| Management Agreements and Leases | Note 6. Management Agreements and Leases As of December 31, 2018 , we owned 326 hotels and 199 travel centers, which are included in 13 operating agreements. We do not operate any of our properties. As of December 31, 2018 , 324 of our hotels are leased to our TRSs and managed by independent hotel operating companies and two hotels are leased to third parties. As of December 31, 2018 , our hotel properties were managed by or leased to separate subsidiaries of Marriott, IHG, Sonesta, Wyndham, Hyatt and Radisson under eight agreements. These hotel agreements have initial terms expiring between 2019 and 2038. Each of these agreements is for between one and 100 of our hotels. In general, the agreements contain renewal options for all, but not less than all, of the affected properties included in each agreement, and the renewal terms range between 20 to 60 years. Most of these agreements require the third party manager or tenant to: (1) make payments to us of minimum returns or minimum rents; (2) deposit a percentage of total hotel sales into FF&E reserves; and (3) for our managed hotels, make payments to our TRSs of additional returns to the extent of available cash flows after payment of operating expenses, funding of the FF&E reserves, payment of our minimum returns, payment of certain management fees and replenishment of security deposits or guarantees. Some of our managers or tenants or their affiliates have provided deposits or guarantees to secure their obligations to pay us. Marriott No. 1 agreement . Our management agreement with Marriott for 53 hotels, or our Marriott No. 1 agreement, provides that, as of December 31, 2018 , we are to be paid an annual minimum return of $70,137 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. Marriott’s base and incentive management fees are only earned after we receive our minimum returns. We realized minimum returns of $69,325 , $68,944 and $68,514 during the years ended December 31, 2018 , 2017 and 2016 , respectively, under this agreement. We also realized additional returns of $4,457 , $6,180 and $10,202 during the years ended December 31, 2018 , 2017 and 2016 , respectively, which represent our share of hotel cash flows in excess of the minimum returns due to us for those years. 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 the hotels' available cash flows after payment of operating expenses and funding of the FF&E reserve. We funded $9,050 for capital improvements to certain of the hotels included in our Marriott No. 1 agreement during the year ended December 31, 2018 . We currently expect to fund approximately $17,000 for capital improvements to certain hotels under our Marriott No. 1 agreement during 2019 . 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, or our Marriott No. 234 agreement, provides that, as of December 31, 2018 , we are to be paid an annual minimum return of $107,350 . We realized minimum returns of $106,978 , $106,405 and $106,275 during the years ended December 31, 2018 , 2017 and 2016 , 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. Under this agreement, this security deposit may be replenished and increased up to $64,700 from a share of hotel cash flows in excess of the minimum returns due to us. Marriott’s base and incentive management fees are only earned after we receive our minimum returns. During the year ended December 31, 2018 , our available security deposit was replenished by $6,740 from a share of hotel cash flows in excess of the minimum returns due to us for the year. The available balance of this deposit was $32,711 as of December 31, 2018 . Pursuant to our Marriott No. 234 agreement, Marriott has also provided us with a limited guaranty which expires in 2019 for shortfalls up to 90% of our minimum returns, if and after the available security deposit has been depleted. The available balance of the guaranty was $30,672 as of December 31, 2018 . We funded $9,030 for capital improvements to certain of the hotels included in our Marriott No. 234 agreement during the year ended December 31, 2018 . We currently expect to fund approximately $45,000 for capital improvements to certain hotels under our Marriott No. 234 agreement during 2019 . 