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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 March 31, 2022
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 April 29, 2022, there were 114,353,273 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, 2022 and December 31, 2021 | | |
| Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2022 and 2021 | | |
| | | |
| Condensed Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2022 and 2021 | | |
| Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021 | | |
| 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, 2022 and December 31, 2021
(Dollar amounts in thousands, except per share data)
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Assets | (Unaudited) | | (Audited) |
Investment properties: | | | |
Land | $ | 467,708 | | | $ | 431,427 | |
Buildings and other improvements | 3,160,421 | | | 2,856,671 | |
| | | |
Total | $ | 3,628,129 | | | $ | 3,288,098 | |
Less: accumulated depreciation | (919,045) | | | (888,717) | |
Net investment properties | $ | 2,709,084 | | | $ | 2,399,381 | |
Cash and cash equivalents | 179,077 | | | 517,377 | |
Restricted cash and escrows | 40,158 | | | 36,854 | |
Accounts and rents receivable, net of allowance for doubtful accounts | 36,242 | | | 28,528 | |
Intangible assets, net of accumulated amortization of $2,352 and $2,231, respectively | 5,414 | | | 5,446 | |
| | | |
Other assets | 70,112 | | | 65,109 | |
Assets held for sale | — | | | 34,621 | |
Total assets | $ | 3,040,087 | | | $ | 3,087,316 | |
Liabilities | | | |
Debt, net of loan premiums, discounts and unamortized deferred financing costs (Note 5) | $ | 1,429,616 | | | $ | 1,494,231 | |
Accounts payable and accrued expenses | 92,818 | | | 84,051 | |
| | | |
Other liabilities | 79,248 | | | 68,648 | |
Liabilities associated with assets held for sale | — | | | 2,305 | |
Total liabilities | $ | 1,601,682 | | | $ | 1,649,235 | |
Commitments and Contingencies (Note 12) | | | |
Stockholders' equity | | | |
Common stock, $0.01 par value, 500,000,000 shares authorized, 114,353,273 and 114,306,727 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively | $ | 1,144 | | | $ | 1,143 | |
Additional paid in capital | 2,090,627 | | | 2,090,393 | |
Accumulated other comprehensive loss | (837) | | | (4,089) | |
Accumulated distributions in excess of net earnings | (661,785) | | | (656,461) | |
Total Company stockholders' equity | $ | 1,429,149 | | | $ | 1,430,986 | |
Non-controlling interests | 9,256 | | | 7,095 | |
Total equity | $ | 1,438,405 | | | $ | 1,438,081 | |
Total liabilities and equity | $ | 3,040,087 | | | $ | 3,087,316 | |
See accompanying notes to the condensed consolidated financial statements.
XENIA HOTELS & RESORTS, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
For the Three Months Ended March 31, 2022 and 2021
(Unaudited)
(Dollar amounts in thousands, except per share data)
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2022 | | 2021 | | | | |
Revenues: | | | | | | | |
Rooms revenues | $ | 123,198 | | | $ | 55,646 | | | | | |
Food and beverage revenues | 67,735 | | | 21,592 | | | | | |
Other revenues | 19,414 | | | 10,614 | | | | | |
Total revenues | $ | 210,347 | | | $ | 87,852 | | | | | |
Expenses: | | | | | | | |
Rooms expenses | 29,217 | | | 15,537 | | | | | |
Food and beverage expenses | 45,610 | | | 18,178 | | | | | |
Other direct expenses | 5,294 | | | 3,198 | | | | | |
Other indirect expenses | 53,860 | | | 37,327 | | | | | |
Management and franchise fees | 7,626 | | | 2,844 | | | | | |
Total hotel operating expenses | $ | 141,607 | | | $ | 77,084 | | | | | |
Depreciation and amortization | 30,565 | | | 33,197 | | | | | |
Real estate taxes, personal property taxes and insurance | 10,855 | | | 10,540 | | | | | |
Ground lease expense | 517 | | | 403 | | | | | |
General and administrative expenses | 7,786 | | | 6,922 | | | | | |
Gain on business interruption insurance | — | | | (1,116) | | | | | |
| | | | | | | |
| | | | | | | |
Impairment and other losses | 1,278 | | | — | | | | | |
Total expenses | $ | 192,608 | | | $ | 127,030 | | | | | |
Operating income (loss) | $ | 17,739 | | | $ | (39,178) | | | | | |
| | | | | | | |
Other (loss) income | (777) | | | 116 | | | | | |
Interest expense | (20,538) | | | (18,750) | | | | | |
Loss on extinguishment of debt | (294) | | | — | | | | | |
Net loss before income taxes | $ | (3,870) | | | $ | (57,812) | | | | | |
Income tax expense | (1,607) | | | (165) | | | | | |
| | | | | | | |
| | | | | | | |
Net loss | $ | (5,477) | | | $ | (57,977) | | | | | |
Net loss attributable to non-controlling interests (Note 1) | 153 | | | 1,626 | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net loss attributable to common stockholders | $ | (5,324) | | | $ | (56,351) | | | | | |
XENIA HOTELS & RESORTS, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss, Continued
For the Three Months Ended March 31, 2022 and 2021
(Unaudited)
(Dollar amounts in thousands, except per share data)
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2022 | | 2021 | | | | |
Basic and diluted loss per share | | | | | | | |
Net loss per share available to common stockholders - basic and diluted | $ | (0.05) | | | $ | (0.50) | | | | | |
Weighted-average number of common shares (basic and diluted) | 114,326,406 | | | 113,780,388 | | | | | |
| | | | | | | |
| | | | | | | |
Comprehensive Loss: | | | | | | | |
Net loss | $ | (5,477) | | | $ | (57,977) | | | | | |
Other comprehensive income (loss): | | | | | | | |
Unrealized gain on interest rate derivative instruments | 2,517 | | | 104 | | | | | |
Reclassification adjustment for amounts recognized in net loss (interest expense) | 1,152 | | | 2,330 | | | | | |
| $ | (1,808) | | | $ | (55,543) | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Comprehensive (gain) loss attributable to non-controlling interests (Note 1) | (264) | | | 1,558 | | | | | |
Comprehensive loss attributable to the Company | $ | (2,072) | | | $ | (53,985) | | | | | |
See accompanying notes to the condensed consolidated financial statements.
