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EX-32.1 - EXHIBIT 32.1 - Xenia Hotels & Resorts, Inc.xeniaq1201710qexhibit321.htm
EX-31.2 - EXHIBIT 31.2 - Xenia Hotels & Resorts, Inc.xeniaq1201710qexhibit312.htm
EX-31.1 - EXHIBIT 31.1 - Xenia Hotels & Resorts, Inc.xeniaq1201710qexhibit311.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 March 31, 2017
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 2700, Orlando, Florida
 
32801
(Address of Principal Executive Offices)
 
(Zip Code)
(407) 246-8100
(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, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
þ
 
 
Accelerated filer
o
Non-accelerated filer
o
(Do not check if a smaller reporting company)
 
Smaller reporting company
o
 
 
 
 
Emerging growth company
o
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
 
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 May 5, 2017, there were 106,795,619 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 March 31, 2017 and December 31, 2016
 
 
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended March 31, 2017 and 2016
 
 
Condensed Consolidated Statements of Changes in Equity for the three months ended March 31, 2017
 
 
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and 2016
 
 
Notes to the 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 March 31, 2017 and December 31, 2016
(Dollar amounts in thousands, except per share data)
 
March 31, 2017
 
December 31, 2016
Assets
(Unaudited)
 
 
Investment properties:
 
 
 
Land
$
329,949

 
$
331,502

Building and other improvements
2,720,027

 
2,732,062

Total
$
3,049,976

 
$
3,063,564

Less: accumulated depreciation
(645,491
)
 
(619,975
)
Net investment properties
$
2,404,485

 
$
2,443,589

Cash and cash equivalents
202,370

 
216,054

Restricted cash and escrows
69,200

 
70,973

Accounts and rents receivable, net of allowance for doubtful accounts
32,289

 
22,998

Intangible assets, net of accumulated amortization of $4,662 and $4,324, respectively
74,287

 
76,912

Other assets
35,200

 
29,819

Assets held for sale
16,651

 

Total assets (including $73,456 and $74,440, respectively, related to consolidated variable interest entities - Note 5)
$
2,834,482

 
$
2,860,345

Liabilities
 
 
 
Debt, net of loan discounts and unamortized deferred financing costs
$
1,076,989

 
$
1,077,132

Accounts payable and accrued expenses
65,455

 
71,955

Distributions payable
29,873

 
29,881

Other liabilities
29,576

 
29,810

Liabilities associated with assets held for sale
267

 

Total liabilities (including $47,474 and $47,828, respectively, related to consolidated variable interest entities - Note 5)
$
1,202,160

 
$
1,208,778

Commitments and contingencies


 


Stockholders' equity
 
 
 
Common stock, $0.01 par value, 500,000,000 shares authorized, 106,849,093 and 106,794,788 shares issued and outstanding as of March 31, 2017 and December 31, 2016, respectively
$
1,069


$
1,068

Additional paid in capital
1,924,425

 
1,925,554

Accumulated other comprehensive income
6,925

 
5,009

Accumulated distributions in excess of net earnings
(323,401
)
 
(302,034
)
Total Company stockholders' equity
$
1,609,018

 
$
1,629,597

Non-controlling interests
23,304

 
21,970

Total equity
$
1,632,322

 
$
1,651,567

Total liabilities and equity
$
2,834,482

 
$
2,860,345

See accompanying notes to the condensed consolidated financial statements.

1


XENIA HOTELS & RESORTS, INC.
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
For the Three Months Ended March 31, 2017 and 2016
(unaudited)
(Dollar amounts in thousands, except per share data)
 
Three Months Ended March 31,
 
2017
 
2016
Revenues:
 
 
 
Rooms revenues
$
144,451

 
$
159,318

Food and beverage revenues
61,825

 
63,468

Other revenues
12,184

 
12,249

Total revenues
$
218,460

 
$
235,035

Expenses:
 
 
 
Rooms expenses
33,630

 
36,775

Food and beverage expenses
39,184

 
42,233

Other direct expenses
3,007

 
3,965

Other indirect expenses
53,037

 
57,967

Management and franchise fees
11,378

 
12,248

Total hotel operating expenses
$
140,236

 
$
153,188

Depreciation and amortization
36,478

 
38,951

Real estate taxes, personal property taxes and insurance
11,360

 
12,033

Ground lease expense
1,376

 
1,353

General and administrative expenses
8,613

 
10,624

Acquisition transaction costs
6

 
140

Provision for asset impairment

 
7,594

Total expenses
$
198,069

 
$
223,883

Operating income
$
20,391

 
$
11,152

Gain on sale of investment properties

 
882

Other income
152

 
84

Interest expense
(10,150
)
 
(12,840
)
Loss on extinguishment of debt

 
(4,742
)
Net income (loss) before income taxes
$
10,393

 
$
(5,464
)
Income tax expense
(2,166
)
 
(3,705
)
Net income (loss)
$
8,227

 
$
(9,169
)
Non-controlling interests in consolidated real estate entities (Note 5)
72

 
164

Non-controlling interests of Common Units in Operating Partnership (Note 1)
(186
)
 
90

Net (income) loss attributable to non-controlling interests
$
(114
)
 
$
254

Net income (loss) attributable to common stockholders
$
8,113

 
$
(8,915
)

2


XENIA HOTELS & RESORTS, INC.
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), Continued
For the Three Months Ended March 31, 2017 and 2016
(unaudited)
(Dollar amounts in thousands, except per share data)
 
Three Months Ended March 31,
 
2017
 
2016
Basic and diluted earnings per share
 
 
 
Net income (loss) per share available to common stockholders
$
0.07

 
$
(0.08
)
Weighted average number of common shares (basic)
106,844,272

 
109,732,721

Weighted average number of common shares (diluted)
107,061,056

 
109,732,721

 
 
 
 
Comprehensive Income (Loss):
 
 
 
Net income (loss)
$
8,227

 
$
(9,169
)
Other comprehensive income (loss):
 
 
 
Unrealized gain (loss) on interest rate derivative instruments
1,143

 
(10,358
)
Reclassification adjustment for amounts recognized in net income (loss) (interest expense)
812

 
924

 
$
10,182

 
$
(18,603
)
Comprehensive (income) loss attributable to non-controlling interests:
 
 
 
Non-controlling interests in consolidated real estate entities (Note 5)
72

 
164

Non-controlling interests of Common Units in Operating Partnership (Note 1)
(225
)
 
194

Comprehensive (income) loss attributable to non-controlling interests
(153
)
 
358

Comprehensive income (loss) attributable to the Company
$
10,029

 
$
(18,245
)
See accompanying notes to the condensed consolidated financial statements.

3


XENIA HOTELS & RESORTS, INC.
Condensed Consolidated Statements of Changes in Equity
For the Three Months Ended March 31, 2017
(unaudited)
(Dollar amounts in thousands, except per share data)
 
Common Stock
 
 
 
 
 
 
 
Non-controlling Interests
 
 
 
Shares
 
Amount
 
Additional paid in capital
 
Accumulated other comprehensive income
 
Distributions in excess of retained earnings
 
Operating Partnership
 
Consolidated Real Estate Entities
 
Total Non-controlling Interests
 
Total
Balance at January 1, 2017
106,794,788

 
$
1,068

 
$
1,925,554

 
$
5,009

 
$
(302,034
)
 
$
8,877

 
$
13,093

 
$
21,970

 
$
1,651,567

Net income (loss)

 

 

 

 
8,113

 
186

 
(72
)
 
114

 
8,227

Repurchase of common shares, net
(107,509
)
 
(1
)
 
(1,786
)
 

 

 

 

 

 
(1,787
)
Dividends, common shares / units ($0.275)

 

 

 

 
(29,480
)
 
(137
)
 

 
(137
)
 
(29,617
)
Share-based compensation
259,166

 
3

 
2,416

 

 

 
1,385

 

 
1,385

 
3,804

Shares redeemed to satisfy tax withholding on vested share based compensation
(97,352
)
 
(1
)
 
(1,759
)
 

 

 

 

 

 
(1,760
)
Distributions to non-controlling interests

 

 

 

 

 

 
(67
)
 
(67
)
 
(67
)
Other comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized gain on interest rate derivative instruments

 

 

 
1,121

 

 
22

 

 
22

 
1,143

Reclassification adjustment for amounts recognized in net income

 

 

 
795

 

 
17

 

 
17

 
812

Balance at March 31, 2017
106,849,093

 
$
1,069

 
$
1,924,425

 
$
6,925

 
$
(323,401
)
 
$
10,350

 
$
12,954

 
$
23,304

 
$
1,632,322

See accompanying notes to the condensed consolidated financial statements.

