Goodwill

The changes in the carrying amount of goodwill for the years ended December 31, 2018 and 2017 are as follows:



	Beginning balance at January 1, 2018									Ending balance at December 31, 2018
	Gross goodwill amount	Accumulated impairment		Net goodwill amount	Goodwill on acquisition	Impairment		Foreign currency translation adjustment		Gross goodwill amount	Accumulated impairment		Net goodwill amount
Year ended December 31, 2018	$'000	$'000		$'000	$'000	$'000		$'000		$'000	$'000		$'000

Owned hotels:
Europe	70,660	(14,202	)	56,458	164	(976	)	(3,750	)	67,074	(15,178	)	51,896
North America	71,601	(21,610	)	49,991	—	—		—		71,601	(21,610	)	49,991
Rest of world	20,530	(13,149	)	7,381	—	(3,743	)	(530	)	20,000	(16,892	)	3,108
Owned trains and cruises	7,052	(662	)	6,390	—	—		(313	)	6,739	(662	)	6,077

Total	169,843	(49,623	)	120,220	164	(4,719	)	(4,593	)	165,414	(54,342	)	111,072



	Beginning balance at January 1, 2017									Ending balance at December 31, 2017
	Gross goodwill amount	Accumulated impairment		Net goodwill amount	Goodwill on acquisition	Impairment		Foreign currency translation adjustment		Gross goodwill amount	Accumulated impairment		Net goodwill amount
Year ended December 31, 2017	$'000	$'000		$'000	$'000	$'000		$'000		$'000	$'000		$'000

Owned hotels:
Europe	64,459	(14,202	)	50,257	—	—		6,201		70,660	(14,202	)	56,458
North America	66,101	(16,110	)	49,991	5,500	(5,500	)	—		71,601	(21,610	)	49,991
Rest of world	20,581	(13,149	)	7,432	—	—		(51	)	20,530	(13,149	)	7,381
Owned trains and cruises	6,325	(662	)	5,663	—	—		727		7,052	(662	)	6,390

Total	157,466	(44,123	)	113,343	5,500	(5,500	)	6,877		169,843	(49,623	)	120,220

In the year ended December 31, 2018, goodwill of $164,000 was recognized on the acquisition of Castello di Casole. See Note 5.

In the year ended December 31, 2017, goodwill of $5,500,000 was recognized on the acquisition of Cap Juluca. See Note 5.

Belmond's annual impairment test date is October 1, when all reporting units with goodwill balances are reviewed for impairment. The impairment test compares the carrying value of each reporting unit to its fair value to determine if an impairment is indicated. The fair value of a reporting unit is determined using internally developed discounted future cash flow models, which include input from external valuation experts to provide discount and long term growth rates. A goodwill impairment charge is measured as the amount by which a reporting unit's carrying value exceeds its fair value, however the impairment charge is not to exceed the carrying amount of goodwill allocated to that reporting unit.

During the year ended December 31, 2018, the following non-cash goodwill impairment charges were identified and recorded within impairment of goodwill in the statements of consolidated operations:


•	An impairment charge of $2,195,000 at Belmond Governor’s Residence. Belmond determined that this impairment was triggered by the fall in tourist arrivals in Myanmar, due to negative perceptions of the country, adversely impacting the discounted cash flows resulting in a full impairment of the goodwill balance.


•	An impairment charge of $1,548,000 at Belmond La Résidence d’Angkor. Belmond determined that the impairment was triggered by slower than anticipated growth at the hotel, which adversely impacted discounted cash flows resulting in a full impairment of the goodwill balance.


•	An impairment charge of $819,000 at Belmond Villa San Michele. Belmond determined that the impairment was triggered by lower than anticipated performance and a reduction in group business, which adversely impacted discounted cash flows resulting in a full impairment of the goodwill balance.


•	An impairment charge of $157,000 at Belmond Castello di Casole. Belmond determined that the impairment was triggered by lower than anticipated cash flows generated by the hotel, which adversely impacted discounted cash flows resulting in a full impairment of the goodwill balance.

During the year ended December 31, 2018, Belmond considered whether the difficult economic conditions in Russia indicated that it was more likely than not that the fair value of Belmond Grand Hotel Europe was less than its carrying value. Under the first step of the goodwill impairment test, the fair value of Belmond Grand Hotel Europe was approximately 7% in excess of its carrying value. Belmond Grand Hotel Europe had a goodwill balance of $8,052,000 at December 31, 2018. Factors that could reasonably be expected to potentially have an adverse effect on the fair value of the reporting unit include the future operating projections of the hotel, volatility in debt or equity markets that could result in changes to the discount rate, economic sanctions and the timing and extent of recovery in the Russian economy.

During the year ended December 31, 2017, Belmond identified a non-cash goodwill impairment of $5,500,000 at Belmond Cap Juluca. Belmond determined that this impairment was triggered by the significant adverse change in use and physical condition of the hotel following Hurricanes Irma and Jose in September 2017. Significant increases in the estimated costs of repair to the hotel negatively impacted the discounted cash flows, resulting in the full impairment of the goodwill balance.

There were no impairments to goodwill in the year ended December 31, 2016.