Commitment and Contingencies (Policies)

6 Months Ended

Jun. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

Management Agreements

Management Agreements

As of June 30, 2020, 103 of the Company's hotel properties were operated pursuant to long-term management agreements with initial terms ranging from one to 25 years. This number includes 29 hotel properties that receive the benefits of a franchise agreement pursuant to management agreements with Hilton, Hyatt, or Marriott. Each management company receives a base management fee between 1.75% and 3.5% of hotel revenues. Management agreements that include the benefits of a franchise agreement incur a base management fee between 3.0% and 7.0% of hotel revenues. The management companies are also eligible to receive an incentive management fee if hotel operating income, as defined in the management agreements, exceeds certain 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.

Management fees are included in management and franchise fees in the accompanying consolidated statements of operations and comprehensive income. For the three and six months ended June 30, 2020, the Company incurred management fee expense of approximately $0.6 million and $8.5 million, respectively. For the three and six months ended June 30, 2019, the Company incurred management fee expense of approximately $13.7 million and $27.8 million, respectively.

Franchise Agreements

Franchise Agreements

As of June 30, 2020, 73 of the Company’s hotel properties were operated under franchise agreements with initial terms ranging from one to 30 years. This number excludes 29 hotel properties that receive the benefits of a franchise agreement pursuant to management agreements with Hilton, Hyatt, or Marriott. In addition, one hotel is not operated with a hotel brand so it does not have a franchise agreement. Franchise agreements allow the hotel properties to operate under the respective brands. Pursuant to the franchise agreements, the Company pays a royalty fee, between 3.0% and 6.0% of room revenue, plus additional fees for marketing, central reservation systems and other franchisor costs between 1.0% and 4.3% of room revenue. Certain hotels are also charged a royalty fee of 3.0% of food and beverage revenues. 

Franchise fees are included in management and franchise fees in the accompanying consolidated statements of operations and comprehensive income. For the three and six months ended June 30, 2020, the Company incurred franchise fee expense of approximately $1.8 million and $15.6 million, respectively. For the three and six months ended June 30, 2019, the Company incurred franchise fee expense of approximately $22.1 million and $42.1 million, respectively.