6. Management Agreements and Leases

As of December 31, 2015 we owned 302 hotels and 193 travel centers which are included in one of 14 operating agreements. We do not operate any of our properties.

As of December 31, 2015, 299 of our hotels are leased to our TRSs and managed by independent hotel operating companies and three hotels are leased to third parties. As of December 31, 2015, our hotel properties are managed by or leased to separate subsidiaries of Marriott, InterContinental, Sonesta, Wyndham, Hyatt, Carlson, and Morgans under nine agreements. Such hotel agreements have initial terms expiring between 2019 and 2103. Each of these agreements is for between one and 93 of our hotels. In general, the agreements contain renewal options for all, but not less than all, of the affected properties, and the renewal terms total range between 20 to 60 years. Most of these agreements generally require the third party manager or tenant to: (1) make payments to us of minimum returns or minimum rents; (2) deposit a percentage of total hotel sales into reserves established for the regular refurbishment of our hotels, or FF&E reserves; and (3) for our managed hotels, make payments to our TRSs of additional returns to the extent of available cash flow after payment of operating expenses, funding of the FF&E reserve, payment of our minimum return, payment of certain management fees and replenishment of security deposits or guarantees. Some of the third party managers or tenants or their affiliates have provided deposits or guarantees to secure their obligation to pay us.

Marriott No. 1 agreement. Our management agreement with Marriott for 53 hotels, or our Marriott No. 1 agreement, provides that as of December 31, 2015 we are paid an annual minimum return of $68,356 to the extent that gross revenues of the hotels, after payment of hotel operating expenses and funding of the FF&E reserve, are sufficient to do so. We do not have any security deposits or guarantees for our minimum returns from the 53 hotels included in our Marriott No. 1 agreement. Accordingly, the minimum returns we receive from these hotels managed by Marriott are limited to available hotel cash flows after payment of operating expenses and funding of the FF&E reserve. Marriott’s management and incentive fees are only earned after we receive our minimum returns. We realized minimum returns of $68,154, $67,719 and $68,008 during the years ended December 31, 2015, 2014 and 2013, respectively, under this agreement. We also realized additional returns of $3,177 during the year ended December 31, 2015, which represents our share of hotel cash flows in excess of the minimum returns due for the year. We did not earn any additional returns during 2014 and 2013.

We funded $3,799 for capital improvements at certain of the hotels included in our Marriott No. 1 agreement during the year ended December 31, 2015. We currently expect to fund $3,000 of capital improvements during 2016. As we fund these improvements, the annual minimum returns payable to us increase by 10% of the amounts funded.

Marriott No. 234 agreement. Our management agreement with Marriott for 68 hotels, or our Marriott No. 234 agreement, provides that as of December 31, 2015 we are paid an annual minimum return of $106,243. We realized minimum returns of $106,146, $102,823 and $93,873 during the years ended December 31, 2015, 2014 and 2013, respectively, under this agreement. Pursuant to our Marriott No. 234 agreement, Marriott has provided us with a security deposit to cover minimum return payment shortfalls, if any. During the year ended December 31, 2015, our available security deposit was replenished by $6,252 from the hotel cash flows in excess of the minimum returns due for the year. The available balance of this deposit was $6,252 as of December 31, 2015. Pursuant to our Marriott No. 234 agreement, Marriott has also provided us with a limited guarantee which expires in 2019 for shortfalls up to 90% of our minimum returns, after the available security deposit has been depleted. Marriott was not required to make any guarantee payments to us during the year ended December 31, 2015 because the hotels generated net operating results in excess of the guarantee threshold amount (90% of the minimum returns due to us). The available balance of the guarantee was $30,672 as of December 31, 2015.

We funded $3,500 for capital improvements at certain of the hotels included in our Marriott No. 234 agreement during the year ended December 31, 2015. We currently expect to fund $8,000 of capital improvements during 2016. As we fund these improvements, the annual minimum returns payable to us increase by 9% of the amounts funded.

