XML 32 R22.htm IDEA: XBRL DOCUMENT v3.8.0.1
Commitments And Contingencies
9 Months Ended
Sep. 30, 2017
Commitments And Contingencies [Abstract]  
Commitments And Contingencies

NOTE 15.  COMMITMENTS AND CONTINGENCIES



Management Agreements



Our TRS engages eligible independent contractors as property managers for each of our hotels in accordance with the requirements for qualification as a REIT.  The hotel management agreements provide that the management companies have control of all operational aspects of the hotels, including employee-related matters. The management companies must generally maintain each hotel under their management in good repair and condition and perform routine maintenance, repairs, and minor alterations. Additionally, the management companies must operate the hotels in accordance with the national franchise agreements that cover the hotels, which includes, as applicable, using franchisor sales and reservation systems and abiding by the franchisors’ marketing standards.  The management agreements generally require the TRS to fund debt service, working capital needs, and capital expenditures and to fund the management companies third-party operating expenses, except those expenses not related to the operation of the hotels. The TRS also is responsible for obtaining and maintaining certain insurance policies with respect to the hotels.



Each of the management companies employed by the TRS at September 30, 2017 receive a base monthly management fee of 3.0% to 3.5% of gross hotel revenue, with incentives for performance, which increase such fee to a maximum of 5.0%.  Base management fees totaled $476 and $434,  respectively, for the three months ended September 30, 2017 and 2016, and $1,240 and $1,285, respectively, for the nine months ended September 30, 2017 and 2016, all of which was included in continuing operations as hotel and property operations expense. Incentive management fees, included in continuing operations in their entirety, totaled $176 and $0, respectively, for the three months ended September 30, 2017 and 2016, and $209 and $21, respectively, for the nine months ended September 30, 2017 and 2016.



The management agreements generally have initial terms of one to three years and renew for additional terms of one year unless either party to the agreement gives the other party written notice of termination at least 90 days before the end of a term. The Company may terminate a management agreement, subject to cure rights, if certain performance metrics tied to both individual hotel and total managed portfolio performance are not met. The Company may also terminate a management agreement with respect to a hotel at any time without reason upon payment of a termination fee. The management agreements terminate with respect to a hotel upon sale of the hotel, subject to certain notice requirements.



Franchise Agreements



As of September 30, 2017, 17 of our 18 wholly owned properties operate under franchise licenses from national hotel companies.  Under our franchise agreements, we are required to pay franchise fees generally between 3.3% and 5.5% of room revenue, plus additional fees for marketing, central reservation systems, and other franchisor programs and services that amount to between 2.5% and 6.0% of room revenue. The franchise agreements typically have 10 to 25 year terms although certain agreements may be terminated by either party on certain anniversary dates specified in the agreements.  Further, each agreement provides for early termination fees in the event the agreement is terminated before the stated term. Franchise fee expense totaled $1,082 and $856, for the three months ended September 30, 2017 and 2016, respectively, and $2,697 and $2,499, for the nine months ended September 30, 2017 and 2016, respectively, all of which was included in continuing operations as hotel and property operations expense.



Leases



The Company has no land lease agreements in place related to properties owned at September 30, 2017. Land lease expense related to properties previously owned totaled $0 and $31, respectively, for the three months ended September 30, 2017 and 2016,  and $9 and $84, respectively, for the nine months ended September 30, 2017 and 2016, all of which was included in continuing operations as hotel and property operations expense.



The Company entered into three new office lease agreements in 2016, replacing all existing office lease agreements. These leases expire in 2019 through 2021 and have combined rent expense of approximately $157 annually. Office lease expense totaled $39 and $51 in the three months ended September 30, 2017 and 2016, respectively, and $116 and $145 in the nine months ended September 30, 2017 and 2016, respectively, and is included in general and administrative expense. 



Litigation



Various claims and legal proceedings arise in the ordinary course of business and may be pending against the Company and its properties.  We are not currently involved in any material litigation, nor, to our knowledge, is any material litigation threatened against us.  The Company has insurance to cover potential material losses and we believe it is not reasonably possible that such matters will have a material impact on our financial condition or results of operations.