Xenia Hotels & Resorts, Inc. [XHR] Filings

10-Q 1 xhr-20230630.htm 10-Q xhr-20230630

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, 2023

☐ 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 August 1, 2023, there were 107,260,596 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, 2023 and December 31, 2022	1
	Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months Ended June 30, 2023 and 2022	2

	Condensed Consolidated Statements of Changes in Equity for the Three and Six Months Ended June 30, 2023 and 2022	4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022	6
	Notes to the Condensed Consolidated Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	40


Part II - Other Information

Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	42

Signatures		43

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

XENIA HOTELS & RESORTS, INC.

Condensed Consolidated Balance Sheets

As of June 30, 2023 and December 31, 2022

(Dollar amounts in thousands, except per share data)


	June 30, 2023		December 31, 2022
Assets	(Unaudited)		(Audited)
Investment properties:
Land	$	460,342	$	460,536
Buildings and other improvements	3,123,142		3,086,785

Total	$	3,583,484	$	3,547,321
Less: accumulated depreciation	(1,012,707)		(945,786)
Net investment properties	$	2,570,777	$	2,601,535
Cash and cash equivalents	255,291		305,103
Restricted cash and escrows	61,021		60,807
Accounts and rents receivable, net of allowance for doubtful accounts	33,237		37,562
Intangible assets, net of accumulated amortization of $1,149 and $1,068, respectively	4,979		5,060

Other assets	77,294		69,988

Total assets	$	3,002,599	$	3,080,055
Liabilities
Debt, net of loan premiums, discounts and unamortized deferred financing costs (Note 5)	$	1,399,744	$	1,429,105
Accounts payable and accrued expenses	99,755		107,097
Distributions payable	11,101		11,455
Other liabilities	80,228		72,390

Total liabilities	$	1,590,828	$	1,620,047
Commitments and Contingencies (Note 12)
Stockholders' equity
Common stock, $0.01 par value, 500,000,000 shares authorized, 108,121,598 and 112,519,672 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively	$	1,082	$	1,126
Additional paid in capital	2,005,265		2,063,273
Accumulated other comprehensive income	5,217		—
Accumulated distributions in excess of net earnings	(625,118)		(623,216)
Total Company stockholders' equity	$	1,386,446	$	1,441,183
Non-controlling interests	25,325		18,825
Total equity	$	1,411,771	$	1,460,008
Total liabilities and equity	$	3,002,599	$	3,080,055

See accompanying notes to the condensed consolidated financial statements.

XENIA HOTELS & RESORTS, INC.

Condensed Consolidated Statements of Operations and Comprehensive Income

For the Three and Six Months Ended June 30, 2023 and 2022

(Unaudited)

(Dollar amounts in thousands, except per share data)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenues:
Rooms revenues	$	157,942	$	165,580	$	311,587	$	288,778
Food and beverage revenues	92,033		96,781		188,157		164,516
Other revenues	21,091		21,090		40,295		40,504
Total revenues	$	271,066	$	283,451	$	540,039	$	493,798
Expenses:
Rooms expenses	37,153		36,423		73,356		65,640
Food and beverage expenses	59,989		60,298		120,676		105,908
Other direct expenses	6,014		6,366		11,712		11,660
Other indirect expenses	66,255		63,059		132,754		116,919
Management and franchise fees	9,226		11,049		19,415		18,675
Total hotel operating expenses	$	178,637	$	177,195	$	357,913	$	318,802
Depreciation and amortization	33,490		34,251		67,231		64,816
Real estate taxes, personal property taxes and insurance	12,808		11,369		25,278		22,224
Ground lease expense	784		833		1,494		1,350
General and administrative expenses	9,972		8,933		18,755		16,544


Other operating expenses	378		150		610		325
Impairment and other losses	—		—		—		1,278
Total expenses	$	236,069	$	232,731	$	471,281	$	425,339
Operating income	$	34,997	$	50,720	$	68,758	$	68,459

Other income	2,897		1,681		4,181		904
Interest expense	(21,650)		(20,353)		(43,784)		(40,891)
Loss on extinguishment of debt	(29)		—		(1,169)		(294)
Net income before income taxes	$	16,215	$	32,048	$	27,986	$	28,178
Income tax expense	(1,803)		(3,570)		(7,021)		(5,177)


Net income	$	14,412	$	28,478	$	20,965	$	23,001
Net income attributable to non-controlling interests (Note 1)	(620)		(830)		(893)		(677)




Net income attributable to common stockholders	$	13,792	$	27,648	$	20,072	$	22,324

XENIA HOTELS & RESORTS, INC.

