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EX-32.1 - EXHIBIT 32.1 - Xenia Hotels & Resorts, Inc.xeniaq2201610qexhibit321.htm
EX-31.2 - EXHIBIT 31.2 - Xenia Hotels & Resorts, Inc.xeniaq2201610qexhibit312.htm
EX-31.1 - EXHIBIT 31.1 - Xenia Hotels & Resorts, Inc.xeniaq2201610qexhibit311.htm
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM 10-Q
____________________________
(Mark One)
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2016
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period ended ______ to ______
Commission file number 001-36594
___________________________

Xenia Hotels & Resorts, Inc.

(Exact Name of Registrant as Specified in Its Charter)
_______________________
Maryland
 
20-0141677
(State of Incorporation)
 
(I.R.S. Employer Identification No.)
 
 
 
200 S. Orange Avenue
Suite 1200, Orlando, Florida
 
32801
(Address of Principal Executive Offices)
 
(Zip Code)
(407) 317-6950
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
 
Non-accelerated filer
 
Smaller reporting company
o

 
o
 
þ
 
o
 
 
 
 
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No
As of July 29, 2016, there were 107,608,277 shares of the registrant’s common stock outstanding.
 




XENIA HOTELS & RESORTS, INC.
TABLE OF CONTENTS


Part I - Financial Information
 
Page
 
 
 
 
Item 1.
Financial Statements (unaudited)
 
 
 
Condensed Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015
 
 
Combined Condensed Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2016 and 2015
 
 
Condensed Consolidated Statements of Changes in Equity for the six months ended June 30, 2016
 
 
Combined Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015
 
 
Notes to the Combined Condensed Consolidated Financial Statements
 
 
 
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
Item 4.
Controls and Procedures
 
 
 
 
 
 
 
 
 
Part II - Other Information
 
 
 
 
 
 
Item 1.
Legal Proceedings
 
Item 1A.
Risk Factors
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
Item 3.
Defaults Upon Senior Securities
 
Item 4.
Mine Safety Disclosures
 
Item 5.
Other Information
 
Item 6.
Exhibits
 
 
 
 
 
Signatures
 



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
XENIA HOTELS & RESORTS, INC.
Condensed Consolidated Balance Sheets
As of June 30, 2016 and December 31, 2015
(Dollar amounts in thousands, except per share data)
 
June 30, 2016
 
December 31, 2015
Assets
(Unaudited)
 
 
Investment properties:
 
 
 
Land
$
343,000

 
$
343,000

Building and other improvements
2,817,370

 
2,680,591

Construction in progress

 
169

Total
$
3,160,370

 
$
3,023,760

Less: accumulated depreciation
(593,247
)
 
(518,961
)
Net investment properties
$
2,567,123

 
$
2,504,799

Cash and cash equivalents
278,055

 
122,154

Restricted cash and escrows
83,903

 
73,021

Accounts and rents receivable, net of allowance of $307 and $243, respectively
27,913

 
23,529

Intangible assets, net of accumulated amortization of $18,425 and $16,660, respectively
78,180

 
58,059

Deferred tax asset
2,205

 
2,304

Other assets
17,670

 
40,683

Assets held for sale

 
181,396

Total assets (including $76,743 and $77,140, respectively, related to consolidated variable interest entities)
$
3,055,049

 
$
3,005,945

Liabilities
 
 
 
Debt, net of loan discounts, premiums and unamortized deferred financing costs
$
1,266,001

 
$
1,094,536

Accounts payable and accrued expenses
77,705

 
83,211

Distributions payable
30,135

 
25,684

Other liabilities
48,158

 
27,510

Liabilities associated with assets held for sale

 
31,646

Total liabilities (including $48,095 and $48,582, respectively, related to consolidated variable interest entities)
1,421,999

 
1,262,587

Commitments and contingencies


 


Stockholders' equity
 
 
 
Common stock, $0.01 par value, 500,000,000 shares authorized, 107,624,890 and 111,671,372 shares issued and outstanding as of June 30, 2016 and December 31, 2015, respectively
1,077


1,117

Additional paid in capital
1,936,722

 
1,993,760

Accumulated other comprehensive (loss) income
(12,025
)
 
1,543

Distributions in excess of retained earnings
(311,896
)
 
(268,991
)
Total Company stockholders' equity
$
1,613,878

 
$
1,727,429

Non-controlling interests
19,172

 
15,929

Total equity
$
1,633,050

 
$
1,743,358

Total liabilities and equity
$
3,055,049

 
$
3,005,945

See accompanying notes to the combined condensed consolidated financial statements.

1


XENIA HOTELS & RESORTS, INC.
Combined Condensed Consolidated Statements of Operations and Comprehensive Income
For the Three and Six Months Ended June 30, 2016 and 2015
(unaudited)
(Dollar amounts in thousands, except per share data)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Revenues:
 
 
 
 
 
 
 
Rooms revenues
$
180,977

 
$
172,792

 
$
340,295

 
$
325,882

Food and beverage revenues
66,329

 
64,954

 
129,797

 
127,207

Other revenues
14,072

 
13,477

 
26,321

 
26,007

Total revenues
$
261,378

 
$
251,223

 
$
496,413

 
$
479,096

Expenses:
 
 
 
 
 
 
 
Rooms expenses
38,183

 
37,348

 
74,958

 
72,534

Food and beverage expenses
42,009

 
41,311

 
84,242

 
81,498

Other direct expenses
4,086

 
4,385

 
8,051

 
8,651

Other indirect expenses
57,914

 
56,226

 
115,881

 
109,484

Management and franchise fees
13,780

 
13,618

 
26,027

 
25,070

Total hotel operating expenses
$
155,972

 
$
152,888

 
$
309,159

 
$
297,237

Depreciation and amortization
38,318

 
35,889

 
77,270

 
72,276

Real estate taxes, personal property taxes and insurance
10,542

 
11,805

 
22,575

 
23,999

Ground lease expense
1,402

 
1,322

 
2,755

 
2,597

General and administrative expenses
7,674

 
6,947

 
18,298

 
13,992

Acquisition transaction costs
6

 
856

 
146

 
885

Provision for asset impairment
2,396

 

 
9,991

 

Separation and other start-up related expenses

 
1,165

 

 
26,461

Total expenses
$
216,310

 
$
210,872

 
$
440,194

 
$
437,447

Operating income
$
45,068

 
$
40,351

 
$
56,219

 
$
41,649

Gain (loss) on sale of investment properties
(90
)
 

 
792

 

Other income
94

 
30

 
178

 
2,717

Interest expense
(12,801
)
 
(13,048
)
 
(25,640
)
 
(26,230
)
Loss on extinguishment of debt
(35
)
 
(178
)
 
(4,778
)
 
(283
)
Net income before income taxes
$
32,236

 
$
27,155

 
$
26,771

 
$
17,853

Income tax expense
(6,095
)
 
(3,405
)
 
(9,800
)
 
(8,484
)
Net income from continuing operations
$
26,141

 
$
23,750

 
$
16,971

 
$
9,369

Net loss from discontinued operations

 

 

 
(489
)
Net income
$
26,141

 
$
23,750

 
$
16,971

 
$
8,880

Non-controlling interests in consolidated real estate entities (Note 5)
(43
)
 

 
120

 

Non-controlling interests of common units in Operating Partnership (Note 1)
(330
)
 
(3
)
 
(240
)
 
(3
)
Net income attributable to non-controlling interests
$
(373
)
 
$
(3
)
 
$
(120
)
 
$
(3
)
Net income attributable to the Company
$
25,768

 
$
23,747

 
$
16,851

 
$
8,877

Distributions to preferred stockholders

 
(8
)
 

 
(8
)
Net income attributable to common stockholders
$
25,768

 
$
23,739

 
$
16,851

 
$
8,869


2


XENIA HOTELS & RESORTS, INC.
Combined Condensed Consolidated Statements of Operations and Comprehensive Income, Continued
For the Three and Six Months Ended June 30, 2016 and 2015
(unaudited)
(Dollar amounts in thousands, except per share data)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Basic and diluted earnings per share
 
 
 
 
 
 
 
Income from continuing operations available to common stockholders
$
0.24

 
$
0.21

 
$
0.15

 
$
0.08

Income from discontinued operations available to common stockholders

 

 

 

Net income per share available to common stockholders
$
0.24

 
$
0.21

 
$
0.15

 
$
0.08

Weighted average number of common shares (basic)
107,936,336

 
111,676,096

 
108,813,649

 
112,316,767

Weighted average number of common shares (diluted)
108,048,155

 
111,914,085

 
108,910,761

 
112,460,712

 
 
 
 
 
 
 
 
Comprehensive Income:
 
 
 
 
 
 
 
Net income
$
26,141

 
$
23,750

 
$
16,971

 
$
8,880

Other comprehensive income:
 
 
 
 
 
 
 
Unrealized loss on interest rate derivative instruments
(5,286
)
 

 
(15,645
)
 

Reclassification adjustment for amounts recognized in net income (interest expense)
973

 

 
1,898

 

 
$
21,828

 
$
23,750

 
$
3,224

 
$
8,880

Comprehensive income attributable to non-controlling interests:
 
 
 
 
 
 
 
Non-controlling interests in consolidated real estate entities (Note 5)
(43
)
 

 
120

 

Non-controlling interests of common units in Operating Partnership (Note 1)
(274
)
 
(3
)
 
(61
)
 
(3
)
Comprehensive income attributable to non-controlling interests
(317
)
 
(3
)
 
59

 
(3
)
Comprehensive income attributable to the Company
$
21,511

 
$
23,747

 
$
3,283

 
$
8,877

See accompanying notes to the combined condensed consolidated financial statements.