XENIA HOTELS & RESORTS, INC.
Condensed Consolidated Statements of Changes in Equity
For the Three Months Ended March 31, 2022 and 2021
(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, 2021 | 114,306,727 | | | $ | 1,143 | | | $ | 2,090,393 | | | $ | (4,089) | | | $ | (656,461) | | | | | | | $ | 7,095 | | | $ | 1,438,081 | |
Net loss | — | | | — | | | — | | | — | | | (5,324) | | | | | | | (153) | | | (5,477) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Share-based compensation | 63,024 | | | 1 | | | 537 | | | — | | | | | | | | | 1,897 | | | 2,435 | |
Shares redeemed to satisfy tax withholding on vested share-based compensation | (16,478) | | | — | | | (303) | | | — | | | — | | | | | | | — | | | (303) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Other comprehensive loss: | | | | | | | | | | | | | | | | | |
Unrealized gain on interest rate derivative instruments | — | | | — | | | — | | | 2,133 | | | — | | | | | | | 384 | | | 2,517 | |
Reclassification adjustment for amounts recognized in net loss | — | | | — | | | — | | | 1,119 | | | — | | | | | | | 33 | | | 1,152 | |
Balance at March 31, 2022 | 114,353,273 | | | $ | 1,144 | | | $ | 2,090,627 | | | $ | (837) | | | $ | (661,785) | | | | | | | $ | 9,256 | | | $ | 1,438,405 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Balance at December 31, 2020 | 113,755,513 | | | $ | 1,138 | | | $ | 2,080,364 | | | $ | (14,425) | | | $ | (513,002) | | | | | | | $ | 12,788 | | | $ | 1,566,863 | | |
Net loss | — | | | — | | | — | | | — | | | (56,351) | | | | | | | (1,626) | | | (57,977) | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Share-based compensation | 67,554 | | | — | | | 1,045 | | | — | | | — | | | | | | | 1,640 | | | 2,685 | | |
Shares redeemed to satisfy tax withholding on vested share-based compensation | (18,993) | | | — | | | (318) | | | — | | | — | | | | | | | — | | | (318) | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Other comprehensive loss: | | | | | | | | | | | | | | | | | | |
Unrealized gain on interest rate derivative instruments | — | | | — | | | — | | | 101 | | | — | | | | | | | 3 | | | 104 | | |
Reclassification adjustment for amounts recognized in net loss | — | | | — | | | — | | | 2,265 | | | — | | | | | | | 65 | | | 2,330 | | |
Balance at March 31, 2021 | 113,804,074 | | | $ | 1,138 | | | $ | 2,081,091 | | | $ | (12,059) | | | $ | (569,353) | | | | | | | $ | 12,870 | | | $ | 1,513,687 | | |
See accompanying notes to the condensed consolidated financial statements.
XENIA HOTELS & RESORTS, INC.
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2022 and 2021
(Unaudited)
(Dollar amounts in thousands)
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
Cash flows from operating activities: | | | |
Net loss | $ | (5,477) | | | $ | (57,977) | |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | | |
Depreciation | 30,429 | | | 32,929 | |
Non-cash ground rent and amortization of other intangibles | 136 | | | 268 | |
Amortization of debt premiums, discounts, and financing costs | 1,286 | | | 1,767 | |
Loss on extinguishment of debt | 294 | | | — | |
| | | |
| | | |
Gain on insurance recoveries | (994) | | | — | |
Share-based compensation expense | 2,207 | | | 2,295 | |
Deferred interest expense | (409) | | | — | |
| | | |
Changes in assets and liabilities: | | | |
Accounts and rents receivable | (7,599) | | | (5,604) | |
Other assets | (5,315) | | | (8,286) | |
Accounts payable and accrued expenses | 8,234 | | | 212 | |
Other liabilities | 9,780 | | | 3,236 | |
| | | |
Net cash provided by (used in) operating activities | $ | 32,572 | | | $ | (31,160) | |
Cash flows from investing activities: | | | |
Purchase of investment properties | (328,493) | | | — | |
Capital expenditures | (7,499) | | | (7,242) | |
Proceeds from sale of investment properties | 32,820 | | | — | |
Proceeds from property insurance | 1,168 | | | — | |
Performance guaranty payments | 912 | | | 695 | |
| | | |
| | | |
Net cash used in investing activities | $ | (301,092) | | | $ | (6,547) | |
Cash flows from financing activities: | | | |
| | | |
Payoff of mortgage debt | (65,000) | | | — | |
Principal payments of mortgage debt | (932) | | | (1,357) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Shares redeemed to satisfy tax withholding on vested share-based compensation | (490) | | | (443) | |
Dividends and dividend equivalents | (54) | | | (54) | |
| | | |
Net cash used in financing activities | $ | (66,476) | | | $ | (1,854) | |
Net decrease in cash and cash equivalents and restricted cash | (334,996) | | | (39,561) | |
Cash and cash equivalents and restricted cash, at beginning of period | 554,231 | | | 428,786 | |
Cash and cash equivalents and restricted cash, at end of period | $ | 219,235 | | | $ | 389,225 | |
XENIA HOTELS & RESORTS, INC.
Condensed Consolidated Statements of Cash Flows, Continued
For the Three Months Ended March 31, 2022 and 2021
(Unaudited)
(Dollar amounts in thousands)
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
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 | $ | 179,077 | | | $ | 354,597 | |
Restricted cash | 40,158 | | | 34,628 | |
Total cash and cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows | $ | 219,235 | | | $ | 389,225 | |
| | | |
The following represent cash paid during the periods presented for the following: | | | |
Cash paid for interest, net of capitalized interest | $ | 21,433 | | | $ | 24,814 | |
Cash recovered for taxes | — | | | (72) | |
| | | |
Supplemental schedule of non-cash investing and financing activities: | | | |
Accrued capital expenditures | $ | 2,891 | | | $ | 368 | |
| | | |
| | | |
| | | |
See accompanying notes to the condensed consolidated financial statements.