Condensed Consolidated Statements of Operations and Comprehensive Income, Continued

For the Three and Six Months Ended June 30, 2023 and 2022

(Unaudited)

(Dollar amounts in thousands, except per share data)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Basic and diluted income per share
Net income per share available to common stockholders - basic and diluted	$	0.12	$	0.24	$	0.18	$	0.19
Weighted-average number of common shares (basic)	109,304,694		114,353,273		110,535,092		114,339,989
Weighted-average number of common shares (diluted)	109,511,862		114,733,593		110,768,602		114,741,779

Comprehensive income:
Net income	$	14,412	$	28,478	$	20,965	$	23,001
Other comprehensive income:
Unrealized gain on interest rate derivative instruments	5,906		379		5,906		2,896
Reclassification adjustment for amounts recognized in net income (interest expense)	(460)		692		(460)		1,844
	$	19,858	$	29,549	$	26,411	$	27,741



Comprehensive income attributable to non-controlling interests (Note 1)	(849)		(862)		(1,122)		(1,126)
Comprehensive income attributable to the Company	$	19,009	$	28,687	$	25,289	$	26,615

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 June 30, 2023 and 2022

(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, 2023	110,661,486	$	1,107	$	2,036,707	$	—	$	(628,060)	$	21,118	$	1,430,872
Net income	—	—		—		—		13,792		620		14,412

Repurchase of common shares, net	(2,539,888)	$	(25)	$	(31,923)	$	—	$	—	$	—	$	(31,948)
Dividends, common share / units ($0.10)	—	—		—		—		(10,850)		(231)		(11,081)
Share-based compensation	—	—		481		—		—		3,589		4,070





Other comprehensive income:
Unrealized gain on interest rate derivative instruments	—	—		—		5,658		—		248		5,906
Reclassification adjustment for amounts recognized in net income	—	—		—		(441)		—		(19)		(460)
Balance at June 30, 2023	108,121,598	$	1,082	$	2,005,265	$	5,217	$	(625,118)	$	25,325	$	1,411,771




Balance at March 31, 2022	114,353,273	$	1,144	$	2,090,627	$	(837)	$	(661,785)	$	9,256	$	1,438,405
Net income	—	—		—		—		27,648		830		28,478


Share-based compensation	—	—		415		—		—		3,212		3,627





Other comprehensive income:
Unrealized gain on interest rate derivative instruments	—	—		—		367		—		12		379
Reclassification adjustment for amounts recognized in net income	—	—		—		672		—		20		692
Balance at June 30, 2022	114,353,273	$	1,144	$	2,091,042	$	202	$	(634,137)	$	13,330	$	1,471,581

See accompanying notes to the condensed consolidated financial statements.

XENIA HOTELS & RESORTS, INC.

Condensed Consolidated Statements of Changes in Equity

For the Six Months Ended June 30, 2023 and 2022

(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, 2022	112,519,672	$	1,126	$	2,063,273	$	—	$	(623,216)	$	18,825	$	1,460,008
Net income	—	—		—		—		20,072		893		20,965

Repurchase of common shares, net	(4,445,708)	(44)		(58,650)		—		—		—		(58,694)
Dividends, common share / units ($0.20)	—	—		—		—		(21,974)		(459)		(22,433)
Share-based compensation	65,247	—		900		—				5,837		6,737
Shares redeemed to satisfy tax withholding on vested share-based compensation	(17,613)	—		(258)		—		—		—		(258)




Other comprehensive income:
Unrealized gain on interest rate derivative instruments	—	—		—		5,658		—		248		5,906
Reclassification adjustment for amounts recognized in net income	—	—		—		(441)		—		(19)		(460)
Balance at June 30, 2023	108,121,598	$	1,082	$	2,005,265	$	5,217	$	(625,118)	$	25,325	$	1,411,771




Balance at December 31, 2021	114,306,727	$	1,143	$	2,090,393	$	(4,089)	$	(656,461)	$	7,095	$	1,438,081
Net income	—	—		—		—		22,324		677		23,001


Share-based compensation	63,024	1		952		—		—		5,109		6,062
Shares redeemed to satisfy tax withholding on vested share-based compensation	(16,478)	—		(303)		—		—		—		(303)




Other comprehensive income:
Unrealized gain on interest rate derivative instruments	—	—		—		2,500		—		396		2,896
Reclassification adjustment for amounts recognized in net income	—	—		—		1,791		—		53		1,844
Balance at June 30, 2022	114,353,273	$	1,144	$	2,091,042	$	202	$	(634,137)	$	13,330	$	1,471,581

See accompanying notes to the condensed consolidated financial statements.

XENIA HOTELS & RESORTS, INC.

