XHR - Xenia Hotels & Resorts Reports Third Quarter 2018 Results

ORLANDO, Fla., Nov. 5, 2018 /PRNewswire/ -- Xenia Hotels & Resorts, Inc. (NYSE: XHR) ("Xenia" or the "Company") today announced results for the quarter ended September 30, 2018.

Third Quarter 2018 Highlights

• Net Income: Net income attributable to common stockholders was $9.2 million and net income per diluted share was $0.08, a decline of 20.6% and 27.3%, respectively, year over year.

• Same-Property RevPAR: Same-Property RevPAR was $158.25, essentially flat compared to the third quarter of 2017, as occupancy declined 189 basis points and ADR increased 2.5%.

• Same-Property Hotel EBITDA Margin: Same-Property Hotel EBITDA Margin was 26.8%, a decrease of 87 basis points compared to the third quarter of 2017.

• Total Portfolio RevPAR: Total Portfolio RevPAR was $155.88, a 0.8% decline compared to the third quarter of 2017 as a result of seasonality changes in the portfolio due to acquisitions and dispositions completed since the third quarter of 2017.

• Adjusted EBITDAre: Adjusted EBITDAre declined $3.0 million to $60.5 million, a decrease of 4.7% compared to the third quarter of 2017.

• Adjusted FFO per Diluted Share: Adjusted FFO per diluted share was $0.46, a decrease of 8.0% compared to the third quarter of 2017.

• Acquisitions: The Company acquired two hotels during the quarter for a total amount of $130.25 million.

• Financing Activity: The Company closed on a new $150 million unsecured term loan and modified one mortgage loan resulting in $18 million of incremental proceeds.

• Capital Markets Activity: The Company issued $15.2 million of common stock under its At-The-Market program.

• Dividends: The Company declared its third quarter dividend of $0.275 per share to common stockholders of record on September 28, 2018.

"Third quarter results met our bottom-line expectations as difficult rooms revenue comparisons due to calendar shifts and hurricane impacts were offset by stronger group contributions that drove increased food and beverage revenues," commented Marcel Verbaas, Chairman and Chief Executive Officer of Xenia.  "As a result, Same-Property total revenues increased by 1.2% on flat RevPAR growth for the quarter. From a rooms revenue perspective, we were particularly pleased with the performance of our assets in Phoenix, Philadelphia, Chicago and Santa Clara, which saw RevPAR increases of 16.9%, 11.7%, 9.1% and 4.8%, respectively. As expected, the most challenging of our ten largest markets for the quarter were Orlando, Houston and Dallas, markets that were impacted by guest room and meeting space renovations during the quarter, as well as tough comparisons due to the short-term demand lift last September after Hurricanes Harvey and Irma. We are excited to have completed the guest room renovations at Marriott Dallas City Center and Hyatt Regency Grand Cypress, as well as the meeting space renovation at Westin Galleria Houston, and believe these assets are well positioned to drive future growth for our portfolio. We remain cautiously optimistic about lodging market fundamentals as we look ahead to 2019 and are encouraged by the approximately 4% RevPAR increase our Same-Property portfolio achieved in October."

"Due to changes in the composition of our portfolio as compared to last year, we experienced the seasonality changes we expected and have previously outlined," continued Mr. Verbaas. "Additionally, the timing of real estate tax credits and the accrual approach with regard to incentive management fees adversely impacted margin comparisons in the third quarter.  However, these factors are not expected to have an outsized impact on our full-year margins and we remain pleased with our successful efforts in controlling overall expenses as our total Same-Property hotel operating expenses have increased by only 1.2% through the first nine months of the year, despite real estate taxes and insurance increasing by 5.4% year to date."

Year to Date Highlights

• Net Income: Net income attributable to common stockholders through the nine months ended September 30, 2018 was $93.7 million and net income per diluted share was $0.85, a 5.1% and 2.4% increase, respectively, year over year.

• Same-Property RevPAR: Same-Property RevPAR increased 0.4% to $166.16 compared to the nine months ended September 30, 2017, as ADR increased 0.6%, offset by a decline in occupancy of 17 basis points.

• Same-Property Hotel EBITDA Margin: Same-Property Hotel EBITDA Margin was 29.6%, a decrease of 39 basis points compared to the nine months ended September 30, 2017.

• Total Portfolio RevPAR: Total Portfolio RevPAR was $164.13, a 5.1% increase year over year, reflecting portfolio performance and the change in portfolio composition.

• Adjusted EBITDAre: Adjusted EBITDAre was $224.1 million, an increase of 10.8% from 2017.

