Favorable Lease Assets

In connection with the acquisition of certain hotels, we have recognized intangible assets for favorable ground leases and tenant leases. Our favorable lease assets, net of accumulated amortization, as of December 31, 2013 and 2012 consist of the following (in thousands):



	2013		2012
Westin Boston Waterfront Hotel Ground Lease	$	18,510	$	18,726
Westin Boston Waterfront Hotel Lease Right	9,045		9,045
Hilton Minneapolis Ground Lease	5,835		5,910
Oak Brook Hills Resort Ground Lease	5,058		5,489
Lexington Hotel New York Tenant Leases	1,176		1,323
Hilton Boston Downtown Tenant Leases	312		479
	$	39,936	$	40,972

The favorable lease assets are recorded at the acquisition date and are generally amortized using the straight-line method over the remaining non-cancelable term of the lease agreement. Amortization expense was $1.0 million for the year ended December 31, 2013, $1.0 million for the year ended December 31, 2012 and $0.9 million for the year ended December 31, 2011. Amortization expense is expected to total $1.0 million annually for 2014 and 2015 and $0.9 million annually for 2016 through 2018.

We own a favorable lease asset related to the right to acquire a leasehold interest in a parcel of land adjacent to the Westin Boston Waterfront Hotel for the development of a 320 to 350 room hotel (the “lease right”). The option expires in 2016. We do not amortize the lease right but review the asset for impairment annually or at interim periods if events or circumstances indicate that the asset may be impaired. An impairment loss of $0.5 million was recorded during the year ended December 31, 2012 due to lower comparable market rents in the City of Boston. No impairment loss was recorded in 2013.

We evaluated the Oak Brook Hills Resort favorable ground lease asset for recoverability of the carrying value during the year ended December 31, 2012. We concluded that the fair value of the ground lease was $5.6 million, resulting in an impairment loss of $1.4 million for the year ended December 31, 2012.

The fair value of both the lease right and favorable ground lease asset are Level 3 measurements under the fair value hierarchy (see Note 2) and are derived from a discounted cash flow model using the favorable difference between the estimated participating rents or actual rents in accordance with the lease terms and the estimated market rents. For the lease right, the discount rate was estimated using a risk adjusted rate of return, the estimated participating rents were estimated based on a hypothetical hotel comparable to our Westin Boston Waterfront Hotel, and market rents were based on comparable long-term ground leases in the City of Boston. For the Oak Brook Hills Resort favorable ground lease asset, the discount rate was estimated using a risk adjusted rate of return and market rents were based on comparable golf course leases across the United States.