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2023 and 2022

(Unaudited)

(Dollar amounts in thousands)


	Six Months Ended June 30,
	2023		2022
Cash flows from operating activities:
Net income	$	20,965	$	23,001
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	67,124		64,533
Non-cash ground rent and amortization of other intangibles	107		283
Amortization of debt premiums, discounts, and financing costs	2,295		2,617
Loss on extinguishment of debt	1,169		294


Gain on insurance recoveries	(535)		(2,513)
Share-based compensation expense	6,559		5,785
Deferred interest expense	(1,296)		(409)

Changes in assets and liabilities:
Accounts and rents receivable	4,325		(13,204)
Other assets	988		(2,951)
Accounts payable and accrued expenses	(6,521)		15,561
Other liabilities	5,493		5,638

Net cash provided by operating activities	$	100,673	$	98,635
Cash flows from investing activities:
Purchase of investment properties	—		(328,493)
Capital expenditures	(33,996)		(21,844)
Proceeds from sale of investment properties	—		32,820
Proceeds from property insurance	535		1,472
Performance guaranty payments	1,239		1,365


Net cash used in investing activities	$	(32,222)	$	(314,680)
Cash flows from financing activities:
Proceeds from mortgage debt modification	440		—
Payoff of mortgage debt	(99,488)		(65,000)
Principal payments of mortgage debt	(1,686)		(1,963)
Proceeds from 2023 Term Loans	225,000		—
Principal payments on Corporate Credit Facility Term Loan	(125,000)		—




Repurchase of 2020 Senior Notes	(29,705)		—
Payment of loan fees and issuance costs	(5,554)		—
Payment loan modification fees	(25)		—
Repurchase of common shares	(58,694)		—


Shares redeemed to satisfy tax withholding on vested share-based compensation	(578)		(490)
Dividends and dividend equivalents	(22,759)		(54)

Net cash used in financing activities	$	(118,049)	$	(67,507)
Net decrease in cash and cash equivalents and restricted cash	(49,598)		(283,552)
Cash and cash equivalents and restricted cash, at beginning of period	365,910		554,231
Cash and cash equivalents and restricted cash, at end of period	$	316,312	$	270,679

XENIA HOTELS & RESORTS, INC.

Condensed Consolidated Statements of Cash Flows, Continued

For the Six Months Ended June 30, 2023 and 2022

(Unaudited)

(Dollar amounts in thousands)


	Six Months Ended June 30,
	2023		2022
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	$	255,291	$	223,764
Restricted cash	61,021		46,915
Total cash and cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows	$	316,312	$	270,679

The following represent cash paid during the periods presented for the following:
Cash paid for interest, net of capitalized interest	$	43,968	$	38,885
Cash paid for taxes	3,745		1,010

Supplemental schedule of non-cash investing and financing activities:
Accrued capital expenditures	$	4,685	$	1,352

Distributions payable	11,101		—

See accompanying notes to the condensed consolidated financial statements.

XENIA HOTELS & RESORTS, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

June 30, 2023

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 June 30, 2023, the Company collectively owned 95.8% of the common limited partnership units issued by the Operating Partnership ("Operating Partnership Units"). The remaining 4.2% of the Operating Partnership Units are owned by the other limited partners comprised of certain of our current executive officers and current and prior 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 June 30, 2023 and 2022, the Company owned 32 and 34 lodging properties, respectively.

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 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, 2022, included in the Company's Annual Report on Form 10-K filed with the SEC on March 2, 2023. Operating results for the three and six months ended June 30, 2023 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.

Reclassifications

Certain prior year amounts in these condensed consolidated financial statements have been reclassified to conform to the presentation as of and for the three and six months ended June 30, 2023.

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

For the six months ended June 30, 2023, the Company had a geographical concentration of revenues generated from hotels in the Orlando, Florida, Phoenix, Arizona and Houston, Texas markets that exceeded 10% of total revenues for the period then

ended. For the six months ended June 30, 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. To the extent that there are adverse changes in these markets, or the industry sectors that operate in these markets, our business and operating results could 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 banks and other financial institutions. The combined account balances at banking 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 monitors its concentration risk and reallocates funds among various institutions from time to time as determined appropriate based on perceived risks.

Restricted Cash and Escrows

Restricted cash primarily relates to furniture, fixtures and equipment replacement reserves ("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, buildings and building improvements, furniture, fixtures and equipment, and identifiable intangible 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 typically include land, buildings and improvements, furniture and fixtures, inventory, acquired above market and below market leases, in-place lease value, advance bookings, and any assumed financing that is determined to be above or below market terms (all as applicable). 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 six months ended June 30, 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 income for the period then ended.

