Hotel Management Agreements and Leases	6 Months Ended
Jun. 30, 2013
Hotel Management Agreements and Leases
Hotel Management Agreements and Leases	Note 11. 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 paid 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 minimum returns we receive under this agreement will be limited to available hotel cash flow after payment of operating expenses. Marriott No. 234 agreement. During the three and six months ended June 30, 2013, the payments we received under our Marriott No. 234 agreement, which requires annual minimum returns to us of $104,438, were $2,584 and $4,288 less than the minimum amounts contractually required, respectively. Pursuant to our Marriott No. 234 agreement, Marriott provided us with a limited guarantee for shortfalls up to 90% of our minimum returns through 2019. During the three months ended June 30, 2013, the amount available under Marriott’s guaranty was replenished by $5,388 of cash flows from these hotels in excess of the guaranteed portion of our minimum returns. Marriott was not required to make any guarantee payments during the six months ended June 30, 2013 because the hotels generated cash flows in excess of the guaranty threshold amount (90% of the minimum returns due to us). The available balance of this guaranty was $30,707 as of June 30, 2013. Also, during the period from June 30, 2013 to August 6, 2013, the payments we received for these hotels were $1,729 less than the contractual minimum returns due to us. We currently expect to fund $19,200 of capital improvements during the remainder of 2013 to complete renovations at certain of the hotels included in our Marriott No. 234 agreement. We funded $28,900 during the six months ended June 30, 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 June 30, 2013, the payments we received under our agreement with InterContinental Hotels Group, plc, or InterContinental, covering 91 hotels and requiring annual minimum returns to us of $135,159, were $5,917 more than the minimum amounts contractually required. We replenished the available security deposit with the $5,917 of excess payments to recover payment shortfalls applied to the security deposit during the first quarter of 2013. During the six months ended June 30, 2013 we have been paid all of our minimum returns due for the period. The available balance of this security deposit was $26,466 as of June 30, 2013. Also, during the period from June 30, 2013 to August 6, 2013, the payments we received under our InterContinental agreement were $37 less than the minimum amounts contractually required. We applied the available security deposit to cover these shortfalls. The remaining balance of the security deposit was $26,429 as of August 6, 2013. When we reduce the amounts of the security deposits we hold for this agreement or any other operating agreements for payment deficiencies, we record income equal to the amounts by which this deposit is 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 $63,000 of capital improvement during the remainder of 2013 to complete renovations at certain of the hotels included in our InterContinental agreement. We did not make any fundings during the six months ended June 30, 2013. As we fund these improvements, the annual minimum returns payable to us increase by 8% of the amounts funded. Sonesta agreement. Our management agreement with Sonesta provides that we are paid a fixed minimum return equal to 8% of our invested capital, as defined in the management agreement, if gross revenues of the hotels, after payment of hotel operating expenses and base fees to Sonesta, are sufficient to do so. In addition to recurring capital expenditures, we currently expect to fund an aggregate of $200,000 for rebranding, renovations and other improvements in 2013 and 2014 to these hotels. We funded $47,715 of this amount during the six months ended June 30, 2013. The annual minimum returns due to us under the Sonesta 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 is limited to available hotel cash flow after payment of operating expenses. See Note 10 for further information regarding our relationship with Sonesta. Wyndham agreement. On August 1, 2013, we acquired a full service hotel in Florham Park, NJ for $52,750, excluding the closing costs, and added it to our Wyndham Worldwide Corporation, or Wyndham, agreement. Our annual minimum returns under the Wyndham agreement increased by $4,220 and the limited guaranty provided by Wyndham increased to $35,656 upon closing of this hotel acquisition (and the annual maximum guarantee payment increased to $17,828). We currently expect to fund $75,590 of capital improvements in 2013 to complete renovations at certain of the hotels included in our Wyndham agreement, including $10,000 related to the Florham Park, NJ hotel described above. We funded $19,142 of this amount during the six months ended June 30, 2013. As we fund these improvements, the annual minimum returns payable to us increase by 8% of the amounts funded. Other management agreement and lease matters. As of August 6, 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 ($30,707 remaining at June 30, 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 ($16,222 remaining at June 30, 2013). The guarantee provided by Carlson Hotels Worldwide, or Carlson, with respect to the 11 hotels managed by Carlson is limited to $40,000 ($21,484 remaining at June 30, 2013). The guarantee provided by Wyndham with respect to the 21 hotels managed by Wyndham is limited to $29,000 ($15,220 remaining at June 30, 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, $8,018 and $3,081 less than the minimum returns due to us for the three months ended June 30, 2013 and 2012, respectively, and $30,369 and $26,396 less than the minimum returns due to us for the six months ended June 30, 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 $1,267 and $535 in the three months ended June 30, 2013 and 2012, respectively, and $8,772 and $20,027 in the six months ended June 30, 2013 and 2012, respectively. We had $6,751 and $2,546 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 June 30, 2013 and 2012, respectively, and $21,597 and $6,369 during the six months ended June 30, 2013 and 2012, respectively, which represents the unguaranteed portion of our minimum returns from Marriott and Sonesta.

