Favorable Lease Assets

3 Months Ended

Mar. 31, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

In connection with the acquisition of certain hotels, we have recognized intangible assets for favorable leases. Our favorable lease assets, net of accumulated amortization of $2.4 million and $2.3 million as of March 31, 2017 and December 31, 2016, respectively, consist of the following (in thousands):



	March 31, 2017		December 31, 2016
Westin Boston Waterfront Hotel Ground Lease	$	17,805	$	17,859
Orchards Inn Sedona Annex Sublease	8,557		—
Lexington Hotel New York Tenant Leases	146		154
	$	26,508	$	18,013

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. We recorded $0.1 million of amortization expense for each of the three months ended March 31, 2017 and 2016.

In connection with our acquisition of the Orchards Inn Sedona on February 28, 2017, we recorded a $8.6 million favorable lease asset. We determined the value using a discounted cash flow of the favorable difference between the contractual lease payments and estimated market rents. The market rents were estimated by a third-party valuation firm and the discount rate was estimated using a risk adjusted rate of return. See Note 9 for further discussion of this favorable lease asset. We believe all material adjustments necessary to reflect the effects of the Orchards Inn Sedona acquisition have been made; however, the amounts recorded are based on a preliminary estimate of the fair value of the assets acquired, including the favorable lease asset, and the liabilities assumed. We will finalize the recorded amounts upon the completion of our valuation analysis of the assets acquired and liabilities assumed.