Xenia Hotels & Resorts Reports Third Quarter 2017 Results

ORLANDO, Fla., Nov. 7, 2017 /PRNewswire/ -- Xenia Hotels & Resorts, Inc. (NYSE: XHR) ("Xenia" or the "Company") today announced results for the quarter ended September 30, 2017. 

Third Quarter 2017 Highlights

• Net Income: Net income attributable to common stockholders was $11.6 million and net income per diluted share was $0.11.

• Same-Property RevPAR: Same-Property RevPAR decreased 1.3% compared to the third quarter of 2016 to $157.35, as occupancy increased 68 basis points and ADR decreased 2.2%. Hyatt Centric Key West Resort & Spa, which was closed for a portion of September due to Hurricane Irma, is included in all Same-Property portfolio metrics as if all rooms had been available. Excluding Hyatt Centric Key West Resort & Spa, Same-Property RevPAR decreased 1.1% compared to third quarter 2016.

• Same-Property Hotel EBITDA Margin: Same-Property Hotel EBITDA Margin was 30.7%, a decrease of 16 basis points compared to the third quarter of 2016.

• Total Portfolio RevPAR: Total Portfolio RevPAR was 0.3% higher than in the third quarter of 2016.

• Adjusted EBITDA: Adjusted EBITDA declined $9.3 million to $63.6 million, a decrease of 12.8% primarily due to net asset dispositions since the third quarter of 2016.

• Adjusted FFO per Diluted Share: Adjusted FFO per diluted share was $0.50, a decrease of 12.3% compared to the third quarter of 2016.

• Transaction Activity: The Company sold the Marriott West Des Moines for $19 million early in the third quarter. Subsequent to quarter end, in early October, the Company completed the acquisition of the 493-room Hyatt Regency Scottsdale Resort & Spa at Gainey Ranch and the 119-room Royal Palms Resort & Spa, part of The Unbound Collection by Hyatt, for a combined purchase price of $305 million. Also in October, the Company completed the acquisition of the 365-room Ritz-Carlton Pentagon City for $105 million.

• Financing Activity: The Company obtained a new $100 million mortgage loan on the Renaissance Atlanta Waverly Hotel & Convention Center and a new $125 million unsecured term loan.

• Dividends: The Company declared its third quarter dividend of $0.275 per share to common stockholders of record on September 29, 2017.

Year to Date Highlights

• Net Income: Net income attributable to common stockholders was $89.2 million and net income per diluted share was $0.83.

• Same-Property RevPAR: Same-Property RevPAR increased 0.1% to $159.81 compared to the nine months ended September 30, 2016, as occupancy increased 29 basis points and ADR decreased 0.3%.

• Same-Property Hotel EBITDA Margin: Same-Property Hotel EBITDA Margin was 31.8%, an increase of 19 basis points compared to the nine months ended September 30, 2016.

• Total Portfolio RevPAR: Total Portfolio RevPAR increased 2.4% year over year, reflecting portfolio improvements and portfolio composition.

• Adjusted EBITDA: Adjusted EBITDA was $202.2 million, a decrease of 9.5% from 2016.

• Adjusted FFO per Diluted Share: The Company generated Adjusted FFO per diluted share of $1.53, a 7.3% decline from 2016.

"Third quarter operating results exceeded our expectations as the short-term negative impact from Hurricanes Harvey and Irma on the results of a number of our properties was offset by increased post-hurricane demand in Houston, as well as stronger than anticipated performance in markets such as Orlando, San Francisco and Santa Clara," commented Marcel Verbaas, Chairman and Chief Executive Officer of Xenia. "While we had anticipated that the third quarter would be challenging as a result of the shift in the timing of holidays and softer group bookings for the quarter, the outperformance in the aforementioned markets resulted in a modest Same-Property RevPAR decrease of 1.3%, inclusive of the results of Hyatt Centric Key West that was closed for part of September.  Additionally, our expense controls were outstanding during the quarter as our Same-Property Hotel EBITDA margin declined by only 16 basis points. We believe our overall performance this quarter is reflective of the strength of our platform and our market strategy, which we expect to continue to benefit us over the quarters and years ahead."