• Adjusted FFO per Diluted Share: The Company generated Adjusted FFO per diluted share of $1.64, a 7.2% increase from 2017.

Operating Results

The Company's results include the following:

Transactions

As previously disclosed, in August the Company completed the acquisition of The Ritz-Carlton, Denver, a 202-room luxury hotel in downtown Denver, Colorado, for a purchase price of $100.25 million.  In September, the Company completed the acquisition of the 185-room Fairmont Pittsburgh for a purchase price of $30 million.

Subsequent to quarter end, the Company completed the acquisition of its joint venture partner's interests in both Grand Bohemian Hotel Charleston in Charleston, South Carolina, and Grand Bohemian Hotel Mountain Brook in Mountain Brook, Alabama, for a combined purchase price of $12.2 million.  As a result of this transaction, the Company now wholly owns each of the two hotels.

Simultaneous with this transaction, the Company paid off the debt secured by both hotels, including the $18.6 million mortgage loan collateralized by Grand Bohemian Hotel Charleston and the $24.8 million mortgage loan collateralized by Grand Bohemian Hotel Mountain Brook.

"We continued executing on our strategy of on-going portfolio improvement through the addition of two outstanding luxury assets with substantial upside opportunity, The Ritz-Carlton, Denver and Fairmont Pittsburgh, at a price significantly below replacement cost," said Mr. Verbaas. "Additionally, through the acquisition of our partner's interest in our only two joint venture hotels in the portfolio and the simultaneous repayment of the loans encumbering these hotels, we have further streamlined our strong balance sheet which continues to provide significant flexibility for the Company."

Financings and Balance Sheet

In August, the Company closed on a $150 million unsecured term loan maturing in August 2023.  The term loan bears an interest rate based on a pricing grid with a range of 135 to 220 basis points plus LIBOR, determined by the Company's leverage ratio.  Based on the Company's current leverage ratio, the current effective interest rate is LIBOR plus 145 basis points.  The term loan also includes an accordion option that allows the Company to request additional lender commitments of up to $100 million.  As of September 30, 2018, the term loan had no outstanding balance, as the Company delayed the funding of the loan.  Subsequent to quarter end, the Company funded $65 million of the $150 million available under the term loan, with the remaining funding to occur at a later date.

In September, the Company modified the mortgage loan collateralized by Andaz Napa.  The amendment resulted in $18 million of incremental proceeds, lowered the interest rate to LIBOR plus 190 basis points, and extended the maturity date to September 2024.

As of September 30, 2018, the Company had total outstanding debt of $1.1 billion with a weighted average interest rate of 3.82%.  Over 85% of the Company's debt has interest rates which are fixed or have been hedged to fixed.  In addition, the Company had $90.0 million of cash and cash equivalents, and full availability on its $500 million unsecured credit facility.  Total net debt to trailing twelve month Corporate EBITDA (as defined in Section 1.01 of the Company's unsecured credit facility) was 3.6x.

Capital Markets

During the quarter, the Company issued 629,303 shares of its common stock through its At-The-Market ("ATM") program at a weighted average share price of $24.13 for total gross proceeds of $15.2 million.  For the nine months ended September 30, 2018, the Company has issued 5.7 million shares of its common stock through its ATM program at a weighted average share price of $24.02 for total gross proceeds of $137.4 million.  As of September 30, 2018, the Company had $62.6 million remaining available for sale under the ATM program.

The Company did not repurchase any shares under its existing share repurchase authorization during the quarter.

Capital Expenditures

During the three and nine months ended September 30, 2018, the Company invested $28 million and $84 million in its portfolio, respectively.  During the quarter, the Company completed the guestroom renovations at Marriott Dallas City Center, which included bathtub to shower conversions in 75% of the guestrooms, and Hyatt Regency Grand Cypress.  Additionally, the Company completed the renovation of the meeting space at Westin Galleria Houston.

During the quarter, the Company made significant progress on its renovation of the Marriott Woodlands Waterway Hotel & Convention Center meeting space, which includes the 66,000 square feet of event and pre-function space at the property.

Finally, the Company commenced construction of the new 25,000 square foot ballroom and 32,000 square feet of pre-function and support space at Hyatt Regency Grand Cypress.  This new facility, which the Company estimates will cost approximately $32 million, is scheduled to be completed in the fourth quarter 2019.

2018 Outlook and Guidance

The Company's outlook for 2018 is based on the current economic environment, incorporates all expected renovation disruption, and assumes no additional acquisitions, dispositions, equity offerings, or share repurchases.  Same-Property RevPAR change includes all 40 hotels owned as of November 5, 2018.

