Investment in Hotel Properties

12 Months Ended

Dec. 31, 2023

Investment in Hotel Properties

Investment in Hotel Properties

3. Investment in Hotel Properties

Investment in hotel properties, net consisted of the following (in thousands):

	December 31,
	2023		2022
Land	$	614,112	$	672,531
Buildings and improvements		2,587,278		2,793,771
Furniture, fixtures and equipment		407,861		426,189
Intangible assets		42,187		42,187
Construction in progress		61,247		71,689
Investment in hotel properties, gross		3,712,685		4,006,367
Accumulated depreciation and amortization		(1,127,406)		(1,165,439)
Investment in hotel properties, net	$	2,585,279	$	2,840,928

2022 Acquisitions

In June 2022, the Company purchased the fee-simple interest in the 339-room The Confidante Miami Beach, Florida for a contractual purchase price of $232.0 million. The acquisition was accounted for as an asset acquisition and was funded from available cash and with $140.0 million of proceeds received from the Company’s revolving credit facility (see Note 7).

In June 2022, the Company acquired the 25.0% noncontrolling partner’s ownership interest in the Hilton San Diego Bayfront for a contractual purchase price of $102.0 million plus 25.0% of closing date working capital and cash. The Company paid a preliminary purchase price of $101.3 million on the closing date based on estimated working capital and cash amounts, with additional true-ups of $2.9 million and $0.3 million recognized in December 2022 and May 2023, respectively, based on actual working capital and cash amounts. Following the acquisition, the Company owns 100% of the hotel. The acquisition was funded from available cash and with $90.0 million of proceeds received from the Company’s revolving credit facility (see Note 7). The transaction was accounted for as an equity transaction. The acquisition date noncontrolling interest balance of $38.8 million was reclassified to additional paid in capital. In addition, the $65.8 million of excess cash paid to acquire the 25.0% noncontrolling partner’s ownership interest was classified as additional paid in capital. No gain or loss was recognized in the accompanying consolidated statements of operations related to this acquisition.

Intangible Assets

Intangible assets included in the Company’s investment in hotel properties, net consisted of the following (in thousands):

	December 31,
		2023		2022
Element agreement (1)	$	18,436	$	18,436
Airspace agreements (2)		1,947		1,947
Residential program agreements (3)		21,038		21,038
Trade names (4)		121		121
Franchise agreements (5)		126		126
In-place lease agreement (6)		519		519
		42,187		42,187
Accumulated amortization		(949)		(432)
	$	41,238	$	41,755

Amortization expense on these intangible assets consisted of the following (in thousands):

	2023		2022		2021
Residential program agreements (3)	$	411	$	282	$	—
Franchise agreements (5)		7		11		40
In-place lease agreement (6)		99		58		—
Advance bookings (7)		—		199		22
Below market management agreement (8)		—		15		92
	$	517	$	565	$	154

(1) The Element agreement as of both December 31, 2023 and 2022 included the exclusive perpetual rights to certain space at The Westin Washington, DC Downtown. The Element has an indefinite useful life and is not amortized.

(2) Airspace agreements as of both December 31, 2023 and 2022 consisted of dry slip agreements at the Oceans Edge Resort & Marina. The dry slips at the Oceans Edge Resort & Marina have indefinite useful lives and are not amortized.

(3) Residential program agreements as of both December 31, 2023 and 2022 included $13.7 million and $7.3 million at the Montage Healdsburg and the Four Seasons Resort Napa Valley, respectively. The value of the agreements were determined based on each hotel’s purchase price allocation. The agreements relate to the hotels’ residential rental programs, whereby owners of the adjacent separately owned Montage Residences Healdsburg and Four Seasons Private Residences Napa Valley are eligible to participate in optional rental programs and have access to the hotels’ facilities. The residential program agreement at the Montage Healdsburg will be amortized over the life of the related remaining 25-year Montage Healdsburg management agreement once the hotel begins to recognize revenue related to the program in January 2024. In addition, the agreement at the Montage Healdsburg includes a social membership program under which the Company began to recognize revenue in February 2023, amortizing the agreement using the straight-line method over the life of the related remaining 25-year Montage Healdsburg management agreement. In April 2022, the Company began to recognize revenue associated with the residential program agreement at the Four Seasons Resort Napa Valley, amortizing the agreement using the straight-line method over the life of the related remaining 20-year management agreement. The amortization expense for both the Montage Healdsburg and the Four Seasons Resort Napa Valley is included in depreciation and amortization expense in the Company’s consolidated statements of operations.

(4) Trade names as of both December 31, 2023 and 2022 consisted of trademarks and bottle labeling used by the Elusa Winery at the Four Seasons Resort Napa Valley. The value of the trade names were determined as part of the hotel’s purchase price allocation. The trade names have indefinite useful lives and are not amortized.

(5) Franchise agreements as of both December 31, 2023 and 2022 consisted of agreements at the Hilton New Orleans St. Charles and The Bidwell Marriott Portland. Franchise agreements in 2021 also included agreements at the Embassy Suites Chicago and the Hilton Garden Inn Chicago Downtown/Magnificent Mile, both of which were sold in March 2022 (see Note 4). The remaining agreements are amortized using the straight-line method over the lives of the franchise agreements and will be fully amortized in October 2024 and April 2028 for The Bidwell Marriott Portland and the Hilton New Orleans St. Charles, respectively. The amortization expense for the franchise agreements is included in depreciation and amortization expense in the Company’s consolidated statements of operations.

(6) The in-place lease agreement as of both December 31, 2023 and 2022 consisted of an agreement at The Confidante Miami Beach. The value of the agreement was determined as part of the hotel’s purchase price allocation. The agreement is amortized using the straight-line method over the remaining non-cancelable term of the lease and will be fully amortized in August 2027. The amortization expense for the in-place lease agreement is included in depreciation and amortization expense in the Company’s consolidated statements of operations.

(7) Advance bookings consisted of advance deposits related to our acquisition of the Four Seasons Resort Napa Valley. As part of the purchase price allocation, the contractual advance hotel bookings were recorded at a discounted present value based on estimated collectability. They were amortized using the straight-line method over the periods the amounts were expected to be collected and were fully amortized in September 2022. The amortization expense for contractual advance hotel bookings is included in depreciation and amortization expense in the Company’s consolidated statements of operations.

(8) The below market management agreement consisted of an agreement at the Hilton Garden Inn Chicago Downtown/Magnificent Mile. The agreement was amortized using the straight-line method over the remaining non-cancelable term until the hotel’s sale in March 2022 (see Note 4).

For the next five years, amortization expense for the intangible assets noted above is expected to be as follows (in thousands):

2024	$	1,029
2025	$	1,028
2026	$	1,028
2027	$	994
2028	$	925