| Management Agreements and Leases | Note 6. Management Agreements and Leases As of March 31, 2020 , we owned 329 hotels which were included in six operating agreements and 813 service orientated retail properties net leased to 187 tenants. We do not operate any of our properties. Hotel agreements As of March 31, 2020 , 328 of our hotels were leased to our TRSs and managed by independent hotel operating companies and one hotel was leased to a third party. As of March 31, 2020 , our hotel properties were managed by or leased to separate subsidiaries of InterContinental Hotels Group, plc, or IHG, Marriott, Sonesta, Hyatt Hotels Corporation, or Hyatt, Radisson Hospitality, Inc., or Radisson, and Wyndham, under six agreements. These hotel agreements have initial terms expiring between 2020 and 2037. Each of these agreements is for between nine and 122 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 15 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, reimbursement of working capital advances and replenishment of security deposits or guarantees, as applicable. Some of our managers or tenants or their affiliates have provided deposits or guarantees to secure their obligations to pay us. IHG agreement. Our management agreement with IHG for 103 hotels, or our IHG agreement, provides that, as of March 31, 2020 , we are to be paid annual minimum returns and rents of $216,551 . We realized minimum returns and rents of $54,085 and $49,584 during the three months ended March 31, 2020 and 2019 , respectively, under this agreement. 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, working capital advances and certain management fees. During the three months ended March 31, 2020 , we reduced the available security deposit by $33,654 to cover shortfalls in hotel cash flows available to pay the minimum returns and rents due to us for the period. The available balance of this security deposit was $42,063 as of March 31, 2020 . We funded $3,900 for capital improvements to certain of the hotels included in our IHG agreement during the three months ended March 31, 2020 , which resulted in increases in our contractual annual minimum returns of $312 . We did no t fund any capital improvements for hotels included in our IHG agreement during the three months ended March 31, 2019 . In April 2020, we funded $37,000 of working capital advances under our IHG agreement to cover projected operating losses at our hotels managed by IHG. This working capital advance is reimbursable to us from a share of future cash flows from the hotel operations in excess of the minimum returns due to us, if any, pursuant to the terms of the IHG agreement. Our IHG agreement requires 5% of gross revenues from hotel operations be placed in escrow for hotel maintenance and periodic renovations, or an FF&E reserve. As a result of current market conditions, effective March 1, 2020, we and IHG have agreed to suspend contributions to the FF&E reserve under our IHG agreement for the remainder of 2020. Marriott agreement . Our management agreement with Marriott for 122 hotels, or our Marriott agreement, provides that, as of March 31, 2020 , we are to be paid annual minimum returns of $190,603 . We realized minimum returns of $47,648 and $45,235 during the three months ended March 31, 2020 and 2019 , respectively, under this agreement. Pursuant to our Marriott agreement, Marriott has provided us with a security deposit to cover minimum return payment shortfalls, if any. Under this agreement, this security deposit, if utilized, may be replenished and increased up to $64,700 from 60% of the cash flows realized from operations of the 122 hotels after payment of the aggregate annual minimum returns, Marriott’s base management fees and working capital advances. During the three months ended March 31, 2020 , we reduced the available security deposit by $28,655 to cover shortfalls in hotel cash flows available to pay the minimum returns due to us for the period. The available balance of this security deposit was $4,790 as of March 31, 2020 . Pursuant to our Marriott agreement, Marriott has also provided us with a limited guaranty which expires in 2026 for shortfalls of up to 85% of our minimum returns, if and after the available security deposit has been depleted. The available balance of the guaranty was $30,000 as of March 31, 2020 . We funded $300 and $22,593 for capital improvements to certain of the hotels included in our Marriott agreement during the three months ended March 31, 2020 and 2019 , respectively, which resulted in increases in our contractual annual minimum returns of $30 and $2,169 , respectively. We and Marriott identified 33 of the 122 hotels covered by our Marriott agreement that will be sold or rebranded, at which time we would