Note 11. 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 paid 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 minimum returns we receive under this agreement will be limited to available hotel cash flow after payment of operating expenses.

Marriott No. 234 agreement. During the three and six months ended June 30, 2013, the payments we received under our Marriott No. 234 agreement, which requires annual minimum returns to us of $104,438, were $2,584 and $4,288 less than the minimum amounts contractually required, respectively. Pursuant to our Marriott No. 234 agreement, Marriott provided us with a limited guarantee for shortfalls up to 90% of our minimum returns through 2019. During the three months ended June 30, 2013, the amount available under Marriott’s guaranty was replenished by $5,388 of cash flows from these hotels in excess of the guaranteed portion of our minimum returns. Marriott was not required to make any guarantee payments during the six months ended June 30, 2013 because the hotels generated cash flows in excess of the guaranty threshold amount (90% of the minimum returns due to us). The available balance of this guaranty was $30,707 as of June 30, 2013. Also, during the period from June 30, 2013 to August 6, 2013, the payments we received for these hotels were $1,729 less than the contractual minimum returns due to us.

We currently expect to fund $19,200 of capital improvements during the remainder of 2013 to complete renovations at certain of the hotels included in our Marriott No. 234 agreement. We funded $28,900 during the six months ended June 30, 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 June 30, 2013, the payments we received under our agreement with InterContinental Hotels Group, plc, or InterContinental, covering 91 hotels and requiring annual minimum returns to us of $135,159, were $5,917 more than the minimum amounts contractually required. We replenished the available security deposit with the $5,917 of excess payments to recover payment shortfalls applied to the security deposit during the first quarter of 2013. During the six months ended June 30, 2013 we have been paid all of our minimum returns due for the period. The available balance of this security deposit was $26,466 as of June 30, 2013. Also, during the period from June 30, 2013 to August 6, 2013, the payments we received under our InterContinental agreement were $37 less than the minimum amounts contractually required. We applied the available security deposit to cover these shortfalls. The remaining balance of the security deposit was $26,429 as of August 6, 2013.

When we reduce the amounts of the security deposits we hold for this agreement or any other operating agreements for payment deficiencies, we record income equal to the amounts by which this deposit is 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 $63,000 of capital improvement during the remainder of 2013 to complete renovations at certain of the hotels included in our InterContinental agreement. We did not make any fundings during the six months ended June 30, 2013. As we fund these improvements, the annual minimum returns payable to us increase by 8% of the amounts funded.

Sonesta agreement. Our management agreement with Sonesta provides that we are paid a fixed minimum return equal to 8% of our invested capital, as defined in the management agreement, if gross revenues of the hotels, after payment of hotel operating expenses and base fees to Sonesta, are sufficient to do so. In addition to recurring capital expenditures, we currently expect to fund an aggregate of $200,000 for rebranding, renovations and other improvements in 2013 and 2014 to these hotels. We funded $47,715 of this amount during the six months ended June 30, 2013. The annual minimum returns due to us under the Sonesta 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 is limited to available hotel cash flow after payment of operating expenses.

See Note 10 for further information regarding our relationship with Sonesta.

Wyndham agreement. On August 1, 2013, we acquired a full service hotel in Florham Park, NJ for $52,750, excluding the closing costs, and added it to our Wyndham Worldwide Corporation, or Wyndham, agreement. Our annual minimum returns under the Wyndham agreement increased by $4,220 and the limited guaranty provided by Wyndham increased to $35,656 upon closing of this hotel acquisition (and the annual maximum guarantee payment increased to $17,828).

We currently expect to fund $75,590 of capital improvements in 2013 to complete renovations at certain of the hotels included in our Wyndham agreement, including $10,000 related to the Florham Park, NJ hotel described above. We funded $19,142 of this amount during the six months ended June 30, 2013. As we fund these improvements, the annual minimum returns payable to us increase by 8% of the amounts funded.

Other management agreement and lease matters. As of August 6, 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 ($30,707 remaining at June 30, 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 ($16,222 remaining at June 30, 2013). The guarantee provided by Carlson Hotels Worldwide, or Carlson, with respect to the 11 hotels managed by Carlson is limited to $40,000 ($21,484 remaining at June 30, 2013). The guarantee provided by Wyndham with respect to the 21 hotels managed by Wyndham is limited to $29,000 ($15,220 remaining at June 30, 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, $8,018 and $3,081 less than the minimum returns due to us for the three months ended June 30, 2013 and 2012, respectively, and $30,369 and $26,396 less than the minimum returns due to us for the six months ended June 30, 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 $1,267 and $535 in the three months ended June 30, 2013 and 2012, respectively, and $8,772 and $20,027 in the six months ended June 30, 2013 and 2012, respectively. We had $6,751 and $2,546 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 June 30, 2013 and 2012, respectively, and $21,597 and $6,369 during the six months ended June 30, 2013 and 2012, respectively, which represents the unguaranteed portion of our minimum returns from Marriott and Sonesta.