Concentration

12 Months Ended

Dec. 31, 2019

Note 11. Concentration

Geographic Concentration

At December 31, 2019, our 1,145 properties were located in 47 states in the United States, plus Washington, DC, Ontario, Canada and Puerto Rico. Between 6% and 10% 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, 2019.

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, 2019.



Agreement Reference Name	Number of Properties	Annual Minimum Returns/Rents		% of Total		Investment⁽¹⁾		% of Total
IHG ⁽²⁾	103	$	216,239	21.6	%	$	2,377,821	19.4	%
Marriott (No. 1)	53	71,872		7.2	%	723,663		5.9	%
Marriott (No. 234)	68	110,384		11.1	%	1,046,094		8.5	%
Marriott (No. 5)	1	10,518		1.1	%	90,079		0.7	%
Subtotal Marriott	122	192,774		19.3	%	1,859,836		15.1	%
Sonesta	53	146,800		14.7	%	1,963,497		16.0	%
Hyatt	22	22,037		2.2	%	301,942		2.5	%
Radisson	9	20,442		2.0	%	289,139		2.4	%
Wyndham ⁽³⁾	20	18,866		1.9	%	217,764		1.8	%
Subtotal Hotels	329	617,158		61.7	%	7,009,999		57.2	%
TravelCenters of America Inc. ⁽⁴⁾	179	246,088		24.6	%	3,302,815		26.9	%
Other Net Leases ⁽⁵⁾	637	135,591		13.7	%	1,973,324		15.9	%
Subtotal Net Lease	816	381,679		38.3	%	5,276,139		42.8	%
Total	1,145	$	998,837	100.0	%	$	12,286,138	100.0	%

(1)

Hotel investments represent 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. Net lease investments represents historical cost of our properties plus capital improvements funded by us less impairment write-downs, if any.


(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 $1,537 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.


(5)	Represents 193 individual tenants. No other tenant represents more than 1% of our annual minimum returns or rents.

Minimum return and minimum rent payments due to us under some of these hotel management agreements and leases are supported by guarantees. As of January 1, 2020 the guaranty provided by Marriott with respect to the 122 hotels managed by Marriott under our Marriott Agreement is limited to $30,000 and expires on December 31, 2026. The guaranty provided by Hyatt with respect to the 22 hotels managed by Hyatt is limited to $50,000 ($19,655 remaining at December 31, 2019). The guaranty provided by Radisson with respect to the nine hotels managed by Radisson is limited to $47,523 ( $41,216 remaining at December 31, 2019). These guarantees may be replenished by future cash flows from the hotels in excess of our minimum returns. The guaranty provided by Destinations 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, 2019, we hold security deposits for our 103 hotels managed or leased by IHG ($75,717) and for the 122 hotels included in our Marriott Agreement ($33,445). 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, $96,744, $50,203 and $31,477 less than the minimum returns due to us for the years ended December 31, 2019, 2018, and 2017, 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 $29,897, $5,569 and $4,673 in the years ended December 31, 2019, 2018 and 2017, 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 $69,929 and $44,634 during the years ended December 31, 2019 and 2018, respectively, which represents the unguaranteed portion of our minimum returns from our Sonesta and Wyndham agreements and shortfalls of $26,804 during the year ended December 31, 2017, 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, $10,702, $35,464 and $68,338 more than the minimum returns due to us during the years ended December 31, 2019, 2018 and 2017, 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 $734, $10,743 and $25,419 of guaranty and security deposit replenishments during the years ended December 31, 2019, 2018 and 2017, respectively.