Additional guidance details:

• The Company has updated its projected 2018 Adjusted EBITDA and Adjusted FFO to include a $3.4 million increase due to the acquisition of two hotels during the third quarter.

• Disruption due to renovations is expected to negatively impact Same-Property RevPAR Change by approximately 100 basis points.

• General and administrative expense of approximately $21 million, excluding non-cash share-based compensation. 

• Interest expense of approximately $48 million, excluding non-cash loan related costs.

• Income tax expense of approximately $6 million.

Third Quarter 2018 Earnings Call

The Company will conduct its quarterly conference call on Monday, November 5, 2018 at 11:00 AM Eastern Time. To participate in the conference call, please dial (855) 656-0921.  Additionally, a live webcast of the conference call will be available through the Company's website, www.xeniareit.com. A replay of the conference call will be archived and available online through the Investor Relations section of the Company's website for 90 days.

About Xenia Hotels & Resorts, Inc.

Xenia Hotels & Resorts, Inc. is a self-advised and self-administered REIT that invests primarily in premium full service and lifestyle hotels, with a focus on the top 25 U.S. lodging markets as well as key leisure destinations in the United States. The Company owns 40 hotels comprising 11,239 rooms, across 17 states and the District of Columbia. Xenia's hotels are primarily in the luxury and upper upscale segments, and operated and/or licensed by industry leaders such as Marriott®, Hyatt®, Kimpton®, Fairmont®, Hilton®, and Loews®, as well as leading independent management companies including Sage Hospitality, The Kessler Collection, Urgo Hotels & Resorts, and Davidson Hotels & Resorts. For more information on Xenia's business, refer to the Company website at www.xeniareit.com.

This press release, together with other statements and information publicly disseminated by the Company, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and includes this statement for purposes of complying with these safe harbor provisions. Forward-looking statements are not historical facts but are based on certain assumptions of management and describe the Company's future plans, strategies and expectations. Forward-looking statements are generally identifiable by use of words such as "may," "could," "expect," "intend," "plan," "seek," "anticipate," "believe," "estimate," "guidance," "predict," "potential," "continue," "likely," "will," "would," "illustrative," references to "outlook" and "guidance," and variations of these terms and similar expressions, or the negative of these terms or similar expressions. Forward-looking statements in this press release include, among others, statements about our plans, strategies, the outlook for RevPAR growth, Net Income, Adjusted EBITDAre, Adjusted FFO, Adjusted FFO per share, capital expenditures and derivations thereof, financial performance, prospects or future events. Such forward-looking statements are necessarily based upon estimates and assumptions that, while considered reasonable by us and our management, are inherently uncertain. As a result, our actual results, performance or achievements may differ materially from those expressed or implied by these forward-looking statements, which are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond the Company's control and which could materially affect actual results, performances or achievements. Factors that may cause actual results to differ materially from current expectations include, but are not limited to, (i) the Company's dependence on third-party managers of its hotels, including its inability to implement strategic business decisions directly, (ii) risks associated with the hotel industry, including competition, increases in wages and benefits, energy costs and other operating costs, actual or threatened terrorist attacks, information technology failures, downturns in general and local economic conditions and cancellation of or delays in the completion of anticipated demand generators, (iii) the availability and terms of financing and capital and the general volatility of securities markets, (iv) risks associated with the real estate industry, including environmental contamination and costs of complying with the Americans with Disabilities Act and similar laws, (v) interest rate increases, (vi) the possible failure of the Company to qualify as a REIT and the risk of changes in laws affecting REITs, (vii) the possibility of uninsured or underinsured losses, including those relating to natural disasters, terrorism, or cyber incidents; (viii) risks associated with redevelopment and repositioning projects, including delays and cost overruns, (ix) levels of spending in business and leisure segments as well as consumer confidence (x) declines in occupancy and average daily rate, (xi) the seasonal and cyclical nature of the real estate and hospitality businesses, (xii) changes in distribution arrangements, such as through Internet travel intermediaries, (xiii) relationships with labor unions and changes in labor laws, (xiv) the impact of changes in the tax code as a result of recent U.S. federal income tax reform and uncertainty as to how some of those changes may be applied, and (xv) the risk factors discussed in the Company's Annual Report on Form 10-K, as updated in its Quarterly Reports.  Accordingly, there is no assurance that the Company's expectations will be realized. We caution you not to place undue reliance on any forward-looking statements, which are made only as of the date of this press release. We do not undertake or assume any obligation to update publicly any of these forward-looking statements to reflect actual results, new information or future events, changes in assumptions or changes in other factors affecting forward-looking statements, except to the extent required by applicable law. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

For further information about the Company's business and financial results, please refer to the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" sections of the Company's SEC filings, including, but not limited to, its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, copies of which may be obtained at the Investor Relations section of the Company's website at www.xeniareit.com.

