Favorable Lease Assets

9 Months Ended

Sep. 30, 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 of $2.8 million and $6.8 million as of September 30, 2014 and December 31, 2013, respectively, consist of the following (in thousands):



	September 30, 2014		December 31, 2013
Westin Boston Waterfront Hotel Ground Lease	$	18,347	$	18,510
Westin Boston Waterfront Hotel Lease Right	9,045		9,045
Hilton Minneapolis Ground Lease	5,779		5,835
Oak Brook Hills Resort Ground Lease	—		5,058
Lexington Hotel New York Tenant Leases	1,067		1,176
Hilton Boston Downtown Tenant Leases	187		312
	$	34,425	$	39,936

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 and nine months ended September 30, 2014 was approximately $0.2 million and $0.6 million, respectively.

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 or nine months ended September 30, 2014 or 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.

In connection with the sale of the Oak Brook Hills Resort on April 14, 2014, we wrote off the favorable ground lease asset, which is included in the gain on sale of hotel property on the accompanying condensed consolidated statements of operations.