retain the proceeds of any such sales and the aggregate annual minimum returns due to us would decrease by the amount allocated to the applicable hotel. In April 2020, we funded $30,000 of working capital advances under our Marriott agreement to cover projected operating losses at our hotels managed by Marriott. This working capital advance is reimbursable to us from a share of future cash flows from the hotel operations in excess of the minimum returns due to us and Marriott’s base management fees, if any, pursuant to the terms of our Marriott agreement. Our Marriott agreement requires 5.5% to 6.5% of gross revenues from hotel operations be placed in an FF&E reserve. As a result of current market conditions, we and Marriott have agreed to suspend contributions to the FF&E reserve under our Marriott agreement for six months effective March 1, 2020. Sonesta agreement. As of March 31, 2020 , Sonesta managed 14 of our full-service hotels and 39 of our extended stay 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. On February 27, 2020, we entered into a transaction agreement with Sonesta pursuant to which we and Sonesta restructured our existing business arrangements as follows: • We amended and restated our then existing Sonesta agreement, and our existing pooling agreement with Sonesta, which combines our management agreements with Sonesta for purposes of calculating gross revenues, payment of hotel operating expenses, payment of fees and distributions and minimum returns due to us, as further described below; • We and Sonesta agreed to sell, rebrand or repurpose our 39 extended stay hotels currently managed by Sonesta with an aggregate carrying value of $461,263 and which currently require aggregate minimum returns of $48,239 . As the hotels are sold, rebranded or repurposed, the management agreement for the applicable hotel(s) will terminate without our being required to pay Sonesta a termination fee and our annual minimum returns due to us under our Sonesta agreement will decrease by the amount allocated to the applicable hotel(s); • Sonesta will continue to manage 14 of our full-service hotels that Sonesta currently manages and the annual minimum returns due for these hotels was reduced from $99,013 to $69,013 ; • Sonesta issued to us a number of its shares of common stock representing approximately (but not more than) 34% of its outstanding shares of common stock (post-issuance) and we entered into a stockholders agreement with Sonesta, Adam Portnoy and the other stockholder of Sonesta and a registration rights agreement with Sonesta; • We and Sonesta modified our Sonesta agreement and pooling agreement so that 5% of the hotel gross revenues of each of our 14 full-service hotels managed by Sonesta will be escrowed for future capital expenditures as “FF&E reserves,” subject to available cash flows after payment of the annual minimum returns due to us under the Sonesta agreement; • We and Sonesta modified our Sonesta agreement and pooling agreement so that (1) our termination rights under those agreements for our 14 full-service hotels managed by Sonesta are generally limited to performance and for “cause,” casualty and condemnation events, (2) a portfolio wide performance test now applies for determining whether the management agreement for any of our full-service hotels managed by Sonesta may be terminated for performance reasons, and (3) the provisions included in our historical pooling agreement that allowed either us or Sonesta to require the marketing for sale of non-economic hotels were removed; and • We and Sonesta extended the initial expiration date of the management agreements for our full-service hotels managed by Sonesta located in Chicago, IL and Irvine, CA to January 2037 to align with the initial expiration date for our other full-service hotels managed by Sonesta. Except as described above, the economic terms of our amended and restated Sonesta agreement and amended and restated pooling agreement are consistent with the historical Sonesta agreement and pooling agreement. We previously leased 48 vacation units to Wyndham Destinations, Inc. (NYSE: WYND), at our full service hotel located in Chicago, IL, which Sonesta began managing in November 2019 and which had previously been managed by Wyndham. Effective March 1, 2020, Sonesta commenced managing those units and those units were added to our Sonesta agreement for that Chicago hotel. Our Sonesta agreement provides that we are paid a fixed annual minimum return equal to 8% of our invested capital, as defined therein, 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 fixed annual minimum return under our Sonesta agreement was $118,941 as of March 31, 2020 . Our Sonesta agreement further provides that we are paid an additional return based upon operating profits, as defined therein, after reimbursement of owner or manager advances, FF&E reserve escrows and Sonesta’s incentive fee, if applicable. Our Sonesta hotels generated a net operating cash flow deficit of $8,146 and returns of $14,161 during the three months ended March 31, 2020 and 2019 , respectively. 