Leases

6 Months Ended

Jun. 30, 2019

4. Leases

The Trust leases (1) the land, or a portion of the land, under three of its hotels (the Hyatt Regency Mission Bay Spa and Marina, the JW Marriott San Francisco Union Square and the Hilton Denver City Center), (2) its corporate office space and (3) various operating equipment at its hotels (e.g., copiers, postage meters, etc.). All of the Trust’s leases are considered operating leases and the Trust’s leases associated with various operating equipment were determined to be insignificant or short-term. See Note 12, “Commitments and Contingencies,” for additional information relating to the Trust’s ground lease agreements.

For its ground lease agreements and corporate office lease agreement, the Trust recognized on its consolidated balance sheet on January 1, 2019 operating lease liabilities of $72.1 million and operating lease right-of-use assets of $75.0 million, of which $3.1 million was reclassified from intangible assets related to a previously recognized favorable ground lease asset and $0.2 million was reclassified from other liabilities related to a deferred rent liability associated with its corporate office lease agreement. The Trust used its incremental borrowing rate as the discount rate to measure the operating lease liabilities and the weighted-average discount rate used was 5.73%.

As of June 30, 2019, the weighted-average remaining operating lease term was 49.2 years and the maturities of the operating lease liabilities, due in each of the next five years and thereafter, were (in thousands):



	June 30, 2019
2019	$	2,347
2020	4,699
2021	4,713
2022	4,566
2023	4,406
Thereafter	198,284
Total minimum lease payments	219,015
Imputed interest	(147,222		)
Operating lease liabilities	$	71,793

The Trust incurred total lease expense, which is primarily included within indirect hotel operating expenses in the interim consolidated statement of operations, of $1.7 million and $3.5 million for the three and six months ended June 30, 2019, respectively. Included in total lease expense for the three months ended June 30, 2019 was $1.2 million of operating lease expense, $0.1 million of variable lease expense, and $0.4 million of short-term lease expense. Included in total lease expense for the six months ended June 30, 2019 was $2.4 million of operating lease expense, $0.7 million of variable lease expense, and $0.4 million of short-term lease expense.