"We have further strengthened the portfolio and our market diversification through the exciting acquisitions of The Ritz-Carlton Pentagon City, Hyatt Regency Scottsdale Resort & Spa at Gainey Ranch and Royal Palms Resort & Spa," continued Mr. Verbaas. "We believe our transaction expertise is a core strength of our company and our ability to acquire these hotels is further evidence of this.  We are particularly excited we have been able to re-enter the Phoenix/Scottsdale market through the ownership of two premier hotels in the area while also expanding our footprint in the strong and stable Washington D.C. market through the acquisition of our first Ritz-Carlton. We remain steadfast in our belief that an investment strategy focused on primarily investing in a balanced manner in luxury and upper upscale hotels within the top 25 U.S. lodging markets and key leisure destinations will continue to drive long-term value creation."

Operating Results

The Company's results include the following:

Impact from Recent Natural Disasters

Third quarter and year to date operating results were impacted by two major hurricanes, which disrupted operations and/or caused limited damage at several of the Company's properties.

In August, Hurricane Harvey impacted Texas.  All of the Company's hotels in markets impacted by the hurricane remained open and operating throughout the quarter and no hotels experienced significant property damage.  Following the hurricane, demand in Houston improved, resulting in a more favorable operating environment than previously forecasted.  For the three months ended September 30, 2017, the Company's three Houston hotels had RevPAR growth of 8.6%.  As a result, the year to date RevPAR decline for its Houston hotels was reduced to 3.5%.

In September, Hurricane Irma caused disruption and/or limited property damage to the Company's Key West, Orlando, Atlanta, Savannah, Birmingham, and Charleston, South Carolina hotels.   The Company's 120-room Hyatt Centric Key West Resort & Spa closed on September 6, 2017 following the mandatory evacuation order related to Hurricane Irma.  The property sustained limited wind damage and water intrusion from the storm and reopened on September 22, 2017, with all rooms now available to guests.  The Company's other eight hotels impacted by the hurricane sustained limited revenue disruption and did not experience significant property damage.

For the third quarter and year to date, the Company expensed an estimated $1.2 million of hurricane-related repairs and cleanup costs across all impacted properties.  The Company expects that these costs will not be covered by property insurance, as the repairs and cleanup costs were below hotel-level deductibles.  In addition, in the third quarter the Company recorded a loss of approximately $1.0 million, net of insurance recoveries, for the estimated damage to its hotels.

The Company carries business interruption insurance at each of its properties and is currently evaluating its ability to recover proceeds for lost business as a result of these storms.  These proceeds, if received, will not be recorded until a final settlement has been reached with its insurance companies, which is likely to occur in 2018.

Subsequent to quarter end, a series of wildfires in Northern California impacted the Company's two Napa hotels.  Andaz Napa remained open throughout the month of October, while Marriott Napa Valley Resort & Spa was closed to guests from October 9 through October 15, 2017.  While neither hotel experienced direct fire damage, Xenia is currently evaluating the extent of smoke and other consequential damage at the properties, as well as business lost as a result of these fires, which could be covered by our business interruption insurance.  As a result of the wildfires, the Company expects operating performance at the hotels to be impacted in the fourth quarter of 2017 and into 2018.

"Our thoughts remain with the many people and communities impacted by the series of natural disasters that have occurred over the past few months," said Mr. Verbaas. "We sincerely thank the management teams and their associates for the hard work and commitment they showed at our hotels, while simultaneously responding to the needs of their families and communities during these times of hardship. While we continue to evaluate the overall financial impact of these events on our business, this cannot overshadow the fact that many of these management companies' associates and their loved ones have experienced a far greater impact on their personal lives. We are proud to continue to support them as they continue to show their commitment and dedication to their jobs and our hotels."

Financings and Balance Sheet

In August, the Company closed a $100 million variable-rate mortgage loan collateralized by the Renaissance Atlanta Waverly Hotel & Convention Center.  The loan bears an interest rate of LIBOR plus 2.10% and matures in August 2024.

In September, the Company closed a new $125 million senior unsecured term loan.  The new term loan matures in September 2024 and bears an interest rate based on a pricing grid with a range of 170 to 255 basis points plus LIBOR, determined by the Company's leverage ratio. Subsequent to quarter end, the Company executed a series of swaps to fix LIBOR through September 2022.  Based on the Company's current leverage ratio, including the swaps, the effective interest rate is 3.62%. The term loan also includes an accordion option that allows the Company to request additional lender commitments of up to $125 million.

As of September 30, 2017, the Company had total outstanding debt of $1.3 billion with a weighted average interest rate of 3.60%.  In addition, the Company had $450.4 million of cash and cash equivalents, and full availability on its $400 million senior 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 3.1x.

