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COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS
12 Months Ended
Dec. 31, 2022
Commitments and Contingencies Disclosure [Abstract]  
COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS
Management Agreements
Our wholly-owned TRS, 44 New England Management Company, and certain of our joint venture entities engage eligible independent contractors in accordance with the requirements for qualification as a REIT under the Internal Revenue Code of 1986, as amended, including Hersha Hospitality Management Limited Partnership (“HHMLP”), as the property managers for hotels it leases from us pursuant to management agreements. Certain executives and trustees of the Company own a minority interest in HHMLP. Our management agreements with HHMLP provide for five-year terms and are subject to early termination upon the occurrence of defaults and certain other events described therein. As required under the REIT qualification rules, HHMLP must qualify as an “eligible independent contractor” during the term of the management agreements. Under the management agreements, HHMLP generally pays the operating expenses of our hotels. All operating expenses or other expenses incurred by HHMLP in performing its authorized duties are reimbursed or borne by our TRS to the extent the operating expenses or other expenses are incurred within the limits of the applicable approved hotel operating budget. HHMLP is not obligated to advance any of its own funds for operating expenses of a hotel or to incur any liability in connection with operating a hotel. Management agreements with other unaffiliated hotel management companies have similar terms.
For its services, HHMLP receives a base management fee and, if a hotel exceeds certain thresholds, an incentive management fee. The base management fee for a hotel is due monthly and is equal to 3% of gross revenues associated with each hotel managed for the related month. The incentive management fee, if any, for a hotel is due annually in arrears on the ninetieth day following the end of each fiscal year and is based upon the financial performance of the hotels. For the years ended December 31, 2022, 2021 and 2020, base management fees incurred totaled $10,227, $7,423 and $4,795 respectively, and are recorded as Other Hotel Operating Expenses. For the years ended December 31, 2022, 2021 and 2020, incentive management fees incurred totaled $418, $347 and $0 respectively.
Franchise Agreements
Our branded hotel properties are operated under franchise agreements assumed by the hotel property lessee. The franchise agreements have 10 to 20 year terms, but may be terminated by either the franchisee or franchisor on certain anniversary dates specified in the agreements. The franchise agreements require annual payments for franchise royalties, reservation, and advertising services, and such payments are based upon percentages of gross room revenue. These payments are paid by the hotels and charged to expense as incurred. Franchise fee expenses for the years ended December 31, 2022, 2021 and 2020 were $16,077, $11,262 and $7,237 respectively, and are recorded in Other Hotel Operating Expenses. The initial fees incurred to enter into the franchise agreements are amortized over the life of the franchise agreements.
Accounting, Revenue Management and Information Technology Fees
Each of the wholly-owned hotels and consolidated joint venture hotel properties managed by HHMLP incurs a monthly accounting and information technology fee. Monthly fees for accounting services are between $2 and $3 per property and monthly information technology fees range from $1 to $2 per property. For the years ended December 31, 2022, 2021 and 2020, the Company incurred accounting fees of $996, $1,144 and $1,298 respectively. For the years ended December 31, 2022, 2021 and 2020, the Company incurred information technology fees of $324, $370 and $419 respectively. For the years ended December 31, 2022, 2021 and 2020, the Company incurred revenue management service fees of $2,092, $1,635 and $1,940. Accounting fees, revenue management fees, information technology fees, and revenue management service fees are included in Other Hotel Operating Expenses.
Capital Expenditure Fees
HHMLP charges a fee between 3%-5% on certain capital expenditures and pending renovation projects at the properties as compensation for procurement services related to capital expenditures and for project management of renovation projects. For the years ended December 31, 2022, 2021 and 2020, we incurred fees of $794, $509 and $1,148 respectively, which were capitalized with the cost of the related capital expenditures.
NOTE 7 – COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS (CONTINUED)
Acquisitions from Affiliates
We have entered into an option agreement with certain of our officers and trustees such that we obtain a right of first refusal to purchase any hotel owned or developed in the future by these individuals or entities controlled by them at fair market value. This right of first refusal would apply to each party until one year after such party ceases to be an officer or trustee of the Company. Our Acquisition Committee of the Board of Trustees is comprised solely of independent trustees, and the purchase prices and all material terms of the purchase of hotels from related parties are approved by the Acquisition Committee.
Hotel Supplies
For the years ended December 31, 2022, 2021 and 2020, we incurred charges for hotel supplies of $—, $3 and $82 respectively. For the years ended December 31, 2022, 2021 and 2020, we incurred charges for capital expenditure purchases of $7,575, $1,034 and $1,212 respectively. These purchases were made from Hersha Purchasing and Design, a hotel supply company owned, in part, by certain executives and trustees of the Company. Hotel supplies are expensed and included in Hotel Operating Expenses on our consolidated statements of operations, and capital expenditure purchases are included in investment in hotel properties on our consolidated balance sheets.
Insurance Services
Prior to January 1, 2021, the Company utilized the services of the Hersha Group, a risk management business owned, in part, by certain executives and trustees of the Company. The Hersha Group provided consulting and procurement services to the Company related to the placement of property and casualty insurance, placement of general liability insurance, and for claims handling for our hotel properties. Beginning January 1, 2021, these services were provided by a third-party service provider. The total costs of property insurance that we paid through the Hersha Group was $6,968 for the year ended December 31, 2020. This amount paid to the Hersha Group includes insurance premiums and brokerage fees as compensation for brokerage services.
Restaurant Lease Agreements with Independent Restaurant Group
The Company has entered into management agreements with Independent Restaurant Group (“IRG”), subject to the supervision of HHMLP, as property manager, for restaurants at two of its hotel properties.  Jay H. Shah and Neil H. Shah, executive officers and/or trustees of the Company, collectively own a 70.0% interest in IRG. Management fees incurred to IRG were $233 and $163 for the years ended December 31, 2022 and 2021, respectively.

Due From Related Parties
The due from related parties balance as of December 31, 2022 and December 31, 2021 was $245 and $2,495, respectively. The balances primarily consisted of working capital deposits made to HHMLP and other entities owned, in part, by certain executives and trustees of the Company.
Due to Related Parties
The balance due to related parties as of December 31, 2022 and December 31, 2021 was $2,610 and $1,723, respectively. The balance at December 31, 2022 primarily consists of amounts due to HHMLP for monthly management fees discussed above.
Litigation
We are not presently subject to any material litigation nor, to our knowledge, is any other litigation threatened against us, other than routine actions for negligence or other claims and administrative proceedings arising in the ordinary course of business, some of which are expected to be covered by liability insurance and all of which collectively are not expected to have a material adverse effect on our liquidity, results of operations or business or financial condition.