Hotel Management Agreements and Leases	3 Months Ended
Mar. 31, 2013
Hotel Management Agreements and Leases
Hotel Management Agreements and Leases	Note 12. Hotel Management Agreements and Leases Marriott No. 1 agreement. Our lease with Host Hotels & Resorts, Inc., or Host, for 53 hotels which we have historically referred to as our Marriott No. 1 agreement expired on December 31, 2012. As required upon the expiration of the agreement, we returned the $50,540 security deposit we held to Host. Effective January 1, 2013, we leased these hotels to one of our TRSs and continued the previously existing hotel brand and management agreements with Marriott International Inc., or Marriott. This management agreement expires in 2024. Because we no longer hold a security deposit for this agreement, the future minimum returns we receive from this agreement will depend exclusively upon the performance of the hotels. Marriott No. 234 agreement. During the three months ended March 31, 2013, the payments we received under our Marriott No. 234 agreement, which requires annual minimum returns to us of $103,151, were $1,704 less than the minimum amounts contractually required. Pursuant to our Marriott No. 234 agreement, Marriott provided us with a limited guarantee for shortfalls up to 90% of our minimum returns. During the three months ended March 31, 2013, Marriott made $657 of guaranty payments to us. The available balance of this guaranty was $25,319 as of March 31, 2013. Also, during the period from March 31, 2013 to May 7, 2013, the payments we received for these hotels were $1,717 less than the contractual minimum returns due to us. We currently expect to fund $45,000 of capital improvements in 2013 to complete renovations at certain of the hotels included in our Marriott No. 234 agreement. We funded $14,600 of this amount during the three months ended March 31, 2013. As we fund these improvements, the annual minimum returns payable to us increase by 9% of the amounts funded. InterContinental agreement. During the three months ended March 31, 2013, the payments we received under our agreement with InterContinental Hotels Group, plc, or InterContinental, covering 91 hotels and requiring minimum returns to us of $135,159, were $5,917 less than the minimum amounts contractually required. We applied the available security deposit to cover these shortfalls. Also, during the period from March 31, 2013 to May 7, 2013, the minimum return payments we received under our InterContinental agreement were $3,381 more than the minimum amounts due to us. We replenished the available security deposit by the additional amounts received. The remaining balance of the security deposit was $23,929 as of May 7, 2013. When we reduce the amounts of the security deposits we hold for these agreements or any other operating agreements for payment deficiencies, we record income equal to the amounts by which these deposits are reduced up to the minimum return or minimum rent due to us. However, reducing the security deposits does not result in additional cash flow to us of the deficiency amounts, but reducing amounts of security deposits may reduce the refunds due to the respective lessees or managers who have provided us with these deposits upon expiration of the respective lease or management agreement. The security deposits are non-interest bearing and are not held in escrow. Under all of our hotel contracts that include a security deposit, any amount of the security deposits which are applied to payment deficits may be replenished from future cash flows from the applicable hotel operations pursuant to the terms of the respective contracts. We currently expect to fund $77,232 of capital improvement in 2013 to complete renovations at certain of the hotels included in our InterContinental agreement. We did not make any fundings during the three months ended March 31, 2013. As we fund these improvements, the annual minimum returns payable to us increase by 8% of the amounts funded. Sonesta No. 1 agreement. In addition to recurring capital expenditures, we currently expect to fund an aggregate of $195,000 for rebranding, renovations and other improvements in 2013 and 2014 to these hotels. We funded $15,880 of this amount during the three months ended March 31, 2013. The annual minimum returns due to us under the Sonesta No. 1 agreement will increase by 8% to the extent amounts funded for these improvements exceed threshold amounts, as defined. We do not have any security deposits or guarantees for our hotels managed by Sonesta. Sonesta’s incentive management fees, but not its other fees, are only earned after we receive our minimum returns, and we may cancel these management agreements if approximately 75% of our minimum returns are not paid for certain periods. Accordingly, the returns we receive from hotels managed by Sonesta will depend exclusively upon the performance of those hotels. Wyndham agreement. We currently expect to fund $85,000 of capital improvement in 2013 to complete renovations at certain of the hotels included in our Wyndham Worldwide Corporation, or Wyndham, agreement. We funded $10,081 of this amount during the three months ended March 31, 2013. As we fund these improvements, the annual minimum returns payable to us increase by 8% of the amounts funded. During the three months ended March 31, 2013, Wyndham provided $5,091 of guaranty payments to us. Other management agreement and lease matters. As of May 7, 2013, all payments due to us from our managers and tenants under our other operating agreements were current. Minimum return and minimum rent payments due to us under some of our hotel management agreements and leases are supported by guarantees. The guarantee provided by Marriott, with respect to the 68 hotels (Marriott No. 234 agreement) managed by Marriott is limited to $40,000 ($25,318 remaining at March 31, 2013) and expires on December 31, 2019. The guarantee provided by Hyatt Hotels Corporation, or Hyatt, with respect to the 22 hotels managed by Hyatt is limited to $50,000 ($16,025 remaining at March 31, 2013). The guarantee provided by Carlson Hotels Worldwide, or Carlson, with respect to the 11 hotels managed by Carlson is limited to $40,000 ($21,512 remaining at March 31, 2013). The guarantee provided by Wyndham with respect to the 21 hotels managed by Wyndham is limited to $29,000 ($16,459 remaining at March 31, 2013). Certain of these guarantees may be replenished by future cash flows from the hotels in excess of our minimum returns. The guarantee provided by Wyndham for the lease with Wyndham Vacation Resorts, Inc., or Wyndham Vacation, is unlimited. The guarantee provided by Marriott with respect to the one hotel leased by Marriott (Marriott No. 5 agreement) is unlimited. Certain of our managed hotel portfolios had net operating results that were, in the aggregate, $33,459 and $28,655 less than the minimum returns due to us for the three months ended March 31, 2013 and 2012, respectively. When managers of these hotels are required to fund the shortfalls under the terms of our operating agreements or their guarantees, we reflect such fundings (including security deposit applications) in our condensed consolidated statements of income and comprehensive income as a reduction of hotel operating expenses. The reduction to hotel operating expenses was $14,908 and $24,594 in the three months ended March 31, 2013 and 2012, respectively. We had $18,551 and $4,061 of shortfalls at certain of our managed hotel portfolios not funded by the managers of these hotels under the terms of our operating agreements during the three months ended March 31, 2013 and 2012, respectively, which represents the unguaranteed portion of our minimum returns from Marriott and Sonesta.

