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Commitments and Contingencies
 6 Months Ended
Jun. 30, 2021
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Commitments and Contingencies
Management Agreements
The Company’s hotel properties are operated pursuant to management agreements with various management companies. The terms of these management agreements range from 1 year to 22 years, not including renewals, and 1 year to 52 years, including renewals. The majority of the Company’s management agreements are terminable at will by the Company upon paying a termination fee and some are terminable by the Company upon sale of the property, with, in some cases, the payment of termination fees. Most of the agreements also provide the Company the ability to terminate based on failure to achieve defined operating performance thresholds. Termination fees range from zero to up to six times the annual base management and incentive management fees, depending on the agreement and the reason for termination. Certain of the Company’s management agreements are non-terminable except upon the manager’s breach of a material representation or the manager’s failure to meet performance thresholds as defined in the management agreement.
The management agreements require the payment of a base management fee generally between 1% and 4% of hotel revenues. Under certain management agreements, the management companies are also eligible to receive an incentive management fee if hotel operating income, cash flows or other performance measures, as defined in the agreements, exceed certain performance thresholds. The incentive management fee is generally calculated as a percentage of hotel operating income after the Company has received a priority return on its investment in the hotel. For the three and six months ended June 30, 2021, combined base and incentive management fees were $4.4 million and $6.7 million, respectively. For the three and six months ended June 30, 2020, combined base and incentive management fees were $(0.4) million and $6.5 million, respectively. Base and incentive management fees are included in other direct and indirect expenses in the Company's accompanying consolidated statements of operations and comprehensive income.
On April 30, 2021, the Company provided a notice of default to sbe concerning the hotel management agreement of the Mondrian Los Angeles. Sbe is refuting the Company’s notice of default and has requested arbitration to cure the alleged default.
Reserve Funds
Certain of the Company’s agreements with its hotel managers, franchisors, ground lessors and lenders have provisions for the Company to provide funds, typically 4.0% of hotel revenues, sufficient to cover the cost of (a) certain non-routine repairs and maintenance to the hotels and (b) replacements and renewals to the hotels’ furniture, fixtures and equipment.
Restricted Cash
At June 30, 2021 and December 31, 2020, the Company had $10.9 million and $12.0 million, respectively, in restricted cash, which consisted of reserves for replacement of furniture and fixtures or reserves to pay for real estate taxes or property insurance under certain hotel management agreements or loan agreements.
Ground and Hotel Leases
As of June 30, 2021, the following hotels were subject to leases as follows:
Lease PropertiesLease TypeLease Expiration Date
Hotel Monaco Washington DCOperating leaseNovember 2059
Argonaut HotelOperating leaseDecember 2059
Hotel Zelos San FranciscoOperating leaseJune 2097
Hotel Zephyr Fisherman's WharfOperating leaseFebruary 2062
Hotel Palomar Los Angeles Beverly HillsOperating leaseJanuary 2107(1)
Restaurant at Southernmost Beach ResortOperating leaseApril 2029
Hyatt Regency Boston HarborOperating leaseApril 2077
San Diego Mission Bay ResortOperating leaseJuly 2068
Paradise Point Resort & SpaOperating leaseMay 2050
Hotel VitaleOperating leaseMarch 2070(2)
Viceroy Santa Monica HotelOperating leaseSeptember 2065
The Westin Copley Place, BostonOperating leaseDecember 2077(3)
The Liberty, A Luxury Collection Hotel, BostonOperating leaseMay 2080
Hotel Zeppelin San FranciscoOperating and finance leaseJune 2089(4)
Harbor Court Hotel San FranciscoFinance leaseAugust 2052
(1) The expiration date assumes the exercise of all 19 five-year extension options.
(2) The expiration date assumes the exercise of a 14-year extension option.
(3) No payments are required through maturity.
(4) The expiration date assumes the exercise of a 30-year extension option.
The Company's leases may require minimum fixed rent payments, percentage rent payments based on a percentage of revenues in excess of certain thresholds or rent payments equal to the greater of a minimum fixed rent or percentage rent. Minimum fixed rent may be adjusted annually by increases in the consumer price index and may be subject to minimum and maximum increases. Some leases also contain certain restrictions on modifications that can be made to the hotel structures due to their status as national historic landmarks.
The Company records expense on a straight-line basis for leases that provide for minimum rental payments that increase in pre-established amounts over the remaining terms of the leases. Ground rent expense is included in real estate taxes, personal property taxes, property insurance and ground rent in the Company's accompanying consolidated statements of operations and comprehensive income. The components of ground rent expense for the three and six months ended June 30, 2021 and 2020 are as follows (in thousands):
For the three months ended June 30,For the six months ended June 30,
2021202020212020
Fixed ground rent $4,290 $4,304 $8,603 $8,593 
Variable ground rent1,862 696 3,358 $2,744 
Total ground lease rent$6,152 $5,000 $11,961 $11,337 
Future maturities of lease liabilities for the Company's operating leases at June 30, 2021 were as follows (in thousands):
2021$9,278 
202218,849 
202318,034 
202418,119 
202518,203 
Thereafter1,127,864 
Total lease payments$1,210,347 
Less: Imputed interest(955,778)
Present value of lease liabilities$254,569 
Litigation
The nature of the operations of hotels exposes the Company's hotels, the Company and the Operating Partnership to the risk of claims and litigation in the normal course of their business. The Company has insurance to cover certain potential material losses. The Company is not presently subject to any material litigation nor, to the Company’s knowledge, is any material litigation threatened against the Company.