Commitments and Contingencies

Leases

Lessors

As a lessor, the Company will receive lease revenue from the Lessees under its lease contracts. The lease contracts 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 contracts will expire in 2019 (20 hotels), 2022 (five hotels), and thereafter (one hotel).

The lease revenue recognized during the three and six months ended June 30, 2019 consisted of the following:



	For the three months ended June 30, 2019		For the six months ended June 30, 2019
Lease revenue relating to lease payments	$	14,653	$	29,306
Lease revenue relating to variable lease payments	41,568		76,836
Total related party lease revenue	$	56,221	$	106,142

The future lease payments to the Company under the noncancelable operating leases were as follows (in thousands):



	June 30, 2019		December 31, 2018
2019	$	27,635	$	58,880
2020 (1)	—		—
2021 (1)	—		—
2022 (1)	—		—
2023 (1)	—		—
Thereafter (1)	—		—
Total	$	27,635	$	58,880


(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 lease payments to the Company under the noncancelable operating leases will be determined.

Lessees

As a lessee, as of June 30, 2019, six of the Company's hotel properties were subject to ground leases that cover the land underlying the respective hotels. The ground leases are classified as operating leases. During the three months ended June 30, 2019, the total ground lease expense was $2.6 million, which consisted of $1.7 million of fixed lease expense and $0.9 million of variable lease expense. During the six months ended June 30, 2019, the total ground lease expense was $5.1 million, which consisted of $3.3 million of fixed lease expense and $1.7 million of variable lease expense. The ground lease expense is included in property tax, insurance and other in the accompanying consolidated statements of operations and comprehensive income (loss).

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 lease expense was $0.2 million and $0.5 million for the three and six months ended June 30, 2019, respectively.

The Embassy Suites San Francisco Airport Waterfront is subject to a ground lease with a term expiring in 2059. The ground lease expense was $0.6 million and $1.2 million for the three and six months ended June 30, 2019, respectively.

The Wyndham Boston Beacon Hill is subject to a ground lease with a term expiring in 2028. The ground lease expense was $0.3 million and $0.4 million for the three and six months ended June 30, 2019, respectively.

The Wyndham New Orleans French Quarter is subject to a ground lease with a term expiring in 2065. The ground lease expense was $0.1 million and $0.2 million for the three and six months ended June 30, 2019, 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 lease expense was $0.2 million and $0.4 million for the three and six months ended June 30, 2019, respectively.

The Wyndham San Diego Bayside is subject to a ground lease with a term expiring in 2029. The ground lease expense was $1.2 million and $2.4 million for three and six months ended June 30, 2019, respectively.

One of the Company's hotel properties is subject to a long-term contract to lease parking spaces. The parking lease is classified as an operating lease. The total parking lease expense was de minimis for both the three and six months ended June 30, 2019.

The Company is subject to an office lease in Dallas, Texas with a term expiring in 2027. The office lease is classified as an operating lease. The total office lease expense was $0.2 million and $0.3 million for the three and six months ended June 30, 2019, respectively, which is included in general and administrative in the accompanying consolidated statements of operations and comprehensive income (loss).

The future lease payments for the Company's operating leases were as follows (in thousands):



	June 30, 2019		December 31, 2018
2019	$	2,434	$	4,863
2020	4,884		4,884
2021	4,909		4,909
2022	4,968		4,968
2023	4,990		4,990
Thereafter	119,019		119,019
Total future lease payments	141,204		$	143,633
Less: Imputed interest	92,239
Lease liabilities	$	48,965

The following table presents certain information related to the Company's operating leases as of June 30, 2019:



Weighted average remaining lease term	32 years
Weighted average discount rate (1)	6.85	%


(1)	Upon adoption of the new lease accounting standard, the discount rates used for the Company's operating leases were determined at January 1, 2019.

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 June 30, 2019 and December 31, 2018, approximately $5.1 million and $3.2 million, respectively, was available in the restricted cash reserves for future capital expenditures, real estate taxes and insurance.

Litigation

Other than the legal proceeding 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.

Prior to the Mergers, an affiliate of InterContinental Hotels Group PLC ("IHG"), which previously managed three of the Company’s hotels, notified the Company that National Retirement Fund had assessed an employee withdrawal liability of $8.3 million, with required quarterly payments including interest, in connection with the termination of IHG’s management 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 paid to National Retirement Fund with respect to the claim. Based on the current assessment of the claim, resolution of this matter may not occur until 2022. The Company plans to vigorously defend the claim and, if appropriate, IHG’s demand for indemnification.