Investment in Hotel Properties

9 Months Ended

Sep. 30, 2024

Investment in hotel properties as of September 30, 2024 and December 31, 2023 consisted of the following (in thousands):


	September 30, 2024		December 31, 2023
Land	$	810,951	$	810,633
Buildings and improvements	5,075,632		5,005,894
Furniture, fixtures and equipment	531,877		511,451
Finance lease asset	91,181		91,181
Construction in progress	15,826		27,123
	$	6,525,467	$	6,446,282
Right-of-use asset, operating leases	353,552		360,761
Investment in hotel properties	$	6,879,019	$	6,807,043
Less: Accumulated depreciation	(1,478,579)		(1,316,267)
Investment in hotel properties, net	$	5,400,440	$	5,490,776

Hurricane Ian

On September 27, 2022, LaPlaya Beach Resort & Club ("LaPlaya") located in Naples, Florida, was impacted by the effects of Hurricane Ian. LaPlaya was closed in anticipation of the storm and required remediation and repairs from the damage and remained closed. In 2023, LaPlaya began reopening in stages as its buildings and facilities were repaired and repairs were substantially complete in the first quarter of 2024. The Company’s insurance policies provide coverage for property damage, business interruption and other costs that were incurred relating to damages sustained during Hurricane Ian. The Company has an insurance receivable for amounts it anticipates to collect from the insurance providers in excess of the applicable deductibles.

For the nine months ended September 30, 2024 and 2023, the Company incurred $0.2 million and $5.1 million, respectively, of costs related to payroll, repair and claims administration for which reimbursement from insurance policies is uncertain and therefore is included in other operating expenses in the Company's consolidated statements of operations and comprehensive income. Through September 30, 2024, the Company received a total of $118.0 million in preliminary advances from the insurance providers. The Company continues to work with the insurance providers on the settlement of the property and business interruption claims.

Hurricane Helene

On September 26, 2024, LaPlaya was impacted by the effects of Hurricane Helene. Two of its three guestroom buildings, Gulf Tower and Bay Tower, reopened and were operational. However, the Beach House was closed for repairs, with initial assessments indicating the primary impact was to the ground floor. The Company’s insurance policies provide coverage for property damage, business interruption and other costs that were incurred relating to damages sustained during Hurricane Helene in excess of the applicable deductibles. For the nine months ended September 30, 2024, the Company recognized a loss of $1.9 million for damage to LaPlaya, which is included in impairment on the Company’s consolidated statement of operations and comprehensive income. The Company recorded an insurance receivable for the remediation costs incurred and the estimate of the book value of the property and equipment written off in excess of the applicable deductibles. The Company is continuing to evaluate the financial impact of Hurricane Helene and its ability to recover, through insurance policies, any loss due to business interruption or damage to the hotel property.

Impairment

The Company reviews its investment in hotel properties for impairment whenever events or circumstances indicate potential impairment. The Company periodically adjusts its estimate of future operating cash flows and estimated hold periods for certain properties. As a result of this review, the Company may identify an impairment trigger has occurred and assess its investment in hotel properties for recoverability.

During the nine months ended September 30, 2024, no impairment losses were incurred. During the nine months ended September 30, 2023, the Company recognized an impairment loss of $71.4 million related to three hotels as a result of their fair values being lower than their carrying values.

Right-of-use Assets and Lease Liabilities

The Company recognized right-of-use assets and related liabilities related to its ground leases, all of which are operating leases. When the rate implicit in the lease could not be determined, the Company used incremental borrowing rates, which ranged from 4.7% to 7.6%. In addition, the term used includes any options to exercise extensions when it is reasonably certain the Company will exercise such option. See Note 11. Commitments and Contingencies for additional information about the ground leases.

The right-of-use assets and liabilities are amortized to ground rent expense over the term of the underlying lease agreements. As of September 30, 2024, the Company's lease liabilities consisted of operating lease liabilities of $320.7 million and financing lease liabilities of $43.8 million. As of December 31, 2023, the Company's lease liabilities consisted of operating lease liabilities of $320.6 million and financing lease liabilities of $43.4 million. The financing lease liabilities are included in accounts payable, accrued expenses and other liabilities on the Company's accompanying consolidated balance sheets.