Note 12. Hotel Management Agreements and Leases

Marriott No. 1 agreement. Our lease with Host Hotels & Resorts, Inc., or Host, for 53 hotels which we have historically referred to as our Marriott No. 1 agreement expired on December 31, 2012. As required upon the expiration of the agreement, we returned the $50,540 security deposit we held to Host. Effective January 1, 2013, we leased these hotels to one of our TRSs and continued the previously existing hotel brand and management agreements with Marriott International Inc., or Marriott. This management agreement expires in 2024. Because we no longer hold a security deposit for this agreement, the future minimum returns we receive from this agreement will depend exclusively upon the performance of the hotels.

Marriott No. 234 agreement. During the three months ended March 31, 2013, the payments we received under our Marriott No. 234 agreement, which requires annual minimum returns to us of $103,151, were $1,704 less than the minimum amounts contractually required. Pursuant to our Marriott No. 234 agreement, Marriott provided us with a limited guarantee for shortfalls up to 90% of our minimum returns. During the three months ended March 31, 2013, Marriott made $657 of guaranty payments to us. The available balance of this guaranty was $25,319 as of March 31, 2013. Also, during the period from March 31, 2013 to May 7, 2013, the payments we received for these hotels were $1,717 less than the contractual minimum returns due to us.

We currently expect to fund $45,000 of capital improvements in 2013 to complete renovations at certain of the hotels included in our Marriott No. 234 agreement. We funded $14,600 of this amount during the three months ended March 31, 2013. As we fund these improvements, the annual minimum returns payable to us increase by 9% of the amounts funded.

InterContinental agreement. During the three months ended March 31, 2013, the payments we received under our agreement with InterContinental Hotels Group, plc, or InterContinental, covering 91 hotels and requiring minimum returns to us of $135,159, were $5,917 less than the minimum amounts contractually required. We applied the available security deposit to cover these shortfalls. Also, during the period from March 31, 2013 to May 7, 2013, the minimum return payments we received under our InterContinental agreement were $3,381 more than the minimum amounts due to us. We replenished the available security deposit by the additional amounts received. The remaining balance of the security deposit was $23,929 as of May 7, 2013.

