Xenia Hotels & Resorts Reports Third Quarter 2020 Results

Xenia Hotels & Resorts, Inc. (NYSE: XHR) today announced results for the quarter ended September 30, 2020. 

Company Highlights

• 36 of the Company's 37 hotels and resorts are open and operating, representing approximately 95% of the Company's total room count, as of October 30, 2020.
• Currently the Company has approximately $600 million of liquidity, including cash and cash equivalents and availability under its revolving credit facility. The Company's estimate of average monthly recurring net cash expenses has been reduced to approximately $14.5 million, including debt service and excluding capital expenditures, assuming no changes in current levels of demand. Additionally, the Company has no debt maturities until 2023.
• In October the Company completed the sale of Residence Inn Boston Cambridge for $107.5 million and Marriott Napa Valley Hotel & Spa for $100.1 million. Additionally, the Company entered into two separate agreements to sell Renaissance Austin Hotel and Hotel Commonwealth for $70 million and $113 million, respectively.
• The waiver period for the testing of the financial covenants under the Company's revolving credit facility and remaining term loans has been extended through year-end 2021, with relaxed financial covenants through the first quarter of 2023.
• As of October 28, 2020, preliminary operational results have continued to improve at the 36 open and operating hotels with occupancy of approximately 33% and an ADR of approximately $189, resulting in RevPAR of approximately $63.

Third Quarter and Year to Date 2020 Highlights

• Hotel Status: The Company had 31 hotels open and operating for the entire third quarter. At the end of the third quarter, 37 of the Company's 39 hotels were open and operating. One additional hotel recommenced operations and two hotels were sold in October 2020. Currently, Hyatt Regency Portland at the Oregon Convention Center is the Company's only hotel with suspended operations.
• Net Loss: Net loss attributable to common stockholders for the three months ended September 30, 2020 was $52.3 million, or $0.46 per share. Net loss attributable to common stockholders for the nine months ended September 30, 2020 was $187.6 million, or $1.66 per share.
• Adjusted EBITDAre: Adjusted EBITDAre for the three and nine months ended September 30, 2020 was $(21.1) million and $(41.6) million, respectively.
• Adjusted FFO per Diluted Share: Adjusted FFO per diluted share was $(0.27) and $(0.58) for the three and nine months ended September 30, 2020, respectively.
• Financing Activity: In the third quarter, the Company issued $300 million of senior secured notes maturing in August 2025 and utilized the net proceeds to repay a portion of the Company's revolving credit facility and a portion of its two term loans maturing in 2022. Concurrently with the notes offering, the Company effectuated amendments to each of its corporate credit agreements. Subsequent to quarter end, the Company completed a $200 million add-on notes offering at a slight premium to par.

"Our decisive actions since the beginning of the pandemic have allowed us to significantly strengthen our balance sheet and bolster our liquidity as we continue to operate in a very challenging environment," commented Marcel Verbaas, Chairman and Chief Executive Officer of Xenia. "As a result of our strategic actions over the past several years, we came into this crisis with several key advantages that continue to serve us well. Our geographic diversification with an emphasis on Sunbelt locations and a focus on key leisure destinations has resulted in us now having 36 of our 37 hotels and resorts open and operating, with 12 of these properties achieving positive Hotel EBITDA in the third quarter. Our flexible balance sheet and proven financial track record helped provide us with the opportunity to issue $500 million of senior secured notes, eliminating all near-term debt maturities. Our outstanding relationships with our lender group resulted in collaborative negotiations as we obtained covenant waivers through 2021, relaxed covenants through first quarter 2023, and obtained a 2-year extension of our revolving credit facility. Our recent capital investments allowed us to significantly reduce our planned capital expenditures without altering the growth outlook for our portfolio. And, our collection of high-quality desirable assets has proven to be an efficient source of liquidity, as we have been able to negotiate various dispositions at attractive pricing while not negatively impacting the long-term strategic plan for the Company."

"We continue to appreciate the dedication and efforts of all of our operators' associates at our hotels and resorts during these difficult times in our industry. Our operators continue to do an outstanding job minimizing expenses while accessing all potential sources of demand. While the recovery is likely to continue to be gradual and choppy before the wide availability of effective COVID-19 vaccines and therapeutics, we are encouraged by recent demand trends as our occupancy has continued to improve at our open hotels through the month of October despite an increase in COVID-19 cases in many parts of the country," continued Mr. Verbaas. "We continue to believe that our efforts before and during this pandemic to shape our portfolio and balance sheet have positioned us well to deal with these short-term challenges, and we are optimistic about the opportunities that we believe will exist to drive internal and external growth during the inevitable recovery."

Operating Results

The Company's results include the following:

Operations Update

As of September 30, 2020, 37 of the Company's 39 hotels and resorts were open and operating.

The following table provides operating information for the Company's portfolio during the third quarter. This information includes only the days the hotels and resorts were open and operating during the periods presented, categorized by timing of recommencement of operations.

Transactions

Subsequent to quarter end, and as previously announced, in October the Company completed the sale of Residence Inn Boston Cambridge for a price of $107.5 million, or approximately $486,500 per key. 

On October 22, the Company completed the sale of the 275-room Marriott Napa Valley Hotel & Spa in Napa, California for a price of $100.1 million, or approximately $364,000 per key. The sale price represented a 9.7x multiple and an 8.9% capitalization rate on the hotel's 2019 Hotel EBITDA and net operating income, respectively.  The Company realized an unlevered IRR of 10.5% on this investment since acquiring the hotel for $72 million in 2011.  Proceeds from the sale were utilized to repay borrowings under the Company's revolving credit facility and for general corporate purposes. The Company also retained the approximately $1.5 million balance in the FF&E reserve.