XENIA HOTELS & RESORTS, INC.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
March 31, 2022
1. Organization
Xenia Hotels & Resorts, Inc. (the "Company" or "Xenia") is a Maryland corporation that invests in uniquely positioned luxury and upper upscale hotels and resorts with a focus on the top 25 lodging markets as well as key leisure destinations in the United States.
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, 2022, the Company collectively owned 97.1% of the common limited partnership units issued by the Operating Partnership ("Operating Partnership Units"). The remaining 2.9% 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 whether certain market-based performance objectives are met.
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 March 31, 2022 and 2021, the Company owned 34 and 35 lodging properties, respectively.
Ongoing Impact of COVID-19
We began to see improvements in leisure demand during the second half of 2020, a trend that accelerated in 2021 and has continued into 2022. During the first quarter of 2022, operations continued to improve due to a re-acceleration in leisure travel and higher levels of business transient and group demand beginning in mid-February.
Despite this improvement, there remains significant uncertainty regarding the pace of recovery and whether and when business travel and larger group meetings will return to pre-pandemic levels. We may be impacted by, among other things, the distribution and acceptance of COVID-19 vaccines and boosters, breakthrough cases, and new variants of COVID-19, as well as the ongoing local and national response to the virus. As the recovery continues, we expect that the pace will vary from market to market and may be uneven in nature.
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 condensed consolidated 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, 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, 2021, included in the Company's Annual Report on Form 10-K filed with the SEC on March 1, 2022. Operating results for the three months ended March 31, 2022 are not necessarily indicative of actual operating results for the entire year.
Basis of Presentation
The 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.
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 the COVID-19 pandemic, the majority of the Company's hotels and resorts temporarily suspended operations for certain periods of time during 2020. All of the Company's hotels had resumed operations by the end of May 2021. The Company's portfolio consists 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 may have limited operations or may not be able to operate during the recovery in order to comply with implemented safety measures, ongoing or reimplemented restrictions and to accommodate reduced levels of demand. The Company continues to monitor the evolving situation and guidance from federal, state and local governmental and public health authorities and additional actions may be taken or required based on their recommendations and regulations in place. Under these circumstances, there may be developments that require further adjustments to operations.
The Company cannot predict with certainty whether and when business levels will return to normalized levels after the effects of the pandemic subside or whether hotels will be forced to suspend operations or impose additional restrictions due to future variants of COVID-19. Although it is improving, the lodging industry, particularly with respect to business transient and group business, has continued to lag behind the recovery of other industries. Factors such as public health (including a significant increase in variant strains of COVID-19 cases), availability and effectiveness of COVID-19 vaccines/boosters and therapeutics, the level of acceptance of the vaccine by the general population and the economic and geopolitical environments may impact the timing, extent and pace of such recovery. Additionally, the effects of the pandemic could materially and adversely affect the Company's ability to consummate acquisitions and dispositions of hotel properties in the near term.
The Company cannot predict with certainty the full extent and duration of the effects of the COVID-19 pandemic on its business, operating margins, results of operations, cash flows, financial condition, the market price of its common stock, its ability to make distributions to its shareholders, its access to equity and credit markets or its ability to service its indebtedness. Further, the Company continues to monitor and evaluate the challenges associated with inflationary pressures, the evolving workforce landscape, particularly related to industry-wide labor shortages and expected increases in wages, as well as ongoing supply chain issues which may continue to impact the hotels' ability to source operating supplies and other materials.
For the three months ended March 31, 2022, 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 three months ended March 31, 2021, the Company had a geographical concentration of revenues generated from hotels in the Phoenix, Arizona, Orlando, Florida and Houston, Texas markets that exceeded 10% of total revenues for the period then ended. To the extent 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 such entities may be a variable interest entity ("VIE") or voting interest entity. 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 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 and 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 non-performance by the financial institutions.
Restricted Cash and Escrows
Restricted cash primarily relates to FF&E reserves as required per the terms of the Company's management and franchise agreements, cash held in restricted escrows for real estate taxes and insurance, capital spending reserves and, at times, disposition-related holdback escrows.
Acquisition of Real Estate
Investments in hotel properties, including land and land improvements, building and building improvements, furniture, fixtures and equipment, and identifiable intangibles assets, will generally be accounted for as asset acquisitions. Acquired assets are recorded at their relative fair value based on total accumulated costs of the acquisition. Direct acquisition-related costs are capitalized as a component of the acquired assets. This includes all costs related to finding, analyzing and negotiating a transaction.
The allocation of the purchase price is an area that requires judgment and significant estimates. Tangible and intangible assets include land, building and improvements, furniture and fixtures, inventory, acquired above market and below market leases, in-place lease value (if applicable), advance bookings, and any assumed financing that is determined to be above or below market terms. Acquisition-date fair values of assets and assumed liabilities are determined based on replacement costs, appraised values, and estimated fair values using methods similar to those used by independent appraisers and that use appropriate discount and/or capitalization rates and available market information.
Impairment
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 (1) a hotel property experiences a significant decrease in the market price of the long-lived asset, (2) a hotel property experiences a current or projected loss from operations combined with a history of operating or cash flow losses, (3) 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 is significantly in excess of the amount originally expected for the acquisition, construction or renovation of a long-lived asset, (5) adverse changes in demand occur 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) there is 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) there is a significant adverse change in the extent or manner in which a long-lived asset is being used or 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.
Involuntary Conversion
In August 2021, Hurricane Ida impacted Loews New Orleans Hotel located in New Orleans, Louisiana. During the three months ended March 31, 2022, the Company recorded additional hurricane-related repair and cleanup costs of $1.3 million which is included in impairment and other losses on the condensed consolidated statement of operations and comprehensive loss for the period then ended. The Company also has various other ongoing claims for damage sustained during winter storms in Texas in early 2021.