3


XENIA HOTELS & RESORTS, INC.
Condensed Consolidated Statements of Changes in Equity
For the Six Months Ended June 30, 2016
(unaudited)
(Dollar amounts in thousands, except per share data)
 
Common Stock
 
 
 
 
 
 
 
Non-controlling Interests
 
 
 
Shares
 
Amount
 
Additional paid in capital
 
Accumulated other comprehensive income (loss)
 
Distributions in excess of retained earnings
 
Operating Partnership
 
Consolidated Real Estate Entities
 
Total Non-controlling Interests
 
Total
Balance at January 1, 2016
111,671,372

 
$
1,117

 
$
1,993,760

 
$
1,543

 
$
(268,991
)
 
$
2,593

 
$
13,336

 
$
15,929

 
$
1,743,358

Net income (loss)

 

 

 

 
16,851

 
240

 
(120
)
 
120

 
16,971

Repurchase of common shares, net
(4,128,935
)
 
(41
)
 
(60,677
)
 

 

 

 

 

 
(60,718
)
Dividends, common shares / units ($0.55)

 

 

 

 
(59,756
)
 
(178
)
 

 
(178
)
 
(59,934
)
Share-based compensation
82,453

 
1

 
3,639

 

 

 
3,139

 

 
3,139

 
6,779

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized loss on interest rate derivative instruments

 

 

 
(15,441
)
 

 
(204
)
 

 
(204
)
 
(15,645
)
Reclassification adjustment for amounts recognized in net income

 

 

 
1,873

 

 
25

 

 
25

 
1,898

Contributions from non-controlling interests

 

 

 

 

 

 
341

 
341

 
341

Balance at June 30, 2016
107,624,890

 
$
1,077

 
$
1,936,722

 
$
(12,025
)
 
$
(311,896
)
 
$
5,615

 
$
13,557

 
$
19,172

 
$
1,633,050

See accompanying notes to the combined condensed consolidated financial statements.

4


XENIA HOTELS & RESORTS, INC.
Combined Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2016 and 2015
(unaudited)
(Dollar amounts in thousands)
 
Six Months Ended June 30,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income
$
16,971

 
$
8,880

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
75,790

 
70,420

Amortization of above and below market leases and other lease intangibles
1,740

 
1,856

Amortization of debt premiums, discounts, and financing costs
2,062

 
2,191

Loss on extinguishment of debt
4,778

 
283

Gain on sale of investment property, net
(792
)
 

Provision for asset impairment
9,991

 

Share-based compensation expense
5,004

 
3,448

Other non-cash adjustments

 
(343
)
Prepayment penalties and defeasance
(4,813
)
 

Changes in assets and liabilities:
 
 
 
Accounts and rents receivable
(3,444
)
 
(4,964
)
Restricted cash
262

 

Deferred costs and other assets
6,155

 
6,227

Accounts payable and accrued expenses
(5,911
)
 
(5,746
)
Other liabilities
4,653

 
116

Net cash flows provided by operating activities
$
112,446

 
$
82,368

Cash flows from investing activities:
 
 
 
Purchase of investment properties
(116,000
)
 

Capital expenditures and tenant improvements
(20,161
)
 
(30,951
)
Investment in development projects

 
(23,149
)
Proceeds from sale of investment properties
160,129

 

Restricted cash and escrows
(6,567
)
 
1,371

Deposits for acquisition of hotel properties

 
(24,500
)
Other assets

 
1,239

Net cash flows provided by (used in) investing activities
$
17,401

 
$
(75,990
)
Cash flows from financing activities:
 
 
 
Distribution to InvenTrust Properties Corp.

 
(23,505
)
Contribution from InvenTrust Properties Corp.

 
176,805

Proceeds from mortgage debt and notes payable
71,258

 
13,489

Payoffs of mortgage debt
(50,042
)
 
(81,468
)
Principal payments of mortgage debt
(3,507
)
 
(4,573
)
Proceeds from unsecured term loan
125,000

 

Payment of loan fees and deposits
(678
)
 
(2,926
)
Contributions from non-controlling interests
341

 
3,169

Proceeds from issuance of preferred shares, net of offering costs

 
102

Repurchase of common shares
(60,718
)
 
(36,946
)
Dividends, common shares/units
(55,485
)
 
(16,270
)
Dividends, preferred shares

 
(8
)
Distributions paid to non-controlling interests
(115
)
 

Net cash flows provided by financing activities
$
26,054

 
$
27,869

Net increase in cash and cash equivalents
155,901

 
34,247

Cash and cash equivalents, at beginning of year
122,154

 
163,053

Cash and cash equivalents, at June 30, 2016 and 2015
$
278,055

 
$
197,300

See accompanying notes to the combined condensed consolidated financial statements.

5


XENIA HOTELS & RESORTS, INC.
Combined Condensed Consolidated Statements of Cash Flows - Continued
For the Six Months Ended June 30, 2016 and 2015
(unaudited)
(Dollar amounts in thousands)
 
Six Months Ended June 30,
 
2016
 
2015
Supplemental disclosure of cash flow information:
 
 
 
Cash paid for taxes
$
5,067

 
$
358

Cash paid for interest
20,318

 
25,930

 
 
 
 
Supplemental schedule of non-cash investing and financing activities:
 
 
 
Accrued capital expenditures
$
3,234


$
4,341

Assumption of unsecured line of credit facility by InvenTrust Properties Corp.


(96,020
)
Non-cash net distributions to InvenTrust Properties Corp.

 
1,220

Distributions payable
30,135

 
25,684

Deposit applied to purchase price of hotel property upon acquisition
20,000

 

See accompanying notes to the combined condensed consolidated financial statements.


6


XENIA HOTELS & RESORTS, INC.
Notes to Combined Condensed Consolidated Financial Statements (unaudited)
June 30, 2016


1. Organization
Xenia Hotels & Resorts, Inc. (the "Company" or "Xenia") is a Maryland corporation that invests primarily in premium full service, lifestyle and urban upscale hotels. Prior to February 3, 2015, Xenia was a wholly owned subsidiary of InvenTrust Properties Corp. ("InvenTrust" formerly known as Inland American Real Estate Trust, Inc.), its former parent.
On February 3, 2015, Xenia was spun off from InvenTrust through a taxable pro rata distribution by InvenTrust of 95% of the outstanding common stock, $0.01 par value per share (the "Common Stock"), of Xenia to holders of record of InvenTrust's common stock as of the close of business on January 20, 2015 (the "Record Date"). Each holder of record of InvenTrust's common stock received one share of Common Stock for every eight shares of InvenTrust’s common stock held at the close of business on the Record Date (the "Distribution"). In lieu of fractional shares, stockholders of InvenTrust received cash. On February 4, 2015, Xenia’s Common Stock began trading on the New York Stock Exchange ("NYSE") under the ticker symbol "XHR." As a result of the Distribution, the Company became a stand-alone, publicly-traded company. Xenia operates as a real estate investment trust ("REIT") for federal income tax purposes.
Substantially all of the Company's assets are held by, and all the operations are conducted through XHR LP (the "Operating Partnership"). XHR GP, Inc. is the sole general partner of XHR LP. XHR GP, Inc. is wholly owned by the Company. As of June 30, 2016, the Company owned 98.7% of the common limited partnership units issued by the Operating Partnership ("common units"). The remaining 1.3% of the common units are owned by the other limited partners. To qualify as a REIT, the Company cannot operate or manage its hotels. Therefore, the Operating Partnership and its subsidiaries lease the hotel properties to XHR Holding Inc. (collectively with its subsidiaries, "XHR Holding"), the Company's taxable REIT subsidiary ("TRS"), which engages third-party eligible independent contractors to manage the hotels.
The accompanying combined condensed consolidated financial statements include the accounts of the Company, the Operating Partnership, XHR Holding, as well as all wholly owned subsidiaries and consolidated investments in real estate entities. The Company's subsidiaries and consolidated investments in real estate entities generally consist of limited liability companies ("LLCs"), limited partnerships ("LPs") and the TRS. The effects of all significant inter-company transactions have been eliminated.
As of June 30, 2016, the Company owned 46 lodging properties, 44 of which were wholly owned, with a total of 11,594 rooms, including a 75% ownership interest in two hotels each owned through investments in a real estate entity.
2. Summary of Significant Accounting Policies
The unaudited interim combined condensed consolidated financial statements and related notes have been prepared on an accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America ("GAAP") and in conformity with the rules and regulations of the Securities and Exchange Commission ("SEC") applicable to financial information. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted in accordance with the rules and regulations of the SEC. The unaudited financial statements include normal recurring adjustments, which the Company considers necessary for the fair presentation of the condensed consolidated balance sheets, combined condensed consolidated statements of operations and comprehensive income, condensed consolidated statements of changes in equity and combined condensed consolidated statements of cash flows for the periods presented. The unaudited combined condensed consolidated financial statements should be read in conjunction with the combined consolidated financial statements and notes thereto as of and for the year ended December 31, 2015, included in the Company's Annual Report on Form 10-K filed with the SEC on March 10, 2016. Operating results for the three and six months ended June 30, 2016 are not necessarily indicative of actual operating results for the entire year.
Basis of Presentation
As described above, on February 3, 2015, Xenia was spun off from InvenTrust. Prior to the separation, the Company effectuated certain reorganization transactions which were designed to consolidate the ownership of its hotels into its Operating Partnership, consolidate its TRS lessees in its TRS, facilitate its separation from InvenTrust, and enable the Company to qualify as a REIT for federal income tax purposes. The accompanying combined condensed consolidated financial statements prior to the spin-off have been "carved out" of InvenTrust’s consolidated financial statements and reflect significant assumptions and allocations. The combined condensed consolidated financial statements reflect the operations of the Company after giving effect to the reorganization transactions, the disposition of other hotels previously owned by the Company, and the spin-off, and include allocations of costs from certain corporate and shared functions provided to the Company by InvenTrust, as well as

