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Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2016

Schedule of basic and incentive management fees

Total basic management fees, net of key money incentives received from third-party hotel managers, along with incentive management fees incurred by the Company during the three and nine months ended September 30, 2016 and 2015 were included in the Company’s consolidated statements of operations and comprehensive income as follows (in thousands):


	Three Months Ended		Three Months Ended		Nine Months Ended		Nine Months Ended
	September 30, 2016		September 30, 2015		September 30, 2016		September 30, 2015
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Basic management fees	$	8,510	$	8,965	$	25,130	$	26,096
Incentive management fees		1,541		1,313		4,735		4,548
Total basic and incentive management fees	$	10,051	$	10,278	$	29,865	$	30,644

Schedule of License and Franchise Costs

Total license and franchise costs incurred by the Company during the three and nine months ended September 30, 2016 and 2015 were included in the Company’s consolidated statements of operations and comprehensive income as follows (in thousands):


	Three Months Ended		Three Months Ended		Nine Months Ended		Nine Months Ended
	September 30, 2016		September 30, 2015		September 30, 2016		September 30, 2015
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Franchise assessments (1)	$	6,666	$	7,310	$	19,546	$	20,978
Franchise royalties		2,742		3,281		7,856		9,031
Total franchise costs	$	9,408	$	10,591	$	27,402	$	30,009

(1)

Includes advertising, reservation and frequent guest club assessments.

Schedule of assets under capital lease

The capital lease asset was included in investment in hotel properties, net on the Company’s consolidated balance sheets as follows (in thousands):


	September 30,		December 31,
	2016		2015
	(unaudited)
Gross capital lease asset - buildings and improvements	$	58,799	$	58,799
Accumulated depreciation		(6,370)		(5,268)
Net capital lease asset - buildings and improvements	$	52,429	$	53,531

Schedule of future minimum lease payments under capital lease

Future minimum lease payments under the Company’s capital lease together with the present value of the net minimum lease payments as of September 30, 2016 are as follows (in thousands):


2016	$	1,403
2017		1,403
2018		1,403
2019		1,403
2020		1,403
Thereafter		106,958
Total minimum lease payments (1)		113,973
Less: Amount representing interest (2)		(98,398)
Present value of net minimum lease payments (3)	$	15,575

(1)

Minimum lease payments do not include percentage rent which may be paid under the Hyatt Chicago Magnificent Mile building lease on the basis of 4.0% of the hotel’s gross room revenues over a certain threshold. For both the three and nine months ended September 30, 2016, $36,000 in percentage rent was due under the Hyatt Chicago Magnificent Mile’s building lease. For the three and nine months ended September 30, 2015, $45,000 and $0.1 million, respectively, in percentage rent was due under the Hyatt Chicago Magnificent Mile’s building lease.

(2)

Interest includes the amount necessary to reduce net minimum lease payments to present value calculated at the Company’s incremental borrowing rate at lease inception.

(3)

The present value of net minimum lease payments are presented on the Company’s consolidated balance sheet as of September 30, 2016 as a current obligation of $1,000, which is included in accounts payable and accrued expenses, and as a long-term obligation of $15.6 million, which is included in capital lease obligations, less current portion.

Schedule of ground, building and air lease rent

Total rent expense incurred pursuant to ground, building and air lease agreements for the three and nine months ended September 30, 2016 and 2015 was included in property tax, ground lease and insurance on the Company’s consolidated statements of operations and comprehensive income as follows (in thousands):


	Three Months Ended		Three Months Ended		Nine Months Ended		Nine Months Ended
	September 30, 2016		September 30, 2015		September 30, 2016		September 30, 2015
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Minimum rent, including straight-line adjustments	$	2,251	$	3,725	$	6,857	$	11,145
Percentage rent (1)		2,802		948		7,327		2,677
Total	$	5,053	$	4,673	$	14,184	$	13,822

(1)

Several of the Company’s hotels pay percentage rent, which is calculated on operating revenues above certain thresholds.

Schedule of Hotel Geographic Concentration of Risk

As of September 30, 2016, the Company’s 28 hotels were concentrated in California, Illinois, Massachusetts and the greater Washington DC area as follows:


							Greater
							Washington DC
	California		Illinois		Massachusetts		Area
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Number of hotels	8		3		3		3
Percentage of total rooms	31	%	8	%	14	%	13	%
Percentage of total consolidated revenue during the past 12 months	36	%	7	%	15	%	13	%

- Definition

Tabular disclosure of a lessee's leasing arrangements including: (1) the basis on which contingent rental payments are determined, (2) the existence and terms of renewal or purchase options and escalation clauses, (3) restrictions imposed by lease arrangements, such as those concerning dividends, additional debt, and further leasing, (4) rent holidays, rent concessions, or leasehold improvement incentives and unusual provisions or conditions. Disclosure may also include the specific period used to amortize material leasehold improvements made at the inception of the lease or during the lease term. Additionally, for operating leases having initial or remaining noncancelable lease terms in excess of one year: (a) future minimum rental payments required as of the date of the latest balance sheet presented, in the aggregate and for each of the five succeeding fiscal years, (b) the total of minimum rentals to be received in the future under noncancelable subleases as of the date of the latest balance sheet presented, and (c) for all operating leases, rental expense for each period for which an income statement is presented, with separate amounts for minimum rentals, contingent rentals, and sublease rentals. Rental payments under leases with terms of a month or less that were not renewed need not be included.

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