Insurance Recoveries

Insurance proceeds received in excess of recognized losses are treated as gain and are not recorded until contingencies are resolved. The Company received insurance proceeds in excess of recognized losses related to damage sustained at Loews New Orleans Hotel during Hurricane Ida which resulted in the recognition of a gain on insurance recovery of $0.5 million for the three and six months ended June 30, 2023, and $1.5 million and $2.5 million, respectively, for three and six months ended June 30, 2022. These amounts are included in other income on the condensed consolidated statements of operations and comprehensive income for the periods then ended.

Disposition of Real Estate

The Company accounts for dispositions of real estate in accordance with Accounting Standards Update ("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, buildings, 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 advanced 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. 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.

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 income and capitalized in buildings and other improvements in the condensed consolidated balance sheets for certain employees that manage property developments, renovations and capital improvements.

Deferred Financing Costs

Financing costs related to the Revolving Line of Credit and long-term debt are recorded at cost and are amortized as interest expense on a straight-line basis, which approximates the effective interest method, over the life of the related debt instrument unless there is a significant modification to the debt instrument. Financing costs related to the Senior Notes are amortized using the effective interest method. The balance of unamortized deferred financing costs related to the Revolving Line of Credit is included in other assets and unamortized deferred financing costs related to all other debt are presented as a reduction in debt, net of loan premiums, discounts and unamortized deferred financing costs on the condensed consolidated balance sheets.

At June 30, 2023 and December 31, 2022, deferred financing costs related to the Revolving Line of Credit and the revolving credit facility that was refinanced in January 2023 were $9.6 million and $7.8 million, offset by accumulated amortization of $5.1 million and $6.4 million, respectively. At June 30, 2023 and December 31, 2022, deferred financing costs related to all other debt were $24.4 million and $26.3 million, offset by accumulated amortization of $9.9 million and $10.5 million, respectively.

3. Revenues

The following represents total revenues disaggregated by primary geographical markets (as defined by STR, Inc. ("STR")) for the three and six months ended June 30, 2023 and 2022 (in thousands):


	Three Months Ended		Six Months Ended
Primary Markets	June 30, 2023		June 30, 2023
Orlando, FL	$	34,052	$	74,460
Phoenix, AZ	24,912		62,385
Houston, TX	26,873		54,332
San Diego, CA	24,628		46,603
Dallas, TX	17,261		37,211
Atlanta, GA	16,974		32,475
Nashville, TN	17,338		28,305
San Francisco/San Mateo, CA	13,869		27,247
Washington, DC-MD-VA	13,142		24,049
Portland, OR	13,442		24,021
Other	68,575		128,951
Total	$	271,066	$	540,039


	Three Months Ended		Six Months Ended
Primary Markets	June 30, 2022		June 30, 2022
Orlando, FL	$	36,938	$	73,145
Phoenix, AZ	30,885		61,592
San Diego, CA	26,873		46,061
Houston, TX	24,079		45,075
Dallas, TX	18,557		31,403
Atlanta, GA	15,732		26,697
Denver, CO	13,952		23,004
San Francisco/San Mateo, CA	12,711		22,289
Washington, DC-MD-VA	13,579		21,040
Portland, OR	11,258		17,361
Other	78,887		126,131
Total	$	283,451	$	493,798

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

In March 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 income 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 six months ended June 30, 2022 (in thousands):


	June 30, 2022
Land	$	36,364
Buildings 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 were 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 is being 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 as 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. Net cash proceeds from the sale, after transaction closing costs, were $32.8 million.

5. Debt

Debt as of June 30, 2023 and December 31, 2022 consisted of the following (dollar amounts in thousands):


						Balance Outstanding as of
	Rate Type	Rate(1)			Maturity Date	June 30, 2023		December 31, 2022
Mortgage Loans
Renaissance Atlanta Waverly Hotel & Convention Center	Fixed (2)	—	%		8/14/2024	$	—	$	99,590
Grand Bohemian Hotel Orlando, Autograph Collection	Fixed	4.53	%		3/1/2026	55,110		55,685
Marriott San Francisco Airport Waterfront	Fixed	4.63	%		5/1/2027	109,143		110,153
Andaz Napa	Fixed (3)	5.72	%		1/19/2028	55,000		54,560
Total Mortgage Loans		4.88	%	(4)		$	219,253	$	319,988
Corporate Credit Facilities