7


XENIA HOTELS & RESORTS, INC.
Notes to Combined Condensed Consolidated Financial Statements (unaudited)
June 30, 2016

costs associated with participation by certain of the Company's executives in InvenTrust’s benefit plans. Corporate costs directly associated with the Company's principal executive offices, personnel and other administrative costs are reflected as general and administrative expenses on the combined condensed consolidated statements of operations and comprehensive income. Additionally, prior to the spin-off, InvenTrust allocated to the Company a portion of its corporate overhead costs based upon the Company's percentage share of the average invested assets of InvenTrust, which is reflected in general and administrative expenses. Based on these presentation matters, the financial statements for the three and six months ended June 30, 2015 may not be comparable.
As InvenTrust was managing various asset portfolios, the extent of services and benefits a portfolio received was based on the size of its assets. Therefore, using average invested assets to allocate costs was a reasonable reflection of the services and other benefits received by the Company and complied with applicable accounting guidance. However, actual costs may have differed from allocated costs if the Company had operated as a stand-alone entity during such period and those differences may have been material.
Each property maintains its own books and financial records and each entity's assets are not available to satisfy the liabilities of other affiliated entities, except as otherwise disclosed in Note 7.
Use of Estimates
The preparation of the combined condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and revenues and expenses. These estimates are prepared using management's best judgment, after considering past, current and expected economic conditions. Actual results could differ from these estimates.
Consolidation
The Company evaluates its investments in partially owned entities to determine whether such entities may be a variable interest entity ("VIE"). If the entity is a VIE, the determination of whether the Company is the primary beneficiary must be made. The primary beneficiary determination is based on a qualitative assessment as to whether the entity has (i) power to direct significant activities of the VIE and (ii) an obligation to absorb losses or the right to receive benefits that could be potentially significant to the VIE. The Company will consolidate a VIE if it is deemed to be the primary beneficiary, as defined in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 810, Consolidation. The equity method of accounting is applied to entities in which the Company is not the primary beneficiary as defined in FASB ASC 810, or the entity is not a VIE and the Company does not have effective control, but can exercise influence over the entity with respect to its operations and major decisions.
On January 1, 2016, the Company adopted ASU 2015-02, Amendments to the Consolidation Analysis ("ASU 2015-02"), which amended the consolidation guidance for VIE's and general partner's investments in limited partnerships and modifies the evaluation of whether limited partnership and similar legal entities are VIEs or voting interest entities. Upon adoption of ASU 2015-02, the Company concluded there was no change required in the accounting of its two previously identified VIEs in our two investments in real estate entities and therefore will continue to consolidate these VIEs for reporting purposes, as further described in Note 5. However, the Company concluded that the Operating Partnership now meets the criteria as a VIE under ASU 2015-02. The Company's significant asset is its investment in the Operating Partnership, as described in Note 1, and consequently, substantially all of the Company's assets and liabilities represent those assets and liabilities of the Operating Partnership. All of the Company's debt is an obligation of the Operating Partnership. As such, there is no change in the presentation of the consolidated financial statements of the Company upon adoption of ASU 2015-02.
Impairment
The Company assesses the carrying values of the respective long-lived assets, whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable, such as a reduction in the expected holding period of the asset or a change in demand for lodging at the Company's hotels. If it is determined that the carrying value is not recoverable because the undiscounted cash flows do not exceed carrying value, the Company records an impairment loss to the extent that the carrying value exceeds fair value. The valuation and possible subsequent impairment of investment properties is a significant estimate that can and does change based on the Company's continuous process of analyzing each property and reviewing assumptions about uncertain inherent factors, as well as the economic condition of the property at a particular point in time.

8


XENIA HOTELS & RESORTS, INC.
Notes to Combined Condensed Consolidated Financial Statements (unaudited)
June 30, 2016

The use of projected future cash flows and related holding period is based on assumptions that are consistent with the estimates of future expectations and the strategic plan the Company uses to manage its underlying business. However, assumptions and estimates about future cash flows and capitalization rates are complex and subjective. Changes in economic and operating conditions and the Company’s ultimate investment intent that occur subsequent to the impairment analyses could impact these assumptions and result in future impairment charges of the real estate properties.
Investment Properties Held for Sale
In determining whether to classify an investment property as held for sale, the Company considers whether: (i) management has committed to a plan to sell the investment property; (ii) the investment property is available for immediate sale, in its present condition; (iii) the Company is actively marketing the investment property for sale at a price that is reasonable in relation to its fair value; (iv) the Company has initiated a program to locate a buyer; (v) the Company believes that the sale of the investment property is probable; (vi) the Company has received a significant non-refundable deposit for the purchase of the property; (vii) actions required for the Company to complete the plan indicate that it is unlikely that any significant changes will be made to the plan.
If all of the above criteria are met, the Company classifies the investment property as held for sale. On the day that these criteria are met, the Company suspends depreciation and amortization on the investment properties held for sale. The investment properties and liabilities associated with those investment properties that are held for sale are classified separately on the condensed consolidated balance sheets for the most recent reporting period and all comparative periods presented at the lesser of the carrying value or fair value less costs to sell. Additionally, if the sale constitutes a strategic shift with a major effect on operations, the operations are classified on the combined condensed consolidated statements of operations and comprehensive income as discontinued operations for all periods presented.
Share-Based Compensation
The Company has adopted a share-based incentive plan that provides for the grant of stock options, stock awards, restricted stock units, Operating Partnership units and other equity-based awards. Share-based compensation is measured at the estimated fair value of the award on the date of grant, adjusted for forfeitures, and recognized as an expense on a straight-line basis over the longest vesting period for each grant for the entire award. The determination of fair value of these awards is subjective and involves significant estimates and assumptions including expected volatility of the Company's shares, expected dividend yield, expected term and assumptions of whether certain of these awards will achieve parity with other Operating Partnership units or achieve performance thresholds. Share-based compensation is included in general and administrative expenses in the accompanying combined condensed consolidated statements of operations and comprehensive income and capitalized in building and other improvements in the condensed consolidated balance sheets for certain employees that manage property developments, renovations and capital improvements.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective, although it will not affect the accounting for rental related revenues. The new standard is effective for the Company on January 1, 2018, pursuant to ASU No. 2015-09 which deferred the adoption date by one year. Early adoption is permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU No. 2014-09 and related updates will have on its combined condensed consolidated financial statements and related disclosures, but it does not believe it will have a material impact on its combined condensed consolidated financial statements and related disclosures. The Company has not yet selected a transition method.
In September 2015, the FASB issued ASU No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, which eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. Instead, acquirers must recognize measurement-period adjustments during the period in which they determine the amounts, including the effect on earnings of any amounts that would have been recorded in previous periods if the accounting had been completed at the acquisition date. This update was effective for interim and annual periods beginning after December 15, 2015, with early adoption permitted. The implementation of ASU 2015-16 on January 1, 2016 had no material impact on the Company's combined condensed consolidated financial statements.

9


XENIA HOTELS & RESORTS, INC.
Notes to Combined Condensed Consolidated Financial Statements (unaudited)
June 30, 2016

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, which simplifies the presentation of deferred taxes by requiring that deferred tax assets and liabilities be presented as noncurrent on the balance sheet. The new standard is effective for the Company on January 1, 2017. Early adoption is permitted. The Company does not expect ASU No. 2015-17 to have a significant impact on its combined condensed consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases, which replaces ASC Topic 840, Leases, and requires most lessee leases to be recorded on the Company's balance sheet as either operating or financing leases with a right of use asset with a corresponding lease liability measured at present value. Operating leases will be recognized on the income statement on a straight-line basis as lease expense and financing leases will be accounted for similar to the accounting for amortizing debt. ASU 2016-02, allows lessors to capitalize only incremental initial direct leasing costs and will require only tenant payments for tax and insurance to be recognized as lease revenue. Leases with terms of less than 12 months will continue to be accounted for as they are under the current standard. The new standard is effective for the Company on January 1, 2019, with early adoption permitted. The Company is evaluating the effect that ASU 2016-02 will have on its combined condensed consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.
In March 2016, the FASB issued ASU-2016-09, Improvements to Employee Share-Based Award Payment Accounting, which simplifies various aspects of how share-based payments are accounted for and presented in the financial statements. This standard requires companies to record all of the tax effects related to share-based payments through the income statement, allows companies to elect an accounting policy to either estimate the share based award forfeitures (and expense) or account for forfeitures (and expense) as they occur, and allows companies to withhold up to the maximum individual statutory tax rate the shares upon settlement of an award without causing the award to be classified as liability. This guidance is effective for the Company on January 1, 2017, however, early adoption is permitted. The Company does not expect ASU No. 2016-09 to have a significant impact on its combined condensed consolidated financial statements and related disclosures.
3. Acquired Properties
In June 2015, the Company entered into a purchase agreement to acquire a portfolio of three hotels: the RiverPlace Hotel in Portland, Oregon, the Canary Hotel in Santa Barbara, California, and the Hotel Palomar in Philadelphia, Pennsylvania (the "Kimpton Portfolio") for a total purchase price of $245 million, excluding closing costs, which were expensed and included in acquisition costs on the combined condensed consolidated statement of operations for the three and six months ended June 30, 2015. These acquisitions closed in July 2015.
In January 2016, the Company acquired the Hotel Commonwealth located in Boston, Massachusetts for a purchase price of $136 million, excluding closing costs, which were expensed and included in acquisition costs on the combined condensed consolidated statement of operations for the six months ended June 30, 2016. The source of funding was proceeds from the $125 million term loan entered into by the Company as further described in Note 7, and a $20 million escrow deposit applied to the purchase price at closing. The hotel has a total of 245-rooms, which includes a 96-room hotel expansion that was completed in January 2016. The Hotel Commonwealth is subject to a long-term ground lease, which expires in 2087, and was assumed by the Company as part of the hotel's acquisition.
The Company records identifiable assets and liabilities, including intangibles, acquired in a business combination at fair value using significant other observable inputs (Level 2) including available market information and appropriate valuation methodologies available. The following reflects the purchase price allocation for the hotel acquired during the six months ended June 30, 2016 (in thousands):
Building and improvements
$
103,847

Furniture, fixtures, and equipment
10,238

Intangibles and other assets (1)
21,915

Total purchase price
$
136,000

(1)
As part of the purchase price allocation, the Company allocated $21.7 million to a below market lease intangible that will be amortized on a straight line basis over the remaining term of the underlying ground lease, which expires in 2087.

