Leases

12 Months Ended

Dec. 31, 2023

We are subject to operating leases, the most significant of which are ground leases. We are the lessee to ground leases under eight of our hotels and one parking area as of December 31, 2023. The lease liabilities for our operating leases assume the exercise of all available extension options, as we believe they are reasonably certain to be exercised. As of December 31, 2023, our operating leases have a weighted-average remaining lease term of 64 years and a weighted-average discount rate of 5.78%.

The components of operating lease expense, which is included in other property-level expenses in our consolidated statements of operations, and cash paid for amounts included in the measurement of lease liabilities, are as follows (in thousands):


	Year Ended December 31,
	2023		2022
Operating lease cost	$	11,106	$	11,255
Variable lease payments	$	1,687	$	1,576
Cash paid for amounts included in the measurement of operating lease liabilities	$	3,995	$	4,087

Future minimum lease payments are as follows (in thousands):


Year Ending December 31,	As of December 31, 2023
2024	$	4,139
2025	4,206
2026	4,701
2027	4,737
2028	5,020
Thereafter	747,799
Total lease payments	770,602
Less imputed interest	(657,736)
Total lease liabilities	$	112,866

Six of our hotels are subject to ground lease agreements that cover all of the land underlying the respective hotel as of December 31, 2023:

•The Embassy Suites by Hilton Bethesda hotel is subject to a ground lease that runs until 2087. There are no renewal options.

•The Courtyard New York Manhattan/Fifth Avenue is subject to a ground lease that runs until 2085, inclusive of one 49-year renewal option.

•The Salt Lake City Marriott is subject to two ground leases: one ground lease covers the land under the hotel and the other ground lease covers the portion of the hotel that extends into the adjacent City Creek Center. The term of the ground lease covering the land under the hotel runs through 2106. The term of the ground lease covering the extension into the City Creek Center runs through 2056.

•The Westin Boston Seaport District is subject to a ground lease that runs until 2099. There are no renewal options.

•The Hotel Palomar Phoenix is subject to a ground lease that runs until 2085, inclusive of three renewal options of five years each.

•Cavallo Point is subject to a ground lease with the United States National Park Service that runs until 2066. There are no renewal options.

A portion of the Hotel Clio is subject to a ground lease that covers approximately 5,500 square feet. The term of the ground lease runs through December 2030, inclusive of two 5-year renewal options. The lease may be indefinitely extended thereafter in one-year increments. The remainder of the land on which the hotel is constructed is owned by us in fee simple.

We lease the buildings and sublease the underlying land containing 28 of the 70 rooms at the Orchards Inn Sedona, which expires in 2070, including all extension options. The remainder of the land underlying the hotel is owned by us in fee simple.

We sublease a parking area near the Bourbon Orleans Hotel. The sublease runs through July 2069. There are no renewal options.

These ground leases generally require us to make rental payments (including a percentage of gross receipts as percentage rent with respect to the Courtyard New York Manhattan/Fifth Avenue, Westin Boston Seaport District, Salt Lake City Marriott, and Cavallo Point ground leases). Most of our ground leases require us to make payments for all charges, costs, expenses, assessments and liabilities, including real property taxes and utilities. Furthermore, these ground leases generally require us to obtain and maintain insurance covering the subject property.

The following table reflects the current and future annual rents under our ground leases:

Property

Term (1)

Annual Rent

Embassy Suites by Hilton Bethesda

Through 4/2087

$1,021,214 (2)

Courtyard New York Manhattan/Fifth Avenue (3)

10/2017 - 9/2027

$1,132,812

10/2027 - 9/2037

$1,416,015

10/2037 - 9/2047

$1,770,019

10/2047 - 9/2057

$2,212,524

10/2057 - 9/2067

$2,765,655

10/2067 - 9/2077

$3,457,069

10/2077 - 9/2085

$4,321,336

Salt Lake City Marriott (Ground lease for hotel)