Insurance Recoveries
Insurance proceeds received in excess of recognized losses are treated as gain and are not recorded until contingencies are resolved. During the three months ended March 31, 2022, the Company received insurance proceeds related to damage sustained at Loews New Orleans Hotel during Hurricane Ida. These insurance proceeds were in excess of recognized losses and resulted in a gain on insurance recovery of $1.0 million which is included in other (loss) income on the condensed consolidated statement of operations and comprehensive loss for the period then ended.
The Company may also be entitled to business interruption proceeds for losses occurring at certain properties; however, an insurance recovery receivable will not be recorded until a final settlement has been reached with the insurance company. The Company is currently seeking business interruption proceeds related to properties impacted by storms under the Company's various insurance policies. During the three months ended March 31, 2021, the Company recognized $1.1 million in business interruption insurance proceeds for a portion of lost revenues associated with cancellations related to the COVID-19 pandemic. These amounts are included in gain on business interruption insurance on the condensed consolidated statement of operations and comprehensive loss for the period then ended. No business interruption insurance recovery receivables were recognized during the three months ended March 31, 2022.
Disposition of Real Estate
The Company accounts for dispositions of real estate in accordance with ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets ("Subtopic 610-20") for the transactions between the Company and unrelated third-parties that are not considered a customer in the ordinary course of business. Typically, the real estate assets disposed of do not represent the transfer of a business or contain a material amount of financial assets, if any. The real estate assets promised in a sales contract are typically nonfinancial assets (i.e. land or a leasehold interest in land, building, furniture, fixtures and equipment) or in substance nonfinancial assets. The Company recognizes a gain or loss in full when the real estate is sold, provided (a) there is a valid contract and (b) transfer of control has occurred.
Revenues
Revenues consist 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 spa, parking, golf, resort fees and other services.
Revenues are generated from various distribution channels including but not limited to direct bookings, global distribution systems and Internet 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 advance purchase, loyalty point redemptions or promotions are recognized at the discounted rate whereas rebates and incentives are recorded as a reduction in rooms revenues 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 advance 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 prices 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 at the stated price for the service or goods. In parking and audio visual contracts in which the Company has control over the services provided, the Company is considered the principal in the agreement and recognize the related revenues gross of associated costs. If the Company does not have control over the services in the contract, the Company is considered the agent and record the related revenues net of associated costs.
Resort and amenity fees, spa, golf 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 maintains a share-based incentive plan that provides for the grant of stock options, stock awards, restricted stock units, LTIP 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 as they occur, 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 share price, 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 condensed consolidated statements of operations and comprehensive loss and capitalized in buildings and other improvements in the condensed consolidated balance sheets for certain employees that manage property developments, renovations and capital improvements.
3. Revenues
The following represents total revenues disaggregated by primary geographical markets (as defined by STR, Inc. ("STR")) for the three months ended March 31, 2022 and 2021 (in thousands):
| | | | | | | | | | |
| | Three Months Ended | | |
Primary Markets | | March 31, 2022 | | |
Orlando, FL | | $ | 36,207 | | | |
Phoenix, AZ | | 30,707 | | | |
Houston, TX | | 20,996 | | | |
San Diego, CA | | 19,188 | | | |
Dallas, TX | | 12,846 | | | |
Atlanta, GA | | 10,965 | | | |
San Francisco/San Mateo, CA | | 9,578 | | | |
Florida Keys | | 9,365 | | | |
Denver, CO | | 9,052 | | | |
Washington, DC-MD-VA | | 7,461 | | | |
Other | | 43,982 | | | |
Total | | $ | 210,347 | | | |
| | | | | | | | | | |
| | Three Months Ended | | |
Primary Markets | | March 31, 2021 | | |
Phoenix, AZ | | $ | 14,255 | | | |
Orlando, FL | | 11,957 | | | |
Houston, TX | | 10,517 | | | |
Florida Keys | | 6,094 | | | |
Denver, CO | | 5,812 | | | |
Atlanta, GA | | 5,432 | | | |
San Diego, CA | | 5,263 | | | |
Dallas, TX | | 3,767 | | | |
Savannah, GA | | 3,572 | | | |
Washington, DC-MD-VA | | 3,354 | | | |
Other | | 17,829 | | | |
Total | | $ | 87,852 | | | |
4. Investment Properties
From time to time, the Company evaluates acquisition opportunities based on our investment criteria and/or the opportunistic disposition of our hotels in order to take advantage of market conditions or in situations where the hotels no longer fit within our strategic objectives.
Acquisitions
On March 29, 2022, the Company acquired a fee-simple interest in the 346-room W Nashville located in Nashville, Tennessee for a purchase price of $328.5 million including acquisition costs and a $1.3 million credit related to an unfinished portion of the hotel provided by seller at closing.
The acquisition of W Nashville was funded with cash on hand and was accounted for as an asset acquisition resulting in the related acquisition costs being capitalized as part of the purchase price. The results of operations for W Nashville have been included in the Company’s condensed consolidated statements of operations and comprehensive loss since its acquisition date.
The Company recorded the identifiable assets and liabilities, including intangible assets and liabilities, acquired in the asset acquisition at the acquisition date relative fair value, which is based on the total accumulated costs of the acquisition. The following represents the purchase price allocation of the hotel acquired during the three months ended March 31, 2022 (in thousands):
| | | | | | | | |
| | March 31, 2022 |
Land | | $ | 36,364 | |
Building and improvements | | 264,766 | |
Furniture, fixtures, and equipment | | 31,091 | |
Intangible and other assets(1) | | 232 | |
Intangible liability(2) | | (3,960) | |
Total purchase price(3) | | $ | 328,493 | |
(1)As part of the purchase price allocation for W Nashville, the Company allocated $0.1 million to advance bookings that will be amortized over 1.3 years as well as $0.1 million allocated to food inventory.
(2)As part of the purchase price allocation for W Nashville, the Company allocated $4.0 million to a liability associated with key money received by the seller from the third-party hotel manager. This liability will be amortized over 29.8 years and in the event of early termination is payable to the third-party hotel manager on a pro rata basis for the remaining portion of the term of the hotel management agreement.
