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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM 10-Q
____________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
OR
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)
Securities registered pursuant to Section 12(b) of the Act:
 
 
 
 
 
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Common Stock
 
XHR
 
New York Stock Exchange
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. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes 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
 
 
Accelerated filer
Non-accelerated filer
 
 
Smaller reporting company
 
 
 
 
Emerging growth company
 
 
 
 
 
 
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. ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of July 24, 2020, there were 113,730,716 shares of the registrant’s common stock outstanding.
 



XENIA HOTELS & RESORTS, INC.
TABLE OF CONTENTS


Part I - Financial Information
 
Page
 
 
 
 
Item 1.
Financial Statements (unaudited)
 
 
 
Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019
 
 
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the Three and Six Months Ended June 30, 2020 and 2019
 
 
Condensed Consolidated Statement of Changes in Equity for the Three and Six Months Ended June 30, 2020 and 2019
 
 
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019
 
 
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 June 30, 2020 and December 31, 2019
(Dollar amounts in thousands, except per share data)
 
June 30, 2020
 
December 31, 2019
Assets
(Unaudited)
 
(Audited)
Investment properties:
 
 
 
Land
$
483,052

 
$
483,052

Buildings and other improvements
3,313,232

 
3,270,056

Total
$
3,796,284

 
$
3,753,108

Less: accumulated depreciation
(899,650
)
 
(826,738
)
Net investment properties
$
2,896,634

 
$
2,926,370

Cash and cash equivalents
305,888

 
110,841

Restricted cash and escrows
60,918

 
84,105

Accounts and rents receivable, net of allowance for doubtful accounts
7,319

 
36,542

Intangible assets, net of accumulated amortization of $1,963 and $744, respectively
7,675

 
28,997

Other assets
87,887

 
76,151

Total assets
$
3,366,321

 
$
3,263,006

Liabilities
 
 
 
Debt, net of loan discounts and unamortized deferred financing costs (Note 5)
$
1,631,150

 
$
1,293,054

Accounts payable and accrued expenses
60,079

 
88,197

Distributions payable
245

 
31,802

Other liabilities
90,623

 
74,795

Total liabilities
$
1,782,097

 
$
1,487,848

Commitments and Contingencies (Note 12)


 


Stockholders' equity
 
 
 
Common stock, $0.01 par value, 500,000,000 shares authorized, 113,730,716 and 112,670,757 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively
$
1,138


$
1,127

Additional paid in capital
2,079,281

 
2,060,924

Accumulated other comprehensive loss
(20,254
)
 
(4,596
)
Accumulated distributions in excess of net earnings
(484,995
)
 
(318,434
)
Total Company stockholders' equity
$
1,575,170

 
$
1,739,021

Non-controlling interests
9,054

 
36,137

Total equity
$
1,584,224

 
$
1,775,158

Total liabilities and equity
$
3,366,321

 
$
3,263,006

See accompanying notes to the condensed consolidated financial statements.

1




XENIA HOTELS & RESORTS, INC.
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income
For the Three and Six Months Ended June 30, 2020 and 2019
(Unaudited)
(Dollar amounts in thousands, except per share data)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
Revenues:
 
 
 
 
 
 
 
Rooms revenues
$
6,956

 
$
184,027

 
$
131,470

 
$
355,168

Food and beverage revenues
2,097

 
99,397

 
75,825

 
202,860

Other revenues
5,772

 
20,861

 
22,881

 
39,944

Total revenues
$
14,825

 
$
304,285

 
$
230,176

 
$
597,972

Expenses:
 
 
 
 
 
 
 
Rooms expenses
7,116

 
41,665

 
42,191

 
82,320

Food and beverage expenses
7,749

 
63,381

 
60,722

 
126,795

Other direct expenses
1,507

 
7,900

 
6,900

 
15,018

Other indirect expenses
26,718

 
71,836

 
96,807

 
144,229

Management and franchise fees
(161
)
 
12,202

 
7,169

 
24,511

Total hotel operating expenses
$
42,929

 
$
196,984

 
$
213,789

 
$
392,873

Depreciation and amortization
37,263

 
39,689

 
74,353

 
79,689

Real estate taxes, personal property taxes and insurance
13,097

 
12,577

 
26,772

 
25,636

Ground lease expense
372

 
1,158

 
1,126

 
2,247

General and administrative expenses
9,829

 
8,046

 
17,980

 
15,621

Gain on business interruption insurance

 
(823
)
 

 
(823
)
Acquisition, terminated transaction and pre-opening expenses
848

 
284

 
848

 
284

Impairment and other losses
3,735

 
14,771

 
20,102

 
14,771

Total expenses
$
108,073

 
$
272,686

 
$
354,970

 
$
530,298

Operating (loss) income
$
(93,248
)
 
$
31,599

 
$
(124,794
)
 