As of November 7, 2017, the Company had $40 million of borrowing outstanding on its senior unsecured credit facility resulting in $360 million of available capacity.

Capital Expenditures

During the three and nine months ended September 30, 2017 the Company invested $21 million and $52 million in its portfolio, respectively. 

During the third quarter, the Company completed meeting space renovations at Loews New Orleans and Renaissance Atlanta Waverly Hotel, and made substantial progress on the meeting space renovation at Hyatt Regency Santa Clara.  In addition, at Westin Galleria in Houston, the Company made significant progress on the lobby renovation, addition of a lobby bar, and transformation of the 24th floor meeting space which will include a new fitness center and club lounge.  While the completion of this work was delayed by Hurricane Harvey, the Company expects to complete this work early in the first quarter of 2018.

Additionally, the Company completed the final stages of planning and purchasing for guestroom renovations at seven of its hotels that will commence during the fourth quarter.  These include Westin Oaks at the Galleria, Hilton Garden Inn Washington D.C., Lorien Hotel & Spa, Hotel Monaco Denver, Residence Inn Denver City Center, Andaz Savannah, and Marriott Chicago at Medical District/UIC.

Finally, the Company will commence several additional projects in the fourth quarter including a lobby and great room renovation at the Marriott San Francisco Airport Waterfront and restaurant renovations at Hotel Monaco Chicago and RiverPlace Hotel.  Work on each of the aforementioned projects commenced in the fourth quarter and will continue into 2018.

Share Repurchases

During the third quarter, the Company did not repurchase any shares under its share repurchase authorization.

Year to date through November 3, 2017, the Company has repurchased a total of 240,352 shares of common stock at a weighted average price of $17.07 per share, for total consideration of $4.1 million.  As of November 3, 2017, the Company had approximately $97 million in capacity remaining under its repurchase authorization.

2017 Outlook and Guidance

The Company is updating its guidance for 2017.  The Company's outlook for 2017 is based on the current economic environment, incorporates all expected renovation disruption, includes the estimated impact of the recent natural disasters, and assumes no additional acquisitions, dispositions, equity offerings, or share repurchases.  Same-Property RevPAR change includes all 39 hotels owned as of November 7, 2017.

Additional guidance details:

• The Company has updated its projected 2017 Adjusted EBITDA and Adjusted FFO as follows:

• $8 million increase due to the acquisition of three hotels subsequent to quarter end.

• $6 million increase as a result of better than anticipated third quarter performance and a revised outlook for the fourth quarter.

• Offset by a $3 million negative impact to forecasts for its Key West and Napa Valley hotels as a result of the impact from recent natural disasters.

• Year to date RevPAR growth for the Company's current 39 hotel portfolio of 0.5%.

• Projected average RevPAR change of 0.0% to (2.0%) at the Company's Houston area hotels.

• Disruption due to renovations is expected to negatively impact portfolio RevPAR change by approximately 50 basis points.

• General and administrative expense of approximately $23 million, excluding non-cash share-based compensation.

• Interest expense of approximately $43 million, excluding non-cash loan related costs.

• Income tax expense of approximately $7 million.

Third Quarter 2017 Earnings Call

The Company will conduct its quarterly conference call on Tuesday, November 7, 2017 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 39 hotels, including 37 wholly owned hotels, comprising 11,533 rooms, across 18 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®, Aston®, 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 EBITDA, 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, energy costs and other operating costs, actual or threatened terrorist attacks, 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 or terrorism, (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, and (xiv) 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 of 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 useful non-GAAP financial measures to investors as key supplemental measures of operating performance: EBITDA, Adjusted EBITDA, 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 and Adjusted EBITDA

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, as well as similar adjustments for unconsolidated partnership and joint ventures.  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. The Company presents EBITDA 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 EBITDA attributable to all common stock and Operating Partnership units.

The Company further adjusts EBITDA for certain additional items such as hotel property acquisitions and pursuit costs, amortization of share-based compensation, the cumulative effect of changes in accounting principles, impairment of real estate assets, and other costs it believes do not represent recurring operations and are not indicative of the performance of its underlying hotel property entities.  The Company believes Adjusted EBITDA provides investors with another financial measure in evaluating and facilitating comparison of operating performance between periods and between REITs that report similar measures.

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 general and administrative expenses, and (5) hotel acquisition costs. 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 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 the National Association of Real Estate Investment Trusts (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 property acquisition and pursuit 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 common stock shares 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.