10


XENIA HOTELS & RESORTS, INC.
Notes to Combined Condensed Consolidated Financial Statements (unaudited)
June 30, 2016

For the property acquired during the six months ended June 30, 2016, total revenues and net income from the date of acquisition through June 30, 2016 are included in the accompanying combined condensed consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2016 (in thousands):
 
Three Months Ended June 30, 2016
 
Six Months Ended June 30, 2016
Revenue
$
8,139

 
$
11,595

Net income (excluding acquisition costs)
$
2,291

 
$
1,368

The following unaudited condensed pro forma financial information presents the results of operations as if the 2016 and 2015 acquisitions had taken place on January 1, 2015. The unaudited pro forma financial information is not necessarily indicative of what actual results of operations of the Company would have been assuming the 2016 and 2015 acquisitions had taken place on January 1, 2015, nor does it purport to represent the results of operations for future periods. The unaudited condensed proforma financial information is as follows (in thousands, except per share and per share data):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Revenue
$
261,378

 
$
269,992

 
$
496,706

 
$
510,482

Net income
$
26,141

 
$
24,650

 
$
16,974

 
$
5,942

Net income per share attributable to common stock - basic and diluted
$
0.24

 
$
0.22

 
$
0.16

 
$
0.05

Weighted average number of common shares - basic
107,936,336

 
111,676,096

 
108,813,649

 
112,316,767

Weighted average number of common shares - diluted
108,048,155

 
111,914,085

 
108,910,761

 
112,460,712

(1) The pro forma results above exclude acquisition costs.
4. Disposed Properties
In November 2015, the Company entered into a purchase and sale agreement to sell the Hilton University of Florida Conference Center Gainesville, at which time the hotel was determined to have met the held for sale criteria and was presented as assets and liabilities associated with assets held for sale on the Company's condensed consolidated balance sheet for all periods presented. In February 2016, the Company sold the Hilton University of Florida Conference Center Gainesville for a sale price of $36 million and recognized a gain of $0.6 million which is included in gain (loss) on sale of investment properties on the combined condensed consolidated statement of operations for the six months ended June 30, 2016. The Company was entitled to net proceeds at closing of $31.1 million, and in conjunction with the sale repaid the $27.8 million outstanding property level mortgage.
In January 2016, the Company entered into a purchase and sale agreement to sell the DoubleTree by Hilton Washington DC for a sale price of $65 million, excluding closing costs. The sale of the hotel closed in April 2016 and resulted in net proceeds of $63.5 million and the recording of a $0.1 million impairment charge, which is included in the provision for asset impairment on the combined condensed consolidated statement of operations for the three and six months ended June 30, 2016.
In February 2016, the Company entered into a purchase and sale agreement to sell the Embassy Suites Baltimore North/Hunt Valley for a sale price of $20 million, excluding closing costs. As a result of the negotiated sales price, the Company recorded an impairment charge during the six months ended June 30, 2016 of $7.6 million. The sale of the hotel closed in May 2016 and resulted in net proceeds of $19.5 million and the recording of an additional impairment charge of $0.4 million which is included in the provision for asset impairment on the combined condensed consolidated statement of operations for the three and six months ended June 30, 2016.
In April 2016, the Company entered into a purchase and sale agreement to sell the Marriott Atlanta Century Center/Emory Area and the Hilton Phoenix Suites for a combined sales price of $50.8 million, excluding closing costs. As a result of the negotiated sales price, the Company recorded an impairment charge of $1.9 million for the three and six months ended June 30, 2016,

11


XENIA HOTELS & RESORTS, INC.
Notes to Combined Condensed Consolidated Financial Statements (unaudited)
June 30, 2016

which is included in the provision for asset impairment on the combined condensed consolidated statement of operations. The sale of the two hotels closed in June 2016 and resulted in net proceeds of $50 million.
During the six months ended June 30, 2016, the Company determined each of the four hotels that entered into purchase and sales agreements during the period met the held for sale criteria in accordance with its accounting policy, and therefore has presented these hotels' assets and liabilities associated with assets held for sale as held for sale on the Company's condensed consolidated balance sheets for all periods presented. As there were no remaining assets or liabilities associated with assets held for sale at June 30, 2016, the major classes of assets and liabilities for the five properties disposed of during the six months ended June 30, 2016 were as follows at December 31, 2015 (in thousands):
 
 
December 31, 2015
Land (1)
 
$
31,698

Building and other improvements
 
223,392

     Total
 
$
255,090

Less accumulated depreciation
 
(83,677
)
     Net investment properties
 
$
171,413

Restricted cash and escrows
 
4,576

Accounts and rents receivable, net
 
1,175

Intangible assets, net
 
2,456

Deferred costs and other assets
 
1,776

     Total assets held for sale
 
$
181,396

 
 
 
Debt
 
$
27,775

Accounts payable and accrued expenses
 
3,440

Other liabilities
 
431

     Total liabilities of assets held for sale
 
$
31,646

(1)
The Hilton University of Florida Conference Center Gainesville and the Marriott Atlanta Century Center/Emory Area were subject to ground leases. The Company has no future obligations under the terms of these ground leases as part of the disposition of these hotels.
The operating results of the four and five hotels sold during three and six months ended June 30, 2016, respectively, are included in the Company's combined condensed consolidated financial statements as part of continuing operations in accordance with ASU No. 2014-08 Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity ("ASU 2014-08") through the date of their disposition, as they did not represent a strategic shift or have a major effect on the Company's results of operations.
Discontinued Operations
In November 2014, 52 lodging properties were sold by InvenTrust (the "Suburban Select Service Portfolio"), which were properties previously overseen by the Company. This disposition represented a strategic shift and had a major effect on the Company's results of operations. Accordingly, the results of operations of these 52 lodging properties were presented as discontinued operations pursuant to ASU 2014-08. During early 2015, $489 thousand in carryover costs related to the Suburban Select Service Portfolio were incurred and have been presented as discontinued operations for the three and six months ended June 30, 2015.
5. Investment in Real Estate Entities
Consolidated Entities
During 2013, the Company entered into two investments in real estate entities in order to develop the Grand Bohemian Hotel Charleston and the Grand Bohemian Hotel Mountain Brook. The Company has ownership interests of 75% in each real estate entity. These entities are considered VIE's as defined in ASU 2015-02 because the entities did not have enough equity to finance their activities without additional subordinated financial support. The Company determined that it has the power to direct the activities of the VIE's that most significantly impact the VIE's economic performance, as well as the obligation to absorb losses of the VIE's that could potentially be significant to the Company, or the right to receive benefits from the VIE's that could potentially be significant to the Company. As such, the Company has a controlling financial interest and is considered the primary beneficiary of each of these entities. Therefore, these entities are consolidated by the Company.

12


XENIA HOTELS & RESORTS, INC.
Notes to Combined Condensed Consolidated Financial Statements (unaudited)
June 30, 2016

The following are the liabilities of the consolidated VIE's, which are non-recourse to the Company, and the assets that can be used to settle those obligations (in thousands):
 
June 30, 2016
 
December 31, 2015
Net investment properties
$
72,810

 
$
74,592

Other assets
3,933

 
2,548

Total assets
$
76,743

 
$
77,140

Mortgages, notes and margins payable
(45,890
)
 
(45,734
)
Other liabilities
(2,205
)
 
(2,848
)
Total liabilities
$
(48,095
)
 
$
(48,582
)
Net assets
$
28,648

 
$
28,558

In August 2015, the Grand Bohemian Hotel Charleston began operations as a 50-room lifestyle hotel. The total development cost of the property was $32 million. In October 2015, the Grand Bohemian Hotel Mountain Brook began operations as a 100-room lifestyle hotel. The total development cost of the property was $45 million.
All operations of the two hotels for the three and six months ended June 30, 2016 were consolidated in the accompanying combined condensed consolidated statements of operations and comprehensive income, with a corresponding allocation for non-controlling interests.
6. Transactions with Related Parties
The following table summarizes the Company’s related party transactions (in thousands):
 