$
67,674

Other income
2,242

 
188

 
2,369

 
283

Interest expense
(13,571
)
 
(12,380
)
 
(26,595
)
 
(24,967
)
Loss on extinguishment of debt

 

 

 
(214
)
Net (loss) income before income taxes
$
(104,577
)
 
$
19,407

 
$
(149,020
)
 
$
42,776

Income tax benefit (expense)
3,090

 
(6,193
)
 
10,402

 
(12,286
)
Net (loss) income
$
(101,487
)
 
$
13,214

 
$
(138,618
)
 
$
30,490

Net loss (income) attributable to non-controlling interests (Note 1)
2,362

 
(437
)
 
3,354

 
(1,011
)
Net (loss) income attributable to common stockholders
$
(99,125
)
 
$
12,777

 
$
(135,264
)
 
$
29,479



2




XENIA HOTELS & RESORTS, INC.
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income, Continued
For the Three and Six Months Ended June 30, 2020 and 2019
(Unaudited)
(Dollar amounts in thousands, except per share data)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
Basic and diluted earnings per share
 
 
 
 
 
 
 
Net (loss) income per share available to common stockholders - basic and diluted
$
(0.88
)
 
$
0.11

 
$
(1.20
)
 
$
0.26

Weighted average number of common shares (basic)
113,498,689

 
112,641,416

 
113,242,786

 
112,630,395

Weighted average number of common shares (diluted)
113,498,689

 
112,915,294

 
113,242,786

 
112,911,624

 
 
 
 
 
 
 
 
Comprehensive (Loss) Income:
 
 
 
 
 
 
 
Net (loss) income
$
(101,487
)
 
$
13,214

 
$
(138,618
)
 
$
30,490

Other comprehensive (loss) income:
 
 
 
 
 
 
 
Unrealized loss on interest rate derivative instruments
(1,679
)
 
(9,451
)
 
(18,800
)
 
(14,533
)
Reclassification adjustment for amounts recognized in net (loss) income (interest expense)
2,261

 
(1,188
)
 
2,671

 
(2,602
)
 
$
(100,905
)
 
$
2,575

 
$
(154,747
)
 
$
13,355

Comprehensive loss (income) attributable to non-controlling interests (Note 1)
2,348

 
(87
)
 
3,825

 
(447
)
Comprehensive (loss) income attributable to the Company
$
(98,557
)
 
$
2,488

 
$
(150,922
)
 
$
12,908

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 June 30, 2020 and 2019
(Unaudited)
(Dollar amounts in thousands, except per share data)
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Additional paid in capital
 
Accumulated other comprehensive income (loss)
 
Distributions in excess of retained earnings
 
Non-controlling Interests of Operating Partnership
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2020
113,424,190

 
$
1,135

 
$
2,075,039

 
$
(20,822
)
 
$
(385,882
)
 
$
11,223

 
$
1,680,693

Net loss

 

 

 

 
(99,125
)
 
(2,362
)
 
(101,487
)
Dividends, vesting event

 

 

 

 
12

 

 
12

Share-based compensation
43,274

 

 
1,193

 

 

 
3,321

 
4,514

Shares redeemed to satisfy tax withholding on vested share-based compensation
(10,538
)
 

 
(90
)
 

 

 

 
(90
)
Redemption of Operating Partnership Units
273,790

 
3

 
3,139

 

 

 
(3,142
)
 

Other comprehensive loss:
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized loss on interest rate derivative instruments

 

 

 
(1,639
)
 

 
(40
)
 
(1,679
)
Reclassification adjustment for amounts recognized in net loss

 

 

 
2,207

 

 
54

 
2,261

Balance at June 30, 2020
113,730,716

 
$
1,138

 
$
2,079,281

 
$
(20,254
)
 
$
(484,995
)
 
$
9,054

 
$
1,584,224

Balance at March 31, 2019
112,639,858

 
$
1,127

 
$
2,059,694

 
$
6,460

 
$
(263,978
)
 
$
30,254

 
$
1,833,557

Net income

 

 

 

 
12,777

 
437

 
13,214

Dividends, common shares / units ($0.275)

 

 

 

 
(31,057
)
 
(489
)
 
(31,546
)
Share-based compensation
2,431

 

 
512

 

 

 
2,529

 
3,041

Shares redeemed to satisfy tax withholding on vested share-based compensation
(721
)
 

 
(16
)
 

 

 

 
(16
)
Other comprehensive loss:
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized loss on interest rate derivative instruments

 

 

 
(9,140
)
 

 
(311
)
 
(9,451
)
Reclassification adjustment for amounts recognized in net income

 

 

 
(1,149
)
 

 
(39
)
 
(1,188
)
Balance at June 30, 2019
112,641,568

 
$
1,127

 
$
2,060,190

 
$
(3,829
)
 
$
(282,258
)
 
$
32,381

 
$
1,807,611

See accompanying notes to the condensed consolidated financial statements.


