Leases

12 Months Ended

Dec. 31, 2022

LeasesThe majority of our leases are operating ground leases. We also have operating equipment leases, such as copier and vehicle leases, at our hotel properties. Some leases include one or more options to renew, with renewal terms that can extend the lease term from one to 50 years. The exercise of lease renewal options is at our sole discretion. Some leases have variable payments, however, if variable payments are contingent, they are not included in the ROU assets and liabilities. We have no finance leases as of December 31, 2022.

The discount rate used to calculate the lease liability and ROU asset related to our ground leases is based on our incremental borrowing rate (“IBR”), as the rate implicit in each lease is not readily determinable. The IBR is determined at commencement of the lease, or upon modification of the lease, as the interest rate a lessee would have to pay to borrow on a fully collateralized basis over a similar term and at an amount equal to the lease payments in a similar economic environment.

As of December 31, 2022 and 2021, our leased assets and liabilities consisted of the following (in thousands):


	December 31, 2022		December 31, 2021
Assets
Operating lease right-of-use assets	$	79,449	$	80,462

Liabilities
Operating lease liabilities	$	60,692	$	60,937

We incurred the following lease costs related to our operating leases (in thousands):



		Year Ended December 31,
	Classification	2022		2021		2020
Operating lease cost (1)	Hotel operating expenses - other	$	6,653	$	5,349	$	4,373

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(1) For the years ended December 31, 2022, 2021 and 2020, operating lease cost includes approximately $2.2 million, $954,000 and $(305,000), respectively, of variable lease cost associated with the ground leases, with the credit in 2020 primarily caused by the ground lease percentage rent true-up for fiscal year 2019-2020 at Hilton La Jolla Torrey Pines. Additionally, we recorded $474,000, $512,000 and $834,000, respectively, of amortization costs related to the intangible assets that were reclassified to “operating lease right-of-use assets” upon adoption of ASC 842. Short-term lease costs in aggregate are immaterial.

Other information related to leases is as follows:


	Year Ended December 31,
	2022			2021			2020

Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases (in thousands)	$	3,307		$	3,302		$	3,261





Weighted Average Remaining Lease Term
Operating leases (1)	44 years			45 years			47 years

Weighted Average Discount Rate
Operating leases (1)	4.98		%	4.98		%	4.98		%

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(1) Calculated using the lease term, excluding extension options, and discount rates of the ground leases.

Future minimum lease payments due under non-cancellable leases as of December 31, 2022 were as follows (in thousands):


	Operating Leases
2023	$	3,365
2024	3,329
2025	3,321
2026	3,334
2027	3,342
Thereafter	141,300
Total future minimum lease payments (1)	157,991
Less: interest	(97,299)
Present value of operating lease liabilities	$	60,692

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(1) Based on payment amounts as of December 31, 2022.