Three Months Ended June 30, 2015
 
Six Months Ended June 30, 2015
General and administrative allocation (a)
$

 
$
1,135

Transition services fees (b)
247

 
502

(a)
General and administrative allocations include costs from certain corporate and shared functions provided to the Company by InvenTrust, as well as costs associated with participation by certain of the Company's executives in InvenTrust's benefit plans. InvenTrust allocated to the Company a portion of its corporate overhead costs which was based upon the Company's percentage share of the average invested assets of InvenTrust. As InvenTrust was managing various asset portfolios, the extent of services and benefits a portfolio received was based on the size of its assets. Therefore, using average invested assets to allocate costs was a reasonable reflection of the services and other benefits received by the Company and complied with applicable accounting guidance. However, actual costs may have differed from allocated costs if the Company had operated as a stand-alone entity during such period and those differences may have been material. Following the spin-off, the Company was not allocated any further general and administrative expenses.
(b)
In connection with the Company's separation from InvenTrust, the Company entered into a transition services agreement with InvenTrust under which InvenTrust has agreed to provide certain transition services to the Company, including services related to information technology systems, financial reporting and accounting and legal services. The expiration date varied by service provided and the agreement terminated on the earlier of March 31, 2016 or the termination of the last service provided under it. In June 2015, the Company terminated all fee-based services provided under the transition services agreement effective July 31, 2015, and thereafter, no additional fees are expected to be incurred for services provided by InvenTrust.
As of June 30, 2016 and December 31, 2015, the Company owed $0 and $2.6 million, respectively, to InvenTrust which is included in other liabilities in the condensed consolidated balance sheets. As of December 31, 2015, the amount due to InvenTrust was related to purchases of furniture, fixtures and equipment funded by InvenTrust and to taxes paid by InvenTrust on behalf of the Company.


13


XENIA HOTELS & RESORTS, INC.
Notes to Combined Condensed Consolidated Financial Statements (unaudited)
June 30, 2016

7. Debt
Mortgages Payable
Debt as of June 30, 2016 and December 31, 2015 consisted of the following (dollar amounts in thousands):
 
 
 
 
 
 
 
Balance Outstanding as of
 
Rate Type
 
Rate(1)
 
Maturity Date
 
June 30, 2016
 
December 31, 2015
Mortgage Loans
 
 
 
 
 
 
 
 
 
Renaissance Atlanta Waverly Hotel & Convention Center
 Fixed
 
5.50
%
 
12/6/2016
 
$
97,000

 
$
97,000

Renaissance Austin Hotel
 Fixed
 
5.51
%
 
12/8/2016
 
83,000

 
83,000

Courtyard Pittsburgh Downtown(2)
 Fixed
 
4.00
%
 
3/1/2017
 

 
22,607

Marriott Griffin Gate Resort & Spa(3)
 Variable
 
2.96
%
 
3/23/2017
 
34,000

 
34,374

Courtyard Birmingham Downtown at UAB
 Fixed
 
5.25
%
 
4/1/2017
 
13,198

 
13,353

Hilton University of Florida Conference Center Gainesville(4)
 Fixed
 
6.46
%
 
2/1/2018
 

 
27,775

Fairmont Dallas
 Variable
 
2.45
%
 
4/10/2018
 
55,863

 
56,217

Residence Inn Denver City Center
 Variable
 
2.71
%
 
4/17/2018
 
45,210

 
45,210

Marriott Dallas City Center
 Variable
 
2.71
%
 
5/24/2018
 
40,090

 
40,090

Bohemian Hotel Savannah Riverfront
 Variable
 
2.81
%
 
12/17/2018
 
27,480

 
27,480

Andaz Savannah
 Variable
 
2.46
%
 
1/14/2019
 
21,500

 
21,500

Hotel Monaco Denver
 Variable
 
2.56
%
 
1/17/2019
 
41,000

 
41,000

Hotel Monaco Chicago
 Variable
 
2.70
%
 
1/17/2019
 
24,144

 
26,000

Hyatt Regency Santa Clara
 Variable
 
2.46
%
 
1/20/2019
 
60,200

 
60,200

Loews New Orleans Hotel
 Variable
 
2.81
%
 
2/22/2019
 
37,500

 
37,500

Andaz Napa
 Variable
 
2.56
%
 
3/21/2019
 
38,000

 
38,000

Westin Galleria & Oaks Houston
 Variable
 
2.96
%
 
5/1/2019
 
110,000

 
110,000

Marriott Charleston Town Center
 Fixed
 
3.85
%
 
7/1/2020
 
16,642

 
16,877

Grand Bohemian Hotel Charleston (JV)
 Variable
 
2.95
%
 
11/10/2020
 
19,909

 
19,950

Grand Bohemian Hotel Mountain Brook (JV)
 Variable
 
2.96
%
 
12/27/2020
 
26,250

 
25,784

Hotel Palomar Philadelphia(5)
Fixed(5)
 
4.14
%
 
1/13/2023
 
60,000

 

Residence Inn Boston Cambridge
 Fixed
 
4.48
%
 
10/28/2025
 
63,000

 
63,000

Grand Bohemian Hotel Orlando(6)
 Fixed
 
4.53
%
 
3/1/2026
 
60,000

 
49,360

Total Mortgage Loans
 
 
3.60
%
(7) 
 
 
$
973,986

 
$
956,277

Mortgage Loan Premium / Discounts(8)
 

 
 
(535
)
 
(661
)
Unamortized Deferred Financing Costs
 

 
 
(7,450
)
 
(8,305
)
Senior Unsecured Credit Facility
 Variable
 
2.25
%
 
2/3/2019
 

 

Term Loan $175M
Fixed(9)
 
2.79
%
 
2/15/2021
 
175,000

 
175,000

Term Loan $125M(10)
Fixed(9)
 
3.63
%
 
10/22/2022
 
125,000

 

Total Debt, net(4)
 
 
3.49
%
(7) 
 
 
$
1,266,001

 
$
1,122,311

(1)
Variable index is one month LIBOR.
(2)
In June 2016, the Company elected its prepayment option and repaid the outstanding balance of the mortgage loan of $22.3 million.
(3)
In March 2016, the Company elected to exercise its rights under the terms of the mortgage loan to extend the maturity date to March 23, 2017.
(4)
The hotel was sold in February 2016, and the related debt was paid off with proceeds from the sale. The $27.8 million balance of the mortgage was included in liabilities associated with assets held for sale as of December 31, 2015.
(5)
In January 2016, the Company entered into a $60 million mortgage loan with an interest rate of LIBOR plus 260 basis points, maturing in January 2023. Simultaneously with the closing of the mortgage loan, the Company entered into an interest rate swap to fix LIBOR at 1.54% for the entire term of the loan, for a combined rate of 4.14% as of June 30, 2016.

14


XENIA HOTELS & RESORTS, INC.
Notes to Combined Condensed Consolidated Financial Statements (unaudited)
June 30, 2016

(6)
In February 2016, the Company refinanced the mortgage with a new loan bearing a 4.53% fixed interest rate and March 2026 maturity. Additional proceeds of approximately $11 million were received under the refinanced terms of the mortgage, which increased the principal of the loan from approximately $49 million to $60 million.
(7)
Represents the weighted average interest rate as of June 30, 2016.
(8)
Loan premium/(discounts) on assumed mortgages recorded in purchase accounting.
(9)
LIBOR has been fixed for the entire term of the loan. The spread may vary, as it is determined by the Company's leverage ratio.
(10)
Funded $125 million in January 2016 in connection with the acquisition of the Hotel Commonwealth.
In connection with repaying and refinancing mortgage loans during the six months ended June 30, 2016, the Company incurred prepayment and extinguishment fees of approximately $4.8 million which is included in the loss on extinguishment of debt in the accompanying combined condensed consolidated statements of operations and comprehensive income for the period ended June 30, 2016. The loss from extinguishment of debt represents the write off of unamortized deferred financing costs incurred when the original agreements were executed as well as loan premiums or discounts and termination penalty payments.
Debt outstanding as of June 30, 2016 and December 31, 2015 was $1,274 million and $1,131 million and had a weighted average interest rate of 3.49% and 3.51% per annum, respectively. Mortgage premiums and discounts were a net $0.5 million and $0.7 million as of June 30, 2016 and December 31, 2015, respectively. The following table shows scheduled debt maturities for the next five years and thereafter (in thousands):
 
 
As of
June 30, 2016
 
Weighted 
average
interest rate
2016
 
$
180,000

 
5.50%
2017
 
47,198

 
3.60%
2018
 
168,643

 
2.64%
2019
 
332,344

 
2.71%
2020
 
62,801

 
3.19%
Thereafter
 
483,000

 
3.61%
Total Debt
 
1,273,986

 
3.49%
Total mortgage premiums and discounts, net
 
(535
)
 
Unamortized deferred financing costs
 
(7,450
)
 
Total Debt, net of mortgage loan discounts and unamortized deferred financing costs
 
$
1,266,001

 
3.49%
Of the total outstanding debt at June 30, 2016, approximately $23.0 million of the mortgage loans were recourse to the Company. Certain loans have options to extend the maturity dates if exercised by the Company, subject to being compliant with certain covenants and the payment of an extension fee. Some of the mortgage loans require compliance with certain covenants, such as debt service coverage ratios, investment restrictions and distribution limitations. As of June 30, 2016, the Company was in compliance with all such covenants.
Senior Unsecured Credit Facility
Prior to the consummation of the spin-off transaction, the Company was allocated $96 million of InvenTrust's revolving credit facility. Effective February 3, 2015, this allocation was terminated and the Company entered into a new $400 million senior unsecured credit facility with a syndicate of banks. The new revolving credit facility includes an uncommitted accordion feature which, subject to certain conditions, allows the Company to increase the aggregate availability by up to an additional $350 million. Borrowings under the revolving credit facility bear interest based on LIBOR plus a margin ranging from 1.50% to 2.45% (or, at the Company's election upon achievement of an investment grade rating from Moody’s Investor Services, Inc. or Standard & Poor’s Rating Services, interest based on LIBOR plus a margin ranging from 0.875% to 1.50%). In addition, until such election, the Company expects to pay an unused commitment fee of up to 0.30% of the unused portion of the credit facility based on the average daily unused portion of the credit facility; thereafter, the Company expects to pay a facility fee ranging between 0.125% and 0.35% based on the Company's debt rating.