4




XENIA HOTELS & RESORTS, INC.
Condensed Consolidated Statements of Changes in Equity
For the Six Months Ended June 30, 2020 and 2019
(Unaudited)
(Dollar amounts in thousands, except per share data)
 
Common Stock
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Additional paid in capital
 
Accumulated other comprehensive income (loss)
 
Distributions in excess of retained earnings
 
Non-controlling Interests of Operating Partnership
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2019
112,670,757

 
$
1,127

 
$
2,060,924

 
$
(4,596
)
 
$
(318,434
)
 
$
36,137

 
$
1,775,158

Net loss

 

 

 

 
(135,264
)
 
(3,354
)
 
(138,618
)
Repurchase of common shares, net
(165,516
)
 
(2
)
 
(2,262
)
 

 

 

 
(2,264
)
Dividends, common share / units ($0.275)

 

 

 

 
(31,297
)
 
(323
)
 
(31,620
)
Share-based compensation
141,553

 
1

 
2,041

 

 

 
4,843

 
6,885

Shares redeemed to satisfy tax withholding on vested share-based compensation
(38,610
)
 

 
(565
)
 

 

 

 
(565
)
Redemption of Operating Partnership Units
1,122,532

 
12

 
19,143

 

 

 
(27,778
)
 
(8,623
)
Other comprehensive loss:
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized loss on interest rate derivative instruments

 

 

 
(18,263
)
 

 
(537
)
 
(18,800
)
Reclassification adjustment for amounts recognized in net loss

 

 

 
2,605

 

 
66

 
2,671

Balance at June 30, 2020
113,730,716

 
$
1,138

 
$
2,079,281

 
$
(20,254
)
 
$
(484,995
)
 
$
9,054

 
$
1,584,224

Balance at December 31, 2018
112,583,990

 
$
1,126

 
$
2,059,699

 
$
12,742

 
$
(249,654
)
 
$
28,792

 
$
1,852,705

Net income

 

 

 

 
29,479

 
1,011

 
30,490

Dividends, common shares / units ($0.55)

 

 

 

 
(62,083
)
 
(971
)
 
(63,054
)
Share-based compensation
81,109

 
1

 
946

 

 

 
4,113

 
5,060

Shares redeemed to satisfy tax withholding on vested share-based compensation
(23,531
)
 

 
(455
)
 

 

 

 
(455
)
Other comprehensive loss:
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized loss on interest rate derivative instruments

 

 

 
(14,055
)
 

 
(478
)
 
(14,533
)
Reclassification adjustment for amounts recognized in net income

 

 

 
(2,516
)
 

 
(86
)
 
(2,602
)
Balance at June 30, 2019
112,641,568

 
$
1,127

 
$
2,060,190

 
$
(3,829
)
 
$
(282,258
)
 
$
32,381

 
$
1,807,611

See accompanying notes to the condensed consolidated financial statements.

5




XENIA HOTELS & RESORTS, INC.
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2020 and 2019
(Unaudited)
(Dollar amounts in thousands)
 
Six Months Ended June 30,
 
2020
 
2019
Cash flows from operating activities:
 
 
 
Net (loss) income
$
(138,618
)
 
$
30,490

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
 
 
 
Depreciation
73,067

 
78,253

Non-cash ground rent and amortization of other intangibles
1,364

 
1,533

Amortization of loan discounts and deferred financing costs
1,083

 
1,227

Loss on extinguishment of debt

 
214

Impairment and other losses
20,102

 
14,771

Share-based compensation expense
6,308

 
4,796

Non-cash interest expense
1,148

 

Changes in assets and liabilities:
 
 
 
Accounts and rents receivable
29,223

 
(14,268
)
Other assets
(11,566
)
 
(4,787
)
Accounts payable and accrued expenses
(29,395
)
 
12,941

Other liabilities
(887
)
 
7,690

Net cash (used in) provided by operating activities
$
(48,171
)
 
$
132,860

Cash flows from investing activities:
 
 
 
Capital expenditures and tenant improvements
(40,582
)
 
(36,562
)
Net cash used in investing activities
$
(40,582
)
 
$
(36,562
)
Cash flows from financing activities:
 
 
 
Payoffs of mortgage debt

 
(90,000
)
Principal payments of mortgage debt
(1,391
)
 
(1,701
)
Proceeds from Corporate Credit Facility Term Loans

 
85,000

Payment of loan fees
(3,164
)
 

Proceeds from draws on the Revolving Credit Facility
340,000

 

Redemption of Operating Partnership Units
(8,623
)
 

Repurchase of common shares
(2,264
)
 

Shares redeemed to satisfy tax withholding on vested share based compensation
(783
)
 
(596
)
Dividends
(63,162
)
 