Corporate Credit Facility Term Loan $125M	Variable (5)	—	%		9/13/2024	—		125,000
2023 Initial Term Loan	Fixed (5)	5.45	%		3/1/2026	125,000		—
2023 Delayed Draw Term Loan	Fixed (5)	5.45	%		3/1/2026	100,000		—
Revolving Credit Facility	Variable (6)	—	%		2/28/2024	—		—
Revolving Line of Credit (2023)	Variable (6)	6.80	%		1/11/2027	—		—
Total Corporate Credit Facilities						$	225,000	$	125,000
2020 Senior Notes $500M (7)	Fixed	6.38	%		8/15/2025	470,000		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)						(14,509)		(15,883)
Total Debt, net of loan premiums, discounts and unamortized deferred financing costs		5.47	%	(4)		$	1,399,744	$	1,429,105

(1)The rates shown represent the annual interest rates as of June 30, 2023. The variable index for the corporate credit facilities is Term SOFR, subject to a 10 basis point credit spread adjustment and a zero basis point floor, as further described below under "Corporate Credit Facilities."

(2)This mortgage loan was repaid in full in January 2023.

(3)In January 2023, the Company amended this mortgage loan to update the variable index from one-month LIBOR to Term SOFR, increase the credit spread, increase the principal amount to $55 million and extend the maturity date through January 2028. Term SOFR has been fixed with interest rate swaps through January 1, 2027.

(4)Represents the weighted-average interest rate as of June 30, 2023.

(5)In January 2023, the existing corporate credit facility term loan was refinanced with a new $125 million Initial Term Loan and, effective as of January 10, 2023, the spread to Term SOFR for such term loan varies based on the Company's leverage ratio as further described under "Corporate Credit Facilities". On January 17, 2023, an additional $100 million Delayed Draw Term Loan was borrowed and, effective as of such date, the spread to Term SOFR for such term loan varies based on the Company's leverage ratio as further described below under "Corporate Credit Facilities". Term SOFR has been fixed with interest rate swaps on both the 2023 Initial Term Loan and the 2023 Delayed Draw Term Loan through mid-February 2025.

(6)The prior revolving credit facility was refinanced with a new $450 million Revolving Line of Credit in January 2023 and, effective as of January 10, 2023, the spread to Term SOFR varies based on the Company’s leverage ratio, as further described below under “Corporate Credit Facilities.”

(7)During the six months ended June 30, 2023, the Company repurchased in the open market and retired $30.0 million aggregate principal of its 6.375% 2020 Senior Notes due August 2025.

(8)Includes loan premiums, discounts and deferred financing costs, net of accumulated amortization.

Mortgage Loans

In January 2023, the Company repaid in full the $99.5 million outstanding balance on the mortgage loan collateralized by Renaissance Atlanta Waverly Hotel & Convention Center using proceeds from the 2023 Delayed Draw Term Loan. Also in January 2023, the Company amended the mortgage loan collateralized by Andaz Napa to update the variable index from one-month LIBOR to Term SOFR, increase the credit spread, increase the principal amount to $55 million and extend the maturity date through January 2028.

Of the total outstanding debt at June 30, 2023, none of the mortgage loans were recourse to the Company and the mortgage loan agreements require contributions to be made to FF&E reserves.

Corporate Credit Facilities

In January 2023, XHR LP (the "Borrower") entered into a new $675 million senior unsecured credit facility comprised of a $450 million revolving line of credit (the “Revolving Line of Credit”), a $125 million initial term loan (the "2023 Initial Term Loan) and a $100 million delayed draw term loan (the “2023 Delayed Draw Term Loan” and, together with the 2023 Initial Term Loan, the "2023 Term Loans") pursuant to a Revolving Credit and Term Loan Agreement, dated as of January 10, 2023, by and among the Borrower, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders and other parties party thereto (the “2023 Credit Agreement”). The Revolving Line of Credit and the 2023 Initial Term Loan refinanced in full the existing corporate credit facilities outstanding under the prior credit agreement, and as a result of such refinancing, the existing pledges of equity of certain subsidiaries securing obligations under the Company's prior credit facilities were released. The 2023 Delayed Draw Term Loan was funded on January 17, 2023 and was used to repay in full the mortgage loan collateralized by Renaissance Atlanta Waverly Hotel & Convention Center that was due August 2024. Proceeds from future Revolving Line of Credit borrowings may be used for working capital, general corporate or other purposes permitted by the 2023 Credit Agreement. The Revolving Line of Credit matures in January 2027 and can be extended up to an additional year. The interest rate on the Revolving Line of Credit is based on a pricing grid with a range of 145 to 275 basis points over the applicable Term SOFR rate as determined by the Company’s leverage ratio, subject to a 10 basis point credit spread adjustment and a zero basis point floor. The 2023 Term Loans mature in March 2026, can be extended up to an additional year and bear interest rates consistent with the pricing grid on the Revolving Line of Credit.