When we reduce the amounts of the security deposits we hold for these agreements or any other operating agreements for payment deficiencies, we record income equal to the amounts by which these deposits are reduced up to the minimum return or minimum rent due to us. However, reducing the security deposits does not result in additional cash flow to us of the deficiency amounts, but reducing amounts of security deposits may reduce the refunds due to the respective lessees or managers who have provided us with these deposits upon expiration of the respective lease or management agreement. The security deposits are non-interest bearing and are not held in escrow. Under all of our hotel contracts that include a security deposit, any amount of the security deposits which are applied to payment deficits may be replenished from future cash flows from the applicable hotel operations pursuant to the terms of the respective contracts.

We currently expect to fund $77,232 of capital improvement in 2013 to complete renovations at certain of the hotels included in our InterContinental agreement. We did not make any fundings during the three months ended March 31, 2013. As we fund these improvements, the annual minimum returns payable to us increase by 8% of the amounts funded.

Sonesta No. 1 agreement. In addition to recurring capital expenditures, we currently expect to fund an aggregate of $195,000 for rebranding, renovations and other improvements in 2013 and 2014 to these hotels. We funded $15,880 of this amount during the three months ended March 31, 2013. The annual minimum returns due to us under the Sonesta No. 1 agreement will increase by 8% to the extent amounts funded for these improvements exceed threshold amounts, as defined.

We do not have any security deposits or guarantees for our hotels managed by Sonesta. Sonesta’s incentive management fees, but not its other fees, are only earned after we receive our minimum returns, and we may cancel these management agreements if approximately 75% of our minimum returns are not paid for certain periods. Accordingly, the returns we receive from hotels managed by Sonesta will depend exclusively upon the performance of those hotels.

Wyndham agreement. We currently expect to fund $85,000 of capital improvement in 2013 to complete renovations at certain of the hotels included in our Wyndham Worldwide Corporation, or Wyndham, agreement. We funded $10,081 of this amount during the three months ended March 31, 2013. As we fund these improvements, the annual minimum returns payable to us increase by 8% of the amounts funded. During the three months ended March 31, 2013, Wyndham provided $5,091 of guaranty payments to us.

Other management agreement and lease matters. As of May 7, 2013, all payments due to us from our managers and tenants under our other operating agreements were current. Minimum return and minimum rent payments due to us under some of our hotel management agreements and leases are supported by guarantees. The guarantee provided by Marriott, with respect to the 68 hotels (Marriott No. 234 agreement) managed by Marriott is limited to $40,000 ($25,318 remaining at March 31, 2013) and expires on December 31, 2019. The guarantee provided by Hyatt Hotels Corporation, or Hyatt, with respect to the 22 hotels managed by Hyatt is limited to $50,000 ($16,025 remaining at March 31, 2013). The guarantee provided by Carlson Hotels Worldwide, or Carlson, with respect to the 11 hotels managed by Carlson is limited to $40,000 ($21,512 remaining at March 31, 2013). The guarantee provided by Wyndham with respect to the 21 hotels managed by Wyndham is limited to $29,000 ($16,459 remaining at March 31, 2013). Certain of these guarantees may be replenished by future cash flows from the hotels in excess of our minimum returns. The guarantee provided by Wyndham for the lease with Wyndham Vacation Resorts, Inc., or Wyndham Vacation, is unlimited. The guarantee provided by Marriott with respect to the one hotel leased by Marriott (Marriott No. 5 agreement) is unlimited.

Certain of our managed hotel portfolios had net operating results that were, in the aggregate, $33,459 and $28,655 less than the minimum returns due to us for the three months ended March 31, 2013 and 2012, respectively. When managers of these hotels are required to fund the shortfalls under the terms of our operating agreements or their guarantees, we reflect such fundings (including security deposit applications) in our condensed consolidated statements of income and comprehensive income as a reduction of hotel operating expenses. The reduction to hotel operating expenses was $14,908 and $24,594 in the three months ended March 31, 2013 and 2012, respectively. We had $18,551 and $4,061 of shortfalls at certain of our managed hotel portfolios not funded by the managers of these hotels under the terms of our operating agreements during the three months ended March 31, 2013 and 2012, respectively, which represents the unguaranteed portion of our minimum returns from Marriott and Sonesta.