(63,096
)
Net cash provided by (used in) financing activities
$
260,613

 
$
(70,393
)
Net increase in cash and cash equivalents and restricted cash
171,860

 
25,905

Cash and cash equivalents and restricted cash, at beginning of period
194,946

 
161,608

Cash and cash equivalents and restricted cash, at end of period
$
366,806

 
$
187,513


6




XENIA HOTELS & RESORTS, INC.
Condensed Consolidated Statements of Cash Flows, Continued
For the Six Months Ended June 30, 2020 and 2019
(Unaudited)
(Dollar amounts in thousands)
 
Six Months Ended June 30,
 
2020
 
2019
Supplemental disclosure of cash flow information:
 
 
 
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the amount shown in the condensed consolidated statements of cash flows:
 
 
 
Cash and cash equivalents
$
305,888

 
$
110,366

Restricted cash
60,918

 
77,147

Total cash and cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows
$
366,806

 
$
187,513

 
 
 
 
The following represent cash paid during the periods presented for the following:
 
 
 
Cash paid for taxes
$
2,155

 
$
1,875

Cash paid for interest, net of capitalized interest
24,308

 
23,075

 
 
 
 
Supplemental schedule of non-cash investing and financing activities:
 
 
 
Accrued capital expenditures
$
3,406

 
$
1,106

Adjustment to record right of use asset and lease liability, net

 
28,072

Accrued loan costs related to amendments
451

 
 
Deferred interest added to mortgage principal balance
1,148

 

See accompanying notes to the condensed consolidated financial statements.

7




XENIA HOTELS & RESORTS, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2020
 


1. Organization
Xenia Hotels & Resorts, Inc. (the "Company" or "Xenia") is a Maryland corporation that invests primarily in uniquely positioned luxury and upper upscale hotels and resorts in the Top 25 lodging markets as well as key leisure destinations in the United States ("U.S.").
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 June 30, 2020, the Company collectively owned 97.6% of the common limited partnership units issued by the Operating Partnership ("Operating Partnership Units"). The remaining 2.4% of the Operating Partnership Units are owned by the other limited partners comprised of certain of our current executive officers and members of our Board of Directors and includes vested and unvested long-term incentive plan ("LTIP") partnership units. LTIP partnership units may or may not vest based on the passage of time and meeting certain market-based performance objectives.
Xenia operates as a real estate investment trust ("REIT"). 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 June 30, 2020, the Company owned 39 lodging properties. As of June 30, 2019, the Company owned 40 lodging properties.
Impact of COVID-19
In January 2020, cases of novel coronavirus and related respiratory disease (“COVID-19”) started appearing in the United States. By March 11, 2020, COVID-19 was deemed a global pandemic by the World Health Organization. This led federal, state and local governments in the United States to impose measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, school closures, quarantines, shelter-in-place orders and social distancing requirements, and have also implemented multi-step policies of re-opening regions of the country. The effects of the COVID-19 pandemic on the hotel industry are unprecedented with global demand for lodging drastically reduced and occupancy levels reaching historic lows. As of March 31, 2020, 24 of the Company’s 39 hotels and resorts had temporarily suspended operations with seven additional hotels temporarily suspending operations in April. The Company’s remaining eight properties continued operating at levels which reflected the significantly reduced demand levels. Between May and June 2020, the Company recommenced operations at 18 of its hotels and resorts. As result, as of June 30, 2020, 26 of the Company's 39 hotels and resorts were open and operating.
Both business transient and leisure demand declined significantly during the second quarter of 2020, consistent with trends throughout the U.S. lodging industry. The vast majority of our hotel portfolio's group business for the second quarter was canceled, and the Company does not expect that this business will be rebooked in the future. The temporary suspension of operations at a 31 of the Company's 39 hotels and resorts for all or a portion of the second quarter due to the pandemic, led to total portfolio occupancy of 3.7% and 29.5%, for the three and six months ended June 30, 2020. By July 31, 2020, the Company will have recommenced operations at nine additional hotels. The Company anticipates recommencing operations at the remaining four hotels by the end of 2020. We expect a gradual improvement in total revenues in the second half of 2020 from hotels and resorts that have remained open or that have recently recommenced operations. However, our portfolio consists primarily of luxury and upper upscale hotels and resorts, which generally offer restaurant and bar venues, large meeting facilities and event space, and amenities, including spas and golf courses, some of which will have limited operations or may not be operating in the near term in order to comply with implemented safety measures and ongoing restrictions and to accommodate reduced levels of demand. The markets in which we operate are in varying stages of restrictions and re-openings to address the COVID-19 pandemic. In July, several states and municipalities have slowed or reversed re-opening efforts following a resurgence in COVID-19 cases, notably in states such as California, Arizona, Texas, and Florida where we own a number of properties. In addition, a majority of group business for the second half of 2020 has already been or is expected to be canceled.
We cannot predict with certainty when business levels will return to normalized levels after the effects of the pandemic subside or whether hotels that have recommenced operations will be forced to shut down operations or impose additional restrictions

