Commitments and Contingencies

Ground Leases

As of December 31, 2017, nine of our hotel properties were subject to ground lease agreements that cover the land underlying the respective hotels. The total ground rent expense was $5.6 million for the Successor period of September 1, 2017 through December 31, 2017. The total ground rent expense was $9.9 million, $14.2 million and $15.5 million for the Predecessor period of January 1, 2017 through August 31, 2017 and for the Predecessor years ended December 31, 2016 and 2015, respectively.

The DoubleTree Suites by Hilton Orlando Lake Buena Vista is subject to a ground lease with an initial term expiring in 2032. After the initial term, the Company may extend the ground lease for an additional term of 25 years to 2057. The ground rent expense was $0.2 million for the Successor period of September 1, 2017 through December 31, 2017. The ground rent expense was $0.6 million, $0.8 million and $0.8 million for the Predecessor period of January 1, 2017 through August 31, 2017 and for the Predecessor years ended December 31, 2016 and 2015, respectively.

The Embassy Suites San Francisco Airport Waterfront is subject to a ground lease with a term expiring in 2059. The ground rent expense was $0.7 million for the Successor period of September 1, 2017 through December 31, 2017. The ground rent expense was $1.0 million, $1.5 million and $1.4 million for the Predecessor period of January 1, 2017 through August 31, 2017 and for the Predecessor years ended December 31, 2016 and 2015, respectively.

The DoubleTree by Hilton Burlington Vermont is subject to an agreement to lease parking spaces with a term expiring in 2051. The ground rent expense was de minimis for the Successor period of September 1, 2017 through December 31, 2017. The ground rent expense was de minimis for the Predecessor period of January 1, 2017 through August 31, 2017 and for the Predecessor years ended December 31, 2016 and 2015, respectively.

The Vinoy Renaissance St. Petersburg Resort & Golf Club is subject to three ground leases on the hotel property. The hotel is subject to a ground lease with a term expiring in 2090. The golf course is subject to a ground lease with a term expiring in 2090. The marina is subject to a ground lease with a term expiring in 2088. The ground rent expense was $1.0 million for the Successor period of September 1, 2017 through December 31, 2017. The ground rent expense was $1.2 million, $1.8 million and $1.8 million for the Predecessor period of January 1, 2017 through August 31, 2017 and for the Predecessor years ended December 31, 2016 and 2015, respectively.

The Wyndham Boston Beacon Hill is subject to a ground lease with a term expiring in 2028. The ground rent expense was $0.3 million for the Successor period of September 1, 2017 through December 31, 2017. The ground rent expense was $0.4 million, $0.6 million and $0.6 million for the Predecessor period of January 1, 2017 through August 31, 2017 and for the Predecessor years ended December 31, 2016 and 2015, respectively.

The Wyndham New Orleans French Quarter is subject to a ground lease with a term expiring in 2065. The ground rent expense was $0.1 million for the Successor period of September 1, 2017 through December 31, 2017. The ground rent expense was $0.4 million, $0.5 million and $0.4 million for the Predecessor period of January 1, 2017 through August 31, 2017 and for the Predecessor years ended December 31, 2016 and 2015, respectively.

The Wyndham Pittsburgh University Center is subject to a ground lease with an initial term expiring in 2038. After the initial term, the Company may extend the ground lease for up to five additional nine-year renewal terms to 2083. The ground rent expense was $0.1 million for the Successor period of September 1, 2017 through December 31, 2017. The ground rent expense was $0.3 million, $0.5 million and $2.1 million for the Predecessor period of January 1, 2017 through August 31, 2017 and for the Predecessor years ended December 31, 2016 and 2015, respectively.

The Wyndham San Diego Bayside is subject to a ground lease with a term expiring in 2029. In addition, the Wyndham San Diego Bayside is subject to an agreement to lease parking spaces with a term expiring in 2018. The ground rent expense was $1.5 million for the Successor period of September 1, 2017 through December 31, 2017. The ground rent expense was $2.1 million, $2.6 million and $2.6 million for the Predecessor period of January 1, 2017 through August 31, 2017 and for the Predecessor years ended December 31, 2016 and 2015, respectively.

The Holiday Inn San Francisco Fisherman's Wharf is subject to two ground leases with terms that expire in 2018. One of the ground leases can be extended to 2028, and the Company has the option to purchase the underlying land at fair market value at a future date. The ground rent expense was $1.6 million for the Successor period of September 1, 2017 through December 31, 2017. The ground rent expense was $3.8 million, $5.7 million and $5.3 million for the Predecessor period of January 1, 2017 through August 31, 2017 and for the Predecessor years ended December 31, 2016 and 2015, respectively.