All information in this press release is as of the date of its release. The Company undertakes no duty to update the statements in this press release to conform the statements to actual results or changes in the Company's expectations.

Availability of Information on Xenia's Website

Investors and others should note that Xenia routinely announces material information to investors and the marketplace using U.S. Securities and Exchange Commission (SEC) filings, press releases, public conference calls, webcasts and the Xenia Investor Relations website. While not all the information that the Company posts to the Xenia Investor Relations website is of a material nature, some information could be deemed to be material. Accordingly, the Company encourages investors, the media, and others interested in Xenia to review the information that it shares at the Investor Relations link located on www.xeniareit.com. Users may automatically receive email alerts and other information about the Company when enrolling an email address by visiting "Email Alerts / Investor Information" in the "Corporate Overview" section of Xenia's Investor Relations website at www.xeniareit.com.

For additional information or to receive press releases via email, please visit our website at www.xeniareit.com.

Non-GAAP Financial Measures

The Company considers the following non-GAAP financial measures to be useful to investors as key supplemental measures of operating performance: EBITDA, EBITDAre, Adjusted EBITDAre, Same-Property Hotel EBITDA, Same-Property Hotel EBITDA Margin, FFO, Adjusted FFO, and Adjusted FFO per diluted share.  These non-GAAP financial measures should be considered along with, but not as alternatives to, net income or loss, operating profit, cash from operations, or any other operating performance measure as prescribed per GAAP.

EBITDA, EBITDAre and Adjusted EBITDAre

EBITDA is a commonly used measure of performance in many industries and is defined as net income or loss (calculated in accordance with GAAP) excluding interest expense, provision for income taxes (including income taxes applicable to sale of assets) and depreciation and amortization.  The Company considers EBITDA useful to an investor regarding results of operations, in evaluating and facilitating comparisons of operating performance between periods and between REITs by removing the impact of capital structure (primarily interest expense) and asset base (primarily depreciation and amortization) from operating results, even though EBITDA does not represent an amount that accrues directly to common stockholders.  In addition, EBITDA is used as one measure in determining the value of hotel acquisitions and dispositions and along with FFO and Adjusted FFO, it is used by management in the annual budget process for compensation programs.

We then calculate EBITDAre in accordance with standards established by the National Association of Real Estate Investment Trusts ("Nareit"), which we adopted on January 1, 2018.  Nareit defines EBITDAre as EBITDA plus or minus losses and gains on the disposition of depreciated property, including gains/losses on change of control, plus impairment write-downs of depreciated property and of investments in unconsolidated affiliates caused by a decrease in value of the depreciated property in the affiliate, and adjustments to reflect the entity's share of EBITDAre of unconsolidated affiliates.

We further adjust EBITDAre to exclude the impact of non-controlling interests in consolidated entities other than our Operating Partnership units because our Operating Partnership units may be redeemed for common stock.  We believe it is meaningful for the investor to understand Adjusted EBITDAre attributable to all common stock and Operating Partnership unit holders. We also adjust EBITDAre for certain additional items such as hotel acquisition and terminated transaction costs, amortization of share-based compensation, the cumulative effect of changes in accounting principles, and other costs we believe do not represent recurring operations and are not indicative of the performance of our underlying hotel property entities. We believe Adjusted EBITDAre attributable to common stock and unit holders provides investors with another financial measure in evaluating and facilitating comparison of operating performance between periods and between REITs that report similar measures.

Prior to the adoption of EBITDAre on January 1, 2018, we historically presented EBITDA attributable to common stock and unit holders, which excluded depreciation expense related to corporate level assets and the allocation of EBITDA to noncontrolling interests in our consolidated investments in real estate entities.  In order to calculate EBITDAre in accordance with Nareit's definition, these adjustments are now made to derive Adjusted EBITDAre.  Therefore, there were no retrospective changes to Adjusted EBITDA as historically presented upon conversion to Adjusted EBITDAre.

