Management and Franchise Agreements
Each of the Company’s 89 hotels are operated and managed under separate management agreements, which include affiliates of one of the following companies: Crestline Hotels & Resorts, Inc. (“Crestline”) (1), Dimension Development Two, LLC (“Dimension”) (10), Gateway Hospitality Group, Inc. (“Gateway”) (5), Hilton Management LLC (“Hilton”) (1), Inn Ventures, Inc. (“Inn Ventures”) (1), LBAM-Investor Group, L.L.C. (“LBA”) (14), Marriott International, Inc. (“Marriott”) (4), MHH Management, LLC (“McKibbon”) (2), Newport Hospitality Group, Inc. (“Newport”) (2), Pillar Hotels and Resorts, L.P. (“Pillar”) (2), Raymond Management Company, Inc. (“Raymond”) (8), Stonebridge Realty Advisors, Inc. (“Stonebridge”) (1), Vista Host, Inc. (“Vista”)
(9), Texas Western Management Partners, L.P. (“Western”) (10) or White Lodging Services Corporation (“White”) (19). The agreements generally provide for initial terms of one to 30 years. Fees associated with the agreements generally include the payment of base management fees, incentive management fees, accounting fees, and other fees for centralized services which are allocated among all of the hotels that receive the benefit of such services. Base management fees are calculated as a percentage of gross revenues. Incentive management fees are calculated as a percentage of operating profit in excess of a priority return to the Company, as defined in the management agreements. The Company has the option to terminate the management agreements if specified performance thresholds are not satisfied. For the years ended December 31, 2013, 2012 and 2011, the Company incurred approximately $13.2 million, $12.3 million and $10.6 million in management
Crestline, Dimension, Gateway, Inn Ventures, LBA, McKibbon, Newport, Pillar, Raymond, Stonebridge, Vista, Western and White are not affiliated with either Marriott or Hilton, and as a result, the hotels they manage were required to obtain separate franchise agreements with each respective franchisor. The Hilton franchise agreements generally provide for an initial term of 10 to 21 years. Fees associated with the agreements generally include the payment of royalty fees and program fees based on room revenues. The Marriott franchise agreements generally provide for initial terms of 13 to 28 years. Fees associated with the agreements generally include the payment of royalty fees, marketing fees, reservation fees and a communications support fee based on room revenues. For the years ended December 31, 2013, 2012 and 2011, the Company incurred approximately $16.0 million, $14.5 million and $12.8 million in
franchise royalty fees.