Management Agreements and Leases

As of December 31, 2017, we owned 323 hotels and 199 travel centers, which are included in 14 operating agreements. We do not operate any of our properties.

As of December 31, 2017, 320 of our hotels are leased to our TRSs and managed by independent hotel operating companies and three hotels are leased to third parties. As of December 31, 2017, our hotel properties are managed by or leased to separate subsidiaries of Marriott, InterContinental, Sonesta, Wyndham, Hyatt, Carlson and Morgans under nine agreements. These hotel agreements have initial terms expiring between 2019 and 2103. Each of these agreements is for between one and 99 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 aggregate 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 reserves established for the regular refurbishment of our hotels, or 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, 2017 we are to be paid an annual minimum return of $69,232 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 $68,944, $68,514 and $68,154 during the years ended December 31, 2017, 2016 and 2015, respectively, under this agreement. We also realized additional returns of $6,180, $10,202 and $3,177 during the years ended December 31, 2017, 2016 and 2015, respectively, which represents 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 $5,959 for capital improvements at certain of the hotels included in our Marriott No. 1 agreement during the year ended December 31, 2017. We currently expect to fund approximately $6,000 for capital improvements to certain hotels under our Marriott No. 1 agreement during 2018. 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, 2017 we are to be paid an annual minimum return of $106,538. We realized minimum returns of $106,405, $106,275 and $106,146 during the years ended December 31, 2017, 2016 and 2015, 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, 2017, our available security deposit was replenished by $9,491 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 $25,971 as of December 31, 2017. Pursuant to our Marriott No. 234 agreement, Marriott has also provided us with a limited guarantee 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 guarantee was $30,672 as of December 31, 2017.

We funded $1,975 for capital improvements at certain of the hotels included in our Marriott No. 234 agreement during the year ended December 31, 2017. We currently expect to fund approximately $8,680 for capital improvements to certain hotels under our Marriott No. 234 agreement during 2018. 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, 2017, we are paid annual minimum rents of $10,159. This lease is guaranteed by Marriott and we realized rent for this hotel of $10,159 during the year ended December 31, 2017 and $10,116 during each of the years ended December 31, 2016 and 2015. The guarantee 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.

InterContinental agreement. Our management agreement with InterContinental for 99 hotels, or our InterContinental agreement, provides that, as of December 31, 2017, we are to be paid annual minimum returns and rents of $189,261. We realized minimum returns and rents of $178,883, $158,464 and $146,921 during the years ended December 31, 2017, 2016 and 2015, respectively, under this agreement. We also realized additional returns under this agreement of $12,250, $7,013 and $5,134 during the years ended December 31, 2017, 2016 and 2015, respectively, from our share of hotel cash flows in excess of the minimum returns and rents due to us for those years.

Pursuant to our InterContinental agreement, InterContinental has provided us with a security deposit to cover minimum payment shortfalls, if any. Under this agreement, InterContinental 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. During the year ended December 31, 2017, the available security deposit was replenished by $7,557 from the hotels’ cash flows in excess of the minimum payments due to us for the year.

During the year ended December 31, 2017, we amended our InterContinental agreement in connection with each of the five hotel acquisitions we made during that period. See Note 5 for further information regarding these acquisitions. As a result of the amendments, the annual minimum returns and rents due to us increased and InterContinental provided us an aggregate of $19,696 to supplement the existing security deposit. The available balance of the InterContinental security deposit was at the contractually capped amount of $100,000 as of December 31, 2017.

We funded $4,272 for capital improvements to certain of the hotels under our InterContinental agreement during the year ended December 31, 2017. We currently expect to fund approximately $28,000 during 2018 and approximately $20,000 during 2019 for capital improvements to certain hotels under our InterContinental agreement. 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, 2017, Sonesta managed 10 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 $109,632, as of December 31, 2017, 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 $70,576, $59,618 and $50,442 during the years ended December 31, 2017, 2016 and 2015, 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% of gross revenues for our full service Sonesta hotels and 5% 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 management agreements, a system fee for centralized services of 1.5% of gross revenues, a procurement and construction supervision fee equal to 3% of third party costs of capital expenditures and an incentive management fee equal to 20% 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 $28,238, $24,194 and $21,482 for the years ended December 31, 2017, 2016 and 2015, respectively, under our Sonesta agreement. In addition, we recognized procurement and construction supervision fees of $1,080, $1,468 and $1,607 for the years ended December 31, 2017, 2016 and 2015, 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 $34,933, $54,105 and $56,649 for renovations and other capital improvements to hotels included in our Sonesta agreement during the years ended December 31, 2017, 2016 and 2015, respectively. We currently expect to fund approximately $126,000 during 2018 and approximately $57,000 during 2019 for renovations and other capital improvements to hotels under our Sonesta agreement. We owed Sonesta $4,582, $2,416 and $3,968 for capital expenditure reimbursements and for a previously estimated overpayment of minimum returns advanced at December 31, 2017, 2016 and 2015, 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 the management agreements. We generally have the right to terminate our Sonesta agreement after three years without cause upon payment of a termination fee. We also have the right to terminate our Sonesta agreement 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 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 the payment of a termination fee. Under our Sonesta agreement, 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%. A hotel may be designated as “non-economic” under the applicable Sonesta agreement and removed from our Sonesta agreement and subject to sale, and we have an early termination right under each of our Sonesta management agreements 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 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.

