposit replenishments in the nine months ended September 30, 2015 and 2014, respectively.

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