(3)The total cost capitalized includes acquisition costs as the transaction was accounted for an an asset acquisition.
Dispositions
In November 2021, the Company entered into an agreement to sell the 191-room Kimpton Hotel Monaco Chicago in Chicago, Illinois for a sale price of $36.0 million. The sale closed in January 2022 and did not result in a gain or loss after previously recording an impairment of $15.7 million during the year ended December 31, 2021. Proceeds from the sale were used for general corporate purposes.
The operating results of the hotel that was sold during the three months ended March 31, 2022 are included in the Company's condensed consolidated financial statements as part of continuing operations as the disposition did not represent a strategic shift nor did it have a major impact on the Company's results of operations.
5. Debt
Debt as of March 31, 2022 and December 31, 2021 consisted of the following (dollar amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Balance Outstanding as of |
| Rate Type | | Rate(1) | | Maturity Date | | March 31, 2022 | | December 31, 2021 |
Mortgage Loans | | | | | | | | | |
Renaissance Atlanta Waverly Hotel & Convention Center | Fixed (2) | | 4.45 | % | | 8/14/2024 | | $ | 100,000 | | | $ | 100,000 | |
Andaz Napa | Fixed (3) | | 2.98 | % | | 9/13/2024 | | 55,460 | | | 55,640 | |
The Ritz-Carlton, Pentagon City | Fixed (4) | | — | % | | 1/31/2025 | | — | | | 65,000 | |
Grand Bohemian Hotel Orlando, Autograph Collection | Fixed | | 4.53 | % | | 3/1/2026 | | 56,523 | | | 56,796 | |
Marriott San Francisco Airport Waterfront | Fixed | | 4.63 | % | | 5/1/2027 | | 111,623 | | | 112,102 | |
Total Mortgage Loans | | | 4.27 | % | (5) | | | $ | 323,606 | | | $ | 389,538 | |
Corporate Credit Facilities | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Corporate Credit Facility Term Loan $125M | Fixed (6) | | 3.92 | % | | 9/13/2024 | | 125,000 | | | 125,000 | |
Revolving Credit Facility (7) | Variable | | 3.00 | % | | 2/28/2024 | | — | | | — | |
Total Corporate Credit Facilities | | | | | | | $ | 125,000 | | | $ | 125,000 | |
2020 Senior Notes $500M | Fixed | | 6.38 | % | | 8/15/2025 | | 500,000 | | | 500,000 | |
2021 Senior Notes $500M | Fixed | | 4.88 | % | | 6/1/2029 | | 500,000 | | | 500,000 | |
| | | | | | | | | |
Loan premiums, discounts and unamortized deferred financing costs, net (8) | | | | | | | (18,990) | | | (20,307) | |
Total Debt, net of loan premiums, discounts and unamortized deferred financing costs | | | 5.18 | % | (5) | | | $ | 1,429,616 | | | $ | 1,494,231 | |
(1)The rates shown represent the annual interest rates as of March 31, 2022. The variable index for the Renaissance Atlanta Waverly Hotel & Convention Center mortgage loan is daily SOFR and for the Andaz Napa mortgage loan is one-month LIBOR. The variable index for the corporate credit facilities reflects a 25 basis point LIBOR floor which is applicable for the value of all corporate credit facilities not subject to an interest rate hedge.
(2)A variable interest rate loan for which the interest rate has been fixed through October 2022, after which the rate reverts to variable.
(3)A variable interest loan for which the interest rate has been fixed on $25 million of the balance through October 2022, after which the rate reverts to variable.
(4)A variable interest rate loan for which the interest rate was fixed through January 2023. The outstanding balance of this mortgage loan was repaid in January 2022 and the two interest rate swaps associated with this loan were terminated in connection with the repayment.
(5)Represents the weighted-average interest rate as of March 31, 2022.
(6)A variable interest loan for which LIBOR has been fixed through September 2022. The spread to LIBOR may vary, as it is determined by the Company's leverage ratio. The applicable interest rate has been set to the highest level of grid-based pricing during the covenant waiver period.
(7)Commitments under the revolving credit facility totaled $523 million through February 2022, after which the total commitments decreased to $450 million through maturity in February 2024.
(8)Includes loan premiums, discounts and deferred financing costs, net of accumulated amortization.
Mortgage Loans
Of the total outstanding debt at March 31, 2022, none of the mortgage loans were recourse to the Company. As of March 31, 2022, the Company was not in compliance with its debt covenants on one mortgage loan which did not result in an event of default but allows the lender the option to institute a cash sweep until covenant compliance is achieved for a period of time specified in the loan agreement. The cash sweep permits the lender to withdraw excess cash generated by the property into a separate bank account that they control, which may be used to reduce the outstanding loan balance. The mortgage loan agreements require contributions to be made to FF&E reserves. In addition, certain quarterly financial covenants have been waived for a period of time specified in the respective amended loan agreements and certain financial covenants have been adjusted following the waiver periods.
In January 2022, the Company repaid in full the $65.0 million outstanding balance on the mortgage loan collateralized by The Ritz-Carlton, Pentagon City.
Corporate Credit Facilities
Certain financial covenants related to the Company's amended corporate credit facilities have been suspended until the date that financial statements are required to be delivered thereunder for the fiscal quarter ending June 30, 2022 (such period, unless
earlier terminated by the Operating Partnership in accordance with the terms of the corporate credit facilities, the "covenant waiver period") and, once quarterly testing resumes, certain financial covenants have been modified through the second quarter in 2023. In addition, the amended corporate credit facilities have certain restrictions and covenants which are applicable during the covenant waiver period, including (i) mandatory prepayment requirements, (ii) affirmative covenants related to the pledge of equity of certain subsidiaries and (iii) negative covenants restricting certain acquisitions, investments, capital expenditures, ground leases and distributions. A minimum liquidity covenant also applies during the covenant waiver period.