As of June 30, 2023, there was no outstanding balance on the Revolving Line of Credit. During the three and six months ended June 30, 2023, the Company incurred unused commitment fees of approximately $0.4 million and $0.7 million, respectively, and did not incur interest expense. During the three and six months ended June 30, 2022, the Company incurred unused commitment fees of approximately $0.3 million and $0.7 million, respectively, and did not incur interest expense.

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. In connection with entry into the 2023 Credit Agreement and the refinancing of the obligations under the prior corporate credit facilities, the collateral securing the Senior Notes was released in full. On and after January 10, 2023, the Senior Notes constitute unsecured obligations.

During the six months ended June 30, 2023, the Company repurchased in the open market and retired $30.0 million aggregate principal of its 6.375% 2020 Senior Notes due August 2025.

Financial Covenants

As of June 30, 2023, the Company was not in compliance with its debt covenants on one mortgage loan due to disruption from a significant renovation taking place during the prior trailing 12 months. This 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 collateralized property into a separate bank account that the lender controls and that may be used to reduce the amount of the outstanding loan balance.

Debt Outstanding

Total debt outstanding as of June 30, 2023 and December 31, 2022 was $1,414 million and $1,445 million, respectively, and had a weighted-average interest rate of 5.47% and 5.65% per annum, respectively. The following table shows scheduled principal payments and debt maturities for the next five years and thereafter (in thousands):


	As of June 30, 2023		Weighted- Average Interest Rate
2023	$	1,620	4.59%
2024	3,355		4.59%
2025	474,431		6.36%
2026	280,381		5.28%
2027	102,388		4.64%
Thereafter	552,078		4.95%
Total Debt	$	1,414,253	5.47%
Revolving Line of Credit (matures in 2027)	—		6.80%
Loan premiums, discounts and unamortized deferred financing costs, net	(14,509)		—
Debt, net of loan premiums, discounts and unamortized deferred financing costs	$	1,399,744	5.47%

During the six months ended June 30, 2023, in connection with the 2023 Credit Agreement and amended mortgage loan, the Company capitalized $5.6 million of deferred financing costs and expensed $1.7 million of legal fees which were included in other income on the condensed consolidated statement of operations and comprehensive income for the period then ended.

During the six months ended June 30, 2023, in connection with refinancing of the prior revolving credit facility, the repayment of the existing corporate credit facility term loan and the repayment of one mortgage loan, the Company wrote off unamortized deferred financing costs of $1.1 million, which is included in loss on extinguishment of debt on the condensed consolidated statements of operations and comprehensive income 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 June 30, 2023, 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 income. Amounts reported in accumulated other comprehensive income 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 six months ended June 30, 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 income on the condensed consolidated statement of operations and comprehensive income for the period then ended.

Derivative instruments held by the Company with the right of offset in a net asset position were included in other assets on the condensed consolidated balance sheets.

The following table summarizes the terms of the derivative financial instruments held by the Company as of June 30, 2023 and December 31, 2022, respectively (in thousands):


						June 30, 2023				December 31, 2022
Hedged Debt	Type	Fixed Rate	Index	Effective Date	Maturity	Notional Amounts		Estimated Fair Value		Notional Amounts		Estimated Fair Value
2023 Initial Term Loan	Swap	3.85%	1- Month SOFR	5/10/2023	2/10/2025	$	75,000	$	1,258	$	—	$	—
2023 Initial Term Loan	Swap	3.87%	1-Month SOFR	5/10/2023	2/10/2025	50,000		823		—		—
2023 Delayed Draw Term Loan	Swap	3.85%	1-Month SOFR	5/17/2023	2/17/2025	50,000		837		—		—
2023 Delayed Draw Term Loan	Swap	3.86%	1-Month SOFR	5/17/2023	2/17/2025	25,000		414		—		—
2023 Delayed Draw Term Loan	Swap	3.85%	1-Month SOFR	5/17/2023	2/17/2025	25,000		418		—		—
Mortgage Debt	Swap	3.22%	Daily SOFR	6/1/2023	1/1/2027	55,000		1,696		—		—




						$	280,000	$	5,446	$	—	$	—

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 and six months ended June 30, 2023 and 2022 (in thousands):