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, HI to Marriott which requires that, as of December 31, 2018 , we are paid annual minimum rents of $10,321 . This lease is guaranteed by Marriott and we realized $10,321 , $10,159 and $10,116 of rent for this hotel during the years ended December 31, 2018 , 2017 and 2016 , respectively. The guaranty provided by Marriott with respect to this leased hotel is unlimited. Marriott has four renewal options for 15 years each. On August 31, 2016, Marriott notified us that it will not exercise its renewal option at the expiration of the current lease term ending on December 31, 2019. IHG agreement. Our management agreement with IHG for 100 hotels, or our IHG agreement, provides that, as of December 31, 2018 , we are to be paid annual minimum returns and rents of $193,695 . We realized minimum returns and rents of $189,981 , $178,883 and $158,464 during the years ended December 31, 2018 , 2017 and 2016 , respectively, under this agreement. We also realized additional returns under this agreement of $12,250 and $7,013 during the years ended December 31, 2017 and 2016 , respectively, from our share of hotel cash flows in excess of the minimum returns and rents due to us for those years. There were no additional returns realized under this agreement during the year ended December 31, 2018 . Pursuant to our IHG agreement, IHG has provided us with a security deposit to cover minimum payment shortfalls, if any. Under this agreement, IHG is required to maintain a minimum security deposit of $37,000 and this security deposit may be replenished and increased up to $100,000 from a share of future cash flows from the hotels in excess of our minimum returns and rents. The available balance of the IHG security deposit remained at the maximum contractual amount of $100,000 as of December 31, 2018 . In connection with the February 2019 acquisition of the Hotel Palomar described in Note 5 , IHG will provide us $5,000 to supplement the existing security deposit. We funded $39,668 for capital improvements to certain of the hotels included in our IHG agreement during the year ended December 31, 2018 . We currently expect to fund approximately $61,000 for capital improvements to certain hotels under our IHG agreement during 2019 . As we fund these improvements, the annual minimum returns and rents payable to us increase by 8% of the amounts funded. Sonesta agreement. As of December 31, 2018 , Sonesta managed 12 of our full service hotels and 39 of our limited service hotels pursuant to management agreements for each of the hotels, which we refer to collectively as our Sonesta agreement, and a pooling agreement, which combines those management agreements for purposes of calculating gross revenues, payment of hotel operating expenses, payment of fees and distributions and minimum returns due to us. See Notes 5 and 10 for further information regarding our relationship, agreements and transactions with Sonesta. Our Sonesta agreement provides that we are paid a fixed annual minimum return equal to 8% of our invested capital, as defined therein, which was $127,089 , as of December 31, 2018 , if gross revenues of the hotels, after payment of hotel operating expenses and management and related fees (other than Sonesta’s incentive fee, if applicable), are sufficient to do so. Our Sonesta agreement further provides that we are paid an additional return based upon operating profits, as defined therein, after payment of Sonesta’s incentive fee, if applicable. We realized returns of $78,076 , $70,576 and $59,618 during the years ended December 31, 2018 , 2017 and 2016 , respectively, under our Sonesta agreement. We do not have any security deposits or guarantees for our Sonesta hotels. Accordingly, the returns we receive from our Sonesta hotels are limited to the hotels' available cash flows after payment of operating expenses including management and related fees. Our Sonesta agreement provides that Sonesta is entitled to receive, after payment of hotel operating expenses, a base management fee equal to 3.0% of gross revenues for our full service Sonesta hotels and 5.0% of gross revenues for our limited service Sonesta hotels. Additionally, Sonesta is entitled to a reservation fee equal to 1.5% of gross room revenues, as defined in the Sonesta agreement, a system fee for centralized services of 1.5% of gross revenues, a procurement and construction supervision fee equal to 3.0% of third party costs of capital expenditures and an incentive management fee equal to 20.0% of operating profits remaining after reimbursement to us and to Sonesta of certain advances and payment of our minimum returns. Sonesta’s incentive management fee, but not its other fees, is earned only after our minimum returns are paid. Our Sonesta agreement also provides that the costs incurred by Sonesta for advertising, marketing, promotional and public relations programs and campaigns, including “frequent stay” rewards programs, for the benefit of our Sonesta hotels are subject to reimbursement by us or are otherwise treated as hotel operating expenses, subject to our approval. We incurred base management, reservation and system fees and reimbursement costs for certain guest loyalty, marketing program and third party reservation transmission fees of $34,821 , $28,238 and $24,194 for the years ended December 31, 2018 , 2017 and 2016 , respectively, under our Sonesta agreement. In addition, we recognized