4


XENIA HOTELS & RESORTS, INC.
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2017 and 2016
(unaudited)
(Dollar amounts in thousands)
 
Three Months Ended March 31,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income (loss)
$
8,227

 
$
(9,169
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation
36,280

 
38,199

Amortization of above and below market leases and other lease intangibles
354

 
775

Amortization of debt premiums, discounts, and financing costs
719

 
1,003

Loss on extinguishment of debt

 
4,742

Gain on sale of investment property, net

 
(882
)
Provision for asset impairment

 
7,594

Share-based compensation expense
2,230

 
2,697

Other non-cash adjustments

 
109

Prepayment penalties and defeasance

 
(4,813
)
Changes in assets and liabilities:
 
 
 
Accounts and rents receivable
(8,870
)
 
(8,356
)
Deferred costs and other assets
(1,610
)
 
886

Accounts payable and accrued expenses
(5,054
)
 
(5,072
)
Other liabilities
1,938

 
6,176

Net cash provided by operating activities
$
34,214

 
$
33,889

Cash flows from investing activities:
 
 
 
Purchase of investment properties

 
(116,000
)
Capital expenditures and tenant improvements
(14,936
)
 
(7,268
)
Proceeds from sale of investment properties

 
30,899

Restricted cash and escrows
3,496

 
4,189

Net cash used in investing activities
$
(11,440
)
 
$
(88,180
)
Cash flows from financing activities:
 
 
 
Proceeds from mortgage debt and notes payable

 
71,258

Payoffs of mortgage debt

 
(27,775
)
Principal payments of mortgage debt
(642
)
 
(874
)
Proceeds from unsecured term loan

 
125,000

Payment of lender deposit for mortgage loan
(2,415
)
 
(723
)
Contributions from non-controlling interests

 
341

Repurchase of common shares
(1,787
)
 
(49,287
)
Shares redeemed to satisfy tax withholding on vested share based compensation
(1,760
)
 
(510
)
Dividends, common shares/units
(29,787
)
 
(25,684
)
Distributions paid to non-controlling interests
(67
)
 
(33
)
Net cash (used in) provided by financing activities
$
(36,458
)
 
$
91,713

Net (decrease) increase in cash and cash equivalents
(13,684
)
 
37,422

Cash and cash equivalents, at beginning of period
216,054

 
122,154

Cash and cash equivalents, at end of period
$
202,370

 
$
159,576

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Cash paid for taxes
$
655

 
$
325

Cash paid for interest
9,480

 
10,003

 
 
 
 
Supplemental schedule of non-cash investing and financing activities:
 
 
 
Accrued capital expenditures
$
2,468

 
$
1,087

Change in fair value of designated interest rate swaps
1,955

 
(9,434
)
Deposit applied to purchase price of hotel property upon acquisition

 
20,000

See accompanying notes to the condensed consolidated financial statements.

5


XENIA HOTELS & RESORTS, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
March 31, 2017


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.
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 and is wholly owned by the Company. As of March 31, 2017, the Company collectively owned 98% of the common limited partnership units issued by the Operating Partnership ("Common Units"). The remaining 2% 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. and its subsidiaries (collectively with its subsidiaries, "XHR Holding"), the Company's taxable REIT subsidiary ("TRS"), which engages third-party eligible independent contractors to manage the hotels.
As of March 31, 2017, the Company owned 42 lodging properties, 40 of which were wholly owned. The remaining two hotels are owned through individual investments in real estate entities, in which the Company has a 75% ownership interest in each investment.
2. Summary of Significant Accounting Policies
The unaudited interim 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 management considers necessary for the fair presentation of the condensed consolidated balance sheets, condensed consolidated statements of operations and comprehensive income (loss), condensed consolidated statements of changes in equity and condensed consolidated statements of cash flows for the periods presented. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto as of and for the year ended December 31, 2016, included in the Company's Annual Report on Form 10-K filed with the SEC on February 28, 2017. Operating results for the three months ended March 31, 2017 are not necessarily indicative of actual operating results for the entire year.
Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of the Company, the Operating Partnership, XHR Holding, and its consolidated investments in real estate entities. The Company's subsidiaries and consolidated investments in real estate entities generally consist of limited liability companies, limited partnerships and the TRS. The effects of all inter-company transactions have been eliminated.
Certain prior year amounts in these financial statements have been reclassified to conform to the presentation for the three months ended March 31, 2017.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with 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.
Risks and Uncertainties
The Company has a geographical concentration risk related to revenues that are generated from three hotels located in the Houston-area market. For the three months ended March 31, 2017 and 2016, our three Houston-area hotels accounted for approximately 13% and 12%, respectively, of total revenues. To the extent that there are further adverse changes in this market, or the industry sectors that operate in this market, our business and operating results could be negatively impacted.

6


The state of the overall economy can significantly impact hotel operational performance and thus, impact the Company's financial position. Should any of our hotels experience a significant decline in operational performance, it may affect the Company's ability to make distributions to our stockholders and service debt or meet other financial obligations.
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. The equity method of accounting is applied to entities in which the Company is not the primary beneficiary, 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.
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 the 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.
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 sheet for the most recent reporting period, and are 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, as defined in Accounting Standards Update ("ASU") No. 2014-08 Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity ("ASU 2014-08"), the operations for the investment properties held for sale are classified on the condensed consolidated statements of operations and comprehensive income (loss) 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

7


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 condensed consolidated statements of operations and comprehensive income (loss) 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 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 continues to evaluate the effect that ASU No. 2014-09 and related updates will have on its consolidated financial statements and related disclosures. Although the Company is still evaluating revenue recognition under the new model, a significant change to our current revenue recognition policies is not expected. Additionally, the Company has begun evaluating the sale of non-financial assets to entities that are not customers, such as the disposition of real estate assets. Historically, hotel dispositions have been cash sales that required no contingencies for future involvement in the hotel's operations and, therefore, the Company does not expect ASU No. 2014-09 to have a material impact on its recognition of hotel sales. The Company has not yet selected a transition method.
In February 2016, the FASB issued ASU 2016-02, Leases, which replaces Accounting Standards Codification ("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. 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 still evaluating the effect that ASU 2016-02 will have on its consolidated financial statements and related disclosures, but expects potentially significant lease-related right of use assets and liabilities to be recorded on the balance sheet for both equipment and ground leases for which the Company is the lessee. 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 No. 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 of the shares upon settlement of an award without causing the award to be classified as liability. The Company adopted this standard on January 1, 2017 and it did not have an impact on the Company's financial position, results of operations or cash flows.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which changes the way certain cash receipts and cash payments are presented and classified on the statement of cash flows in order to reduce diversity in practice across all industries. The standard clarifies classification for debt prepayment or debt extinguishment costs, proceeds from the settlement of insurance claims, and contingent consideration payments made after business combination among other things. The new standard is effective for the Company on January 1, 2018, however, early adoption is permitted. The Company does not expect ASU No. 2016-15 to have a significant impact on its condensed consolidated financial statements and related disclosures.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which enhances the presentation requirements of restricted cash. The standard aims to unify presentation and minimize the diversity in practice. These presentation changes include increased disclosures surrounding the restrictions on cash and the inclusion of the restricted cash balance in the reconciliation completed at the end of the statement of cash flows. The new standard is effective for the Company on January 1, 2018, however, early adoption is permitted. The Company does not expect ASU No. 2016-18 to have a significant impact on its condensed consolidated financial statements and related disclosures.

