Favorable Lease Assets

9 Months Ended

Sep. 09, 2011

Goodwill and Intangible Assets Disclosure [Abstract]

In connection with the acquisition of certain hotels, we have recognized intangible assets for favorable ground leases and tenant leases. Our favorable lease assets, net of accumulated amortization, as of September 9, 2011 (unaudited) and December 31, 2010 consist of the following (in thousands):



	September 9, 2011		December 31, 2010
Boston Westin Waterfront Ground Lease	$	19,007	$	19,156
Boston Westin Waterfront — Lease Right	9,513		9,513
Minneapolis Hilton Ground Lease	6,008		6,059
Oak Brook Hills Marriott Resort Ground Lease	7,519		7,894
Radisson Lexington Restaurant Leases	1,547		—
	$	43,594	$	42,622

The favorable lease assets are recorded at the acquisition date and are generally amortized using the straight-line method over the remaining non-cancelable term of the lease agreement. Amortization expense for the period from January 1, 2011 to September 9, 2011 was approximately $0.6 million.

In connection with our acquisition of the Radisson Lexington on June 1, 2011, we recorded a $1.6 million favorable lease asset related to certain tenant leases at the hotel. We determined the value using a discounted cash flow model based on the favorable differences between the contractual lease payments and estimated market rents.

We own a favorable lease asset related to the right to acquire a leasehold interest in a parcel of land adjacent to the Westin Boston Waterfront Hotel for the development of a 320 to 350 room hotel (the “lease right”). The option expires in 2099. We do not amortize the lease right but review the asset for impairment annually or at interim periods if events or circumstances indicate that the asset may be impaired. No impairment loss was recorded in our fiscal quarters ended September 9, 2011 or September 10, 2010.

The U.S. GAAP fair value hierarchy assigns a level to fair value measurements based on inputs used: Level 1 inputs are quoted prices in active markets for identical assets and liabilities; Level 2 inputs are inputs other than quoted market prices that are observable for the asset or liability, either directly or indirectly; or Level 3 inputs are unobservable inputs. The fair value of the lease right is a Level 3 measurement and is derived from a discounted cash flow model using the favorable difference between the estimated participating rents in accordance with the lease terms and the estimated market rents. The discount rate was estimated using a risk adjusted rate of return, the estimated participating rents were estimated based on a hypothetical completed 327-room hotel comparable to our Westin Boston Waterfront Hotel, and market rents were based on comparable long-term ground leases in the City of Boston. The methodology used to determine the fair value of the lease right is consistent with the methodology used since acquisition of the lease right.