procurement and construction supervision fees of $2,374 , $1,080 and $1,468 for the years ended December 31, 2018 , 2017 and 2016 , respectively, under our Sonesta agreement. These amounts are included in hotel operating expenses or have been capitalized, as appropriate, in our consolidated financial statements. Our Sonesta agreement does not require FF&E escrow deposits, but does require us to fund capital expenditures that we approve at our Sonesta hotels. We funded $82,329 , $34,933 and $54,105 for renovations and other capital improvements to hotels included in our Sonesta agreement during the years ended December 31, 2018 , 2017 and 2016 , respectively. We currently expect to fund approximately $100,000 and $33,000 during 2019 and 2020 , respectively, for renovations and other capital improvements to certain hotels under our Sonesta agreement. We owed Sonesta $5,703 and $4,582 for capital expenditure reimbursements and for a previously estimated overpayment of minimum returns advanced at December 31, 2018 and 2017 , respectively. Amounts due from Sonesta are included in due from related persons and amounts owed to Sonesta are included in due to related persons in our consolidated balance sheets, respectively. Our Sonesta agreement expires in January 2037, and will be extended automatically for up to two successive 15 year renewal terms unless Sonesta elects not to renew any such agreement. Under the pooling agreement, if Sonesta elects not to renew a management agreement, that will be deemed to be a notice of non-renewal for all our management agreements with Sonesta. We generally have the right to terminate a management agreement with Sonesta after three to four years without cause upon payment of a termination fee. We also have the right to terminate a management agreement with Sonesta without a termination fee if our minimum return is less than 6% of our invested capital during any three of four applicable consecutive years. Both we and Sonesta have the right to terminate any management agreement included in our Sonesta agreement upon a change in control, as defined therein, of the other party, and under certain other circumstances that, in the case of termination by Sonesta, may require that we pay a termination fee to Sonesta. Under the pooling agreement, if we terminate or Sonesta terminates a management agreement following a change of control, that will be deemed a termination of all of our management agreements with Sonesta. Under our Sonesta agreement, if we terminate without cause, or if Sonesta terminates under certain circumstances, the termination fee is an amount equal to the present value of the payments that would have been made to Sonesta as a base management fee, reservation fee, system fee and incentive management fee, each as defined therein, between the date of termination of the applicable agreement and the scheduled expiration date of the term that was remaining prior to such termination, which present value is calculated based upon the average of each of such fees earned in each of the three years ended prior to the date of termination, discounted at an annual rate equal to 8% . We may designate a hotel as “non-economic” under the pooling agreement, in which case the hotel would be subject to sale and the applicable Sonesta management agreement would be terminated, and we have an early termination right under each of the management agreements included in our Sonesta agreement if the applicable hotel does not meet certain criteria for the stipulated measurement period. These stipulated measurement periods begin on the later of January 1, 2017 and January 1st of the year beginning at least 18 months following the effective date of the applicable management agreement. On May 8, 2018 , we rebranded The Clift Hotel in San Francisco, CA to the Royal Sonesta ® brand and added it to our Sonesta agreement. We previously leased this hotel to a third party. On May 8, 2018 , pursuant to a settlement agreement with that third party, the lease was terminated. On November 15, 2017, we and Sonesta converted approximately half of the rooms in the Sonesta Gwinnett hotel in Duluth, GA into limited service rooms, and amended the applicable management agreement with respect to the base management fees Sonesta earns on those rooms. See Note 5 for information regarding the effects of certain of our property acquisitions on our management agreements with Sonesta. Morgans agreement. Prior to May 8, 2018 , we leased The Clift Hotel in San Francisco, CA to Morgans Hotel Group, or Morgans. This lease was scheduled to expire in 2103 and required annual rent to us of $7,595 . During the period of January 1, 2018 through May 8, 2018 , all contractual rent due to us under the Morgans lease was paid to us. On May 8, 2018 , pursuant to a settlement agreement with Morgans and SBE