8


In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The guidance is intended to assist entities with evaluating whether a set of transferred assets and activities is a business. Under the new guidance, an entity first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set is not a business. If the threshold is not met, the entity then evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. The new standard is effective for the Company on January 1, 2018, however, early adoption is permitted. The Company is evaluating the effect that ASU 2017-01 will have on its consolidated financial statements and related disclosures.
Also in January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment. The guidance is intended to simplify the accounting for goodwill impairment and removes Step 2 of the goodwill impairment test under the current guidance, which requires a hypothetical purchase price allocation. A goodwill impairment under ASU 2017-04 will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The same one-step impairment test will be applied to goodwill at all reporting units, even those with zero or negative carrying amounts. Entities will be required to disclose the amount of goodwill at reporting units with zero or negative carrying amounts. The new standard is effective for the Company on January 1, 2020, however, early adoption is permitted. The Company is evaluating the effect that ASU 2017-04 will have on its consolidated financial statements and related disclosures.
In February 2017, the FASB issued ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. The guidance aims at better clarifying the scope of asset derecognition and adds further guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with non-customers. The new standard is effective for the Company on January 1, 2018. The Company is evaluating the effect that ASU 2017-05 will have on its consolidated financial statements and related disclosures.
3. Investment Properties
During the three months ended March 31, 2017, the Company did not acquire any hotel properties.
In January 2016, the Company acquired the Hotel Commonwealth located in Boston, Massachusetts for a purchase price of $136 million, excluding closing costs. The hotel has a total of 245-rooms, which includes a 96-room hotel expansion that was completed in December 2015. 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 revenues and net loss for the three months ended March 31, 2016 attributable to the Hotel Commonwealth were approximately $3.5 million and $924 thousand, respectively, which were included in the Company's condensed consolidated statements of operations and comprehensive income.
The following unaudited pro forma financial information presents the Company's consolidated results of operations as if the Hotel Commonwealth acquisition had taken place on January 1, 2016. The consolidated unaudited pro forma financial information is not necessarily indicative of what actual results of operations of the Company would have been assuming the Hotel Commonwealth acquisition had taken place on January 1, 2016, nor does it purport to represent the results of operations for future periods.
The unaudited consolidated proforma financial information is as follows (in thousands, except per share and per share data) for the three months ended March 31, 2016:
 
 
2016
Revenue
 
$
235,329

Net loss attributable to common stockholders
 
$
(9,172
)
Net loss per share attributable to common stock - basic and diluted
 
$
(0.08
)
Weighted average number of common shares - basic and diluted
 
109,732,721

(1) The pro forma results above exclude acquisition costs.

9


4. Disposed Properties
In December 2016, the Company entered into a purchase and sale agreement to sell the Courtyard Birmingham Downtown at UAB for $30 million, excluding closing costs. During the three months ended March 31, 2017, the disposition met the held for sale criteria and as a result the hotel's assets and liabilities were reclassified to held for sale on the Company's condensed consolidated balance sheet as of March 31, 2017. At March 31, 2017, the Company expected to recognize a gain of approximately $13 million upon closing of the sale. The following represents the major classes of assets and liabilities associated with assets held for sale as of March 31, 2017 (in thousands):
 
 
March 31, 2017
Land
 
$
1,553

Building and other improvements
 
23,161

     Total
 
$
24,714

Less accumulated depreciation
 
(10,650
)
     Net investment properties
 
$
14,064

Intangible assets, net
 
2,287

Deferred costs and other assets
 
300

     Total assets held for sale
 
$
16,651

 
 
 
Accounts payable and accrued expenses
 
220

Other liabilities
 
47

     Total liabilities associated with assets held for sale
 
$
267

The operating results of the hotel held for sale as of March 31, 2017 are included in the Company's condensed consolidated statements of operations and comprehensive income (loss) as part of continuing operations as the sale did not represent a strategic shift or have a major effect on the Company's results of operations. In April 2017, the Company closed on the sale of Courtyard Birmingham Downtown at UAB.
In February 2016, the Company sold the Hilton University of Florida Conference Center Gainesville. The following represents the disposition details for the hotel sold during the three months ended March 31, 2016 (in thousands, except rooms):
Property
 
Date
 
Gross Sale Price
 
Net Proceeds(2)
 
Gain on Sale
Hilton University of Florida Conference Center Gainesville(1)
 
02/2016
 
$
36,000

 
$
32,055

 
$
649

Total for the three months ended March 31, 2016
 
 
 
$
36,000

 
$
32,055

 
$
649

(1)
Included in net income from continuing operations in the condensed consolidated statements of operations and comprehensive income (loss) for the periods of ownership through the date of disposition, as the sale did not represent a strategic shift or have a major effect on the Company's results of operations.
(2)
The Company was entitled to net proceeds at closing of $32.1 million, and in conjunction with the sale repaid the $27.8 million outstanding property level mortgage.

10


5. Investment in Real Estate Entities
The Company has a 75% interest in two investments in real estate entities that own and operate the Grand Bohemian Hotel Charleston and the Grand Bohemian Hotel Mountain Brook. These entities are considered VIE's because the entities do 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 VIE, or the right to receive benefits from the VIE's that could potentially be significant to the VIE. 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.
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):
 
March 31, 2017
 
December 31, 2016
Net investment properties
$
70,255

 
$
71,157

Other assets
3,201

 
3,283

Total assets
$
73,456

 
$
74,440

Mortgages, notes and margins payable
(44,970
)
 
(45,287
)
Other liabilities
(2,504
)
 
(2,541
)
Total liabilities
$
(47,474
)
 
$
(47,828
)
Net assets
$
25,982

 
$
26,612


11


6. Debt
Mortgages Payable
Debt as of March 31, 2017 and December 31, 2016 consisted of the following (dollar amounts in thousands):
 
 
 
 
 
 
 
Balance Outstanding as of
 
Rate Type
 
Rate(1)
 
Maturity Date
 
March 31, 2017
 
December 31, 2016
Mortgage Loans
 
 
 
 
 
 
 
 
 
Fairmont Dallas
 Variable
 
2.98
%
 
4/10/2018
 
$
55,312

 
$
55,498

Residence Inn Denver City Center
 Variable
 
3.23
%
 
4/17/2018
 
45,210

 
45,210

Bohemian Hotel Savannah Riverfront
 Variable
 
3.33
%
 
12/17/2018
 
27,480

 
27,480

Andaz Savannah
 Variable
 
2.98
%
 
1/14/2019
 
21,500

 
21,500

Hotel Monaco Denver
Fixed(2)
 
2.98
%
 
1/17/2019
 
41,000

 
41,000

Hotel Monaco Chicago
 Variable
 
3.23
%
 
1/17/2019
 
21,644

 
21,644

Loews New Orleans Hotel
 Variable
 
3.33
%
 
2/22/2019
 
37,500

 
37,500

Andaz Napa
Fixed(2)
 
2.99
%
 
3/21/2019
 
38,000

 
38,000

Westin Galleria Houston & Westin Oaks Houston at The Galleria
 Variable
 
3.48
%
 
5/1/2019
 
110,000

 
110,000

Marriott Charleston Town Center
 Fixed
 
3.85
%
 
7/1/2020
 
16,279

 
16,403

Grand Bohemian Hotel Charleston (VIE)
 Variable
 
3.48
%
 
11/10/2020
 
19,471

 
19,628

Grand Bohemian Hotel Mountain Brook (VIE)
 Variable
 
3.48
%
 
12/27/2020
 
25,724

 
25,899

Marriott Dallas City Center
 Fixed(2)
 
4.05
%
 
1/3/2022
 
51,000

 
51,000

Hyatt Regency Santa Clara
 Fixed(2)
 
3.81
%
 
1/3/2022
 
90,000

 
90,000

Hotel Palomar Philadelphia
 Fixed(2)
 
4.14
%
 
1/13/2023
 
60,000

 
60,000

Residence Inn Boston Cambridge
 Fixed
 
4.48
%
 
11/1/2025
 
63,000

 
63,000

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

 
60,000

Total Mortgage Loans
 
 
3.64
%
(3) 
 
 
$
783,120

 
$
783,762

Mortgage Loan Discounts, net(4)
 

 
 
(303
)
 
(319
)
Unamortized Deferred Financing Costs, net
 

 
 
(5,828
)
 
(6,311
)
Senior Unsecured Credit Facility
 Variable
 
2.50
%
 
2/3/2019
 

 

Unsecured Term Loan $175M
Fixed(5)
 
2.74
%
 
2/15/2021
 
175,000

 
175,000

Unsecured Term Loan $125M
Fixed(5)
 
3.53
%
 
10/22/2022
 
125,000

 
125,000

Total Debt, net of loan discounts and unamortized deferred financing costs
 
 
3.48
%
(3) 
 