As of March 31, 2022, there was no outstanding balance on the revolving credit facility. During the three months ended March 31, 2022, the Company incurred unused commitment fees of approximately $0.4 million and did not incur interest expense. During the three months ended March 31, 2021, the Company incurred unused commitment fees of approximately $0.3 million and interest expense of $1.2 million.
Senior Notes
The indentures governing the Senior Notes contain customary covenants that limit the Operating Partnership's ability and, in certain circumstances, the ability of its subsidiaries, to borrow money, create liens on assets, make distributions and pay dividends, redeem or repurchase stock, make certain types of investments, sell stock in certain subsidiaries, enter into agreements that restrict dividends or other payments from subsidiaries, enter into transactions with affiliates, issue guarantees of indebtedness and sell assets or merge with other companies. These limitations are subject to a number of important exceptions and qualifications set forth in the indentures.
Debt Outstanding
Total debt outstanding as of March 31, 2022 and December 31, 2021 was $1,449 million and $1,515 million, respectively, and had a weighted-average interest rate of 5.18% per annum for the periods then ended. The following table shows scheduled principal payments and debt maturities for the next five years and thereafter (in thousands): | | | | | | | | | | | | | | |
| | As of March 31, 2022 | | Weighted- average interest rate |
2022 | | $ | 3,632 | | | 4.08% |
2023 | | 5,537 | | | 4.13% |
2024 | | 280,160 | | | 3.94% |
2025 | | 503,512 | | | 6.36% |
2026 | | 54,379 | | | 4.53% |
Thereafter | | 601,386 | | | 4.83% |
Total Debt | | $ | 1,448,606 | | | 5.18% |
Revolving Credit Facility (matures in 2024) | | — | | | 3.00% |
Loan premiums, discounts and unamortized deferred financing costs, net | | (18,990) | | | — |
Debt, net of loan premiums, discounts and unamortized deferred financing costs | | $ | 1,429,616 | | | 5.18% |
In connection with the repayment of one mortgage loan during the three months ended March 31, 2022, the Company wrote-off the related unamortized deferred financing costs of $0.3 million, which is included in loss on extinguishment of debt on the condensed consolidated statements of operations and comprehensive loss for the period then ended.
6. Derivatives
The Company primarily uses interest rate swaps as part of its interest rate risk management strategy for variable rate debt. As of March 31, 2022, all interest rate swaps were designated as cash flow hedges and involve the receipt of variable rate payments from a counterparty in exchange for making fixed rate payments over the life of the agreements without exchange of the underlying notional amount. Unrealized gains and losses of hedging instruments are reported in other comprehensive income or loss on the condensed consolidated statements of operations and comprehensive loss. Amounts reported in accumulated other comprehensive loss related to currently outstanding derivatives are recognized as an adjustment to income or loss through interest expense as interest payments are made on the Company’s variable rate debt. During the three months ended March 31, 2022, the Company terminated two interest rate swaps prior to their maturity and incurred swap termination costs of
$1.6 million which is included in other (loss) income on the condensed consolidated statements of operations and comprehensive loss for the period then ended.
Derivative instruments held by the Company with the right of offset in a net liability position were included in other liabilities on the condensed consolidated balance sheets.
The following table summarizes the terms of the derivative financial instruments held by the Company as of March 31, 2022 and December 31, 2021, respectively (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | March 31, 2022 | | December 31, 2021 |
Hedged Debt | | Type | | Fixed Rate | | Index | | Effective Date | | Maturity | | Notional Amounts | | Estimated Fair Value | | Notional Amounts | | Estimated Fair Value |
Mortgage Debt | | Swap | | 1.83% | | 1-Month LIBOR | | 1/15/2016 | | 10/22/2022 | | $ | 50,000 | | | $ | (160) | | | $ | 50,000 | | | $ | (591) | |
Mortgage Debt | | Swap | | 1.83% | | 1-Month LIBOR | | 1/15/2016 | | 10/22/2022 | | 25,000 | | | (80) | | | 25,000 | | | (295) | |
Mortgage Debt | | Swap | | 1.84% | | 1-Month LIBOR | | 1/15/2016 | | 10/22/2022 | | 25,000 | | | (80) | | | 25,000 | | | (297) | |
Mortgage Debt | | Swap | | 1.83% | | 1-Month LIBOR | | 1/15/2016 | | 10/22/2022 | | 25,000 | | | (80) | | | 25,000 | | | (296) | |
$125M Term Loan | | Swap | | 1.91% | | 1-Month LIBOR | | 10/13/2017 | | 9/13/2022 | | 40,000 | | | (147) | | | 40,000 | | | (445) | |
$125M Term Loan | | Swap | | 1.92% | | 1-Month LIBOR | | 10/13/2017 | | 9/13/2022 | | 40,000 | | | (148) | | | 40,000 | | | (446) | |
$125M Term Loan | | Swap | | 1.92% | | 1-Month LIBOR | | 10/13/2017 | | 9/13/2022 | | 25,000 | | | (93) | | | 25,000 | | | (279) | |
$125M Term Loan | | Swap | | 1.92% | | 1-Month LIBOR | | 10/13/2017 | | 9/13/2022 | | 20,000 | | | (74) | | | 20,000 | | | (223) | |
Mortgage Debt(1) | | Swap | | 2.80% | | 1-Month LIBOR | | 6/1/2018 | | 2/1/2023 | | — | | | — | | | 24,000 | | | (598) | |
Mortgage Debt(1) | | Swap | | 2.89% | | 1-Month LIBOR | | 1/17/2019 | | 2/1/2023 | | — | | | — | | | 41,000 | | | (1,061) | |
| | | | | | | | | | | | $ | 250,000 | | | $ | (862) | | | $ | 315,000 | | | $ | (4,531) | |
(1) The Company terminated two interest rate swaps prior to maturity in connection with the repayment of the mortgage loan collateralized by The Ritz-Carlton, Pentagon City in January 2022.