8




due to a resurgence of COVID-19 cases in the future. We currently expect that the recovery in lodging, particularly with respect to group business, will lag behind the recovery of other industries.
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 ("U.S. GAAP" or "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 U.S. 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 (loss) income, 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, 2019, included in the Company's Annual Report on Form 10-K filed with the SEC on February 25, 2020. Operating results for the three and six months ended June 30, 2020 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, and XHR Holding. The Company's subsidiaries generally consist of limited liability companies, limited partnerships and the TRS. The effects of all inter-company transactions have been eliminated.
Going Concern Considerations
Under the accounting guidance related to the presentation of financial statements, when preparing financial statements for each annual and interim reporting period, management has the responsibility to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.  
In applying the accounting guidance, the Company considered our current financial condition and liquidity sources, including current funds available, forecasted future cash flows and our unconditional obligations due over the next 12 months. As of March 31, 2020, the Company was not in compliance with one of its debt financial maintenance covenants under its Revolving Credit Facility and its four Term Loans facilities (collectively, the "Corporate Credit Facilities"), which resulted in an event of default under each of its Corporate Credit Facilities. On June 30, 2020, the Company entered into amendments to the Corporate Credit Facilities. These amendments waived the event of default caused by our noncompliance with the unsecured interest coverage ratio financial covenant for the fiscal quarter ending March 31, 2020, suspended the testing of the leverage ratio covenant, the fixed charge coverage ratio covenant and the unsecured interest ratio covenant under the Corporate Credit Facilities, in each case, through and including the fiscal quarter ending March 31, 2021, unless earlier terminated by the Company, and provide for a gradual return to pre-amendment covenant levels by mid-2022. In addition, the amendments extended the maturity date for the $175 million Term Loan from February 2021 to February 2022, resulting in no debt maturities for the Company until 2022. The amendments allow the Company to maintain cash liquidity with no required paydown on the Revolving Credit Facility. However, the amendments imposed certain additional restrictions and covenants through at least the second quarter of 2021 relating to dividends, share repurchases, the incurrence of additional debt or liens, acquisitions, capital expenditures, the addition of a minimum liquidity requirement, certain mandatory prepayment requirements, and equity pledges from subsidiaries that own certain of the assets in the unencumbered borrowing base, as well as restrictions on the use of proceeds from asset sales, new debt and equity capital raised, among other things. Additionally, the Company completed loan amendments for seven of its eight secured mortgage loans during the three months ended June 30, 2020. In July 2020, the Company completed the amendment to its remaining mortgage loan. The terms of the amendments vary by lender, and include items such as the deferral of monthly interest and/or amortization payments for three to nine months, temporary elimination of requirements to make furniture, fixtures and equipment replacement reserve contributions, ability to temporarily utilize existing furniture, fixtures and equipment replacement reserve funds for operating expenses, subject to certain restrictions and conditions, including requirements to replenish any funds used, waivers for existing quarterly financial covenants for one to three quarters, and adjustments to some covenant calculations following the waiver periods.
In addition, the Company has reduced all non-essential spending, has revisited its investment strategies, reduced ongoing payroll costs, and canceled or deferred approximately $50 million of capital expenditures projects. We have also suspended our