15


XENIA HOTELS & RESORTS, INC.
Notes to Combined Condensed Consolidated Financial Statements (unaudited)
June 30, 2016

As of June 30, 2016, there was no outstanding balance on the senior unsecured facility and during the three and six months ended June 30, 2016, the Company incurred unused commitment fees of approximately $0.3 million and $0.6 million, respectively. For the three and six months ended June 30, 2015, the Company incurred unused commitment fees of approximately $0.3 million and $0.5 million, respectively.
8. Derivatives
The Company primarily uses interest rate swaps as part of its interest rate risk management strategy. For derivative instruments designated as cash flow hedges, unrealized gains and losses on the effective portion are reported in accumulated other comprehensive income (loss), a component of stockholders’ equity.  Unrealized gains and losses on the ineffective portion of all designated hedges are recognized in earnings in the current period.  At June 30, 2016, all derivative instruments were designated as cash flow hedges. 
At June 30, 2016, the aggregate fair value of interest rate swap liabilities of $12.2 million was included in other liabilities in the accompanying condensed consolidated balance sheet. For the three and six months ended June 30, 2016, the Company had an unrealized loss of $5.3 million and $15.6 million, respectively, that is included in the combined condensed consolidated statements of operations and comprehensive income. For the three and six months ended June 30, 2015, the Company had no unrealized gain or loss as hedging activities were initiated later in 2015.
The following table summarizes the terms of the derivative financial instruments held by the Company and the liability that has been recorded as of June 30, 2016 and December 31, 2015 (in thousands)(1):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Estimated Fair Value
Hedged Debt
 
Type
 
Fixed Rate
 
Index
 
Effective Date
 
Maturity
 
Notional Amounts
 
June 30, 2016
 
December 31, 2015
$175M Term Loan
 
Swap
 
1.30%
 
1-Month LIBOR + 1.50%
 
10/22/2015
 
2/15/2021
 
$
50,000

 
$
(1,112
)
 
$
604

$175M Term Loan
 
Swap
 
1.29%
 
1-Month LIBOR + 1.50%
 
10/22/2015
 
2/15/2021
 
65,000

 
(1,420
)
 
817

$175M Term Loan
 
Swap
 
1.29%
 
1-Month LIBOR + 1.50%
 
10/22/2015
 
2/15/2021
 
60,000

 
(1,311
)
 
754

$125M Term Loan
 
Swap
 
1.83%
 
1-Month LIBOR + 1.80%
 
1/15/2016
 
10/22/2022
 
50,000

 
(2,542
)
 
(229
)
$125M Term Loan
 
Swap
 
1.83%
 
1-Month LIBOR + 1.80%
 
1/15/2016
 
10/22/2022
 
25,000

 
(1,284
)
 
(145
)
$125M Term Loan
 
Swap
 
1.84%
 
1-Month LIBOR + 1.80%
 
1/15/2016
 
10/22/2022
 
25,000

 
(1,282
)
 
(126
)
$125M Term Loan
 
Swap
 
1.83%
 
1-Month LIBOR + 1.80%
 
1/15/2016
 
10/22/2022
 
25,000

 
(1,284
)
 
(132
)
Mortgage Debt
 
Swap
 
1.54%
 
1-Month LIBOR + 2.60%
 
1/13/2016
 
1/13/2023
 
60,000

 
(1,969
)
 

 
 
 
 
 
 
 
 
 
 
 
 
$
360,000

 
$
(12,204
)
 
$
1,543

(1)
There were no amounts recognized in earnings related to hedge ineffectiveness or amounts excluded from hedge ineffectiveness testing during the three and six months ended June 30, 2016.
For the three and six months ended June 30, 2016, the Company reclassified $1.0 million and $1.9 million, respectively, from accumulated other comprehensive loss to interest expense. The Company expects approximately $3.8 million will be reclassified from accumulated other comprehensive loss to interest expense in the next 12 months.
9. Fair Value Measurements
In accordance with FASB ASC 820, Fair Value Measurement and Disclosures, the Company defines fair value based on the price that would be received upon sale of an asset or the exit price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below:
Level 1 - Quoted prices for identical assets or liabilities in active markets that the entity has the ability to access.
Level 2 - Observable inputs, other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

16


XENIA HOTELS & RESORTS, INC.
Notes to Combined Condensed Consolidated Financial Statements (unaudited)
June 30, 2016

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
The Company has estimated the fair value of its financial and non-financial instruments using available market information and valuation methodologies it believes to be appropriate for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates and, accordingly, they are not necessarily indicative of amounts that would be realized upon disposition.
Recurring Measurements
For assets and liabilities measured at fair value on a recurring basis, quantitative disclosure of their fair value is as follows (in thousands):
 
 
Fair Value Measurement Date
 
 
June 30, 2016
 
December 31, 2015
Description
 
Significant Unobservable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 2)
Assets
 
 
 
 
Interest rate swaps
 
$

 
$
1,820

Liabilities
 
 
 
 
Interest rate swaps
 
(12,204
)
 
(277
)
Total
 
$
(12,204
)
 
$
1,543

The fair value of each derivative instrument is based on a discounted cash flow analysis of the expected cash flows under each arrangement. This analysis reflects the contractual terms of the derivative instrument, including the period to maturity, and utilizes observable market-based inputs, including interest rate curves and implied volatilities, which are classified within level 2 of the fair value hierarchy. The Company also incorporates credit value adjustments to appropriately reflect each parties’ nonperformance risk in the fair value measurement, which utilizes level 3 inputs such as estimates of current credit spreads. However, the Company has assessed that the credit valuation adjustments are not significant to the overall valuation of the derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified within level 2 of the fair value hierarchy.
Non-Recurring Measurements
Investment Properties
During the three and six months ended June 30, 2016, the Company identified two hotel properties that had a reduction in its expected holding period and reviewed the probability of the assets' disposition. The Company recorded an impairment charge of $2.4 million and $10.0 million, respectively, for the three and six months ended June 30, 2016, based on the estimated fair value using purchase contracts and average selling costs. These properties were subsequently sold in May 2016 and June 2016, respectively. No impairments were recorded for the three and six months ended June 30, 2015.

17


XENIA HOTELS & RESORTS, INC.
Notes to Combined Condensed Consolidated Financial Statements (unaudited)
June 30, 2016

Financial Instruments Not Measured at Fair Value
The table below represents the fair value of financial instruments presented at carrying values in the combined condensed consolidated financial statements as of June 30, 2016 and December 31, 2015 (in thousands):
 
 
June 30, 2016
 
December 31, 2015
 
 
Carrying Value
 
Estimated Fair Value
 
Carrying Value
 
Estimated Fair Value
Mortgages payable
 
$
1,273,451

 
$
1,276,113

 
$
1,130,616

 
$
1,137,149

Total
 
$
1,273,451

 
$
1,276,113

 
$
1,130,616

 
$
1,137,149

The Company estimates the fair value of its mortgages payable using a weighted average effective interest rate of 3.14% and 3.48% per annum as of June 30, 2016 and December 31, 2015, respectively. As of June 30, 2016, the fair value estimate of the unsecured term loan and the fair value estimate of the unsecured credit facility approximated their carrying value. The assumptions reflect the terms currently available on similar borrowing terms to borrowers with credit profiles similar to the Company's. The Company has determined that its debt instrument valuations are classified in Level 2 of the fair value hierarchy.
10. Income Taxes
The Company intends to operate in a manner that will allow the Company to qualify as a REIT under the Internal Revenue Code of 1986, as amended. To qualify as a REIT, the Company cannot operate or manage its hotels. So long as the Company qualifies for taxation as a REIT, it generally will not be subject to federal income tax on taxable income that is currently distributed to its stockholders. A REIT is subject to a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its REIT taxable income (subject to certain adjustments) to its stockholders. If the Company fails to qualify as a REIT in any taxable year, without the benefit of certain relief provisions, the Company will be subject to federal, state and local income tax on its taxable income at regular corporate tax rates and will not be eligible to re-elect REIT status during the four years following the failure. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income, property or net worth and federal income and excise taxes on its undistributed income.
Accordingly, the Company, through its Operating Partnership, leases all of its hotels to subsidiaries of its TRS. The TRS is subject to federal, state and local income tax at regular corporate rates. Lease revenue at the REIT landlord subsidiaries and lease expense at the TRS lessees are eliminated in consolidation for financial statement purposes.
The Company estimated the TRS income tax expense for the three and six months ended June 30, 2016 using an estimated federal and state statutory combined rate of 39.2%. For the three and six months ended June 30, 2016 the Company recognized income tax expense of $6.1 million and $9.8 million, respectively.
During the three and six months ended June 30, 2015, the Company recognized income tax expense of $3.4 million and $8.5 million, respectively, of which $1.9 million for the six months ended June 30, 2015 related to taxes on a one-time gain on the transfer of a hotel resulting in a more optimal structure in connection with the Company's intention to be taxed as a REIT. The Company's effective tax rate differed from the federal statutory rate predominately due to the dividends paid deduction, state income taxes, and changes to valuation allowances.
11. Stockholders' Equity
Common Shares
On February 4, 2015, in conjunction with the listing of the Company's Common Stock on the NYSE, the Company commenced a modified “Dutch Auction” self-tender offer (the “Tender Offer”) to purchase for cash up to $125 million in value of shares of the Company’s Common Stock at a price not greater than $21.00 nor less than $19.00 per share, net to the seller in cash, less any applicable withholding of taxes and without interest. The Tender Offer expired on March 5, 2015. As a result of the Tender Offer, the Company accepted for purchase 1,759,344 shares of its Common Stock at a purchase price of $21.00 per share, for an aggregate purchase price of $36.9 million (excluding fees and expenses relating to the Tender Offer), which was funded from cash on hand. The 1,759,344 shares of Common Stock accepted for purchase in the Tender Offer represented approximately 1.6% of the Company’s Common Stock outstanding as of February 3, 2015, the last day prior to the commencement of the Tender Offer. Stockholders who properly tendered and did not properly withdraw shares of Common Stock in the Tender Offer

