Leases

6 Months Ended

Jun. 30, 2019

LEASES

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which provides the principles for the recognition, measurement, presentation and disclosure of leases. The Company adopted the provisions of the update effective January 1, 2019. We elected the modified retrospective transition method upon adoption, which resulted in no cumulative-effect adjustment to the balance of opening retained earnings. As part of our adoption, we elected to utilize the package of practical expedients which allowed us to not reassess existing contracts for embedded leases and not reassess the classification of existing leases. As a result of our adoption, the Company recorded a lease liability and corresponding right of use asset of $55,515 at January 1, 2019 for leases where we are the lessee. Our most significant leases are land leases. We own five hotels within our consolidated portfolio of hotels where we do not own the land on which the hotels reside, rather we lease the land from an unrelated third-party lessor. All of our land leases are classified as operating leases and have initial terms, with extension options that range from May 2062 to October 2103. Based on the nature of these leases, the Company assumed that all extension options would be fully executed. For land leases that include variable payments, those include payments that are tied to an index such as the consumer price index or include rental payments based partially on the hotel revenues. Two additional office space lease are also factored into the lease liability and are classified as operating leases with terms ranging from January 2022 to December 2027. For office space leases that include variable payments, those include payments for the Company's proportionate share of the building's property taxes, insurance, and common area maintenance.

The Company applied judgments related to the determination of the discount rates used to calculate the lease liability upon adoption at January 1, 2019. Since the discount rate implicit in the leases could not be readily determinable, we had to calculate our incremental borrowing rate as defined by ASC Topic 842. In order to calculate our incremental borrowing rate, the Company utilized judgments and estimates regarding the Company's market credit rating, comparable market bond yield curve, and adjustments to market yield curves to determine a securitized rate.

We are also a lessor in certain office space and retail lease agreements related to our hotels and the adoption of this ASU did not have a material impact on our accounting for leases where we are the lessor. The adoption of this ASU did not impact revenue recognition policies for the Company.

The components of lease costs for the three and six months ended June 30, 2019 were as follows:



	Three Months Ended June 30, 2019						Six Months Ended June 30, 2019
	Ground Lease		Office Lease		Total		Ground Lease		Office Lease		Total
Operating lease costs	$	973	$	121	$	1,094	$	1,946	$	242	$	2,188
Variable lease costs	141		88		229		278		159		437
Total lease costs	$	1,114	$	209	$	1,323	$	2,224	$	401	$	2,625

Other information related to leases as of and for the six months ended June 30, 2019 is as follows:



	June 30, 2019
Cash paid from operating cash flow for operating leases	$	2,364
Weighted average remaining lease term	64.2
Weighted average discount rate	7.85		%

NOTE 6 – LEASES (CONTINUED)

Payments against lease liabilities are as follows:



	Amount
July 1, 2019 to December 31, 2019	$	2,295
2020	4,638
2021	4,705
2022	4,167
2023	4,149
Thereafter	270,978
Total undiscounted lease payments	290,932
Less imputed interest	(236,071		)
Total lease liabilities	$	54,861

Future minimum lease payments (without reflecting future applicable Consumer Price Index increases) under these agreements as of December 31, 2018 are as follows:



Year Ending December 31,	Amount
2019	$	4,585
2020	4,638
2021	4,705
2022	4,167
2023	4,149
Thereafter	270,978
	$	293,222

Leases