9


quarterly dividend through the balance of 2020 unless it is determined that an additional dividend is required to maintain our REIT status.
We cannot predict with certainty when business levels will return to normalized levels after the effects of the pandemic subside or whether hotels that have recommenced operations will be forced to shut down operations or impose additional restrictions due to a resurgence of COVID-19 cases in the future. We currently expect that the recovery in lodging, particularly with respect to group business, will lag behind the recovery of other industries. Therefore as a consequence of these unprecedented trends resulting from the impact of the pandemic, we are unable to estimate future financial performance with certainty. However, based on our completed loan amendments that provide for, among other things, covenant holidays through the fiscal quarter ending March 31, 2021 and a gradual return to pre-amendment covenant levels by mid-2022, our current forecast of future operating results for the next 12 months from the date of this report, and the actions we have taken to improve our liquidity, the Company has concluded that it has alleviated its doubt about our ability to continue as a going concern.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and revenues and expenses. These estimates are prepared using management's best judgment, after considering past, current and expected future economic conditions. Actual results could differ from these estimates.
Risks and Uncertainties
As a result of temporary closures and significantly reduced demand levels, our revenues declined significantly during the three and six months ended June 30, 2020. As of June 30, 2020, 26 of the Company’s 39 hotels and resorts were open and operating and 13 of our hotels and resorts remained temporarily shuttered. By July 31, 2020, the Company will have recommenced operations at nine additional hotels. The Company anticipates recommencing operations at the remaining four hotels by the end of 2020. We expect a gradual improvement in total revenues in the second half of 2020 from hotels and resorts that have remained open or that have recently recommenced operations. However, our portfolio consists primarily of luxury and upper upscale hotels and resorts, which generally offer restaurant and bar venues, large meeting facilities and event space, and amenities, including spas and golf courses, some of which will have limited operations or will be not be operating in the near term in order to comply with implemented safety measures and ongoing restrictions and to accommodate reduced levels of demand. We will continue to monitor the evolving situation and guidance from federal, state and local governmental and public health authorities, and we may be required or elect to take additional actions based on their recommendations. Under these circumstances, there may be developments that require us to further adjust our operations. We cannot predict with certainty when business levels will return to normalized levels after the effects of the pandemic subside or whether hotels that have recommenced operations will be forced to shut down operations or impose additional restrictions due to a resurgence of COVID-19 cases in the future. We currently expect that the recovery in lodging, particularly with respect to group business, will lag behind the recovery of other industries. Additionally, we expect the effects of the pandemic to materially and adversely affect our ability to consummate acquisitions and dispositions of hotel properties in the near term as well as to cause us to scale back or delay planned renovations and other projects. Due to the speed with which the situation is developing we cannot predict the full extent and duration of the effects of the COVID-19 pandemic on our operations, although the longer and more severe the pandemic or resurgence, the greater the material adverse impact will be on our business, results of operations, cash flows, financial condition, the market price of our common stock, our ability to make distributions to our shareholders, our access to credit markets and our ability to service our indebtedness.
For the six months ended June 30, 2020, the Company had a geographical concentration of revenues generated from hotels in the Orlando, Florida and Phoenix, Arizona markets that exceeded 10% of total revenues for the period then ended. For the six months ended June 30, 2019, the Company had a geographical concentration of revenues generated from hotels in the Orlando, Florida market that exceeded 10% of total revenues for the period then ended. To the extent that adverse changes continue in these markets, or the industry sectors that operate in these markets, our business and operating results could continue to be negatively impacted.
Consolidation
The Company evaluates its investments in partially owned entities to determine whether any 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

10




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 over which the Company does not have effective control, but can exercise influence over the entity with respect to its operations and major decisions.
The Operating Partnership is a VIE. The Company's significant asset is its investment in the Operating Partnership, as described in Note 1, and consequently, substantially all of the Company's assets and liabilities represent those assets and liabilities of the Operating Partnership.
Cash and Cash Equivalents
The Company considers all demand deposits, money market accounts and investments in certificates of deposit, repurchase agreements purchased, and similar accounts with a maturity of three months or less, at the date of purchase, to be cash equivalents. The Company maintains its cash and cash equivalents at various financial institutions. The combined account balances at one or more institutions generally exceed the Federal Depository Insurance Corporation ("FDIC") insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. The Company believes that the risk is not significant as the Company does not anticipate the financial institutions’ non-performance.
Restricted Cash and Escrows
Restricted cash primarily relates to furniture, fixtures and equipment replacement reserves as required per the terms of our management and franchise agreements, cash held in restricted escrows for real estate taxes and insurance, capital spending reserves and, at times, disposition related hold back escrows.
As a result of the material adverse impact on the results of operations attributed to the COVID-19 pandemic, certain of the Company's third-party managers have suspended required contributions to the furniture, fixture and equipment replacement reserve for a period of time. Additionally, we have the ability to utilize a portion of these cash balances for hotel operating expenses. Usage of such replacement reserves may be subject to lender approval for hotels encumbered by mortgage loans or may be required to be replenished.
Impairment
Goodwill
The excess of the cost of an acquired entity (i.e. those that met the definition of an acquired business), over the net of the fair values assigned to assets acquired (including identified intangible assets) and liabilities assumed is recorded as goodwill. Goodwill has been recognized and allocated to specific properties. The Company tests goodwill for impairment annually or more frequently if events or changes in circumstances indicate impairment.
The Company has the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The optional qualitative assessment determines whether it is more likely than not that the specific goodwill's fair value is less than its carrying amount. If it is determined that it is more likely than not that the goodwill is impaired, the Company performs a single-step analysis to identify and measure impairment. The fair value of goodwill is based on either the direct capitalization or the discounted cash flow valuation method. The direct capitalization method is based on a capitalization rate, which is generally observable (a Level 2 input, but at times could be unobservable, which is a Level 3 input), applied to the underlying hotel's most recent stabilized trailing twelve month net operating income at the time of the fair value analysis. The discounted cash flow method is based on estimated future cash flow projections that utilize discount rates, terminal capitalization rates, and planned capital expenditures, which are generally unobservable in the market place (Level 3 inputs), but these estimates approximate the inputs the Company believes would be utilized by market participants in assessing fair value. The estimates of future cash flows are based on a number of factors, including the historical operating results, estimated growth rates, known trends, and market/economic conditions. If the carrying amount of the property’s assets, including goodwill, exceeds its estimated fair value an impairment charge is recorded in an amount equal to that excess but only to the extent the value of goodwill is reduced to zero.
As of June 30, 2020 and December 31, 2019, the Company had goodwill of $4.9 million and $25.0 million, respectively, which is included in intangible assets, net of accumulated amortization on the condensed consolidated balance sheets for the periods then ended. During the three months ended June 30, 2020, the Company determined the carrying value of goodwill related to Bohemian Hotel Savannah Riverfront, Autograph Collection, was in excess of its fair value and therefore recorded an