18


XENIA HOTELS & RESORTS, INC.
Notes to Combined Condensed Consolidated Financial Statements (unaudited)
June 30, 2016

at or below the final purchase price of $21.00 per share had all of their tendered shares of Common Stock purchased by the Company at $21.00 per share.
Stock Repurchase Program
In December 2015, the Company’s Board of Directors authorized a stock repurchase program (the "Repurchase Program") pursuant to which we are authorized to purchase up to $100 million of the Company’s outstanding Common Stock, in the open market, in privately negotiated transactions or otherwise, including pursuant to Rule 10b5-1 plans. The Repurchase Program does not have an expiration date. The Company is not obligated to repurchase any dollar amount or any number of shares of common stock, and repurchases may be suspended or discontinued at any time. For the three and six months ended June 30, 2016, 738,435 and 4,128,935 shares, respectively, had been repurchased under the Repurchase Program, at a weighted average price of $15.48 and $14.71, respectively, per share for an aggregate purchase price of $11.4 million and $60.7 million, respectively. As of June 30, 2016, the Company had approximately $39.3 million remaining under its share repurchase authorization.
Distributions
Common Stock
The Company paid or declared the following dividends on Common Stock during the three and six months ended June 30, 2016:
Dividend per Share/Unit
 
For the Quarter Ended
 
Record Date
 
Payable Date
$0.275
 
March 31, 2016
 
March 31, 2016
 
April 15, 2016
$0.275
 
June 30, 2016
 
June 30, 2016
 
July 15, 2016
Non-Controlling Interest of Common Units in Operating Partnership
As of June 30, 2016, the Operating Partnership had 1,378,573 long-term incentive partnership units (“LTIP units”) outstanding, representing a 1.3% partnership interest held by the limited partners. Of the 1,378,573 LTIP units outstanding at June 30, 2016, 118,960 units had vested. Only vested LTIP units may be converted to common units of the Operating Partnership, which in turn can be tendered for redemption as described in Note 13.
As of June 30, 2016, the Company had accrued $97 thousand in dividends related to the LTIP units, which were paid in July 2016.
12. Earnings Per Share
Basic earnings per common share is calculated by dividing income or loss available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per common share is calculated by dividing income or loss available to common stockholders by the weighted-average number of common shares outstanding during the period, plus any shares that could potentially be outstanding during the period. Any anti-dilutive shares have been excluded from the diluted earnings per share calculation.
Unvested share-based awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of earnings per share pursuant to the two-class method. Accordingly, distributed and undistributed earnings attributable to unvested share-based compensation (participating securities) have been excluded, as applicable, from net income or loss available to common stockholders used in the basic and diluted earnings per share calculations.
Income allocated to non-controlling interest in the Operating Partnership has been excluded from the numerator and Common Units and vested LTIP Units in the Operating Partnership have been omitted from the denominator for the purpose of computing diluted earnings per share since including these amounts in the numerator and denominator would have no impact.  


19


XENIA HOTELS & RESORTS, INC.
Notes to Combined Condensed Consolidated Financial Statements (unaudited)
June 30, 2016

The following table reconciles net income to basic and diluted EPS (in thousands, except share and per share data):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Numerator:
 
 
 
 
 
 
 
Net income from continuing operations
$
26,141

 
$
23,750

 
$
16,971

 
$
9,369

Non-controlling interests in consolidated entities (Note 5)
(43
)
 

 
120

 

Non-controlling interests of common units in Operating Partnership (Note 1)
(330
)
 
(3
)
 
(240
)
 
(3
)
Distributions to preferred stockholders

 
(8
)
 

 
(8
)
Dividends, unvested share-based compensation
(113
)
 
(28
)
 
(212
)
 
(46
)
Net income from continuing operations available to common stockholders
25,655

 
23,711

 
16,639

 
9,312

Net loss from discontinued operations

 

 

 
(489
)
Net income available to common stock
$
25,655

 
$
23,711

 
$
16,639

 
$
8,823

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average shares outstanding - Basic
107,936,336

 
111,676,096

 
108,813,649

 
112,316,767

Effect of dilutive share-based compensation
111,819

 
237,989

 
97,112

 
143,945

Weighted average shares outstanding - Diluted
108,048,155

 
111,914,085

 
108,910,761

 
112,460,712

 
 
 
 
 
 
 
 
Basic and diluted earnings per share:
 
 
 
 
 
 
 
Net income from continuing operations
$
0.24

 
$
0.21

 
$
0.15

 
$
0.08

Loss from discontinued operations, net of tax

 

 

 

Net income per share
$
0.24

 
$
0.21

 
$
0.15

 
$
0.08

13. Share Based Compensation
2014 Share Unit Plan
On September 17, 2014, the board of directors of InvenTrust and the Company’s Board of Directors adopted and ratified the Xenia Hotels & Resorts, Inc. 2014 Share Unit Plan (the "2014 Share Unit Plan"). The 2014 Share Unit Plan provided for the grant of notional "share unit" awards to eligible participants. Refer to Exhibit 99.1 of the Company's Registration Statement on Form 10, filed on January 9, 2015, as amended, for additional information regarding the 2014 Share Unit Plan. The 2015 Incentive Award Plan, as defined below, replaced the 2014 Share Unit Plan in connection with the Company’s separation from InvenTrust, and the 2014 Share Unit Plan was terminated in connection with the implementation of the 2015 Incentive Award Plan. Awards outstanding under the 2014 Share Unit Plan at the time of its termination will remain outstanding in accordance with their terms, and the terms and conditions of the 2014 Share Unit Plan will continue to govern such awards.
2015 Incentive Award Plan
On January 9, 2015, the Company adopted, and InvenTrust as its sole common stockholder approved, the Company's 2015 Incentive Award Plan (the "2015 Incentive Award Plan") effective as of February 2, 2015 (the date prior to the date of the Company's separation from InvenTrust), under which the Company may grant cash and equity incentive awards to eligible service providers in order to attract, motivate and retain the talent for which the Company competes. Refer to Exhibit 99.1 of the Company's Registration Statement on Form 10, filed on January 9, 2015, as amended, for additional information regarding the 2015 Incentive Award Plan. The plan allows for the grant of both share-based awards relating to the Company's Common Stock and partnership units ("LTIP units") in the Operating Partnership.
Restricted Stock Units
In March 2016, the Compensation Committee ("the Compensation Committee") of the Board of Directors of the Company granted share units to certain Company employees (the "2016 Restricted Stock Units"). The 2016 Restricted Stock Units

20


XENIA HOTELS & RESORTS, INC.
Notes to Combined Condensed Consolidated Financial Statements (unaudited)
June 30, 2016

include 104,079 restricted stock units that are time-based and vest over a three year period and 51,782 restricted stock units that are performance-based. Both the time-based and performance-based units are subject to continued employment and have a weighted average grant date fair value of $13.09 per share.
In April 2016, the Compensation Committee of the Board of Directors of the Company granted an additional 26,738 time-based 2016 Restricted Stock Units to a new executive, with a grant date fair value of $15.34, with 50% of the time-based 2016 Restricted Stock Units vesting on February 4, 2017 and the remaining 50% vesting on February 4, 2018.
Other than the new awards granted to a new executive, each time-based 2016 Restricted Stock Unit will vest as follows, subject to the employee’s continued service through each applicable vesting date: 33% on February 4, 2017, which is the first anniversary of the vesting commencement date of the award (February 4, 2016), 33% on the second anniversary of the vesting commencement date, and 34% on the third anniversary of the vesting commencement date.
Of the performance-based 2016 Restricted Stock Units, twenty-five percent (25%) are designated as absolute total stockholder return ("TSR") units (the "Absolute TSR Share Units"), and vest based on varying levels of the Company’s TSR over the defined performance period. The other seventy-five percent (75%) of the performance-based 2016 Restricted Stock Units are designated as relative TSR share units (the "Relative TSR Share Units") and vest based on the ranking of the Company’s TSR as compared to its defined peer group over the defined performance period.
LTIP Unit Grants
LTIP Units are a class of limited partnership units in the Operating Partnership. Initially the LTIP Units do not have full parity with common units of the Operating Partnership with respect to liquidating distributions. However, upon the occurrence of certain events described in the Operating Partnership's partnership agreement, the LTIP Units can over time achieve full parity with the common units for all purposes. If such parity is reached, vested LTIP Units may be converted into an equal number of common units on a one for one basis at any time at the request of the LTIP Unit holder or the general partner of the Operating Partnership. Common units are redeemable for cash based on the fair market value of an equivalent number of shares of the Company’s Common Stock, or, at the election of the Company, an equal number of shares of the Company’s Common Stock, each subject to adjustment in the event of stock splits, specified extraordinary distributions or similar events.
In March 2016, the Compensation Committee approved the issuance of 664,515 performance-based LTIP Units (the "2016 Class A LTIP Units") and 78,076 time-based LTIP Units (the "2016 Time-Based LTIP Units") of the Operating Partnership under the 2015 Incentive Award Plan that had a weighted average grant date fair value of $7.86 per unit.
In April 2016, the Compensation Committee approved the issuance of 110,179 2016 Class A LTIP Units and 12,945 2016 Time-Based LTIP Units to a new executive that had an average grant date fair value of $7.85 per unit.
Each award of Time-Based LTIP Units will vest as follows, subject to the executive’s continued service through each applicable vesting date: 33% on February 4, 2017, which is the first anniversary of the vesting commencement date of the award (February 4, 2016), 33% on the second anniversary of the vesting commencement date, and 34% on the third anniversary of the vesting commencement date.
In May 2016, pursuant to the Company's Director Compensation Program, as amended and restated as of May 29, 2015, the Company approved the issuance of 33,894 fully vested LTIP Units of the Operating Partnership under the 2015 Incentive Award Plan to the Company's seven non-employee directors with a weighted average grant date fair value of $15.49.
A portion of each award of Class A LTIP Units is designated as a number of “base units.” Twenty-five percent (25%) of the base units are designated as absolute TSR base units, and vest based on varying levels of the Company’s TSR over the defined performance period. The other seventy-five percent (75%) of the base units are designated as relative TSR base units and vest based on the ranking of the Company’s TSR as compared to its defined peer group over the defined performance period.
LTIP Units (other than Class A LTIP Units that have not vested), whether vested or not, receive the same quarterly per-unit distributions as common units in the Operating Partnership, which equal the per-share distributions on the Common Stock of the Company. Class A LTIP Units that have not vested receive a quarterly per-unit distribution equal to 10% of the distribution paid on common units in the Operating Partnership.

