Hotel Management Agreements and Leases	9 Months Ended
Sep. 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 months ended September 30, 2013, we were paid the contractual amounts due for the period under our agreement with Marriott covering 68 hotels, or our Marriott No. 234 agreement, which requires annual minimum returns to us of $105,347. During the nine months ended September 30, 2013, the payments we received were $4,285 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 through 2019. Marriott was not required to make any guarantee payments during the three and nine months ended September 30, 2013, respectively, 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 $30,672 as of September 30, 2013. Also, during the period from September 30, 2013 to November 4, 2013, the payments we received for these hotels were $1,748 less than the contractual minimum returns due to us. We currently expect to fund $11,000 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 $39,000 during the nine months ended September 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 and nine months ended September 30, 2013, we were paid the contractual amounts due for the periods under our agreement with InterContinental Hotels Group, plc, or InterContinental, covering 91 hotels and requiring annual minimum returns to us of $136,008. Our available security deposit was replenished by $1,355 from the net operating results these hotels generated in excess of the minimum returns due to us during the nine months ended September 30, 2013. The available balance of this security deposit was $27,909 as of September 30, 2013. Also, during the period from September 30, 2013 to November 4, 2013, we received the minimum amounts contractually required under our InterContinental agreement. 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 $10,557 and $56,073 of capital improvements during the remainder of 2013 and in 2014, respectively, to complete renovations at certain of the hotels included in our InterContinental agreement. We funded $10,602 during the nine months ended September 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, to the extent that 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 $30,345 and $120,000 of capital improvements during the remainder of 2013 and in 2014, respectively, for renovations and other improvements at certain of the hotels included in our Sonesta agreement. We funded $74,688 of capital improvements during the nine months ended September 30, 2013. The annual minimum returns due to us under the Sonesta agreement will increase by 8% of the amounts funded in excess of threshold amounts, as defined. We do not have any security deposits or guarantees for our hotels managed by Sonesta. Accordingly, the returns we receive from hotels managed by Sonesta are limited to available hotel cash flows after payment of operating expenses. 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. 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 to $24,698 and the limited guaranty provided by Wyndham increased by $6,656 to $35,656 upon closing of this hotel acquisition (and the annual maximum guarantee payment amount increased by $3,328 to $17,828). Our guarantee from Wyndham expires in 2020. The available balance of this guarantee was $18,349 as of September 30, 2013. We currently expect to fund $21,664 and $25,874 of capital improvements in 2013 and 2014, respectively, 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 $46,880 of this amount during the nine months ended September 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 November 4, 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 these other hotel management agreements and leases are supported by guarantees. The guarantee provided by Hyatt Hotels Corporation, or Hyatt, with respect to the 22 hotels managed by Hyatt is limited to $50,000 ($15,304 remaining at September 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 ($21,642 remaining at September 30, 2013). 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. Guarantees and security deposits generally. Certain of our managed hotel portfolios had net operating results that were, in the aggregate, $15,258 and $20,300 less than the minimum returns due to us for the three months ended September 30, 2013 and 2012, respectively, and $44,475 and $46,697 less than the minimum returns due to us for the nine months ended September 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 $4,445 and $12,791 in the three months ended September 30, 2013 and 2012, respectively, and $12,597 and $30,483 in the nine months ended September 30, 2013 and 2012, respectively. We had shortfalls at certain of our managed hotel portfolios not funded by the managers of these hotels under the terms of our operating agreements of $10,813 and $9,840 during the three months ended September 30, 2013 and 2012, respectively, and $31,878 and $16,210 during the nine months ended September 30, 2013 and 2012, respectively, which represents the unguaranteed portion of our minimum returns from Marriott and Sonesta. Each of our guarantees and our security deposits under the InterContinental and Marriott No. 234 agreements may be replenished by future cash flows from the hotels in excess of our minimum returns.

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 months ended September 30, 2013, we were paid the contractual amounts due for the period under our agreement with Marriott covering 68 hotels, or our Marriott No. 234 agreement, which requires annual minimum returns to us of $105,347. During the nine months ended September 30, 2013, the payments we received were $4,285 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 through 2019. Marriott was not required to make any guarantee payments during the three and nine months ended September 30, 2013, respectively, 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 $30,672 as of September 30, 2013. Also, during the period from September 30, 2013 to November 4, 2013, the payments we received for these hotels were $1,748 less than the contractual minimum returns due to us.

We currently expect to fund $11,000 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 $39,000 during the nine months ended September 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 and nine months ended September 30, 2013, we were paid the contractual amounts due for the periods under our agreement with InterContinental Hotels Group, plc, or InterContinental, covering 91 hotels and requiring annual minimum returns to us of $136,008. Our available security deposit was replenished by $1,355 from the net operating results these hotels generated in excess of the minimum returns due to us during the nine months ended September 30, 2013. The available balance of this security deposit was $27,909 as of September 30, 2013. Also, during the period from September 30, 2013 to November 4, 2013, we received the minimum amounts contractually required under our InterContinental agreement.

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 $10,557 and $56,073 of capital improvements during the remainder of 2013 and in 2014, respectively, to complete renovations at certain of the hotels included in our InterContinental agreement. We funded $10,602 during the nine months ended September 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, to the extent that 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 $30,345 and $120,000 of capital improvements during the remainder of 2013 and in 2014, respectively, for renovations and other improvements at certain of the hotels included in our Sonesta agreement. We funded $74,688 of capital improvements during the nine months ended September 30, 2013. The annual minimum returns due to us under the Sonesta agreement will increase by 8% of the amounts funded in excess of threshold amounts, as defined.

We do not have any security deposits or guarantees for our hotels managed by Sonesta. Accordingly, the returns we receive from hotels managed by Sonesta are limited to available hotel cash flows after payment of operating expenses. 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.

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 to $24,698 and the limited guaranty provided by Wyndham increased by $6,656 to $35,656 upon closing of this hotel acquisition (and the annual maximum guarantee payment amount increased by $3,328 to $17,828). Our guarantee from Wyndham expires in 2020. The available balance of this guarantee was $18,349 as of September 30, 2013.

We currently expect to fund $21,664 and $25,874 of capital improvements in 2013 and 2014, respectively, 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 $46,880 of this amount during the nine months ended September 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 November 4, 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 these other hotel management agreements and leases are supported by guarantees. The guarantee provided by Hyatt Hotels Corporation, or Hyatt, with respect to the 22 hotels managed by Hyatt is limited to $50,000 ($15,304 remaining at September 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 ($21,642 remaining at September 30, 2013). 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.

Guarantees and security deposits generally. Certain of our managed hotel portfolios had net operating results that were, in the aggregate, $15,258 and $20,300 less than the minimum returns due to us for the three months ended September 30, 2013 and 2012, respectively, and $44,475 and $46,697 less than the minimum returns due to us for the nine months ended September 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 $4,445 and $12,791 in the three months ended September 30, 2013 and 2012, respectively, and $12,597 and $30,483 in the nine months ended September 30, 2013 and 2012, respectively. We had shortfalls at certain of our managed hotel portfolios not funded by the managers of these hotels under the terms of our operating agreements of $10,813 and $9,840 during the three months ended September 30, 2013 and 2012, respectively, and $31,878 and $16,210 during the nine months ended September 30, 2013 and 2012, respectively, which represents the unguaranteed portion of our minimum returns from Marriott and Sonesta. Each of our guarantees and our security deposits under the InterContinental and Marriott No. 234 agreements may be replenished by future cash flows from the hotels in excess of our minimum returns.