Entertainment Group, LLC, our Morgans lease was terminated and Morgans surrendered possession of the hotel to us. We rebranded this hotel to the Royal Sonesta ® brand and added it to our management agreement with Sonesta. The terms of the management agreement were consistent with the terms of our other management agreements with Sonesta for full service hotels. Wyndham agreements . Our management agreement with Wyndham for 22 hotels, or our Wyndham agreement, provides that, as of December 31, 2018 , we are to be paid annual minimum returns of $27,790 . Pursuant to our Wyndham agreement, Wyndham has provided us with a guaranty which was limited to $35,656 , subject to an annual payment limit of $17,828 , and expires on July 28, 2020. This guaranty was depleted during 2017 and remained depleted as of December 31, 2018 . This guaranty may be replenished from a share of future cash flows from these hotels in excess of our minimum returns. The Wyndham agreement provides that if the hotel cash flows available after payment of hotel operating expenses are less than the minimum returns due to us and if the guaranty is depleted, to avoid a default Wyndham is required to pay us the greater of the available hotel cash flows after payment of hotel operating expenses and 85% of the contractual amount due to us. We cannot be sure as to whether Wyndham will continue to pay at least the greater of available hotel cash flows after payment of hotel operating expenses and 85% of the minimum returns due to us or if Wyndham will default on its payments. During the year ended December 31, 2018 , we realized returns of $23,562 , which represents 85% of the returns due for the year, under this agreement. During the years ended December 31, 2017 and 2016 , we realized returns of $27,452 and $26,862 , respectively, under this agreement. Our Wyndham agreement requires FF&E escrow deposits equal to 5% of total hotel sales for all hotels included in the agreement subject to available cash flows after payment of our minimum return. No FF&E escrow deposits were made during the year ended December 31, 2018 . We funded $2,882 for capital improvements to certain of the hotels included in our Wyndham agreement during the year ended December 31, 2018 . We currently expect to fund approximately $15,000 for capital improvements to certain hotels under our Wyndham agreement during 2019 . As we fund these improvements, the annual minimum returns payable to us increase by 8% of the amounts funded. We also lease 48 vacation units in one of our hotels to Destinations which requires that, as of December 31, 2018 , we are paid annual minimum rents of $1,493 . The guaranty provided by Destinations with respect to the Destinations lease for part of one hotel is unlimited. We recognized the contractual rents of $1,814 during each of the years ended December 31, 2018 , 2017 and 2016 under our Destinations lease agreement. Rental income for the years ended December 31, 2018 , 2017 and 2016 for this lease includes $358 , $400 and $441 , respectively, of adjustments necessary to record rent on a straight line basis. Hyatt agreement. Our management agreement with Hyatt for 22 hotels, or our Hyatt agreement, provides that, as of December 31, 2018 , we are to be paid an annual minimum return of $22,037 . We realized minimum returns of $22,037 during each of the years ended December 31, 2018 , 2017 and 2016 under this agreement. Pursuant to our Hyatt agreement, Hyatt has provided us with a guaranty, which is limited to $50,000 . During the year ended December 31, 2018 , our available guaranty was replenished by $809 from a share of hotel cash flows in excess of the minimum returns due to us. The available balance of the guaranty was $21,915 as of December 31, 2018 . Radisson agreement. Our management agreement with Radisson for nine hotels, or our Radisson agreement, provides that, as of December 31, 2018 , we are to be paid an annual minimum return of $18,920 . We realized minimum returns of $16,183 during the year ended December 31, 2018 and $12,920 during each of the years ended December 31, 2017 and 2016 . In connection with our acquisition of the Radisson Blu ® hotel described in Note 5 , the available balance of the guaranty under our Radisson agreement was increased by $6,000 and the guaranty cap was increased to $46,000 . During the year ended December 31, 2018 , our available guaranty was replenished by $3,195 from a share of hotel cash flows in excess of the minimum returns due to us. The available balance of the guarantee was $42,559 at December 31, 2018 . In June 2017, we amended our Radisson agreement and agreed to sell three of our then 11 Radisson hotels. During the year ended December 31, 2017 , we completed the sale of these three hotels and deposited $23,438 of the net sales proceeds into the FF&E reserve escrow account for