Through 12/2106

Greater of $132,000 or 2.6% of annual gross room sales

Salt Lake City Marriott (Ground lease for extension)

1/2018 - 12/2056

$15,738 (4)

Westin Boston Seaport District (5) (Base rent)

1/2021 - 12/2025

$1,000,000

1/2026 - 12/2030

$1,500,000

1/2031 - 12/2035

$1,750,000

1/2036 - 5/2099

No base rent

Westin Boston Seaport District (Percentage rent)

6/2016 - 5/2026

1.0% of annual gross revenue

6/2026 - 5/2036

1.5% of annual gross revenue

6/2036 - 5/2046

2.75% of annual gross revenue

6/2046 - 5/2056

3.0% of annual gross revenue

6/2056 - 5/2066

3.25% of annual gross revenue

6/2066 - 5/2099

3.5% of annual gross revenue

Hotel Clio

1/2021 - 12/2025

$55,000

1/2026 - 12/2030 (6)

$60,000

Orchards Inn Sedona

7/2018 - 12/2070

$145,175 (7)

Hotel Palomar Phoenix (Base Rent)

4/2022 - 3/2085

$36,345 (8)

Hotel Palomar Phoenix (Government Property Lease Excise Tax) (9)

1/2022 - 6/2033

$312,000

7/2033 - 6/2043

$234,000

7/2043 - 6/2053

$156,000

7/2053 - 6/2063

$78,000

7/2063 - 3/2085

$—

Cavallo Point (Base Rent)

1/2019 - 12/2066

$67,034 (10)

Cavallo Point (11) (Percentage Rent)

1/2019 - 12/2023

2.0% of adjusted gross revenue over threshold

1/2024 - 12/2028

3.0% of adjusted gross revenue over threshold

1/2029 - 12/2033

4.0% of adjusted gross revenue over threshold

1/2034 - 12/2066

5.0% of adjusted gross revenue over threshold

Cavallo Point (12) (Participation Rent)

Through 12/2066

10.0% of adjusted gross revenue over threshold

Bourbon Orleans Hotel parking sublease

Through 7/2069

$36,000 (13)

__________


(1)			These terms assume our exercise of all renewal options.

(2)			Represents rent for the year ended December 31, 2023. Rent increases annually by 5.5%.

(3)			The total annual rent includes the fixed rent noted in the table plus a percentage rent equal to 5% of gross receipts for each lease year, but only to the extent that 5% of gross receipts exceeds the minimum fixed rent in such lease year. There was no such percentage rent earned during the years ended December 31, 2023 and 2022.

(4)			Represents rent for the year ended December 31, 2023. Rent increases annually based on the greater of 2% or a Consumer Price Index calculation.

(5)			Total annual rent under the ground lease is capped at 2.5% of hotel gross revenues during the initial 30 years of the ground lease.

(6)			Beginning January 2031, we have the right to renew the ground lease in one-year increments at the prior year's annual rent plus 3%.

(7)			Represents rent for the year ended December 31, 2023. Rent increases annually in June based on a Consumer Price Index calculation.

(8)			Represents rent for the year ended March 31, 2023. Rent increases annually each April by 2.5%.


(9)			As lessee of a government property, the hotel is subject to a Government Property Lease Excise Tax under Arizona state statute.

(10)			Base rent resets every five years based on the average of the previous three years of adjusted gross revenues, as defined in the ground lease, multiplied by 75%. The next base rent reset will be January 2024.

(11)			Percentage rent is applied to annual adjusted gross revenues, as defined in the ground lease, between $30 million and the participation rent threshold. Base rent is deducted from the percentage rent.

(12)			Participation rent is applied to annual adjusted gross revenues, as defined in the ground lease, over $42 million plus an annual increase based on a Consumer Price Index calculation.

(13)			Represents rent for the year ending December 31, 2023. Annual rent increases by $6,000 every five years. The next rent increase will be January 2027.