The table below details the location in the condensed consolidated financial statements of the gains and losses recognized on derivative financial instruments designated as cash flow hedges for the three months ended March 31, 2022 and 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, | | |
| | | | 2022 | | 2021 | | | | |
Effect of derivative instruments: | | Location in Statements of Operations and Comprehensive Loss: | | | | | | | | |
Gain recognized in other comprehensive loss | | Unrealized gain on interest rate derivative instruments | | $ | 2,517 | | | $ | 104 | | | | | |
Gain reclassified from accumulated other comprehensive loss to net loss | | Reclassification adjustment for amounts recognized in net loss (interest expense) | | $ | 1,152 | | | $ | 2,330 | | | | | |
Total interest expense in which effects of cash flow hedges are recorded | | Interest expense | | $ | 20,538 | | | $ | 18,750 | | | | | |
Realized loss on termination of derivative instruments | | Other (loss) income | | $ | (1,555) | | | $ | — | | | | | |
The Company expects approximately $0.8 million will be reclassified from accumulated other comprehensive loss as an increase to interest expense in the next 12 months.
7. 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 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.
For assets and liabilities measured at fair value on a recurring basis and non-recurring basis, quantitative disclosure of their fair values are included in the condensed consolidated balance sheets as of as of March 31, 2022 and December 31, 2021 (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Fair Value Measurement Date |
| | | | March 31, 2022 | | December 31, 2021 |
Location on Condensed Consolidated Balance Sheets/Description of Instrument | | | | Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Recurring measurements | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Liabilities | | | | | | | | | | |
Interest rate swaps(1) | | | | $ | (862) | | | $ | — | | | $ | (4,531) | | | $ | — | |
| | | | | | | | | | |
Non-recurring measurements | | | | | | | | | | |
Net investment properties | | | | | | | | | | |
Kimpton Hotel Monaco Chicago | | | | $ | — | | | $ | — | | | $ | 34,093 | | | $ | — | |
| | | | | | | | | | |
| | | | | | | | | | |
(1)Interest rate swap fair values are netted as applicable per the terms of the respective master netting agreements.
Recurring Measurements
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 and, as a result, its derivative valuations in their entirety are classified within Level 2 of the fair value hierarchy.
Non-Recurring Measurements
Investment Properties
In November 2021, the Company entered into an agreement to sell the 191-room Kimpton Hotel Monaco Chicago for $36.0 million. Management estimated the future undiscounted cash flows for the scenario of a shortened hold period and for holding the asset long-term. Based on the results of the probability weighted-average undiscounted cash flow analysis, management determined the hotel was impaired as the estimated undiscounted cash flows were less than the carrying value of the hotel as of December 31, 2021. Management determined the impairment loss as the difference between the carrying value and the estimated fair value. The fair value was estimated using Level 2 assumptions, including values from market participants. As a result, for the year ended December 31, 2021, the Company recorded an impairment loss of $15.7 million, which is included in impairment and other losses on the consolidated statement of operations and comprehensive (loss) income for the period then ended. The sale closed in January 2022.
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 balance sheets as of March 31, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
| | Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value |
Total Mortgage and Corporate Credit Facility Term Loan | | $ | 448,606 | | | $ | 434,669 | | | $ | 514,538 | | | $ | 503,265 | |
Senior Notes | | 1,000,000 | | | 1,012,823 | | | 1,000,000 | | | 1,055,323 | |
Revolving Credit Facility | | — | | | — | | | — | | | — | |
Total | | $ | 1,448,606 | | | $ | 1,447,492 | | | $ | 1,514,538 | | | $ | 1,558,588 | |
The Company estimated the fair value of its total debt, net of discounts, using a weighted-average effective interest rate of 5.59% and 5.23% per annum as of March 31, 2022 and December 31, 2021, respectively. The assumptions reflect the terms currently available to borrowers with credit profiles similar to the Company's. The Company has determined that its debt instrument valuations are classified in Level 2 of the fair value hierarchy.
8. Income Taxes
The Company estimated the TRS income tax expense for the three months ended March 31, 2022 using an estimated federal and state combined effective tax rate of 16.00% and recognized an income tax expense of $1.6 million.
The Company estimated the TRS income tax expense for the three months ended March 31, 2021 using an estimated federal and state combined effective tax rate of 2.45% and recognized an income tax expense of $0.2 million. The income tax expense for three months ended March 31, 2021 was primarily attributed to state taxes levied on gross receipts.
9. Stockholders' Equity
Common Stock
The Company maintains an "At-the-Market" ("ATM") program pursuant to an Equity Distribution Agreement ("ATM Agreement") with Wells Fargo Securities, LLC, Robert W. Baird & Co. Incorporated, Jefferies LLC, KeyBanc Capital Markets Inc. and Raymond James & Associates, Inc. In accordance with the terms of the ATM Agreement, the Company may from time to time offer and sell shares of its common stock having an aggregate offering price of up to $200 million. In May 2021, the Company upsized the ATM Agreement and, as a result, had $200 million available for sale as of March 31, 2022. No shares were sold under the ATM Agreement during the three months ended March 31, 2022 and 2021. As of March 31, 2022, and December 31, 2021, the Company had accumulated offering related costs included in other assets on the condensed consolidated balance sheets of $0.8 million and $0.7 million, respectively. These amounts will be reclassified to additional paid in capital to offset proceeds from the sale of common stock. Any remaining accumulated offering costs will be written off when the existing registration statement expires in August 2023.
The Board of Directors has authorized a stock repurchase program pursuant to which the Company is authorized to purchase up to $175 million of the Company’s outstanding common stock in the open market, in privately negotiated transactions or otherwise, including pursuant to Rule 10b5-1 plans (the "Repurchase Program"). 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. As of March 31, 2022, the Company had approximately $94.7 million remaining under its share repurchase authorization.
No shares were purchased as part of the Repurchase Program during the three months ended March 31, 2022 and 2021. The Company is prohibited under the terms of the amended corporate credit facilities from making repurchases of the Company's common stock until the Company achieves compliance with applicable debt covenants and the Company's covenant waiver period ends.
Distributions
The Company has suspended its quarterly dividend in order to preserve liquidity and did not declare any dividends during the three months ended March 31, 2022 and 2021. The Company's ability to make distributions is currently limited by the
provisions of the Company's amended corporate credit facilities. The Company will evaluate if and when to resume paying dividends in the future based on business and economic conditions and the requirement to distribute 90% of REIT taxable income in order to remain qualified as a REIT.