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, if any, after payment of operating expenses, including management and related fees. In addition to our minimum returns, the management agreement provides for payment of 80% of hotel cash flows after payment of hotel operating expenses including certain management fees to Sonesta, our minimum return, working capital advances and any FF&E reserves. In May 2020, Sonesta requested a $7,408 working capital advance under our Sonesta agreement to cover projected operating losses at our hotels managed by Sonesta. This working capital advance will be reimbursable to us from a share of future cash flows from the hotel operations in excess of the minimum returns due to us, if any, pursuant to the terms of the Sonesta agreement. We expect to fund this advance in May 2020. Pursuant to our Sonesta agreement, we incurred management, reservation and system fees and reimbursement costs for certain guest loyalty, marketing program and third-party reservation transmission fees of $6,779 and $8,523 for the three months ended March 31, 2020 and 2019 , respectively. In addition, we incurred procurement and construction supervision fees of $633 and $405 for the three months ended March 31, 2020 and 2019 , respectively, pursuant to our Sonesta agreement. These amounts are included in hotel operating expenses or have been capitalized, as appropriate, in our condensed consolidated financial statements. Our Sonesta agreement does not require FF&E escrow deposits for our extended stay hotels managed by Sonesta and, prior to February 27, 2020, did not require FF&E escrow deposits for our full-service hotels managed by Sonesta, but does and did, as applicable, require us to fund capital expenditures that we approve or approved at our Sonesta hotels. No FF&E escrow deposits were required during the three months ended March 31, 2020. We funded $29,036 and $10,467 for renovations and other capital improvements to certain hotels included in our Sonesta agreement during the three months ended March 31, 2020 and 2019 , respectively, which resulted in increases in our contractual annual minimum returns of $2,141 and $484 , respectively. We owed Sonesta $13,323 and $9,226 for capital expenditure and other reimbursements at March 31, 2020 and 2019 , 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 condensed consolidated balance sheets. Accounting for Investment in Sonesta: We account for our 34% non-controlling interest in Sonesta under the equity method of accounting. As of March 31, 2020 , our investment in Sonesta had a carrying value of $46,481 . This amount is included in other assets in our condensed consolidated balance sheets. The cost basis of our investment in Sonesta exceeded our proportionate share of Sonesta’s total shareholders’ equity book value on the date of acquisition by an aggregate of $8,000 . As required under GAAP, we were amortizing this difference to equity in earnings of an investee over the average remaining useful lives of the real estate assets and intangible assets and liabilities owned by Sonesta as of the date of our acquisition, February 27, 2020. We recognized losses of $718 related to our investment in Sonesta for the three months ended March 31, 2020 . This amount is presented as equity in earnings (losses) of an investee in our condensed consolidated statements of comprehensive income. We recorded a liability for the fair value of our initial investment in Sonesta, as no cash consideration was exchanged related to the modification of our management agreement with, and investment in, Sonesta. We are amortizing this amount as described below. This liability for our investment in Sonesta is included in accounts payable and other liabilities in our condensed consolidated balance sheet and is being amortized on a straight-line basis through January 31, 2037, the remaining term of the Sonesta agreement as a reduction to hotel operating expenses in our condensed consolidated statements of comprehensive income. We reduced hotel operating expenses by $207 for the three months ended March 31, 2020 for amortization of this liability. As of March 31, 2020 , the unamortized balance of this liability was $41,793 . See Note 10 for further information regarding our relationship, agreements and transactions with Sonesta. Hyatt agreement . Our management agreement with Hyatt for 22 hotels, or our Hyatt agreement, provides