		Three Months Ended June 30,				Six Months Ended June 30,
		2023		2022		2023		2022
Effect of derivative instruments:	Location in Statements of Operations and Comprehensive Income:
Gain recognized in other comprehensive income	Unrealized gain on interest rate derivative instruments	$	5,906	$	379	$	5,906	$	2,896
Gain reclassified from accumulated other comprehensive income to net income	Reclassification adjustment for amounts recognized in net income (interest expense)	$	(460)	$	692	$	(460)	$	1,844
Total interest expense in which effects of cash flow hedges are recorded	Interest expense	$	21,650	$	20,353	$	43,784	$	40,891
Realized loss on termination of derivative instruments	Other income	$	—	$	—	$	—	$	(1,555)

The Company expects approximately $4.0 million will be reclassified from accumulated other comprehensive income as a reduction 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 is included in the condensed consolidated balance sheets as of as of June 30, 2023 and December 31, 2022 (in thousands):


	Fair Value Measurement Date
	June 30, 2023				December 31, 2022
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
Other assets
Interest rate swaps(1)	$	5,446	$	—	$	—	$	—

(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.

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 June 30, 2023 and December 31, 2022 (in thousands):


	June 30, 2023				December 31, 2022
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Total Mortgage and Term Loans	$	444,253	$	424,026	$	444,988	$	429,035
Senior Notes(1)	970,000		908,257		1,000,000		912,823
Revolving Credit Facility	—		—		—		—
Revolving Line of Credit (2023)	—		—		—		—
Total	$	1,414,253	$	1,332,283	$	1,444,988	$	1,341,858

(1) During the six months ended June 30, 2023, the Company repurchased in the open market and retired $30.0 million aggregate principal of its 6.375% 2020 Senior Notes due August 2025.

The Company estimated the fair value of its total debt, net of discounts, using a weighted-average effective interest rate of 6.17% and 6.24% per annum as of June 30, 2023 and December 31, 2022, 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 income tax expense for the three and six months ended June 30, 2023 using an estimated federal and state combined effective tax rate of 23.68% and recognized an income tax expense of $1.8 million and $7.0 million, respectively.

The Company estimated the income tax expense for the three and six months ended June 30, 2022 using an estimated federal and state combined effective tax rate of 15.35% and recognized an income tax expense of $3.6 million and $5.2 million, respectively.

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. No shares were sold under the ATM Agreement during the three and six months ended June 30, 2023 and 2022 and, as of June 30, 2023, $200 million of common stock remained available for issuance. As of June 30, 2023, and December 31, 2022, the Company had accumulated offering related costs included in other assets on the condensed consolidated balance sheets of $1.1 million and $1.0 million, respectively. These offering costs 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 (the "Repurchase Program") for up to $275 million of outstanding common stock in the open market, in privately negotiated transactions or otherwise, including pursuant to Rule 10b5-1 plans. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The Repurchase Program does not have an expiration date, may be suspended or discontinued at any time and does not obligate the Company to acquire any particular amount of shares.

During the six months ended June 30, 2023, 4,445,708 shares were repurchased under the Repurchase Program, at a weighted-average price of $13.20 per share for an aggregate purchase price of $58.7 million. No shares were purchased as part of the Repurchase Program during the six months ended June 30, 2022. As of June 30, 2023, the Company had approximately $107.8 million remaining under its share repurchase authorization.

Distributions

The Company declared the following dividends during the six months ended June 30, 2023:

Dividend per Share/Unit

For the Quarter Ended

Record Date

Payable Date

$0.10

March 31, 2023

April 14, 2023

$0.10

June 30, 2023

July 14, 2023

Non-Controlling Interest of Common Units in Operating Partnership

As of June 30, 2023, the Operating Partnership had 4,729,619 LTIP Units outstanding, representing a 4.2% partnership interest held by the limited partners. Of the 4,729,619 LTIP Units outstanding at June 30, 2023, 1,860,430 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 income attributable to common stockholders to basic and diluted earnings per share (in thousands, except share and per share data):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Numerator:
Net income attributable to common stockholders	$	13,792	$	27,648	$	20,072	$	22,324
Dividends paid on unvested share-based compensation	(66)		—		(133)		—
Undistributed earnings attributable to unvested share-based compensation	(5)		(61)		—		(48)
Net income available to common stockholders	$	13,721	$	27,587	$	19,939	$	22,276

Denominator:
Weighted-average shares outstanding - Basic	109,304,694		114,353,273		110,535,092		114,339,989
Effect of dilutive share-based compensation	207,168		380,320		233,510		401,790
Weighted-average shares outstanding - Diluted	109,511,862		114,733,593		110,768,602		114,741,779

Basic and diluted income per share:
Net income per share available to common stockholders - basic and diluted	$	0.12	$	0.24	$	0.18	$	0.19

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 2023

2023 Restricted Stock Units

133,393

81,509

12.30

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.

