Investment in Hotel Properties

6 Months Ended

Jun. 30, 2023

Investment in hotel properties as of June 30, 2023 and December 31, 2022 consisted of the following (in thousands):


	June 30, 2023		December 31, 2022
Land	$	860,270	$	897,756
Buildings and improvements	5,099,194		5,170,976
Furniture, fixtures and equipment	509,555		504,518
Finance lease asset	91,181		91,181
Construction in progress	21,675		11,961
	$	6,581,875	$	6,676,392
Right-of-use asset, operating leases	365,570		370,383
Investment in hotel properties	$	6,947,445	$	7,046,775
Less: Accumulated depreciation	(1,233,129)		(1,171,899)
Investment in hotel properties, net	$	5,714,316	$	5,874,876

Hurricane Ian

On September 27, 2022, LaPlaya Beach Resort & 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 or disruption. LaPlaya was closed in anticipation of the storm and required remediation and repairs from the damage and remained closed. However, LaPlaya has begun to reopen in stages as the buildings and facilities are repaired. The Company anticipates LaPlaya to substantially reopen by the end 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 and the Company has recorded a receivable for the expenditures to date which it anticipates to collect from the insurance providers in excess of the deductibles. In 2022, the Company recognized an aggregate impairment loss of $7.9 million for the damage to LaPlaya and Southernmost Beach Resort. During the six months ended June 30, 2023, the Company incurred $4.1 million of costs related to payroll, repair and claims administration for which reimbursement from insurance policies is uncertain and therefore is included in other operating expenses in the Company's consolidated statements of operations and comprehensive income. Through June 30, 2023, the Company has received $38.8 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 may identify an impairment trigger has occurred and assess its investment in hotel properties for recoverability. During the six months ended June 30, 2023, no impairment losses were incurred. During the six months ended June 30, 2022, the Company recognized an impairment loss of $73.3 million related to two hotels as a result of their fair value being lower than their carrying value. 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.

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 June 30, 2023, the Company's lease liabilities consisted of operating lease liabilities of $320.5 million and financing lease liabilities of $43.0 million. 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. The financing lease liabilities are included in accounts payable, accrued expenses and other liabilities on the Company's accompanying consolidated balance sheets.