Wyndham agreements. Our management agreement with Wyndham for 22 hotels, or our Wyndham agreement, provides that as of December 31, 2017, we are to be paid annual minimum returns of $27,561. We realized returns of $27,364, $26,725 and $26,340 during the years ended December 31, 2017, 2016 and 2015, respectively, under this agreement. Pursuant to our Wyndham agreement, Wyndham has provided us with a guarantee which is limited to $35,656, subject to an annual payment limit of $17,828, and expires on July 28, 2020. As of December 31, 2016, $1,090 remained available to cover payment shortfalls under the management agreement. During the year ended December 31, 2017, the hotels under this agreement generated cash flows that were less than the minimum returns due to us and the remaining guarantee was depleted. This guarantee may be replenished from a share of future cash flows from these hotels in excess of our minimum returns. As of December 31, 2017, Wyndham had paid all minimum returns due to us under our Wyndham agreement.

We also lease 48 vacation units in one of our hotels to Wyndham Vacation Resorts, Inc., a subsidiary of Wyndham, or Wyndham Vacation, which requires that, as of December 31, 2017, we are paid annual minimum rents of $1,449. The guarantee provided by Wyndham with respect to the Wyndham Vacation lease for part of one hotel is unlimited. We recognized rents of $1,814 during each of the years ended December 31, 2017, 2016 and 2015, respectively, under our Wyndham Vacation lease agreement. Rental income for the years ended December 31, 2017, 2016 and 2015 for this lease includes $400, $441 and $481, respectively, of adjustments necessary to record rent on a straight line basis.

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, to avoid a default Wyndham is required to pay us the greater of the available hotel cash flows and 85% of the contractual amount due. During January and February 2018, Wyndham paid us 85% of the minimum returns due under the management agreement, which payments were an aggregate of $689 less than the minimum returns due for these months. We can provide no assurance as to whether Wyndham will continue to pay at least the greater of available hotel cash flows and 85% of the minimum returns due to us or if Wyndham will default on its payments. The contractual rent due to us under the lease for Wyndham's 48 vacation units for January and February 2018 was paid to us. Our lease for Wyndham's 48 vacation units is subject to termination in the event of a manager default under our Wyndham hotel management 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, 2017 due to insufficient available cash flows generated at these hotels.

We funded $7,041 for capital improvements to certain hotels included in our Wyndham agreement during the year ended December 31, 2017. We currently expect to fund approximately $5,000 for capital improvements to hotels under our Wyndham agreement in 2018. As we fund these improvements, the annual minimum returns payable to us increase by 8% of the amounts funded.

Hyatt agreement. Our management agreement with Hyatt for 22 hotels, or our Hyatt agreement, provides that, as of December 31, 2017, 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, 2017, 2016 and 2015 under this agreement. Pursuant to our Hyatt agreement, Hyatt has provided us with a guarantee, which is limited to $50,000. During the year ended December 31, 2017, our available guarantee was replenished by $2,797 from a share of hotel cash flows in excess of the minimum returns due to us. The available balance of the guarantee was $21,106 as of December 31, 2017.

Carlson agreement. Our management agreement with Carlson, or our Carlson agreement, provides that, as of December 31, 2017, we are to be paid an annual minimum return of $12,920. We realized minimum returns of $12,920 during each of the years ended December 31, 2017, 2016 and 2015 under this agreement. Pursuant to our Carlson agreement, Carlson provided us with a guarantee, limited to $40,000. During the year ended December 31, 2017, our available guarantee was replenished by $4,535 from a share of hotel cash flows in excess of the minimum returns due to us. The available balance of the guarantee was $33,364 at December 31, 2017. In June 2017, we amended our Carlson agreement and agreed to sell three of our then 11 Carlson 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 Carlson 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 eight hotels operated under our Carlson 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 $6,400 during 2018 and approximately $28,600 during 2019 for these renovations. Our annual minimum returns and the limited guaranty cap under our Carlson 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 Carlson, the initial term of the management agreement and the limited guarantee provided by Carlson were extended to December 31, 2035.