 
$
1,076,989

 
$
1,077,132

(1)
Variable index is one month LIBOR.
(2)
The Company entered into interest rate swap agreements to fix the interest rate of the mortgage loans through maturity.
(3)
Represents the weighted average interest rate as of March 31, 2017.
(4)
Loan discounts recognized upon loan modifications, net of the accumulated amortization.
(5)
LIBOR has been fixed for the entire term of the loans. The spread may vary, as it is determined by the Company's leverage ratio.
As of March 31, 2017, the Company made a lender loan deposit of $2.4 million related to a new mortgage loan, which is included in other assets on the condensed consolidated balance sheet. In April 2017, the Company obtained a mortgage loan in the amount of $115 million, which is collateralized by the Marriott San Francisco Airport Waterfront hotel, has a fixed interest rate of 4.63% and matures in May 2027.
In connection with repaying and refinancing mortgage loans during the three months ended March 31, 2016, the Company incurred prepayment and extinguishment fees of approximately $4.8 million, which was included in the loss on extinguishment of debt in the accompanying condensed consolidated statements of operations and comprehensive income (loss) for the period ended March 31, 2016. The loss on extinguishment of debt represented the write off of unamortized deferred financing costs

12


incurred when the original agreements were executed, as well as unamortized loan premiums or discounts, and termination penalty payments.
Debt outstanding as of March 31, 2017 and December 31, 2016 was $1,083 million and $1,084 million and had a weighted average interest rate of 3.48% and 3.24% per annum, respectively. The remaining unamortized mortgage discounts were $0.3 million as of both March 31, 2017 and December 31, 2016, respectively. The following table shows scheduled debt maturities for the next five years and thereafter (in thousands):
 
 
As of
March 31, 2017
 
Weighted 
average
interest rate
2017
 
$
1,996

 
3.49%
2018
 
130,900

 
3.17%
2019
 
273,377

 
3.27%
2020
 
59,085

 
3.61%
2021
 
177,269

 
2.76%
Thereafter
 
440,493

 
3.98%
Total Debt
 
$
1,083,120

 
3.48%
Total Loan Discounts, net
 
(303
)
 
Unamortized Deferred Financing Costs, net
 
(5,828
)
 
Debt, net of loan discounts and unamortized deferred financing costs
 
$
1,076,989

 
3.48%
Of the total outstanding debt at March 31, 2017, approximately $13.8 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 March 31, 2017, the Company was in compliance with all such covenants.
Senior Unsecured Credit Facility
As of March 31, 2017, there was no outstanding balance on the senior unsecured facility. During the three months ended March 31, 2017 and 2016, the Company incurred unused commitment fees of approximately $0.3 million and $0.3 million, respectively.
7. 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, 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. As of March 31, 2017, all derivative instruments were designated as cash flow hedges. 
As of March 31, 2017 and December 31, 2016, the aggregate fair value of interest rate swap assets of $7.0 million and $5.1 million, respectively, was included in other assets in the accompanying condensed consolidated balance sheets. For the three months ended March 31, 2017 and 2016, the Company had an unrealized gain of $1.1 million and an unrealized loss of $10.4 million, respectively, that is included in the condensed consolidated statements of operations and comprehensive income (loss).

13


The following table summarizes the terms of the derivative financial instruments held by the Company as of March 31, 2017 and December 31, 2016, respectively (in thousands)(1):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Estimated Fair Value
Hedged Debt
 
Type
 
Fixed Rate
 
Index
 
Effective Date
 
Maturity
 
Notional Amounts
 
March 31, 2017
 
December 31, 2016
$175M Term Loan
 
Swap
 
1.30%
 
1-Month LIBOR + 1.50%
 
10/22/2015
 
2/15/2021
 
$
50,000

 
$
918

 
$
767

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

 
1,216

 
1,022

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

 
1,121

 
940

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

 
388

 
193

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

 
169

 
88

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

 
182

 
84

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

 
180

 
80

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

 
1,388

 
1,200

Mortgage Debt
 
Swap
 
0.88%
 
1-Month LIBOR + 2.50%
 
9/1/2016
 
1/17/2019
 
41,000

 
403

 
327

Mortgage Debt
 
Swap
 
0.89%
 
1-Month LIBOR + 2.50%
 
9/1/2016
 
3/21/2019
 
38,000

 
427

 
354

Mortgage Debt
 
Swap
 
1.80%
 
1-Month LIBOR + 2.25%
 
3/1/2017
 
1/3/2022
 
51,000

 
218

 

Mortgage Debt
 
Swap
 
1.81%
 
1-Month LIBOR + 2.00%
 
3/1/2017
 
1/3/2022
 
45,000

 
182

 

Mortgage Debt
 
Swap
 
1.80%
 
1-Month LIBOR + 2.00%
 
3/1/2017
 
1/3/2022
 
45,000

 
218

 

 
 
 
 
 
 
 
 
 
 
 
 
$
580,000

 
$
7,010

 
$
5,055

(1)
There were no amounts recognized in earnings related to hedge ineffectiveness or amounts excluded from hedge ineffectiveness testing during the three months ended March 31, 2017 and 2016.
For the three months ended March 31, 2017, the Company reclassified $0.8 million from accumulated other comprehensive income to interest expense. The Company expects approximately $1.5 million will be reclassified from accumulated other comprehensive loss to interest expense in the next 12 months.
8. Fair Value Measurements
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.
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

14


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, which are netted as applicable per the terms of the respective master netting agreements (in thousands):
 
 
Fair Value Measurement Date
 
 
March 31, 2017
 
December 31, 2016
Location / Description
 
Significant Unobservable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 2)
Other assets
 
 
 
 
Interest rate swap assets
 
$
7,010

 
$
5,055

Total
 
$
7,010

 
$
5,055

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
No impairments were recorded during the three months ended March 31, 2017.
During the three months ended March 31, 2016, the Company identified one hotel property that had a reduction in its expected holding period and reviewed the probability of the asset's disposition. The Company recorded an impairment charge of $7.6 million for the three months ended March 31, 2016, based on the estimated fair value using purchase contracts and average selling costs. The property was subsequently sold in May 2016.
Financial Instruments Not Measured at Fair Value
The table below represents the fair value of financial instruments presented at carrying values in the condensed consolidated financial statements as of March 31, 2017 and December 31, 2016 (in thousands):
 
 
March 31, 2017
 
December 31, 2016
 
 
Carrying Value
 
Estimated Fair Value
 
Carrying Value
 
Estimated Fair Value
Debt, net of discounts
 
$
1,082,817

 
$
1,087,093

 
$
1,083,443

 
$
1,074,820

Total
 
$
1,082,817

 
$
1,087,093

 
$
1,083,443

 
$
1,074,820

The Company estimates the fair value of its mortgages payable using a weighted average effective interest rate of 4.01% and 4.14% per annum as of March 31, 2017 and December 31, 2016, respectively. The Company has determined that its debt instrument valuations are classified in Level 2 of the fair value hierarchy.
9. Income Taxes
The Company estimated the TRS income tax expense for the three months ended March 31, 2017, using an estimated federal and state statutory combined rate of 42.38% and recognized income tax expense of $2.2 million.

15


The Company estimated the TRS income tax expense for the three months ended March 31, 2016, using an estimated federal and state statutory combined rate of 39.47% and recognized income tax expense of $3.7 million.
10. Stockholders' Equity
Stock Repurchase Program
In December 2015, the Company’s Board of Directors authorized a stock 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. In November 2016, the Company's Board of Directors authorized the repurchase of up to an additional $75 million of the Company's outstanding common shares (such repurchase authorizations collectively referred to as the "Repurchase Program"). The Repurchase Program does not have an expiration date. This Repurchase Program may be suspended or discontinued at any time, and does not obligate the Company to acquire any particular amount of shares.
For the three months ended March 31, 2017, 107,509 shares were repurchased under the Repurchase Program, at a weighted average price of $16.62 per share for an aggregate purchase price of $1.8 million. As of March 31, 2017, the Company had approximately $99.2 million remaining under its Repurchase Program.
Distributions
Common Stock
The Company declared the following dividends during the three months ended March 31, 2017:
Dividend per Share/Unit
 
For the Quarter Ended
 
Record Date
 
Payable Date
$0.275
 
March 31, 2017
 
March 31, 2017
 
April 14, 2017
Non-Controlling Interest of Common Units in Operating Partnership
As of March 31, 2017, the Operating Partnership had 2,179,785 long-term incentive partnership units (“LTIP Units”) outstanding, representing a 2% partnership interest held by the limited partners. Of the 2,179,785 LTIP units outstanding at March 31, 2017, 173,436 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 per the terms of the LTIP Unit award agreements.
As of March 31, 2017, the Company had accrued $137 thousand in dividends related to the LTIP Units, which were paid in April 2017.
11. 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.