As of December 31, 2017, the future minimum ground lease payments were as follows (in thousands):



	2018		2019		2020		2021		2022		Thereafter		Total
Future minimum ground lease payments	$	8,269	$	6,271	$	6,283	$	6,295	$	6,307	$	215,549	$	248,974

Restricted Cash Reserves

The Company is obligated to maintain cash reserve funds for future capital expenditures at the hotels (including the periodic replacement or refurbishment of furniture, fixtures and equipment ("FF&E")) as determined pursuant to the management agreements, franchise agreements and/or mortgage loan documents. The management agreements, franchise agreements and/or mortgage loan documents require the Company to reserve cash ranging typically from 4.0% to 5.0% of the individual hotel’s revenues and maintain the reserves in restricted cash reserve escrows. 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, 2017 and 2016, approximately $3.3 million and $19.5 million, respectively, was available in the restricted cash reserves for future capital expenditures, real estate taxes and insurance.

Minimum Lease Payments

In the future, the Company will receive rental income from the Lessees under its lease agreements. The lease agreements contain a specific base rent amount or a percentage rent amount, which is calculated based on a percentage of room revenues, food and beverage revenues, and other revenues at the hotel properties. The lease agreements will expire in 2018 (one hotel), 2019 (26 hotels), 2022 (seven hotels), and thereafter (one hotel).

As of December 31, 2017, the future minimum lease payments to the Company under the noncancelable operating leases were as follows (in thousands):



2018	$	86,593
2019	75,901
2020 (1)	—
2021 (1)	—
2022 (1)	—
Thereafter (1)	—
Total	$	162,494


(1)	In 2020, the lease terms for the in-place lease agreements will be reset to market-based rental terms. At that time, the future minimum lease payments to the Company under the noncancelable operating leases will be determined.

Litigation

Other than the legal proceedings mentioned below, 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.

Shareholder Litigation

The Company and several affiliated entities were named as defendants in four putative shareholder class action lawsuits filed in connection with the Mergers. The first case, Assad v. FelCor Lodging Trust, Inc. et al., Case No. 1:17-cv-01744 (D. Md.) (the “Assad Lawsuit”), named as defendants FelCor, its former directors, FelCor LP, and RLJ and certain affiliated entities. The Assad Lawsuit was filed on June 26, 2017 in the United States District Court for the District of Maryland (the "Maryland Court"). The second case, Bagheri v. FelCor Lodging Trust, Inc., et al., Case No. 3:17-cv-01892 (the “Bagheri Lawsuit”), named as defendants FelCor, its former directors, FelCor LP, and RLJ and certain affiliated entities. The Bagheri Lawsuit was filed on July 17, 2017 in the United States District Court for the Northern District of Texas but was subsequently transferred to the Maryland Court. The third case, Johnson v. FelCor Lodging Trust Inc., et al., Case No. 1:17-cv-01786 (D. Md.) (the "Johnson Lawsuit"), named as defendants FelCor and its former directors. The Johnson Lawsuit was filed on June 28, 2017 in the Maryland Court. The fourth case, Sachs Investment Group v. FelCor Lodging Trust Inc., et al., Case No. 1:17-cv-01933 (D. Md.) (the "Sachs Lawsuit"), named as defendants FelCor and its former directors. The Sachs Lawsuit was filed on July 11, 2017 in the Maryland Court. Each of the lawsuits alleges violations of the Securities and Exchange Act of 1934 (the “Exchange Act”) arising in connection with the filing of RLJ's Registration Statement on Form S-4 (the "Registration Statement") that was filed in connection with the Company's merger with RLJ. The plaintiffs in the lawsuits sought, among other things, damages, rescission of the Mergers, changes to the Registration Statement, an award of attorney's fees, and declaratory relief stating that the defendants violated the Exchange Act.

On July 21, 2017, the plaintiff in the Johnson Lawsuit filed a motion for preliminary injunction seeking to enjoin the Mergers. On August 8, 2017, however, the plaintiff withdrew that motion and represented that certain supplemental disclosures made by the Company had addressed the basis for its preliminary injunction request.

On August 10, 2017, an order was entered consolidating the three original Maryland cases under the caption In Re FelCor Lodging Securities Litig., Case No. 1:17-cv-1786 (the "Consolidated Action"). The Assad Lawsuit was designated as the lead case for the Consolidated Action. On September 28, 2017, the Bagheri Lawsuit was also consolidated into the Consolidated Action.

