Commitments and Contingencies

Operating 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 expired on December 31, 2019 for 19 hotels. These 19 lease contracts were renewed effective January 1, 2020 for a three-year term expiring December 31, 2022. The remaining lease contracts will expire in 2021 for one hotel, 2022 for five hotels and thereafter for one hotel.

The lease revenue recognized during the year ended December 31, 2019 consisted of the following:



	For the year ended December 31, 2019
Lease revenue relating to lease payments	$	56,796
Lease revenue relating to variable lease payments	139,899
Total related party lease revenue	$	196,695

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 December 31, 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. The total ground lease expense was $10.2 million for the year ended December 31, 2019, which consisted of $6.6 million of fixed lease expense and $3.6 million of variable lease expense. The total ground lease expense was $16.6 million for the year ended December 31, 2018. The total ground lease expense was $5.6 million for the Successor period of September 1, 2017 through December 31, 2017. The total ground lease expense was $9.9 million for the Predecessor period of January 1, 2017 through August 31, 2017. The total ground lease expense is included in property tax, insurance and other in the accompanying consolidated statements of operations and comprehensive income (loss).

The Company's ground leases consisted of the following (in millions):



			Ground Lease Expense
			Successor						Predecessor
			For the year ended December 31,				September 1 through December 31,		January 1 through August 31,
Hotel Property Name	Initial Term Expiration	Extension Term(s) Expiration	2019		2018		2017		2017
Holiday Inn San Francisco Fisherman's Wharf (1)(2)	2018	—	$	—	$	4.6	$	1.6	$	3.8
Wyndham Boston Beacon Hill	2028	—	0.9		0.9		0.3		0.4
Wyndham San Diego Bayside	2029	—	4.8		4.8		1.5		2.1
DoubleTree Suites by Hilton Orlando Lake Buena Vista	2032	2057	0.9		0.8		0.2		0.6
Wyndham Pittsburgh University Center	2038	2083	0.7		0.8		0.1		0.3
DoubleTree by Hilton Burlington Vermont (3)	2051	—	—		—		0.1		0.1
Embassy Suites San Francisco Airport Waterfront	2059	—	2.4		2.3		0.7		1.0
Wyndham New Orleans French Quarter	2065	—	0.5		0.5		0.1		0.4
The Vinoy Renaissance St. Petersburg Resort & Golf Club (4)	2090	—	—		1.9		1.0		1.2
			$	10.2	$	16.6	$	5.6	$	9.9

(1) This hotel property was sold on October 15, 2018.

(2) This lease covered only a portion of the hotel property site.

(3) This hotel property was sold on September 27, 2018.

(4) This hotel property was sold on August 28, 2018.

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



	December 31, 2019
2020	$	4,884
2021	4,909
2022	4,968
2023	4,990
2024	5,011
Thereafter	114,008
Total future lease payments	138,770
Imputed interest	(90,570		)
Lease liabilities	$	48,200

The following table presents certain information related to the Company's operating leases as of December 31, 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 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. 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, 2019 and 2018, approximately $4.1 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.

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 period, 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, had a base management fee 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 (loss). For the Predecessor period of January 1, 2017 through August 31, 2017, the Company recognized management fee expense of approximately $19.1 million.

The Wyndham management agreements guaranteed minimum levels of annual net operating income at each of the Wyndham-managed hotels for each year of the initial 10-year term to December 31, 2022, subject to an aggregate $100.0 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 guarantee. The Company recognized these amounts as a reduction of Wyndham's contractual management and other fees.

Franchise Agreements

During the Predecessor comparative period, 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 of 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 (loss). For the Predecessor period of January 1, 2017 through August 31, 2017, the Company recognized franchise fee expense of approximately $0.8 million.