Marriott No. 5 agreement. We lease one hotel in Kauai, Hawaii to Marriott. This lease is guaranteed by Marriott and we realized $10,116, $10,004 and $9,902 of rent for this hotel during the years ended December 31, 2015, 2014 and 2013, respectively. The guarantee provided by Marriott with respect to this one hotel leased by Marriott is unlimited.

InterContinental agreement . Our management agreement with InterContinental for 93 hotels, or our InterContinental agreement, provides that as of December 31, 2015, we are paid annual minimum returns and rents of $151,218. We realized minimum returns and rents of $146,921, $139,543 and $135,861 during the years ended December 31, 2015, 2014 and 2013, respectively, under this agreement. We also realized additional returns of $5,134 under this agreement during the year ended December 31, 2015 from the hotel cash flows in excess of our minimum returns and rents due for the year. We did not realize any additional returns during 2014 and 2013. Pursuant to our InterContinental agreement, InterContinental has provided us with a security deposit to cover minimum payment shortfalls, if any. During the year ended December 31, 2015, our available security deposit was replenished by $14,249 from the hotel cash flows in excess of the minimum returns and rents due for the year. The available balance of this security deposit was $47,216 as of December 31, 2015.

Under this agreement, InterContinental is required to maintain a minimum security deposit of $37,000 and this security deposit may be replenished and increased up to $100,000 from future cash flows from the hotels, in excess of our minimum returns and certain management fees.

When we reduce the amounts of the security deposits we hold for this agreement or any other operating agreements for payment deficiencies, we record income equal to the amounts by which this deposit is reduced up to the minimum return or minimum rent due to us. However, reducing the security deposits does not result in additional cash flow to us of the deficiency amounts, but reducing amounts of security deposits may reduce the refunds due to the respective lessees or managers who have provided us with these deposits upon expiration of the respective lease or management agreement. The security deposits are non-interest bearing and are not held in escrow. Under all of our hotel contracts that include a security deposit, any amount of the security deposits which are applied to payment deficits may be replenished from future cash flows from the applicable hotel operations pursuant to the terms of the respective contracts.

On each of March 16, 2015 and May 15, 2015, we amended our management agreement with InterContinental in connection with our acquisitions of two hotels. As a result of the amendments, the annual minimum returns due to us increased by an aggregate of 8% of our investment in the two hotels.

We funded $18,002 for capital improvements to certain of the hotels under our InterContinental agreement during the year ended December 31, 2015. We currently expect to fund $17,800 for capital improvements under this agreement during 2016. As we fund these improvements, the annual minimum returns payable to us increase by 8% of the amounts funded.

Sonesta agreement. Our management agreement with Sonesta for 31 hotels, or our Sonesta agreement, provides that we are paid an annual minimum return equal to 8% of our invested capital ( $82,338 as of December 31, 2015), as defined in the management agreement, to the extent that gross revenues of the hotels, after payment of hotel operating expenses and certain base management fees to Sonesta, are sufficient to do so. We do not have any security deposits or guarantees for our hotels managed by Sonesta. Accordingly, the returns we receive from hotels managed by Sonesta are limited to available hotel cash flows after payment of operating expenses. Sonesta’s incentive management fees, but not its other fees, are only earned after we receive our minimum returns. We realized returns of $50,442, $30,918 and $11,555 during the years ended December 31, 2015, 2014 and 2013, respectively, under this agreement.

Our Sonesta agreement does not require FF&E escrow deposits. Under our Sonesta agreement, we are required to fund capital expenditures made at our hotels. We funded $56,649 for renovations and other capital improvements to hotels included in our Sonesta agreement during the year ended December 31, 2015. We currently expect to fund approximately $48,000 for renovations and other capital improvements during 2016 under this agreement. The annual minimum returns due to us under the Sonesta agreement increase by 8% of the amounts funded in excess of threshold amounts, as defined therein. See Note 9 for further information regarding our relationship with Sonesta.