On August 11, 2017, the Maryland Court entered an order regarding the selection of a Lead Plaintiff for the Consolidated Action. No stockholder moved for appointment and no Lead Plaintiff was appointed by the Court.

On October 26, 2017, the plaintiff and defendants in the Bagheri Lawsuit filed a stipulation of voluntary dismissal without prejudice. The Maryland Court entered an order dismissing the lawsuit that same day, and ordered the clerk to close the case.

On November 2, 2017, the plaintiffs in the Assad, Johnson, and Sachs lawsuits filed a notice of voluntary dismissal without prejudice. The Maryland Court entered an order dismissing the lawsuit that same day.

As a result of the resolution of the above shareholder lawsuits, there is currently no outstanding shareholder litigation relating to the merger with RLJ.

Pension Trust Litigation

Prior to the Mergers, on March 24, 2016, an affiliate of InterContinental Hotels Group PLC, or IHG, which was previously the management company for three of the Company’s hotels (two of which were sold in 2006, and one of which was converted by the Company into a Wyndham brand and operation in 2013), notified the Company that the National Retirement Fund in which the employees at those hotels had participated had assessed a withdrawal liability of $8.3 million, with required quarterly payments including interest, in connection with the termination of IHG’s operation of those hotels. The Company’s management agreements with IHG stated that it may be obligated to indemnify and hold IHG harmless for some or all of any amount ultimately contributed to the pension trust fund with respect to those hotels.

Based on the current assessment of the claim, the resolution of this matter may not occur until 2022. As of December 31, 2017, the Company had accrued approximately $5.4 million for the future quarterly payments to the pension trust fund, which is included in accounts payable and other liabilities in the accompanying consolidated balance sheets.

The Company plans to vigorously defend the underlying claims and, if appropriate, IHG’s demand for indemnification.

Management Agreements

As discussed in Note 2, Merger with RLJ, the Company distributed its equity interests in FelCor TRS to RLJ LP immediately after consummation of the Mergers. As a result of the distribution of its equity interests in FelCor TRS, the Company's consolidated financial statements do not include the financial information related to the Lessees' management agreements.

During the Predecessor comparative periods, the Company's hotel properties were operated pursuant to long-term management agreements with initial terms ranging from 5 to 20 years. Certain hotel properties also received the benefits of a franchise agreement pursuant to management agreements with Hilton, Wyndham, Marriott and other hotel brands. The management agreements, including those that include the benefits of a franchise agreement, have a base management fee generally between 2.0% and 5.0% 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. For the Predecessor period of January 1, 2017 through August 31, 2017 and for the Predecessor years ended December 31, 2016 and 2015, the Company recognized management fee expense of approximately $19.1 million, $23.2 million and $24.0 million, respectively.

The Wyndham management agreements guarantee minimum levels of annual net operating income at each of the Wyndham-managed hotels for each year of the initial 10-year term to 2023, subject to an aggregate $100 million limit over the term and an annual $21.5 million limit. For the Predecessor period of January 1, 2017 through August 31, 2017, the Company recorded $3.8 million for the pro-rata portion of the projected aggregate full-year guaranties. For the Predecessor years ended December 31, 2016 and 2015, the Company recorded $5.3 million and $1.4 million, respectively, for the aggregate full-year guaranties. The Company recognized these amounts as a reduction of Wyndham's contractual management and other fees.

Franchise Agreements

During the Predecessor comparative periods, certain of the Company’s hotel properties were operated under franchise agreements with initial terms of 15 years. These franchise agreements exclude certain hotel properties that received the benefits of a franchise agreement pursuant to management agreements with Hilton, Wyndham, Marriott and other hotel brands. In addition, The Knickerbocker is not operated with a hotel brand so the hotel did not have a franchise agreement. Franchise agreements allow the hotel properties to operate under the respective brands. Pursuant to the franchise agreements, the Company pays a royalty fee, generally 5.5% of room revenue, plus additional fees for marketing, central reservation systems and other franchisor costs of 4.0% of room revenue. Franchise fees are included in management and franchise fee expense in the accompanying consolidated statements of operations and comprehensive income. For the Predecessor period of January 1, 2017 through August 31, 2017 and for the Predecessor years ended December 31, 2016 and 2015, the Company recognized franchise fee expense of approximately $0.8 million, $9.8 million and $11.5 million, respectively.