Note 11. Concentration

Geographic Concentration

At December 31, 2018, our 525 properties were located in 45 states in the United States, Ontario, Canada and Puerto Rico. Between 5% and 11% of our properties, by investment, were located in each of California, Texas, Georgia and Illinois. Our two hotels in Ontario, Canada and our hotel in Puerto Rico represent 2% of our hotels, by investment, in the aggregate at December 31, 2018.

Credit Concentration

All of our managers and tenants are subsidiaries of other companies. The percentage of our annual minimum returns and rents, for each management or lease agreement is shown below, as of December 31, 2018.



Agreement Reference Name	Number of Properties	Annual Minimum Returns/Rents		% of Total		Investment⁽¹⁾		% of Total
Marriott (No. 1)	53	$	70,137	8	%	$	706,308	7	%
Marriott (No. 234)	68	107,350		13	%	1,012,394		10	%
Marriott (No. 5)	1	10,321		1	%	90,078		1	%
Subtotal Marriott	122	187,808		22	%	1,808,780		18	%
IHG ⁽²⁾	100	193,695		22	%	2,096,012		21	%
Sonesta	51	127,089		14	%	1,695,809		16	%
Wyndham⁽³⁾	22	29,283		4	%	396,682		4	%
Hyatt	22	22,037		3	%	301,942		3	%
Radisson	9	18,920		2	%	270,105		3	%
Subtotal Hotels	326	578,832		67	%	6,569,330		65	%
TA (No. 1)	40	53,712		6	%	688,204		7	%
TA (No. 2)	40	54,855		6	%	694,852		7	%
TA (No. 3)	39	54,754		6	%	644,820		6	%
TA (No. 4)⁽⁴⁾	40	55,363		7	%	629,193		6	%
TA (No. 5)	40	70,547		8	%	897,685		9	%
Subtotal TA	199	289,231		33	%	3,554,754		35	%
Total	525	$	868,063	100	%	$	10,124,084	100	%


(1)	Represents historical cost of our properties plus capital improvements funded by us less impairment writedowns, if any, and excludes capital improvements made from FF&E reserves funded from hotel operations which do not result in increases to minimum returns or rents.


(2)	The annual minimum return/minimum rent amount presented includes $7,908 of rent related to our lease with IHG for one hotel in Puerto Rico.


(3)	The annual minimum return/minimum rent amount presented includes $1,493 of rent related to our lease with Destinations for 48 vacation units in one hotel.


(4)	The annual minimum rent amount for our TA No. 4 lease includes approximately $2,175 of ground rent paid by TA for a property we lease and sublease to TA.

Minimum return and minimum rent payments due to us under some of these hotel management agreements and leases are supported by guarantees. The guaranty provided by Marriott with respect to the 68 hotels managed by Marriott under our Marriott No. 234 agreement is limited to $40,000 ( $30,672 remaining at December 31, 2018) and expires on December 31, 2019. The guaranty provided by Wyndham with respect to the 22 hotels managed by Wyndham is limited to $35,656 and expires on July 28, 2020. 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 guaranty was depleted and remains depleted as of December 31, 2018. The guaranty provided by Hyatt with respect to the 22 hotels managed by Hyatt is limited to $50,000 ($21,915 remaining at December 31, 2018). The guaranty provided by Radisson with respect to the nine hotels managed by Radisson is limited to $46,000 ( $42,559 remaining at December 31, 2018). These guarantees may be replenished by future cash flows from the hotels in excess of our minimum returns. The guaranty provided by Wyndham for the lease with Destinations is unlimited. The guaranty provided by Marriott with respect to the one hotel leased by Marriott (Marriott No. 5 agreement) is unlimited.

Security deposits support minimum return and minimum rent payments that may be due to us under some of our management agreements and leases. As of December 31, 2018, we hold security deposits for our 100 hotels managed or leased by IHG ($100,000) and for the 68 hotels included in our Marriott No. 234 agreement ($32,711). These deposits may be replenished further in the future from available cash flows.

Certain of our managed hotel portfolios had net operating results that were, in the aggregate, $50,203, $31,477 and $28,421 less than the minimum returns due to us for the years ended December 31, 2018, 2017, and 2016, 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 consolidated statements of comprehensive income as a reduction of hotel operating expenses. The reduction to hotel operating expenses was $5,569, $4,673 and $2,918 in the years ended December 31, 2018, 2017 and 2016, respectively. 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 deposits upon expiration of the respective operating agreement. The security deposits are non-interest bearing and are not held in escrow. 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 $44,634 during the year ended December 31, 2018 which represents the unguaranteed portion of our minimum returns from our Sonesta and Wyndham agreements. 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 $26,804 and $25,503 during the years ended December 31, 2017 and 2016, respectively, which represents the unguaranteed portion of our minimum returns from our Sonesta agreement.

Certain of our managed hotel portfolios had net operating results that were, in the aggregate, $35,464, $68,338 and $81,227 more than the minimum returns due to us during the years ended December 31, 2018, 2017 and 2016, respectively. 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 consolidated statements of comprehensive income as an increase to hotel operating expenses. We had $10,743, $25,419 and $34,148 of guaranty and security deposit replenishments during the years ended December 31, 2018, 2017 and 2016, respectively.