Morgans agreement. We lease The Clift Hotel in San Francisco, CA to a subsidiary of Morgans. This lease is scheduled to expire in 2103 and requires annual rent to us of $7,595, which amount is scheduled to increase on October 14, 2019 and every five years thereafter based upon consumer price index increases, but no less than 10% and no more than 20% at the time of each increase. Although the terms of this lease might have qualified it as a direct financing lease under GAAP, we recognize the rental income we receive from Morgans on a cash basis because of uncertainty regarding our collection of future rent increases. In December 2016, we notified Morgans that the closing of its merger with SBE Entertainment Group LLC, or SBE, without our consent was a breach of its lease obligations and shortly thereafter we commenced an unlawful detainer action in the California state courts to compel Morgans and SBE to surrender possession of this hotel to us. We are pursuing this litigation and are in discussions with Morgans and SBE regarding this hotel. The outcome of this pending litigation and our discussions with Morgans and SBE is not assured, but we believe Morgans may surrender to us possession of this hotel or that the court will determine that Morgans and SBE have breached the lease. We also believe that this hotel may require substantial capital investment to remain competitive in its market. The continuation of our dispute with Morgans and SBE is causing us to incur legal fees. Despite the continuation of this dispute, Morgans has paid the rents due to us through February 28, 2018; however, we believe that we may suffer some loss of future rent from this hotel, at least until this hotel is renovated and operations improve.

TA leases. As of December 31, 2017, we leased to TA a total of 199 travel centers under five leases, and the number of travel centers leased, the term, the annual minimum rent and the deferred rent balance owed under each of these leases were as follows:



	Number of Travel Centers	Initial Term End ⁽¹⁾	Annual Minimum Rent as of December 31, 2017		Deferred Rent ⁽²⁾
TA No. 1 Lease	40	December 31, 2029	$	52,763	$	27,421
TA No. 2 Lease	40	December 31, 2028	53,681		29,107
TA No. 3 Lease	39	December 31, 2026	54,005		29,324
TA No. 4 Lease	40	December 31, 2030	54,437		21,233
TA No. 5 Lease	40	June 30, 2032	69,527		42,915
	199		$	284,413	$	150,000


⁽¹⁾	TA has two renewal options of 15 years each under each of our TA leases.

⁽²⁾

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, 2017. This deferred rent obligation was allocated among our TA leases and is due at the end of the initial terms of the respective leases as noted above, except for our TA No. 5 lease, in which case the applicable deferred rent is due and payable on June 30, 2024. These deferred rent obligations are subject to acceleration at our option upon an uncured default or a change in control of TA.

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 $293,273, $279,175 and $250,582 for the years ended December 31, 2017, 2016 and 2015, respectively, under our TA leases. Rental income for the years ended December 31, 2017, 2016 and 2015 includes $11,966, $13,132 and $9,100, 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, 2017 and 2016, we had receivables for current rent amounts owed to us by TA and straight line rent adjustments of $78,513 and $65,332, respectively. These amounts are included in due from related persons in our consolidated balance sheets. On June 9, 2015, we began recognizing the deferred rent obligations under our TA leases as rental income on a straight line basis over the remaining initial terms of the respective leases because we believe the future payment of these amounts to us by TA is reasonably assured.

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 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). We waived $372 and $1,121 of percentage rent under our TA No. 5 lease for the years ended December 31, 2016 and 2015, respectively, 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 is net of the waived amount for the applicable period) was $2,106, $1,303 and $2,048 for the years ended December 31, 2017, 2016 and 2015, 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 $84,632, $109,926 and $99,896 during the years ended December 31, 2017, 2016 and 2015, respectively, for capital improvements to our travel center properties and, as a result, TA’s annual minimum rent payable to us increased by $7,194, $9,344 and $8,491, respectively. We currently expect to fund $51,494 for renovations and other capital improvements to our travel centers during the year ending December 31, 2018.

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, 2017, 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 14.5 years. As of December 31, 2017, 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:




2018	$	311,625
2019	311,861
2020	302,319
2021	301,832
2022	300,272
Thereafter	3,910,613
Total	$	5,438,522