16


The following table reconciles net income to basic and diluted EPS (in thousands, except share and per share data):
 
Three Months Ended March 31,
 
2017
 
2016
Numerator:
 
 
 
Net income (loss) attributable to common stockholders
$
8,113

 
$
(8,915
)
Dividends paid on unvested share-based compensation
(140
)
 
(110
)
Net income (loss) available to common stockholders
$
7,973

 
$
(9,025
)
 
 
 
 
Denominator:
 
 
 
Weighted average shares outstanding - Basic
106,844,272

 
109,732,721

Effect of dilutive share-based compensation
216,784

 

Weighted average shares outstanding - Diluted
107,061,056

 
109,732,721

 
 
 
 
Basic and diluted earnings per share:
 
 
 
Net income (loss) per share available to common stockholders
$
0.07

 
$
(0.08
)
Total weighted average shares for the three months ended March 31, 2016 excludes 387,946 Restricted Stock Units and LTIP Units because the resulting effect would have been anti-dilutive.
12. Share Based Compensation
Restricted Stock Units
In February 2017, the Compensation Committee (the "Compensation Committee") of the Board of Directors of the Company approved the grant of share units to certain company employees (the "2017 Restricted Stock Units"). The 2017 Restricted Stock Units include 82,829 restricted stock units that are time-based and vest over a three-year period and 44,858 restricted stock units that are performance-based and vest after a three-year performance period. Both the time-based and performance-based are subject to continued employment and have weighted average grant date fair value of $15.18 per share.
Each time-based 2017 Restricted Stock Unit will vest as follows, subject to the employee’s continued service through each applicable vesting date: 33% on February 4, 2018, which is the first anniversary of the vesting commencement date of the award (February 4, 2017), 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 2017 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 three-year performance period. The other seventy-five percent (75%) of the performance-based 2017 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 a defined peer group over the three-year performance period.
LTIP Unit Grants
In February 2017, the Compensation Committee approved the issuance of 715,001 performance-based LTIP Units (the "2017 Class A LTIP Units") and 86,210 time-based LTIP Units (the "2017 Time-Based LTIP Units") of the Operating Partnership under the 2015 Incentive Award Plan that had a weighted average grant date fair value of $8.97 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, 2018, which is the first anniversary of the vesting commencement date of the award (February 4, 2017), 33% on the second anniversary of the vesting commencement date, and 34% on the third anniversary of the vesting commencement date.
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 three-year 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 a defined peer group over the three-year performance period.

17


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, 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.
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 March 31, 2017:
 
2014 Share Unit Plan Share Units
 
2015 Incentive Award Plan Restricted Stock Units(1)
 
2015 Incentive Award Plan LTIP Units(1)
 
Total
Non-vested as of December 31, 2016
243,769

 
238,152

 
1,259,613

 
1,741,534

Granted

 
127,687

 
801,211

 
928,898

Vested(2)
(191,856
)
 
(67,310
)
 
(54,475
)
 
(313,641
)
Expired

 

 

 

Forfeited

 

 

 

Non-vested as of March 31, 2017
51,913

 
298,529

 
2,006,349

 
2,356,791

Vested as of March 31, 2017
299,283

 
96,458

 
173,436

 
569,177

Weighted average fair value of non-vested shares/units
$
20.25

 
$
14.49

 
$
9.15

 
$
10.07

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

(2)
During the three months ended March 31, 2017, the Company redeemed 97,352 shares of common stock to satisfy minimum federal and state tax withholding requirements on the vesting of Share Units and Restricted Stock Units under the 2014 Share Unit Plan and the 2015 Incentive Award Plan, respectively.

The fair value of the Restricted Stock Awards and Time-Base LTIP Units are 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 2017 Restricted Stock Units and the 2017 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
Absolute TSR Restricted Stock Units
 
25%
 
$6.57
 
26.83%
 
0.68% - 1.55%
 
6.021%
Relative TSR Restricted Stock Units
 
75%
 
$10.44
 
26.83%
 
0.68% - 1.55%
 
6.021%
Absolute TSR Class A LTIPs
 
25%
 
$6.64
 
26.83%
 
0.68% - 1.55%
 
6.021%
Relative TSR Class A LTIPs
 
75%
 
$10.18
 
26.83%
 
0.68% - 1.55%
 
6.021%
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 months ended March 31, 2017 the Company recognized approximately $2.2 million of share-based compensation

18


expense (net of forfeitures) related to share units, restricted stock units, and LTIP Units provided to certain of its executive officers, and other members of management, and capitalized approximately $154 thousand related to restricted stock units provided to certain members of management that oversee development and capital projects on behalf of the Company. As of March 31, 2017, there was $17.4 million of total unrecognized compensation costs related to non-vested restricted stock 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 2.14 additional years.
For the three months ended March 31, 2016, the Company recognized approximately $2.7 million 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, and other members of management, which included $1.2 million of accelerated share-based compensation expense related to management transition and severance agreements, and capitalized approximately $108 thousand related to restricted stock units provided to certain members of management that oversee development and capital projects on behalf of the Company.
13. 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 March 31, 2017 and December 31, 2016, the Company had a balance of $56.8 million and $58.6 million, respectively, in reserves for such future improvements. This amount is included in restricted cash and escrows on the condensed consolidated balance sheets as of March 31, 2017 and December 31, 2016, respectively.
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.
14. Subsequent Events
In April 2017, the Company repaid the remaining balance of the mortgage loans collateralized by the Residence Inn Denver City Center and Bohemian Hotel Savannah Riverfront for a combined total of $73 million.

19


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Certain statements in this Quarterly Report on Form 10-Q, other than purely historical information, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements include statements about Xenia’s plans, objectives, strategies, financial performance and outlook, trends, the amount and timing of future cash distributions, prospects or future events and involve known and unknown risks that are difficult to predict. As a result, our actual financial results, performance, achievements or prospects may differ materially from those expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by the use of words such as “may,” “could,” “expect,” “intend,” “plan,” “seek,” “anticipate,” “believe,” “estimate,” “guidance,” “predict,” “potential,” “continue,” “likely,” “will,” “would,” “illustrative” and variations of these terms and similar expressions, or the negative of these terms or similar expressions. Such forward-looking statements are necessarily based upon estimates and assumptions that, while considered reasonable by Xenia and its management based on their knowledge and understanding of the business and industry, are inherently uncertain. These statements are not guarantees of future performance, and stockholders should not place undue reliance on forward-looking statements. There are a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. Such risks, uncertainties and other important factors include, among others: the risks, uncertainties and factors set forth in our filings with the U.S. Securities and Exchange Commission, including our Annual Report on Form 10-K, as may be updated elsewhere in this report; and other Quarterly Reports on Form 10-Q that we have filed or will file with the SEC; business, financial and operating risks inherent to real estate investments and the lodging industry; seasonal and cyclical volatility in the lodging industry; macroeconomic and other factors beyond our control that can adversely affect and reduce demand for hotel rooms; contraction in the global economy or low levels of economic growth; levels of spending in business and leisure segments as well as consumer confidence; declines in occupancy and average daily rate; fluctuations in the supply and demand for hotel rooms; changes in the competitive environment in lodging industry and the markets where we own hotels; events beyond our control, such as war, terrorist attacks, travel-related health concerns and natural disasters; our reliance on third-party hotel management companies to operate and manage our hotels; our ability to maintain good relationships with our third-party hotel management companies and franchisers; our failure to maintain brand operating standards; our ability to maintain our brand licenses at our hotels; relationships with labor unions and changes in labor laws; loss of our senior management team or key personnel; our ability to identify and consummate acquisitions of additional hotels; our ability to integrate and successfully operate any hotel properties acquired in the future and the risks associates with these hotel properties; the impact of hotel renovations, repositioning, redevelopments and re-branding activities; our ability to access capital for renovations and acquisitions on terms and at times that are acceptable to us; the fixed cost nature of hotel ownership; our ability to service our debt; changes in interest rates and operating costs; compliance with regulatory regimes and local laws; uninsured or under insured losses, including those relating to natural disasters or terrorism; changes in distribution channels, such as through internet travel intermediaries; the amount of debt that we currently have or may incur in the future; provisions in our debt agreements that may restrict the operation of our business; our organizational and governance structure; our status as a real estate investment trust (a “REIT”); our taxable REIT subsidiary (“TRS”) lessee structure; the cost of compliance with and liabilities under environmental, health and safety laws; adverse litigation judgments or settlements; changes in real estate and zoning laws and increase in real property tax rates; changes in federal, state or local tax law, including legislative, administrative, regulatory or other actions affecting REITs; changes in governmental regulations or interpretations thereof; and estimates relating to our ability to make distributions to our stockholders in the future.
These factors are not necessarily all of the important factors that could cause our actual financial results, performance, achievements or prospects to differ materially from those expressed in or implied by any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth above. Forward-looking statements speak only as of the date they are made, and we do not undertake or assume any obligation to update publicly any of these forward-looking statements to reflect actual results, new information or future events, changes in assumptions or changes in other factors affecting forward-looking statements, except to the extent required by applicable laws. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. 
The following discussion and analysis should be read in conjunction with the Company’s Unaudited Condensed Consolidated Financial Statements and accompanying notes, which appear elsewhere in this Quarterly Report on Form 10-Q.