21


XENIA HOTELS & RESORTS, INC.
Notes to Combined Condensed Consolidated Financial Statements (unaudited)
June 30, 2016

The following is a summary of the non-vested incentive awards under the 2014 Share Unit Plan and the 2015 Incentive Award Plan as of June 30, 2016:
 
2014 Share Unit Plan Share Units
 
2015 Incentive Award Plan Restricted Stock Units(1)
 
2015 Incentive Award Plan LTIP Units(1)
 
Total
Outstanding as of January 1, 2016
342,219

 
84,701

 
498,049

 
924,969

Granted

 
182,599

 
899,609

 
1,082,208

Vested
(94,685
)
 
(22,331
)
 
(95,559
)
 
(212,575
)
Expired

 

 
(42,486
)
 
(42,486
)
Forfeited

 

 

 

Outstanding as of June 30, 2016
247,534

 
244,969

 
1,259,613

 
1,752,116

Vested as of June 30, 2016
103,662

 
22,331

 
118,960

 
244,953

Weighted average fair value of outstanding shares/units
$
20.18

 
$
15.01

 
$
9.67

 
$
11.90

(1)
Includes time-based and performance-based units.

The fair value of the time-based awards is determined based on the closing price of the Company’s Common Stock on the grant date and compensation expense is recognized on a straight-line basis over the vesting period. The grant date fair value of performance awards for the 2016 Restricted Stock Units and the 2016 Class A LTIP Units were determined based on a Monte Carlo simulation method with the following assumptions, and compensation expense is recognized on a straight-line basis over the performance period:
Performance Award Grant Date
 
Percentage of Total Award
 
Grant Date Fair Value by Component
(in dollars)
 
Volatility
 
Interest Rate
 
Dividend Yield
March 17, 2016 and April 25, 2016
 
 
 
 
 
 
 
 
 
 
Absolute TSR Restricted Stock Units
 
25%
 
$6.88
 
31.42%
 
0.50% - 1.14%
 
7.12%
Relative TSR Restricted Stock Units
 
75%
 
$8.85
 
31.42%
 
0.50% - 1.14%
 
7.12%
Absolute TSR Class A LTIPs
 
25%
 
$7.06
 
31.42%
 
0.50% - 1.14%
 
7.12%
Relative TSR Class A LTIPs
 
75%
 
$8.95
 
31.42%
 
0.50% - 1.14%
 
7.12%
The absolute and relative stockholder returns are market conditions as defined by ASC 718, Compensation - Stock Compensation. Market conditions include provisions wherein the vesting condition is met through the achievement of a specific value of the Company’s Common Stock, which is total stockholder return in this case. Market conditions differ from other performance awards under ASC 718 in that the probability of attaining the condition (and thus vesting in the shares) is reflected in the initial grant date fair value of the award. Accordingly, it is not appropriate to reconsider the probability of vesting in the award subsequent to the initial measurement of the award, nor is it appropriate to reverse any of the expense if the condition is not met.
Therefore, once the expense for these awards is measured, the expense must be recognized over the service period regardless of whether the target is met, or at what level the target is met. Expense may only be reversed if the holder of the instrument forfeits the award by leaving the employment of the Company prior to vesting.
For the three and six months ended June 30, 2016 the Company recognized approximately $2.3 million and $5.0 million, respectively, of share-based compensation expense (net of forfeitures) related to share units, restricted stock units, and LTIP Units provided to certain of its executive officers, other officers and members of management, which included $1.2 million of accelerated share-based compensation expense related to management transition and severance agreements, $525 thousand was provided to the Company's Board of Directors, and capitalized approximately $146 thousand and $255 thousand, respectively, related to restricted stock units provided to certain members of management that oversee development and capital projects on behalf of the Company. As of June 30, 2016, there was $14.8 million of total unrecognized compensation costs related to non-

22


XENIA HOTELS & RESORTS, INC.
Notes to Combined Condensed Consolidated Financial Statements (unaudited)
June 30, 2016

vested restricted share units, Class A LTIP Units and Time-Based LTIP Units issued under the 2014 Share Unit Plan and the 2015 Incentive Award Plan, as applicable, which are expected to be recognized over a remaining weighted-average period of 2.0 additional years.
For the three and six months ended June 30, 2015, the Company recognized $0.5 million and $1.1 million, respectively, of share-based compensation expense related to stock payments under the 2015 Incentive Award Plan, of which $525 thousand was provided to the Board of Directors and $9 thousand was provided to certain executive officers. In addition, in connection with the 2014 Share Unit Plan and the 2015 Incentive Award Plan, during the three and six months ended June 30, 2015 the Company recognized approximately $1.4 million and $2.6 million, respectively, in compensation expense related to Restricted Stock Units, Class A LTIP Units and Time-Based LTIPs provided to certain of its executive officers and members of management and capitalized approximately $82 thousand and $170 thousand, respectively, related to Restricted Stock Units provided to certain members of management that oversee development and capital projects on behalf of the Company. Additionally, this includes a cumulative catch up for compensation expense related to the fourth quarter of 2014 because the effectiveness of the grants was subject to the completion of the spin-off of the Company from InvenTrust, which occurred on February 3, 2015.
14. Commitments and Contingencies
Certain leases and operating agreements require the Company to reserve funds relating to replacements and renewals of the hotels' furniture, fixtures and equipment. As of June 30, 2016 and December 31, 2015, the Company had a balance of $71.2 million and $65.7 million, respectively, in reserves for such future improvements. This amount is included in restricted cash and escrows on the condensed consolidated balance sheet as of June 30, 2016.
In January 2016, the Company acquired the Hotel Commonwealth, which is subject to a long-term triple net ground lease. The ground lease expires in December 2087. The hotel is required to pay annual base rent of $10 per year for the remaining term of the ground lease.
The Company is subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of business. While the resolution of these matters cannot be predicted with certainty, management believes, based on currently available information, that the final outcome of such matters will not have a material adverse effect on the financial condition of the Company.
In addition, in connection with the Company's separation from InvenTrust, on August 8, 2014, the Company entered into an Indemnity Agreement, as amended, with InvenTrust pursuant to which InvenTrust has agreed to the fullest extent allowed by law or government regulation, to absolutely, irrevocably and unconditionally indemnify, defend and hold harmless the Company and its subsidiaries, directors, officers, agents, representatives and employees (in each case, in such person’s respective capacity as such) and their respective heirs, executors, administrators, successors and assignees from and against all losses, including but not limited to "actions" (as defined in the Indemnity Agreement), arising from: (1) the non-public, formal, fact-finding investigation by the SEC as described in InvenTrust's public filings with the SEC (the "SEC Investigation"); (2) the three related demands (including the Derivative Lawsuit described below) received by InvenTrust ("Derivative Demands") from stockholders to conduct investigations regarding claims similar to the matters that are subject to the SEC Investigation and as described in InvenTrust' public filings with the SEC; (3) the derivative lawsuit filed on March 21, 2013 on behalf of InvenTrust by counsel for stockholders who made the first Derivative Demand (the "Derivative Lawsuit"); and (4) the investigation by the Special Litigation Committee of the board of directors of InvenTrust. In each case, regardless of when or where the loss took place, or whether any such loss, claim, accident, occurrence, event or happening is known or unknown, and regardless of whether such loss, claim, accident, occurrence, event or happening giving rise to the loss existed prior to, on or after February 3, 2015, the separation date or relates to, arises out of or results from actions, inactions, events, omissions, conditions, facts or circumstances occurring or existing prior to, on or after February 3, 2015, the separation date.
15. Subsequent Events
From July 1, 2016 through July 29, 2016, the Company repurchased an additional 16,613 shares of common stock at a weighted average price of $16.13 per share for an aggregate purchase price of approximately $0.3 million