Leases

12 Months Ended

Dec. 31, 2024

Taxable REIT Subsidiaries Leases

We lease substantially all our hotels to a wholly owned subsidiary that qualifies as a taxable REIT subsidiary due to the U.S. federal income tax prohibition on the ability of a REIT to derive revenues directly from the operations of a hotel.

Ground Leases

As of December 31, 2024, all or a portion of 19 of our hotels are subject to ground leases, generally with multiple renewal options, all of which are accounted for as operating leases. Payments for ground leases account for approximately 73% of our 2024 minimum lease payments and 96% of our total future minimum lease payments. For lease agreements with scheduled rent increases, we recognize the fixed portion of the lease expense ratably over the term of the lease. As the exercise of the renewal options were determined to be reasonably certain, the payments associated with the renewals have

been included in the measurement of the lease liability and ROU asset. Contingent rental payments based on a percentage of sales in excess of stipulated amounts are not included in the measurement of the lease liability and ROU asset but will be recognized as variable lease expense if and when they are incurred. However, certain of these leases contain provisions that increase the minimum lease payments based on an average of the variable lease payments made over the previous years, for which we will reevaluate the lease liability and ROU asset as these payments represent an increase in the minimum payments for the remainder of the lease term. Certain of these leases also contain provisions that increase the minimum lease payments based on an index such as the Consumer Price Index. Such increases are not included in the measurement of the lease liability and ROU asset but will be recognized as variable lease expense if and when they are incurred. The discount rate used to calculate the lease liability and ROU asset is based on our incremental borrowing rate (“IBR”), as the rate implicit in each lease is not readily determinable. To calculate our IBR, we obtained a forward curve using LIBOR swap rates, with terms ranging from one to fifty years, as well as corresponding bond spreads based on the terms of the leases and our credit risk. The resulting discount rates for our ground leases range from 4.3% to 6.2%.

Office Leases and Other

We have office leases for our headquarters office in Bethesda, which expires in 2036, as well as a satellite office in Miami, which lease expires in 2025, with no renewal options.

We also have leases on facilities used in our former restaurant business, all of which we subsequently subleased. These leases and subleases contain one or more renewal options, generally for five- or ten -year periods. The restaurant leases are accounted for as operating leases. Our contingent liability related to these leases is $0.9 million and $1.1 million as of December 31, 2024 and 2023, respectively. We, however, consider the likelihood of any material funding related to these leases to be remote. Our leasing activity also includes leases entered into by our hotels for various types of equipment, which may be accounted for either as operating or finance leases, depending upon the characteristics of the particular lease arrangement. Our finance leases total less than $1 million at December 31, 2024 and 2023.

The following table presents lease cost and other information (in millions):


	Year ended December 31,
	2024			2023			2022
Lease cost
Operating lease cost	$	43		$	42		$	41
Variable lease cost	36			35			27
Sublease income	(1)			(1)			(1)
Total lease cost	$	78		$	76		$	67

Other information
Operating cash flows used for operating leases	$	43		$	42		$	41
Weighted-average remaining lease term - operating leases	46 years			46 years			47 years
Weighted-average discount rate - operating leases	5.3		%	5.3		%	5.3		%

The following table presents a reconciliation of the total amount of minimum lease payments, on an undiscounted basis, to the lease liability on the balance sheet as of December 31, 2024 (in millions):


	As of December 31, 2024
	Ground Leases			Office Leases and Other			Total
Weighted-average discount rate - operating leases	5.4		%	3.7		%	5.3		%
2025	$	31		$	7		$	38
2026	31			6			37
2027	31			5			36
2028	31			5			36
2029	31			5			36
Thereafter	1,325			33			1,358
Total undiscounted cash flows	$	1,480		$	61		$	1,541

Present values
Long-term lease liabilities	$	511		$	49		$	560
Total lease liabilities	$	511		$	49		$	560
Difference between undiscounted cash flows and discounted cash flows	$	969		$	12		$	981

Minimum payments for the operating leases have not been reduced by aggregate minimum sublease rentals from restaurants of approximately $1.7 million that are payable to us under non-cancelable subleases.