20


Overview
Xenia Hotels & Resorts, Inc. ("we", "us", "our", "Xenia" or the "Company") is a self-advised and self-administered REIT that invests primarily in premium full service, lifestyle and urban upscale hotels, with a focus on the top 25 lodging markets as well as key leisure destinations in the United States. A premium full service hotel refers to a hotel defined as "upper upscale" or "luxury" by STR Inc. ("STR"), but excluding hotels referred to as "lifestyle" hotels. A lifestyle hotel refers to an innovative hotel with a focus on providing a unique and individualized guest experience in a smaller footprint by combining traditional hotel services with modern technologies and placing an emphasis on local influence. An urban upscale hotel refers to a hotel located in an urban or similar high-density commercial area, such as a central business district, and defined as "upscale" or "upper midscale" by STR. As of March 31, 2017, we owned 42 hotels, 40 of which are wholly owned, comprising 10,902 rooms, across 20 states and the District of Columbia, and had a 75% ownership interest in two hotels owned through two consolidated investments in real estate entities. Our hotels are operated and/or licensed by industry leaders such as Marriott ®, Kimpton ®, Hyatt ®, Aston ®, Fairmont ®, Hilton ® and Loews ®, as well as leading independent management companies.
Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of the Company, the Operating Partnership, XHR Holding, and its consolidated investments in real estate entities. The Company's subsidiaries and consolidated investments in real estate entities generally consist of limited liability companies, limited partnerships and the TRS. The effects of all inter-company transactions have been eliminated. Corporate costs directly associated with our principal executive offices, personnel and other administrative costs are reflected as general and administrative expenses on the condensed consolidated statements of operations and comprehensive income (loss).
Our Revenues and Expenses
Our revenue is primarily derived from hotel operations, including room revenue, food and beverage revenue and other operating department revenue, which consists of parking, other guest services and tenant leases.
Our operating costs and expenses consist of the costs to provide hotel services, including room expense, food and beverage expense, management fees and other direct and indirect operating expenses. Room expense includes housekeeping wages and associated payroll taxes, room supplies, laundry services and front desk costs. Food and beverage expense primarily includes the cost of food, beverages and associated labor. Other direct and indirect hotel expenses include labor and other costs associated with the other operating department revenue, as well as labor and other costs associated with general and administrative departments, sales and marketing, information technology and telecommunications, repairs and maintenance and utility costs. Our hotels are managed by independent, third-party management companies under long-term agreements under which the management companies typically earn base and incentive management fees based on the levels of revenues and profitability of each individual hotel.
Key Indicators of Operating Performance
We measure hotel results of operations and the operating performance of our business by evaluating financial and non-financial metrics such as Revenue Per Available Room ("RevPAR"); average daily rate ("ADR"); occupancy rate ("occupancy"); earnings before interest, income taxes, depreciation and amortization ("EBITDA") and Adjusted EBITDA ("Adjusted EBITDA"); and funds from operations ("FFO") and Adjusted FFO ("Adjusted FFO"). We evaluate individual hotel and company-wide performance with comparisons to budgets, prior periods and competing properties. ADR, occupancy and RevPAR may be impacted by macroeconomic factors as well as regional and local economies and events. See "Non-GAAP Financial Measures" for further discussion of the Company's use, definitions and limitations of EBITDA and FFO and Adjusted EBITDA and Adjusted FFO and why management believes these financial measures are useful to investors.

21


Results of Operations
Overview
The U.S. lodging industry had a moderate first quarter of 2017, driven by favorable macroeconomic factors such as low unemployment rates, strong corporate profits and moderate U.S. GDP growth. In addition, the lodging industry benefited from the Presidential inauguration in Washington, D.C. and the Easter calendar shift from March 2016 to April 2017. This led to industry RevPAR increasing 3.4% in the first quarter of 2017 compared to the first quarter of 2016, which was primarily driven by ADR growth of 2.5% and an increase in occupancy of 0.9% per industry reports. While the industry had a positive start to 2017, hotel supply growth of 1.9% is expected to temper industry RevPAR during the remainder of 2017.
Our total portfolio RevPAR, which includes the results of hotels that were sold or acquired during the respective periods presented, increased 6.1% to $147.14 for the three months ended March 31, 2017 compared to $138.73 for the three months ended March 31, 2016. The increase in our total portfolio RevPAR for the first quarter of 2017 compared to the first quarter of 2016 was partially driven by the moderate pricing increase in the overall U.S. lodging industry and the favorable Easter calendar shift in 2017, but was also attributable to changes in our portfolio mix. During 2016, we acquired one hotel with RevPAR at the higher end of our portfolio and completed the disposition of nine hotels with an average RevPAR significantly below that of the remainder of our portfolio, which contributed to increases in the overall portfolio metrics during 2017.
Our three Houston-area hotels also had a positive first quarter in 2017 compared to 2016, which was partially attributable to Super Bowl LI and growth in group demand during the quarter. On average our Houston-area hotels had a 2.2% increase in RevPAR for the three months ended March 31, 2017 compared to 2016, which was driven by a 2.9% increase in ADR offset by 51 basis point decline in occupancy. While our Houston-area hotels had a favorable first quarter of 2017, we expect RevPAR to decline in the remainder of 2017 due to the impact of continued weakness in corporate demand, the addition of new supply, and disruption in revenue due to renovations at the Westin Galleria and Westin Oaks.
Net income increased 191.0% for the three months ended March 31, 2017 compared to 2016, primarily due to the provision for asset impairment and loss on extinguishment incurred during the first quarter of 2016. Excluding those items in 2016, net income increased $5.1 million, or 160%, primarily as a result of a $2.7 million decrease in interest expense, a $2.5 million decrease in depreciation expense and a reduction in income tax expense of $1.5 million. These items were offset by a $2.5 million reduction in net operating income from the nine dispositions in 2016. Adjusted EBITDA attributable to common stock and unit holders for the three months ended March 31, 2017 decreased 5.5% compared to 2016 and Adjusted FFO attributable to common stock and unit holders increased 1.1% for the three months ended March 31, 2017, compared to the same period in 2016, which was primarily due to changes in our portfolio mix and disruption from portfolio renovations during the first quarter of 2017. Adjusted FFO benefited from the reduction in interest expense and income tax expense in 2017. Refer to "Non-GAAP Financial Measures" for the definition of these financial measures, a description of how they are useful to investors as key supplemental measures of our operating performance and the reconciliation of these non-GAAP financial measures to net income attributable to common stock and unit holders.