our Radisson agreement. See Note 5 for further information regarding these sales. The net proceeds from these sales will be used to fund certain renovations to the remaining nine hotels operated under our Radisson agreement and we have agreed to fund up to $35,000 for renovation costs in excess of the net sales proceeds and available FF&E reserves. We currently expect to fund approximately $22,000 during 2019 and approximately $6,000 during 2020 for these renovations. Our annual minimum returns and the limited guaranty cap under our Radisson agreement will each increase by 8% of any amounts we fund (excluding the net sales proceeds described above). In addition, as part of our June 2017 agreement with Radisson, the initial term of the management agreement and the limited guaranty provided by Radisson were extended to December 31, 2035. TA leases. As of December 31, 2018 , we leased to TA a total of 199 travel centers under five leases that expired between 2026 and 2032 and required aggregate annual minimum rents of $289,231 . Pursuant to a rent deferral agreement with TA, TA previously deferred as of December 31, 2010 a total of $150,000 of rent payable to us, which remained outstanding as of December 31, 2018 . This deferred rent obligation was allocated among our TA leases and, as of December 31, 2018 , was due at the end of the initial terms of the respective leases, except for our TA No. 5 lease, in which case the applicable deferred rent was due and payable on June 30, 2024. On January 16, 2019 , we entered agreements with TA, or the Transaction Agreements, pursuant to which in January 2019 : • We sold to TA 20 travel center properties for a total purchase price of $308,200 . TA previously leased those properties from us. • Upon completing these transactions, these travel center properties were removed from the TA leases. • Commencing on April 1, 2019 , TA will pay to us 16 quarterly installments of approximately $4,400 each (an aggregate of $70,458 ) to fully satisfy and discharge its $150,000 deferred rent obligation to us that otherwise would have become due in five installments between 2024 and 2030 . • Commencing with the year ending December 31, 2020 , TA will be obligated to pay to us an additional amount of percentage rent equal to one-half percent ( 0.5% ) of the excess of its annual nonfuel revenues at leased sites over the nonfuel revenues for each respective site for the year ending December 31, 2019 . • The term of each TA lease was extended by three years . • Certain of the 179 travel center properties that TA continues to lease from us were reallocated among the TA leases. The number of travel centers, the terms, the annual minimum rent and the deferred rent balances owed to us by TA under our TA leases as of February 26, 2019 , were as follows: Number of Travel Centers (1) Initial Term End (2) Annual Minimum Rent (1) Deferred Rent (3) TA No. 1 Lease 36 December 31, 2032 $ 49,018 $ 14,175 TA No. 2 Lease 36 December 31, 2031 44,663 12,847 TA No. 3 Lease 35 December 31, 2029 42,404 12,603 TA No. 4 Lease 37 December 31, 2033 48,381 12,961 TA No. 5 Lease 35 June 30, 2035 61,617 17,872 179 $ 246,083 $ 70,458 (1) Pursuant to the Transaction Agreements, in January 2019 , we sold to TA 20 travel center properties we leased to TA as of December 31, 2018 . As of December 31, 2018 , of these 20 travel centers, five were included in TA No. 1 lease, four were included in TA No. 2 lease, five were included in TA No. 3 lease, one was included in TA No. 4 lease and five were included in TA No. 5 lease. In addition, certain properties were re-allocated amongst the lease pools to balance the portfolios' financial profile and maintain geographic diversity. Upon the sale of these 20 travel centers, the properties were removed from the applicable leases and the annual minimum rent payable to us by TA under TA Nos. 1, 2, 3, 4 and 5 lease was reduced by $4,694 , $10,192 , $12,350 , $6,982 and $8,930 , respectively. (2) TA has two renewal options of 15 years each under each of our TA leases. Pursuant to the Transaction Agreements, the term of each of the TA leases was extended by three years from their previous expiration dates. The lease terms listed in the table include the extended three year terms. (3) Pursuant to the Transaction Agreements, TA agreed to make 16 quarterly installments of $4,400 each commencing April 1, 2019 , or $70,458 in aggregate, to repay and fully satisfy and discharge the $150,000 in deferred rent TA owed us. Our TA leases are “triple net” leases that require TA to pay all costs incurred in the operation of the leased travel centers, including personnel, utility, inventory, customer service and insurance expenses, real estate and personal property taxes, environmental related expenses, underground storage tank removal costs and ground lease payments at those