Favorable Lease Assets

3 Months Ended

Mar. 31, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

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 March 31, 2014 and December 31, 2013 consist of the following (in thousands):



	March 31, 2014		December 31, 2013
Westin Boston Waterfront Hotel Ground Lease	$	18,455	$	18,510
Westin Boston Waterfront Hotel Lease Right	9,045		9,045
Hilton Minneapolis Ground Lease	5,816		5,835
Oak Brook Hills Resort Ground Lease	4,951		5,058
Lexington Hotel New York Tenant Leases	1,139		1,176
Hilton Boston Downtown Tenant Leases	271		312
	$	39,677	$	39,936

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 for the three months ended March 31, 2014 was approximately $0.3 million.

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. No impairment loss was recorded for the three months ended March 31, 2014 or March 31, 2013.

The fair value of the lease right is a Level 3 measurement under the fair value hierarchy (see Note 2) and is 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. The discount rate is estimated using a risk adjusted rate of return, the estimated participating rents are estimated based on a hypothetical hotel comparable to our Westin Boston Waterfront Hotel, and market rents are based on comparable long-term ground leases in the City of Boston.