that, as of March 31, 2020 , we are to be paid an annual minimum return of $22,037 . We realized minimum returns of $5,509 during each of the three months ended March 31, 2020 and 2019 , under this agreement. Pursuant to our Hyatt agreement, Hyatt has provided us with a guaranty, which is limited to $50,000 . During the three months ended March 31, 2020 , the hotels under this agreement generated cash flows that were less than the minimum returns due to us for the period, and Hyatt made $3,628 of guaranty payments to cover the shortfall. The available balance of the guaranty was $16,026 as of March 31, 2020 . In addition to our minimum returns, this management agreement provides for payment to us of 50% of the hotels’ available cash flows after payment of operating expenses, funding required FF&E reserves, payment of our minimum return, our working capital advances and reimbursement to Hyatt of working capital and guaranty advances. In April 2020, we funded $1,300 of working capital advances under our Hyatt agreement to cover projected operating losses at our hotels managed by Hyatt. This working capital advance is reimbursable to us from a share of future cash flows from the hotel operations in excess of the minimum returns due to us, if any, pursuant to the terms of the Hyatt agreement. In May, 2020, Hyatt requested an additional $1,300 working capital advance. We expect to fund this advance in May 2020. Our Hyatt agreement requires 5% of gross revenues from hotel operations be placed in an FF&E reserve. As a result of current market conditions, effective March 1, 2020, we and Hyatt have agreed to suspend contributions to the FF&E reserve under our Hyatt agreement for the remainder of 2020. Radisson agreement. Our management agreement with Radisson for nine hotels, or our Radisson agreement, provides that, as of March 31, 2020 , we are to be paid an annual minimum return of $20,442 . We realized minimum returns of $5,111 and $4,831 during the three months ended March 31, 2020 and 2019 , respectively, under this agreement. Pursuant to our Radisson agreement, Radisson has provided us with a guaranty, which is limited to $47,523 . During the three months ended March 31, 2020 , the hotels under this agreement generated cash flows that were less than the minimum returns due to us for the period, and Radisson made $4,569 of guaranty payments to cover the shortfall. The available balance of the guaranty was $36,647 as of March 31, 2020 . In addition to our minimum returns, our Radisson agreement provides for payment to us of 50% of the hotels’ available cash flows after payment of operating expenses, funding the required FF&E reserve, payment of our minimum return, our working capital advances and reimbursement to Radisson of working capital and guaranty advances, if any. Our Radisson agreement requires 5% of gross revenues from hotel operations be placed in an FF&E reserve. As a result of current market conditions, effective April 1, 2020, we and Radisson have agreed to suspend contributions to the FF&E reserve under our Radisson agreement for the remainder of 2020. Wyndham agreements . Our management agreement with Wyndham for 20 hotels, or our Wyndham agreement expires on September 30, 2020 unless sooner terminated with respect to any hotels that are sold or rebranded. Wyndham is required to pay us all cash flows of the hotels after payment of hotel operating costs. Wyndham is not entitled to any base management fees for the remainder of the agreement term. Our Wyndham hotels generated a net operating cash flow deficit of $1,081 and returns of $5,907 during the three months ended March 31, 2020 and 2019 , respectively. We funded $1,212 and $1,022 for capital improvements at certain of the hotels included in our Wyndham agreement during the three months ended March 31, 2020 and 2019 , respectively. In April 2020, we funded $2,423 of working capital advances under our Wyndham agreement to cover projected operating losses at our hotels managed by Wyndham. Net lease portfolio As of March 31, 2020 , we owned 813 net lease service-oriented retail properties with 14.5 million square feet with leases requiring annual minimum rents of $379,503 with a weighted (by annual minimum rents) average remaining lease term of 11.1 years. The portfolio was 98% leased by 187 tenants operating under 128 brands in 22 distinct industries. TA leases TA is our largest tenant. As of March 31, 2020 , we leased to TA a total of 179 travel centers under five leases that expire between 2029 and 2035 and require annual minimum rents of $246,110 which represents approximately 25.5% of our total annual minimum returns and rents as of March 31, 2020 . In addition, TA is required to pay us previously deferred rent obligations in quarterly