travel centers at which we lease the property and sublease it to TA. Our TA leases generally require TA to indemnify us for certain environmental matters and for liabilities that arise during the terms of the leases from ownership or operation of the leased travel centers. In addition, TA is obligated to pay us at lease expiration an amount equal to an estimate of the cost of removing underground storage tanks on the leased properties. Our TA leases do not require FF&E escrow deposits. However, TA is required to maintain the leased travel centers, including structural and non-structural components. Under our TA leases, TA generally cannot own, franchise, finance, operate, lease or manage any travel center or similar property that is not owned by us within 75 miles in either direction along the primary interstate on which a travel center owned by us is located without our consent. We recognized rental income of $302,309 , $293,273 and $279,175 for the years ended December 31, 2018 , 2017 and 2016 , respectively, under our TA leases. Rental income for the years ended December 31, 2018 , 2017 and 2016 includes $12,127 , $11,966 and $13,132 , respectively, of adjustments necessary to record the deferred rent obligations under our TA leases and the estimated future payments to us by TA for the cost of removing underground storage tanks, in each case, on a straight line basis. As of December 31, 2018 and 2017 , we had receivables for current rent amounts owed to us by TA and straight line rent adjustments of $91,212 and $78,513 , respectively. These amounts are included in due from related persons in our consolidated balance sheets. We recognized the deferred rent obligations under our TA leases as rental income on a straight line basis over periods to 2024 through 2030, depending on the applicable lease terms because we believed the future payment of these amounts to us by TA was reasonably assured. Beginning in January 2019 , our recognition of the amended deferred rent obligations were recorded on a straight line basis over the new lease terms of our TA leases. In addition to the payment of annual minimum rent, our TA Nos. 1, 2, 3 and 4 leases provide for payment to us of percentage rent based on increases in total non-fuel revenues over base year levels ( 3% of non-fuel revenues above 2015 non-fuel revenues, and, pursuant to the Transaction Agreements, an additional half percent ( 0.5% ) of non-fuel revenues above 2019 non-fuel revenues beginning with the year ending December 31, 2020) and our TA No. 5 lease provides for payment to us of percentage rent based on increases in total non-fuel revenues over base year levels ( 3% of non-fuel revenues above 2012 non-fuel revenues, and, pursuant to the Transaction Agreements, an additional 0.5% of non-fuel revenues above 2019 non-fuel revenues beginning with the year ending December 31, 2020). We waived $372 of percentage rent under our TA No. 5 lease for the year ended December 31, 2016 pursuant to a prior agreement. As of December 31, 2016, we cumulatively waived all of the $2,500 of percentage rent we previously agreed to waive. The total amount of percentage rent from TA that we recognized (which, for the year ended December 31, 2016, is net of the amount waived for that period) was $3,548 , $2,106 and $1,303 for the years ended December 31, 2018 , 2017 and 2016 , respectively. Under our TA leases, TA may request that we fund capital improvements in return for increases in TA’s annual minimum rent according to the following formula: the annual minimum rent is increased by an amount equal to the amount funded by us multiplied by the greater of (1) 8.5% or (2) a benchmark U.S. Treasury interest rate plus 3.5% . TA is not obligated to request and we are not obligated to fund any such improvements. We funded $56,346 , $84,632 and $109,926 during the years ended December 31, 2018 , 2017 and 2016 , respectively, for capital improvements to our travel center properties and, as a result, TA’s annual minimum rent payable to us increased by $4,789 , $7,194 and $9,344 , respectively. We currently expect to fund $30,000 for renovations and other capital improvements to our travel centers during the year ending December 31, 2019 . See Note 5 for further information regarding the effects of certain of our property acquisitions and dispositions on our leases with TA. As of December 31, 2018 , the average remaining current terms of our management agreements and leases with parties other than our TRSs, weighted based on minimum returns or rents, was approximately 13.0 years . As of December 31, 2018 , our leases with parties other than our TRSs provide for contractual minimum rents to be paid to us during the remaining current terms as follows: 2019 $ 309,099 2020 298,828 2021 298,335 2022 296,756 2023 296,809 Thereafter 2,017,031 Total $ 3,516,858 |