22


Operating Information Comparison
The following table sets forth certain operating information for the three months ended March 31, 2017 and 2016:
 
Three Months Ended March 31,
 
 
 
2017
 
2016
 
Variance
Number of properties at January 1 
42
 
50
 
(8)
Properties acquired or added to portfolio upon completion of construction
 
1
 
(1)
Properties disposed
 
(1)
 
1
Number of properties at March 31
42
 
50
 
(8)
Number of rooms at January 1
10,911
 
12,548
 
(1,637)
Rooms in properties acquired or added to portfolio upon completion of construction (1)
 
248
 
(248)
Rooms in properties disposed or combined during property improvements(2)
(9)
 
(248)
 
239
Number of rooms at March 31
10,902
 
12,548
 
(1,646)
 
 
 
 
 
 
Portfolio Statistics:
 
 
 
 
 
Occupancy (3)
73.5
%
 
72.4
%
 
110 bps
ADR (3)
$
200.25

 
$
191.67

 
4.5%
RevPAR (3)
$
147.14

 
$
138.73

 
6.1%
(1)
The rooms additions include the number of rooms acquired or the number of rooms put into operations upon the completion of construction or renovation. During the three months ended March 31, 2016, the Company acquired the Hotel Commonwealth that added 245 rooms to our portfolio, and three additional rooms were added to the Hyatt Regency Santa Clara upon completion of property improvements.
(2)
During the three months ended March 31, 2017, we continued the guestroom renovation at the Westin Galleria Houston, including the conversion of 18 guestrooms into nine suites resulting in a reduction in our total room count. During the three months ended March 31, 2016, the Company disposed of the 248-room Hilton University of Florida Conference Center Gainesville.
(3)
For hotels acquired during the applicable period, only includes operating statistics since the date of acquisition. For hotels disposed of during the period, operating results and statistics are only included through the date of the respective disposition.
Revenues
Revenues consists of room, food and beverage, and other revenues from our hotels, as follows (in thousands):
 
Three Months Ended March 31,
 
 
 
 
 
2017
 
2016
 
Increase / (Decrease)
 
Variance
Revenues:
 
 
 
 
 
 
 
Room revenues
$
144,451

 
$
159,318

 
$
(14,867
)
 
(9.3
)%
Food and beverage revenues
61,825

 
63,468

 
(1,643
)
 
(2.6
)%
Other revenues
12,184

 
12,249

 
(65
)
 
(0.5
)%
Total revenues
$
218,460

 
$
235,035

 
$
(16,575
)
 
(7.1
)%
Room revenues
Room revenues decreased by $14.9 million, or 9.3%, to $144.5 million for the three months ended March 31, 2017 from $159.3 million for the three months ended March 31, 2016, of which $17.3 million was attributed to the disposition of nine hotels during 2016. These dispositions had a favorable effect on total portfolio RevPAR, which increased 6.1% for the hotels owned during the three months ended March 31, 2017 and 2016. The year-over-year decrease from the dispositions was offset in the first quarter of 2017 by a $1.3 million increase contributed by our Marriott Napa Valley Hotel & Spa that continued to perform well after extensive renovations in 2016 and $1.0 million contributed by our two Washington, D.C.-area hotels that had strong transient demand attributed to the Presidential inauguration in January 2017. In addition, a number of our hotels benefited from increased demand in the first quarter of 2017 compared to the first quarter of 2016, which was primarily attributable to the calendar shift of Easter from March 2016 to April 2017.

23




Food and beverage revenues
Food and beverage revenues decreased by $1.6 million, or 2.6%, to $61.8 million for the three months ended March 31, 2017 from $63.5 million for the three months ended March 31, 2016, of which $3.4 million was attributed to the disposition of nine hotels during 2016. These decreases from the 2016 dispositions were offset by a net increase of $1.8 million attributable to the remainder the portfolio.
Other revenues
Other revenues decreased by $0.1 million, or 0.5%, to $12.2 million for the three months ended March 31, 2017 from $12.2 million for the three months ended March 31, 2016, which was primarily attributed to the disposition of nine hotels during 2016, which was mostly offset by increases from the remainder of the portfolio in 2017.
Hotel Operating Expenses
Hotel operating expenses consist of the following (in thousands):
 
Three Months Ended March 31,
 
 
 
 
 
2017
 
2016
 
Increase / (Decrease)
 
Variance
Hotel operating expenses:
 
 
 
 
 
 
 
Room expenses
$
33,630

 
$
36,775

 
$
(3,145
)
 
(8.6
)%
Food and beverage expenses
39,184

 
42,233

 
(3,049
)
 
(7.2
)%
Other direct expenses
3,007

 
3,965

 
(958
)
 
(24.2
)%
Other indirect expenses
53,037

 
57,967

 
(4,930
)
 
(8.5
)%
Management and franchise fees
11,378

 
12,248

 
(870
)
 
(7.1
)%
Total hotel operating expenses
$
140,236

 
$
153,188

 
$
(12,952
)
 
(8.5
)%
Total hotel operating expenses
Total hotel operating expenses decreased $13.0 million, or 8.5%, to $140.2 million for the three months ended March 31, 2017 from $153.2 million for the three months ended March 31, 2016, of which $14.1 million of the decrease was attributed to the disposition of nine hotels during 2016. These decreases were offset by an overall net increase of $1.1 million attributed to the remainder of the comparable portfolio. Room expense, food and beverage expense and other operating department costs fluctuate based on various factors, including occupancy, labor costs, utilities and insurance costs.
Corporate and Other Expenses
Corporate and other expenses consist of the following (in thousands):
 
Three Months Ended March 31,
 
 
 
 
 
2017
 
2016
 
Increase / (Decrease)
 
Variance
Depreciation and amortization
$
36,478

 
$
38,951

 
$
(2,473
)
 
(6.3
)%
Real estate taxes, personal property taxes and insurance
11,360

 
12,033

 
(673
)
 
(5.6
)%
Ground lease expense
1,376

 
1,353

 
23

 
1.7
 %
General and administrative expenses
8,613

 
10,624

 
(2,011
)
 
(18.9
)%
Acquisition transaction costs
6

 
140

 
(134
)
 
(95.7
)%
Provision for asset impairment

 
7,594

 
(7,594
)
 
100.0
 %
Total corporate and other expenses
$
57,833

 
$
70,695

 
$
(12,862
)
 
(18.2
)%
Depreciation and amortization
Depreciation and amortization expense decreased $2.5 million, or 6.3%, to $36.5 million for the three months ended March 31, 2017 from $39.0 million for the three months ended March 31, 2016, which was primarily attributed to the disposition of nine hotels during 2016 offset by additional depreciation expense from capital expenditures made during 2016 and the first quarter of 2017.
Real estate taxes, personal property taxes and insurance
Real estate taxes, personal property taxes and insurance expense decreased $0.7 million, or 5.6%, to $11.4 million for the three

24




months ended March 31, 2017 from $12.0 million for the three months ended March 31, 2016, of which $1.4 million of the decrease was attributable to the disposition of nine hotels during 2016. These decreases were offset by a net increase of $0.7 million for the remainder of our portfolio, which was primarily attributable to higher real estate taxes.
General and administrative expenses
General and administrative expenses decreased $2.0 million, or 18.9%, to $8.6 million for the three months ended March 31, 2017 from $10.6 million for the three months ended March 31, 2016, which was primarily attributable to non-recurring management transition and severance costs of $3.1 million incurred during the first quarter of 2016 offset by an increase in shared-based compensation expense and state taxes during the first quarter of 2017 compared to 2016.
Provision for asset impairment
There were no asset impairments recorded for the three months ended March 31, 2017. During the three months ended March 31, 2016, a provision for asset impairment of $7.6 million was recorded on one hotel which was identified to have a reduction in its expected hold period when it met the held for sale criteria, and was written down to its estimated fair value, less costs to sell. The hotel was subsequently sold in May 2016.
Results of Non-Operating Income and Expenses
Non-operating income and expenses consist of the following (in thousands):
 
Three Months Ended March 31,
 
 
 
 
 
2017
 
2016
 
Increase / (Decrease)
 
Variance
Non-operating income and expenses:
 
 
 
 
 
 
 
Gain on sale of investment properties
$

 
$
882

 
$
(882
)
 
(100.0
)%
Other income
152

 
84

 
68

 
81.0
 %
Interest expense
(10,150
)
 
(12,840
)
 
(2,690
)
 
(21.0
)%
Loss on extinguishment of debt

 
(4,742
)
 
(4,742
)
 
100.0
 %
Income tax expense
(2,166
)
 
(3,705
)
 
(1,539
)
 
(41.5
)%
Gain on sale of investment properties
No hotel properties were sold during the three months ended March 31, 2017. The gain on sale of investment properties for the three months ended March 31, 2016 was related to the sale of one hotel in February 2016.
Interest expense
Interest expense decreased $2.7 million, or 21.0%, to $10.2 million for the three months ended March 31, 2017 from $12.8 million for the three months ended March 31, 2016. This was primarily the result of 2016 debt repayments coupled with a lower weighted average interest rate of 3.48% for the three months ended March 31, 2017 compared to 3.52% for the three months ended March 31, 2016.
Loss on extinguishment of debt
Loss on extinguishment of debt was $4.7 million for the three months ended March 31, 2016, which was related to the repayment of mortgage loans during the quarter.
Income tax expense
Income tax expense decreased $1.5 million, or 41.5%, to $2.2 million for the three months ended March 31, 2017 from $3.7 million for the three months ended March 31, 2016, which was primarily attributable to decreases in taxable income on the Company's taxable REIT subsidiary from the nine dispositions in 2016 offset by an increase in the effective tax rate.
Liquidity and Capital Resources
We expect to meet our short-term liquidity requirements from cash on hand, cash flow from operations, borrowings under our unsecured revolving credit facility and the ability to refinance or extend our maturing debt as it becomes due. The objectives of our cash management policy are to maintain the availability of liquidity and minimize operational costs. Further, we have an investment policy that is focused on the preservation of capital and maximizing the return on new and existing investments.