Wyndham agreement. Our management agreement with Wyndham for 22 hotels, or our Wyndham agreement, provides that as of December 31, 2015, we are paid annual minimum returns and rents of $27,976. We realized minimum returns and rents of $27,673, $26,884 and $20,496 during the years ended December 31, 2015, 2014 and 2013, respectively, under this agreement. Pursuant to our Wyndham agreement, Wyndham has provided us with a limited guarantee which is limited to $35,656 ( $4,008 remaining at December 31, 2015), subject to an annual payment limit of $17,828, and expires on July 28, 2020. During the year ended December 31, 2015, Wyndham made $2,574 of guaranty payments to us. The guarantee provided by Wyndham with respect to the lease with Wyndham Vacation Resorts, Inc., or Wyndham Vacation, for part of one hotel is unlimited.

Under our Wyndham agreement, the FF&E reserve funding required for all hotels included in the agreement is subject to available cash flow after payment of our minimum return. The reserve amount was 3% of total hotel sales in 2015, increases to 4% of total hotel sales in 2016 and increases to 5% of total hotel sales in 2017 through the end of the agreement term in 2038. No FF&E escrow deposits were required during the year ended December 31, 2015.

We funded $6,458 for renovations and other capital improvements to hotels included in our Wyndham agreement during the year ended December 31, 2015. We currently expect to fund approximately $4,600 for renovations and other capital improvements in 2016. As we fund these improvements, the annual minimum returns payable to us increase by 8% of the amounts funded.

Morgans agreement. We lease the Clift Hotel, a full service hotel in San Francisco, CA to a subsidiary of Morgans under a lease agreement that expires in 2103 and requires annual rent of $7,595 as of December 31, 2015. On October 14, 2019 and on each fifth anniversary thereafter during the lease term, the rent due to us will be increased based on changes in the consumer price index with minimum increases of 10% and maximum increases of 20%. Although the contractual lease terms would qualify this lease as a direct financing lease under GAAP, we account for this lease as an operating lease due to uncertainty regarding the collection of future rent, and we recognize rental income from this lease on a cash basis in accordance with GAAP.

TA agreements. Our 193 owned travel centers are leased to and operated by a subsidiary of TA under five agreements. Our TA No. 1 lease for 39 travel centers expires in 2029 and has two 15 year renewal options. Our TA Nos. 2, 3 and 4 leases for 38 travel centers each expire in 2028, 2026 and 2030 and have two 15 year renewal options. Our TA No. 5 lease for 40 travel centers expires in 2024 and has two 15 year renewal options. TA has guaranteed its subsidiary tenants’ obligations under the leases. Our travel center leases with TA do not require FF&E escrow deposits. However, TA is required to maintain the leased travel centers, including structural and non‑structural components. Under all of our leases with TA, TA may request that we fund additional amounts for capital improvements to the leased facilities in return for minimum rent increases. However, TA is not obligated to request and we are not obligated to fund any such improvements. As we fund these improvements, the minimum rents payable to us increase. We funded $99,896 for capital improvements to our travel center properties during 2015. We currently expect to fund approximately $150,000 for renovations and other capital improvements in 2016. As we fund these improvements, the annual minimum returns payable to us increase by 8.5% of the amounts funded. See Note 9 for further information regarding our leases with TA.

As of December 31, 2015, the average remaining current terms of our leases and management agreements, from parties other than our TRSs, weighted based on minimum returns or rents was approximately 15.5 years. As of December 31, 2015, our travel center and hotel leases (not including the leases with our TRSs) provide for contractual minimum rents to be paid to us during the remaining current terms as follows:


2016	$	284,706
2017		284,747
2018		284,790
2019		285,023
2020		275,521
Thereafter		3,758,090
Total	$	5,172,877