Non-Controlling Interest of Common Units in Operating Partnership
As of March 31, 2022, the Operating Partnership had 3,385,789 LTIP Units outstanding, representing a 2.9% partnership interest held by the limited partners. Of the 3,385,789 LTIP Units outstanding at March 31, 2022, 1,057,195 units had vested and had yet to be converted or redeemed. 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 partnership agreement of the Operating Partnership.
10. Earnings Per Share
Basic earnings per common share is calculated by dividing net 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 net 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 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 or loss allocated to non-controlling interests in the Operating Partnership has been excluded from the numerator and Operating Partnership Units and 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.
The following table reconciles net loss attributable to common stockholders to basic and diluted earnings per share (in thousands, except share and per share data):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2022 | | 2021 | | | | |
Numerator: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net loss available to common stockholders | $ | (5,324) | | | $ | (56,351) | | | | | |
| | | | | | | |
Denominator: | | | | | | | |
Weighted-average shares outstanding - Basic | 114,326,406 | | | 113,780,388 | | | | | |
Effect of dilutive share-based compensation(1) | — | | | — | | | | | |
Weighted-average shares outstanding - Diluted | 114,326,406 | | | 113,780,388 | | | | | |
| | | | | | | |
Basic and diluted loss per share: | | | | | | | |
Net loss per share available to common stockholders - basic and diluted | $ | (0.05) | | | $ | (0.50) | | | | | |
(1)During the three months ended March 31, 2022 and 2021, the Company excluded 423,043 and 546,124 anti-dilutive shares from its calculation of diluted earnings per share, respectively.
11. Share-Based Compensation
2015 Incentive Award Plan
Restricted Stock Unit Grants
The Compensation Committee of the Board of Directors approved the following grants of restricted stock units to certain Company employees:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Grant Date | | Grant Description | | Time-Based Grants | | Performance-Based Grants | | Weighted-Average Grant Date Fair Value |
| | | | | | | | |
February 2022 | | 2022 Restricted Stock Units | | 91,272 | | | 47,944 | | | $ | 16.09 | |
Each award of time-based Restricted Stock Units will vest as follows, subject to continued employment with the Company or its affiliates through each applicable vesting date: 33% on the first anniversary of the vesting commencement date, 33% on the second anniversary of the vesting commencement date, and 34% on the third anniversary of the vesting commencement date.
The performance-based Restricted Stock Units are designated twenty-five percent (25%) as absolute total stockholder return ("TSR") units and seventy-five percent (75%) as relative TSR share units. The absolute TSR share units vest based on achievement of varying levels of the Company's TSR over the three-year performance period. The relative TSR share units vest based on the ranking of the Company's TSR as compared to a defined peer group over the three-year performance period. Vesting of performance-based Restricted Stock Units is also subject to continued employment with the Company or its affiliates through the applicable vesting date.
In March 2022, pursuant to the Company's Director Compensation Program, 451 fully vested shares of common stock with a grant date fair value of $18.50 per share were granted to a non-employee director in connection with such non-employee director's appointment to the Company's Board of Directors.
LTIP Unit Grants
The Compensation Committee of the Board of Directors approved the issuance of the following awards under the 2015 Incentive Award Plan:
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Grant Date | | Grant Description | | Time-Based LTIP Units | | Performance-Based Class A LTIP Units | | Weighted-Average Grant Date Fair Value |
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February 2022 | | 2022 LTIP Units | | 101,474 | | | 816,843 | | | $ | 10.49 | |
Each award of time-based LTIP Units will vest as follows, subject to continued employment with the Company or its affiliates through each applicable vesting date: 33% on the first anniversary of the vesting commencement date, 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 are designated as a number of "base units". The base units are designated twenty-five percent (25%) as absolute TSR base units, and vest based on achievement of 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. Vesting of Class A LTIP Units is also subject to continued employment with the Company or its affiliates through the vesting date.
LTIP Units (other than unvested Class A LTIP Units), whether vested or unvested, receive the same quarterly per-unit distributions as common units in the Operating Partnership, which equal the per-share distributions on the common stock of the Company. Class A LTIP Units that have not vested receive a quarterly per-unit distribution equal to 10% of the distribution paid on common units in the Operating Partnership.
The following is a summary of the unvested incentive awards under the 2015 Incentive Award Plan as of March 31, 2022:
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| 2015 Incentive Award Plan Restricted Stock Units | | 2015 Incentive Award Plan LTIP Units(1) | | Total |
Unvested as of December 31, 2021 | 261,727 | | 1,500,317 | | 1,762,044 |
Granted | 139,667 | | | 918,317 | | | 1,057,984 | |
Vested(2) | (63,024) | | | (90,040) | | | (153,064) | |
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Forfeited | — | | | — | | | — | |
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Unvested as of March 31, 2022 | 338,370 | | 2,328,594 | | 2,666,964 |
Weighted-average fair value of unvested shares/units | $ | 14.94 | | | $ | 11.42 | | | $ | 11.86 | |
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(1) Includes time-based LTIP Units and performance-based Class A LTIP Units.
(2) During the three months ended March 31, 2022 and 2021, 16,478 and 18,993 shares of common stock, respectively, were withheld by the Company upon the settlement of the applicable awards in order to satisfy minimum tax withholding requirements with respect to Restricted Stock Units granted under the 2015 Incentive Award Plan.
The grant date fair values of the vested common stock, time-based Restricted Stock Units and time-based LTIP Units were 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 values of performance-based awards are 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:
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Performance Award Grant Date | | Percentage of Total Award | | Grant Date Fair Value by Component (in dollars) | | Volatility | | Interest Rate | | Dividend Yield |
February 25, 2022 | | | | | | | | | | |
Absolute TSR Restricted Stock Units | | 25% | | $9.72 | | 41.28% | | 0.68% - 1.72% | | —% |
Relative TSR Restricted Stock Units | | |