Same-Property Hotel EBITDA and Same-Property Hotel EBITDA Margin

Same-Property hotel data includes the actual operating results for all hotels owned as of the end of the reporting period.  We then adjust the Same-Property hotel data for comparability purposes by including pre-acquisition operating results of asset(s) acquired during the period, which provides the investor a basis for understanding the acquisition(s) historical operating trends and seasonality. The pre-acquisition operating results for the comparable period are obtained from the seller and/or manager of the hotels during the acquisition due diligence process and have not been audited or reviewed by our independent auditors.  We further adjust the Same-Property hotel data to remove dispositions during the respective reporting periods, and, in certain cases, hotels that are not fully open due to renovation, re-positioning, or disruption or whose room counts have materially changed during either the current or prior year as these historical operating results are not indicative of or expected to be comparable to the operating performance of our hotel portfolio on a prospective basis.

Same-Property Hotel EBITDA represents net income excluding: (1) interest expense, (2) income taxes, (3) depreciation and amortization, (4) corporate-level costs and expenses, (5) hotel acquisition and terminated transaction costs, and (6) certain state and local excise taxes resulting from our ownership structure. We believe that Same-Property Hotel EBITDA provides our investors a useful financial measure to evaluate our hotel operating performance, excluding the impact of our capital structure (primarily interest), our asset base (primarily depreciation and amortization), income taxes, and our corporate-level expenses (corporate expenses and hotel acquisition and terminated transaction costs). We believe property-level results provide investors with supplemental information on the ongoing operational performance of our hotels and the effectiveness of our third-party management companies that operate our business on a property-level basis. Same-Property Hotel EBITDA Margin is calculated by dividing Same-Property Hotel EBITDA by Same-Property Total Revenues.

As a result of these adjustments the Same-Property hotel data we present does not represent our total revenues, expenses, operating profit or net income and should not be used to evaluate our performance as a whole. Management compensates for these limitations by separately considering the impact of these excluded items to the extent they are material to operating decisions or assessments of our operating performance. Our consolidated statements of operations include such amounts, all of which should be considered by investors when evaluating our performance.

We include Same-Property hotel data as supplemental information for investors.  Management believes that providing Same-Property hotel data is useful to investors because it represents comparable operations for our portfolio as it exists at the end of the respective reporting periods presented, which allows investors and management to evaluate the period-to-period performance of our hotels and facilitates comparisons with other hotel REITs and hotel owners. In particular, these measures assist management and investors in distinguishing whether increases or decreases in revenues and/or expenses are due to growth or decline of operations at Same-Property hotels or from other factors, such as the effect of acquisitions or dispositions.

FFO and Adjusted FFO

The Company calculates FFO in accordance with standards established by Nareit, which defines FFO as net income or loss (calculated in accordance with GAAP), excluding real estate-related depreciation, amortization and impairments, gains (losses) from sales of real estate, the cumulative effect of changes in accounting principles, similar adjustments for unconsolidated partnerships and joint ventures, and items classified by GAAP as extraordinary. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most industry investors consider presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. The Company believes that the presentation of FFO provides useful supplemental information to investors regarding operating performance by excluding the effect of real estate depreciation and amortization, gains (losses) from sales for real estate, impairments of real estate assets, extraordinary items and the portion of these items related to unconsolidated entities, all of which are based on historical cost accounting and which may be of lesser significance in evaluating current performance.  The Company believes that the presentation of FFO can facilitate comparisons of operating performance between periods and between REITs, even though FFO does not represent an amount that accrues directly to common stockholders.  The calculation of FFO may not be comparable to measures calculated by other companies who do not use the Nareit definition of FFO or do not calculate FFO per diluted share in accordance with Nareit guidance.  Additionally, FFO may not be helpful when comparing Xenia to non-REITs.  The Company presents FFO attributable to common stock and unit holders, which includes its Operating Partnership units because its Operating Partnership units may be redeemed for common stock.  The Company believes it is meaningful for the investor to understand FFO attributable to all common stock and Operating Partnership units.

The Company further adjusts FFO for certain additional items that are not in Nareit's definition of FFO such as hotel acquisition and terminated transaction costs, amortization of debt origination costs and share-based compensation, and other expenses it believes do not represent recurring operations.  The Company believes that Adjusted FFO provides investors with useful supplemental information that may facilitate comparisons of ongoing operating performance between periods and between REITs that make similar adjustments to FFO and is beneficial to investors' complete understanding of operating performance.

Adjusted FFO per diluted share

The Company calculates Adjusted FFO per diluted share by dividing the Adjusted FFO for the respective period by the diluted weighted average number of shares of common stock for the corresponding period.  The Company's diluted weighted average number of common shares outstanding is calculated by taking the weighted average of the common stock outstanding for the respective period plus the effect of any dilutive securities.  Any anti-dilutive securities are excluded from the diluted earnings per-share calculation.