Favorable Lease Assets

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 $3.2 million and $2.7 million as of September 30, 2018 and December 31, 2017, respectively, consist of the following (in thousands):



	September 30, 2018		December 31, 2017
Westin Boston Waterfront Hotel Ground Lease	$	17,480	$	17,643
Hotel Palomar Phoenix Ground Lease	19,838		—
Orchards Inn Sedona Annex Sublease	8,799		8,925
Lexington Hotel New York Tenant Leases	99		122
	$	46,216	$	26,690

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 $0.2 million and $0.1 million of amortization expense, respectively, for the three months ended September 30, 2018 and 2017. We recorded $0.5 million and $0.3 million of amortization expense, respectively, for the nine months ended September 30, 2018 and 2017.

In connection with our acquisition of the Hotel Palomar Phoenix on March 1, 2018, we recorded a $20.0 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 with the assistance of 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.