installments of $4,404 through January 31, 2023. TA paid $4,404 of deferred rent to us for the three months ended March 31, 2020 . The remaining balance of previously deferred rents was $52,843 as of March 31, 2020 . We recognized rental income from TA of $61,528 and $63,075 for the three months ended March 31, 2020 and 2019 , respectively. Rental income for the three months ended March 31, 2020 and 2019 includes $3,344 and $1,214 respectively, of adjustments 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 on a straight-line basis. As of March 31, 2020 and December 31, 2019 , we had receivables for current rent amounts owed to us by TA and straight-line rent adjustments of $65,109 and $79,710 , respectively. These amounts are included in due from related persons in our condensed consolidated balance sheets. 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 may request that we fund capital improvements in return for increases in TA’s annual minimum rent equal to 8.5% of the amounts funded. We did not fund any capital improvements to our properties that we leased to TA during the three months ended March 31, 2020 or 2019 . In addition to the rental income that we recognized during the three months ended March 31, 2020 and 2019 as described above, our TA leases require TA to pay us percentage rent based upon increases in certain sales. We determine percentage rent due under our TA leases annually and recognize any resulting amount as rental income when all contingencies are met. We had aggregate deferred percentage rent under our TA leases of $725 and $1,069 for the three months ended March 31, 2020 and 2019 , respectively. See Note 10 for further information regarding our relationship with TA. Other net lease agreements Our net lease agreements generally provide for minimum rent payments and in addition may include variable payments. Rental income from operating leases, including any payments derived by index or market-based indices, is recognized on a straight-line basis over the lease term when we have determined that the collectability of substantially all of the lease payments is probable. Some of our leases have options to extend or terminate the lease exercisable at the option of our tenants, which are considered when determining the lease term. We recognized rental income from our 634 other net lease properties of $36,653 for the three months ended March 31, 2020 , which include $1,701 of adjustments to record scheduled rent changes under certain of our leases on a straight-line basis. As a result of the COVID-19 pandemic, some of our tenants have requested rent assistance. We have entered into rent deferral agreements with 84 net lease retail tenants with leases requiring an aggregate of $61,963 of annual minimum rents. Generally these rent deferrals are for one to three months of rent and will be payable by the tenants over a 12 month period beginning in September 2020. We have deferred an aggregate of $8,584 of rent as of May 7, 2020 . Guarantees and security deposits generally. 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 flows to us of the deficiency amounts, but reduces the refunds due to the respective tenants or managers who have provided us with these security deposits upon expiration of the applicable operating agreement. The security deposits are non-interest bearing and are not held in escrow. Under these agreements, any amount of the security deposits which are applied to payment deficits may be replenished from a share of future cash flows from the applicable hotel operations pursuant to the terms of the applicable agreements. Certain of our managed hotel portfolios had net operating results that were, in the aggregate, $118,064 and $42,839 less than the minimum returns due to us for the three months ended March 31, 2020 and 2019 , respectively. When managers of these hotels are required to fund the shortfalls under the terms of our management 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. We reduced hotel operating expenses by $75,927 and $22,465 for the three months ended March 31, 2020 and 2019 , respectively. We had shortfalls at certain of our managed hotel portfolios not funded by the managers of these hotels under the terms of our management agreements of $47,755 and $20,676 for the three months ended March 31, 2020 and 2019 , respectively, which represent the unguaranteed portions of our minimum returns from our Sonesta and Wyndham agreements. Certain of our guarantees and our security deposits may be replenished by a share of 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 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. There were no guaranty or security deposit replenishments for the three months ended March 31, 2020 or 2019 . |
