Note 9
Management and Franchise Agreements
Each of the Company’s 47 hotels are operated and managed, under separate management agreements, by affiliates of one of the following companies: Chartwell Hospitality, LLC (“Chartwell”) (5), LBAM Investor Group, L.L.C. (“LBA”) (7), Marriott International, Inc. (“Marriott”) (1), MHH Management, LLC (“McKibbon”) (9), Newport Hospitality Group, Inc. (“Newport”) (2), North Central Hospitality, LLC (“North Central”) (6), Raymond Management Company, Inc. (“Raymond”) (2), Schulte Hospitality Group, Inc. (“Schulte”) (6), Stonebridge Realty Advisors, Inc. (“Stonebridge”) (1), Vista Host, Inc. (“Vista”) (1), Texas Western Management Partners, L.P. (“Western”) (2) or White Lodging Services Corporation (“White”) (5). 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 $5.0 million, $3.6 million and $1.3 million in management fees.
Chartwell, LBA, McKibbon, Newport, North Central, Raymond, Schulte, 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 a 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 20 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 $6.7 million, $4.7 million and $1.8 million in franchise royalty
fees.
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