25


On a long-term basis, our objectives are to maximize revenue and profits generated by our existing properties and acquired hotels, to further enhance the value of our portfolio and produce an attractive current yield, as well as to generate sustainable and predictable cash flow from our operations to distribute to our stockholders. To the extent we are able to successfully improve the performance of our portfolio, we believe this will result in increased operating cash flows. Additionally, we may meet our long-term liquidity requirements through additional borrowings, the issuance of equity and debt securities, and/or proceeds from the sales of hotels.
We may, from time to time, seek to retire or purchase additional amounts of our outstanding equity through cash purchases and/or exchanges for other securities in open market purchases, privately negotiated transactions or otherwise, including pursuant to a Rule 10b5-1 plan. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. In December 2015, the Company’s Board of Directors authorized a stock 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. In November 2016, the Company's Board of Directors authorized the repurchase of up to an additional $75 million of the Company's outstanding common shares (such repurchase authorizations collectively referred to as the "Repurchase Program"). The Repurchase Program does not have an expiration date. This Repurchase Program may be suspended or discontinued at any time, and does not obligate the Company to acquire any particular amount of shares.
For the three months ended March 31, 2017, 107,509 shares were repurchased under the Repurchase Program, at a weighted average price of $16.62, respectively, per share, for an aggregate purchase price of $1.8 million. As of March 31, 2017, we had approximately $99.2 million remaining under the Repurchase Program.
As of March 31, 2017, we had $202.4 million of consolidated cash and cash equivalents and $69.2 million of restricted cash and escrows. The restricted cash as of March 31, 2017 primarily consists of cash held in restricted escrows of $3.5 million for real estate taxes and insurance, $8.9 million in disposition related escrows and capital spending reserves, and $56.8 million related to lodging furniture, fixtures and equipment reserves as required per the terms of our management and franchise agreements.
Mortgages and Unsecured Term Loans
As of March 31, 2017, our outstanding total debt was $1,083 million and had a weighted average interest rate of 3.48%.
During the first quarter of 2017, we made a lender loan deposit of $2.4 million related to a new mortgage loan, which is included in other assets on the condensed consolidated balance sheet as of March 31, 2017. In April 2017, we obtained a mortgage loan in the amount of $115 million, which is collateralized by the Marriott San Francisco Airport Waterfront hotel, has a fixed interest rate of 4.63% and matures in May 2027.
Derivatives
In February 2017, we entered into an interest rate swap agreement to fix the interest rate at 4.05% for the remaining term of a $51 million mortgage loan.
Also in February 2017, we entered into interest rate swap agreements to fix the interest rate at 3.81% for the remaining term of a $90 million mortgage loan.
Credit facility
We have a $400 million unsecured revolving credit facility with a syndicate of banks. The revolving credit facility includes an uncommitted accordion feature which, subject to certain conditions, allows us to increase the aggregate availability by up to an additional $350 million. As of March 31, 2017, we had no outstanding balance under the unsecured revolving credit facility.
Sources and Uses of Cash
Our principal sources of cash are cash flows generated from operations and borrowings under debt financings, including draws on our revolving credit facility. We may also obtain cash from various types of equity offerings or the sale of our hotels. Our principal uses of cash are asset acquisitions, capital investments, routine debt service and debt repayments, operating costs, corporate expenses and dividends. We may also elect to use cash to buy back our common stock under the Repurchase Program.

26


Comparison of the Three Months Ended March 31, 2017 to the Three Months Ended March 31, 2016
The table below presents summary cash flow information for the condensed consolidated statements of cash flows (in thousands):
 
Three Months Ended March 31,
 
2017
 
2016
Net cash provided by operating activities
$
34,214

 
$
33,889

Net cash used in investing activities
(11,440
)
 
(88,180
)
Net cash (used in) provided by financing activities
(36,458
)
 
91,713

(Decrease) increase in cash and cash equivalents
(13,684
)
 
37,422

Cash and cash equivalents, at beginning of period
216,054

 
122,154

Cash and cash equivalents, at end of period
$
202,370

 
$
159,576

Operating
Cash provided by operating activities was $34.2 million and $33.9 million for the three months ended March 31, 2017 and 2016, respectively. Cash provided by operating activities for the three months ended March 31, 2017 increased primarily due to (i) a reduction in interest expense attributed to 2016 debt repayments coupled with a lower weighted average interest rate and (iii) decreases in general and administrative expenses attributed to employee related expenses offset by (iii) decreases in hotel operations from the disposition of nine hotels in 2016.
Investing
Cash used in investing activities was $11.4 million and $88.2 million for the three months ended March 31, 2017, and 2016, respectively. Cash used in investing activities for the three months ended March 31, 2017 was primarily due to $14.9 million in capital improvements at our hotel properties, which was offset by funding of $3.5 million in reserves. Cash used in investing activities during the three months ended March 31, 2016 was primarily due to the (i) the acquisition of the Hotel Commonwealth for net cash at closing of $116 million, (ii) $7.3 million in capital improvements at our hotels, which was offset by (iii) $30.9 million from the sale of one hotel in February 2016 and (iv) $4.2 million in funding of reserves.
Financing
Cash used in financing activities was $36.5 million and cash provided by financing was $91.7 million for the three months ended March 31, 2017, and 2016, respectively. Cash used in financing activities for the three months ended March 31, 2017 was primarily comprised of (i) the payment of lender loan deposits for a mortgage loan of $2.4 million, (ii) $3.6 million used to repurchase common shares, of which $1.8 million was under the Repurchase Program and $1.8 million was used to redeem shares of common stock to satisfy employee withholding requirements in connection with stock compensation vesting, and (iii) the payment of $29.8 million in dividends to common stockholders and Operating Partnership unit holders. Cash provided by financing activities for the three months ended March 31, 2016 was primarily comprised of (i) proceeds from the funding of the unsecured term loan of $125 million and proceeds from mortgage debt of $71.3 million, which was partially offset by (ii) the payoff of $27.8 million in mortgage loans, (iii) $49.3 million used to repurchase common shares under the Repurchase Program, and (iv) the payment of $25.7 million in dividends to common stockholders and Operating Partnership unit holders.
Capital Expenditures and Reserve Funds
We maintain each of our properties in good repair and condition and in conformity with applicable laws and regulations, franchise agreements and management agreements. Routine capital expenditures are administered by the property management companies. However, we have approval rights over the capital expenditures as part of the annual budget process for each of our properties. From time to time, certain of our hotels may be undergoing renovations as a result of our decision to upgrade portions of the hotels, such as guest rooms, public space, meeting space and/or restaurants, in order to better compete with other hotels in our markets. In addition, upon the acquisition of a hotel we often are required to complete a property improvement plan in order to bring the hotel up to the respective brand standards. If permitted by the terms of the management agreement, funding for a renovation will first come from the furniture, fixtures and equipment reserves. We are obligated to maintain reserve funds with respect to certain agreements with our hotel management companies, franchisors and lenders to provide funds, generally 3% to 5% of hotel revenues, sufficient to cover the cost of certain capital improvements to the hotels and to periodically replace and update furniture, fixtures and equipment. Certain of the agreements require that we reserve this cash in separate accounts