Investment in Hotel Properties

12 Months Ended

Dec. 31, 2022

Investment in hotel properties as of December 31, 2022 and 2021 consisted of the following (in thousands):


	December 31, 2022		December 31, 2021
Land	$	897,756	$	926,330
Buildings and improvements	5,170,976		5,197,816
Furniture, fixtures and equipment	504,518		535,607
Finance lease asset	91,181		91,181
Construction in progress	11,961		15,869
	$	6,676,392	$	6,766,803
Right-of-use asset, operating leases	370,383		378,939
Investment in hotel properties	$	7,046,775	$	7,145,742
Less: Accumulated depreciation	(1,171,899)		(1,066,409)
Investment in hotel properties, net	$	5,874,876	$	6,079,333

On September 27, 2022, LaPlaya Beach Resort and LaPlaya Beach Club ("LaPlaya") and Inn on Fifth, both located in Naples, Florida, and Southernmost Beach Resort located in Key West, Florida were impacted by the effects of Hurricane Ian. Inn on Fifth and Southernmost Beach Resort did not suffer significant damage and have been reopened. LaPlaya was closed in anticipation of the storm and is expected to be re-opened in stages beginning in the first quarter of 2023. The Company anticipates LaPlaya to have reopened fully by the middle of 2023.

The Company’s insurance policies provide coverage for property damage, business interruption and reimbursement for other costs that were incurred relating to damages sustained during Hurricane Ian. Insurance proceeds are subject to deductibles. As of December 31, 2022, the Company recognized an impairment loss of $7.9 million for the damage to LaPlaya and Southernmost Beach Resort which is recorded in impairment and other losses in the Company’s accompanying consolidated statement of operations and comprehensive income. The Company recorded a receivable for costs incurred to remediate the damage in excess of the deductible. Through December 31, 2022, the Company has received $15.8 million in preliminary advances from the insurance providers and continues to work with the insurance providers on the settlement of the property and business interruption claims.

Impairment

The Company reviews its investment in hotel properties for impairment whenever events or circumstances indicate potential impairment. The Company periodically adjusts its estimate of future operating cash flows and estimated hold periods for certain properties. As a result of this review, the Company determined certain impairment triggers had occurred and therefore, the Company assessed its investment in hotel properties for recoverability. Based on the analyses performed, for the year ended December 31, 2022, the Company recognized an impairment loss of $81.7 million related to three hotels as a result of their fair values being lower than their carrying values. The impairment losses were determined using Level 2 inputs under authoritative guidance for fair value measurements using purchase and sale agreements and information from marketing efforts for these properties. For the year ended December 31, 2021, the Company recognized an impairment loss of $14.9 million related to one hotel as a result of its fair value being lower than its carrying value. The impairment loss was determined using Level 2 inputs under authoritative guidance for fair value measurements using information from marketing efforts for this property. For the year ended December 31, 2020, the Company recognized an impairment loss of $74.6 million related to three properties as a result of their fair values being lower than their carrying values. The impairment loss was determined using Level 2 inputs under authoritative guidance for fair value measurements using information from marketing efforts for these properties.

Right-of-use Assets and Lease Liabilities

The Company recognized right-of-use assets and related liabilities related to its ground leases, all of which are operating leases. When the rate implicit in the lease could not be determined, the Company used incremental borrowing rates, which ranged from 4.7% to 7.6%. In addition, the term used includes any options to exercise extensions when it is reasonably certain the Company will exercise such option. See Note 11. Commitments and Contingencies for additional information about the ground leases.

The right-of-use assets and liabilities are amortized to ground rent expense over the term of the underlying lease agreements. As of December 31, 2022, the Company's lease liabilities consisted of operating lease liabilities of $320.4 million and financing lease liabilities of $42.7 million. As of December 31, 2021, the Company's lease liabilities consisted of operating lease liabilities of $319.4 million and financing lease liabilities of $42.0 million. The financing lease liabilities are included in accounts payable, accrued expenses and other liabilities on the Company's accompanying consolidated balance sheets.