11




impairment charge of $3.7 million to fully write off the related goodwill. During the six months ended June 30, 2020, the Company determined the carrying value of goodwill related to Andaz Savannah and Bohemian Hotel Savannah Riverfront, Autograph Collection, were in excess of their fair values and therefore recorded an impairment charge of $20.1 million. Refer to Note 7 for further information. During the three and six months ended June 30, 2019, no impairment of goodwill was recorded.
Long-lived assets and intangibles
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. Events or circumstances that may cause a review include, but are not limited to, when a hotel property (1) experiences a significant decrease in the market price of the long-lived asset, (2) experiences a current or projected loss from operations combined with a history of operating or cash flow losses, (3) when it becomes more likely than not that a hotel property will be sold before the end of its useful life, (4) an accumulation of costs significantly in excess of the amount originally expected for the acquisition, construction or renovation of a long-lived asset, (5) adverse changes in the demand for lodging at a specific property due to declining national or local economic conditions and/or new hotel construction in markets where the hotel is located, (6) a significant adverse change in legal factors or in the business climate that could affect the value of the long-lived asset and/or (7) a significant adverse change in the extent or manner in which a long-lived asset is being used in its physical condition. If it is determined that the carrying value is not recoverable because the undiscounted cash flows do not exceed carrying value, the Company records an impairment charge to the extent that the carrying value exceeds fair value.
The COVID-19 pandemic has had, and is expected to continue to have, a material adverse impact on the lodging and hospitality industries, which management considered to be an ongoing triggering event during its impairment testing for the three and six months ended June 30, 2020. The Company assessed the recoverability of each of its long-lived assets and intangibles and determined that there were no impairments as of June 30, 2020.
Impairment estimates
The valuation and possible subsequent impairment of long-lived investment properties and/or goodwill 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, both undiscounted and discounted, and estimated hold periods are based on assumptions that are consistent with the estimates of future expectations and the strategic plan the Company uses to manage its underlying business. These assumptions and estimates about future cash flows along with the capitalization and discount rates used to determine fair values are complex and subjective. The determination of fair value 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. 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.
Leases
For leases greater than 12 months, the Company evaluates the lease at commencement to determine if the lease is an operating or finance lease. If a lease includes variable lease payments that are based on an index or rate, such as the Customer Price Index, these increases are included in the lease liability. For leases that have extension options, which can be exercised at the Company's discretion, management uses judgment to determine if it is reasonably certain that such extension options will be elected. If the extension options are reasonably certain to occur, the Company includes the extended term's lease payments in the calculation of the respective lease liability. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
The incremental borrowing rate used to discount the lease liability is determined at commencement of the lease, or upon modification of the lease, as the interest rate a lessee would have to pay to borrow on a fully collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Management uses a portfolio approach to develop a base incremental borrowing rate for our various lease types. This approach includes consideration of the Company's incremental borrowing rate at both the corporate and property level and analysis of current market conditions for obtaining new