LTIP Unit Grants

The Compensation Committee of the Board of Directors approved the issuance of the following awards under the 2015 Incentive Award Plan:

Grant Date

Grant Description

Time-Based LTIP Units

Performance-Based Class A LTIP Units

Weighted-Average Grant Date Fair Value

February 2023

2023 LTIP Units

137,617

1,107,800

8.41

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.

In May 2023, pursuant to the Company's Director Compensation Program, the Company approved the issuance of 56,917 fully vested LTIP Units to seven of its non-employee directors which had a grant date fair value of $12.30 per unit.

The following is a summary of the unvested incentive awards under the 2015 Incentive Award Plan as of June 30, 2023:


	2015 Incentive Award Plan Restricted Stock Units		2015 Incentive Award Plan LTIP Units(1)		Total
Unvested as of December 31, 2022	224,677		1,720,629		1,945,306
Granted	214,902		1,302,334		1,517,236
Vested(2)	(65,247)		(153,774)		(219,021)

Forfeited	(11,759)		—		(11,759)

Unvested as of June 30, 2023	362,573		2,869,189		3,231,762
Weighted-average fair value of unvested shares/units	$	13.39	$	9.71	$	10.12

(1) Includes time-based LTIP Units and performance-based Class A LTIP Units.

(2) During the six months ended June 30, 2023 and 2022, 17,613 and 16,478 shares of common stock, respectively, were withheld by the Company upon the settlement of the applicable awards in order to satisfy federal and state tax withholding requirements on the vesting of Restricted Stock Units under the 2015 Incentive Award Plan.

The grant date fair values of the 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:


Performance Award Grant Date	Percentage of Total Award	Grant Date Fair Value by Component (in dollars)	Volatility	Interest Rate	Dividend Yield
February 24, 2023
Absolute TSR Restricted Stock Units	25%	$8.89	43.56%	4.58% - 5.11%	2.80%
Relative TSR Restricted Stock Units	75%	$9.08	43.56%	4.58% - 5.11%	2.80%
Absolute TSR Class A LTIP Units	25%	$8.89	43.56%	4.58% - 5.11%	2.80%
Relative TSR Class A LTIP Units	75%	$8.81	43.56%	4.58% - 5.11%	2.80%

The absolute and relative total stockholder returns are market conditions as defined by Accounting Standard Codification ("ASC") 718, Compensation - Stock Compensation. Market conditions include provisions wherein the vesting condition is met through the achievement of a specific value of the Company’s common stock, which is total stockholder return in this case. Market conditions differ from other performance awards under ASC 718 in that the probability of attaining the condition (and thus vesting of the units or shares) is reflected in the initial grant date fair value of the award.

Accordingly, it is not appropriate to reconsider the probability of vesting in the award subsequent to the initial measurement of the award, nor is it appropriate to reverse any of the expense if the condition is not met. As such, once the expense for these awards is measured, the expense must be recognized over the vesting period regardless of whether the target is met, or at what level the target is met. Expense may only be reversed if the holder of the instrument forfeits the award as a result of the holder's termination of service to the Company prior to vesting.

For the three and six months ended June 30, 2023, the Company recognized approximately $3.3 million and $5.9 million of share-based compensation expense (net of forfeitures) related to Restricted Stock Units and LTIP Units provided to its executive officers and certain corporate employees. In addition, for the three and six months ended June 30, 2023, the Company recognized $0.7 million of share-based compensation expense related to grants to the Board of Directors and capitalized approximately $0.1 million and $0.2 million related to Restricted Stock Units provided to certain other employees who oversee development and capital projects on behalf of the Company. As of June 30, 2023, there was $19.0 million of total unrecognized compensation costs related to unvested Restricted Stock Units, Class A LTIP Units and Time-Based LTIP Units issued under

the 2015 Incentive Award Plan, which are expected to be recognized over a remaining weighted-average period of 1.85 additional years.

For the three and six months ended June 30, 2022, the Company recognized approximately $2.8 million and $5.0 million of share-based compensation expense (net of forfeitures) related to Restricted Stock Units and LTIP Units provided to certain of its executive officers and certain corporate employees. In addition, for the three and six months ended June 30, 2022, the Company recognized $0.8 million of share-based compensation expense related to grants to the Board of Directors and capitalized approximately $50 thousand (net of forfeitures) and $0.3 million related to Restricted Stock Units provided to certain other employees who oversee development and capital projects on behalf of the Company.

12. Commitments and Contingencies

Leases

The Company is a lessee to long-term ground, parking, and its corporate office leases, which are accounted for as operating leases. The following is a summary of the Company's leases as of and for the six months ended June 30, 2023 (dollar amounts in thousands):