12




financings. Management then adjusts the base incremental borrowing rate to take into consideration an individual leases' credit risk, total lease payments, and remaining lease term.
A number of our hotels have retail space that is leased to third parties for restaurants, retail and other space leases. Rental income from retail leases is recognized on a straight-line basis over the term of the underlying lease and is included in other income on the condensed consolidated statement of operations and comprehensive (loss) income. Percentage rent is recognized at the point in time in which the underlying thresholds are achieved and percentage rent is earned. In March 2020, we began to receive notices and requests for rent deferrals, rent abatements and other concessions from certain of our space lease tenants as a result of the impact of COVID-19. The Company has provided limited short-term rent deferrals and/or abatements in certain cases. A number of our space lease tenants have defaulted on their rent obligations and others may also default in the future. There is no certainty as to when, or if, these tenants will start paying rent again in the future. As a result, for leases in which collectibility of rent is a concern the Company records rental income only when cash is received.
Derivatives and Hedging Activities
In the normal course of business, the Company is exposed to the effects of interest rate changes. The Company limits the risks associated with interest rate changes by following established risk management policies and procedures which may include the use of derivative instruments. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objectives and strategies for undertaking various hedge transactions. The Company assesses, both at the inception of the hedge and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the cash flows of the hedged items. Instruments that meet these hedging criteria are formally designated as hedges at the inception of the derivative contract and are recorded on the balance sheet at fair value, with offsetting changes recorded to other comprehensive income (loss). The Company nets assets and liabilities when the right of offset exists. Ineffective portions of changes in the fair value of a cash flow hedge are recognized as interest expense. The Company incorporates credit valuation adjustments to reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. Any future defaults by the Company under the terms of its hedges, including those which may arise from cross default provisions with loan agreements, could result in the Company being immediately liable for the fair market value liability of the defaulted hedges.
Revenues
Revenue consists of amounts derived from hotel operations, including the sale of rooms for lodging accommodations, food and beverage, and other ancillary revenue generated by hotel amenities including parking, spa, resort fees and other services.
Revenues are generated from various distribution channels including but not limited to direct bookings, global distribution systems and online travel sites. Room transaction prices are based on an individual hotel's location, room type and the bundle of services included in the reservation and are set by the hotel daily. Any discounts, including advanced purchase, loyalty point redemptions or promotions are recognized at the discounted rate whereas rebates and incentives are recorded as a reduction in rooms revenue when earned. Revenues from online channels are generally recognized net of commission fees, unless the end price paid by the guest is known. Rooms revenue is recognized over the length of stay that the hotel room is occupied by the guest. Cash received from a guest prior to check-in is recorded as an advanced deposit and is generally recognized as rooms revenue at the time the room reservation has become non-cancellable, upon occupancy or upon expiration of the re-booking date. Advance deposits are included in other liabilities on the condensed consolidated balance sheets. Payment of any remaining balance is typically due from the guest upon check-out. Sales, use, occupancy, and similar taxes are collected and presented on a net basis (excluded from revenues).
Food and beverage transaction prices are based on the stated price for the specific food or beverage and varies depending on type, venue and hotel location. Service charges are typically a percentage of food and beverage charges and meeting space rental. Food and beverage revenue is recognized at the point in time in which the goods and/or services are rendered to the guest. Cash received in advance of an event is recorded as either a security or advance deposit. Security and advance deposits are recognized as revenue when it becomes non-cancellable or at the time the food and beverage goods and services are rendered to the guest. Payment for the remaining balance of food and beverage goods and services is due upon delivery and completion of such goods and services.
Parking and audio visual fees are recognized at the time services are provided to the guest. In parking and audio visual contracts in which we have control over the services provided, we are considered the principal in the agreement and recognize the related revenues gross of associated costs. If we do not have control over the services in the contract, we are considered the agent and record the related revenues net of associated costs.

13




Resort and amenity fees, spa and other ancillary amenity revenues are recognized at the point in time the goods or services have been rendered to the guest at the stated price for the service or amenity.
Share-Based Compensation
The Company has adopted a share-based incentive plan that provides for the grant of stock options, stock awards, restricted stock units, Operating Partnership Units and other equity-based awards. Share-based compensation is measured at the estimated fair value of the award on the date of grant, adjusted for forfeitures, and recognized as an expense on a straight-line basis over the longest vesting period for each grant for the entire award. The determination of fair value of these awards is subjective and involves significant estimates and assumptions including expected volatility of the Company's shares, expected dividend yield, expected term and assumptions of whether certain of these awards will achieve performance thresholds. Share-based compensation is included in general and administrative expenses in the accompanying condensed consolidated statements of operations and comprehensive (loss) income and capitalized in building and other improvements in the condensed consolidated balance sheets for certain employees that manage property developments, renovations and capital improvements.
Recently Issued Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board issued Accounting Standard Update 2020-04, Reference Rate Reform (Topic 848) ("ASU 2020-04"). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. As of March 31, 2020, the Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.
3. Revenues
The following represents total revenue disaggregated by primary geographical markets (as defined by STR, Inc. ("STR")) for the three and six months ended June 30, 2020 and 2019 (in thousands):
 
 
Three Months Ended
 
Six Months Ended
Primary Markets
 
June 30, 2020
 
June 30, 2020
Orlando, FL
 
$
670

 
$
30,864

Phoenix, AZ
 
2,989

 
27,095

Houston, TX
 
838

 
22,102

Dallas, TX
 
258

 
15,795

Atlanta, GA
 
1,259

 
14,568

San Francisco/San Mateo, CA
 
364

 
13,990

San Diego, CA
 
1,182

 
11,823

San Jose-Santa Cruz, CA
 
474

 
10,067

Denver, CO
 
263

 
9,948

Washington, DC-MD-VA
 
523

 
7,552

Other
 
6,005

 
66,372

Total
 
$
14,825

 
$
230,176


14




 
 
Three Months Ended
 
Six Months Ended
Primary Markets
 
June 30, 2019
 
June 30, 2019
Orlando, FL
 
$
30,180

 
$
66,335

Phoenix, AZ
 
24,943

 
57,788

Houston, TX
 
26,915