"We are pleased to have completed the sale of Marriott Napa Valley Hotel & Spa," said Mr. Verbaas.  "While we remain bullish on the long-term strength of the Napa market, as evidenced by our ownership of Andaz Napa, a high-quality luxury lifestyle hotel, the sale of Marriott Napa allowed us to create additional balance sheet flexibility and enhance the Company's overall liquidity. The dispositions of Residence Inn Boston Cambridge, our last remaining hotel outside of the Luxury and Upper Upscale segments, and Marriott Napa, our older, lower quality and more group-focused hotel in the Napa market, are in-line with our continued strategy of portfolio enhancement while focusing on our long-term growth profile. Additionally, these sales eliminated the need for us to make significant capital investments into these properties in the years ahead."

In addition to these completed transactions, the Company has entered into two separate agreements to sell the 492-room Renaissance Austin Hotel for a price of $70 million and the 245-room Hotel Commonwealth for a price of $113 million.  Each of these transactions is expected to close before the end of the year and is subject to customary closing conditions.  The transactions are not subject to any financing contingencies. Both buyers have substantial non-refundable deposits at-risk should they default on their obligations.

"The agreed-upon dispositions of Renaissance Austin Hotel and Hotel Commonwealth are further evidence of our ability to efficiently enhance our liquidity and balance sheet strength by monetizing diverse assets in our portfolio," continued Mr. Verbaas. "The sale price for Renaissance Austin Hotel is reflective of its nature as a group-oriented hotel with significant short-term capital needs, while the strong pricing for Hotel Commonwealth, at 11.8x 2019 Hotel EBITDA, reflects a very competitive process for this desirable asset. If both of these transactions are completed as anticipated, we will have sold four hotels during this pandemic for a total price of $391 million, representing an approximately 10x multiple on 2019 Hotel EBITDA. The asset sales and financing activities we have focused on this year have proven to be an efficient way of raising capital for the Company, emphasizing our focus on preserving and growing shareholder value and positioning the Company to be opportunistic in the years ahead."

Capital Markets

In August, the Company issued $300 million of 6.375% senior secured notes maturing in August 2025. The Company utilized net proceeds to repay $194 million of the Company's revolving credit facility and an aggregate of $88 million on its two term loans maturing in 2022. The remainder of the net proceeds were retained by the Company for general corporate purposes

In October, the Company issued an additional $200 million aggregate principal amount of the 6.375% senior secured notes maturing in August 2025 at a price equal to 100.25% of face value. Proceeds from the add-on notes offering, along with cash available on the Company's balance sheet, were used to pay off the two term loans maturing in 2022 and the $51 million mortgage loan collateralized by Marriott Dallas Downtown.

During the third quarter, the Company did not repurchase any shares of common stock. Year to date, the Company repurchased a total of 165,516 shares of common stock for total consideration of $2.3 million. As of September 30, 2020, the Company had approximately $94.7 million remaining under its share repurchase authorization.     

During the three and nine months ended September 30, 2020, the Company did not issue any shares of its common stock through its At-The-Market ("ATM") program. As of September 30, 2020, the Company had approximately $62.6 million remaining available for sale under the ATM program.

Corporate Credit Facility Amendments

In October, the Company entered into further amendments on its corporate credit facilities (the "October CCF Amendments"). The October CCF Amendments became effective upon the prepayment in full of the Company's two term loans maturing in 2022 and the completion of the October add-on senior secured notes offering.

Key terms of the October CCF Amendments include the following:

• Increased commitments under the revolving credit facility by $23 million to $523 million through February 2022, after which the total commitments will decrease to $450 million through February 2024. This reflects a two year extension of the maturity date.
• Extension of the waiver period for the testing of the financial covenants through year end 2021 and extending the modification of certain financial covenants, once quarterly testing resumes, through the first quarter of 2023.
• Modification of the application of mandatory prepayments. The amendments require the Company, in the event that the revolving credit facility outstanding balance is less than $350 million, to apply 50% of net proceeds raised through various activities, including debt issuances, equity issuances, and dispositions, to repay its revolving credit facility, with the balance of the proceeds retained by the Company. If the revolving credit facility outstanding balance is greater than $350 million, there is no change to the application of mandatory prepayments.
• Extension of the minimum liquidity covenant through the second quarter of 2022.

Prior to this amendment, the Company completed additional amendments of its corporate credit facilities in August in connection with its $300 million senior secured notes offering, as previously disclosed.

Liquidity and Balance Sheet

As of September 30, 2020, the Company had total outstanding debt of $1.7 billion with a weighted average interest rate of 4.08%. The Company had approximately $321 million of cash and cash equivalents, which included approximately $28 million of cash held in property-level working capital accounts.  In addition, the Company held approximately $46 million of restricted cash and escrows at the end of the third quarter.

As a result of its recent capital markets activity, the Company has addressed all near-term maturities with its next maturity occurring in 2023. As of October 30, 2020, the Company had total outstanding debt of $1.5 billion with a weighted average interest rate of 4.62%. Currently, the Company has approximately $600 million of liquidity including cash and cash equivalents and availability on its revolving credit facility.

The Company has revised its estimate of average monthly recurring net cash expenses to reflect the recommencement of operations at its properties as follows, assuming current levels of demand:

Capital Expenditures

During the three and nine months ended September 30, 2020, the Company invested $18 million and $58 million in its portfolio, respectively.

The Company has completed the majority of its transformational renovation at Park Hyatt Aviara Resort, Golf Club & Spa and reopened the resort on September 30, 2020. During the quarter, the Company completed the renovation of the lobby and reception area, including the lobby lounge and bar. Additionally, the Company made substantial progress on the renovation and additions to the pool area and water amenities, which have been completed subsequent to quarter end.  The remaining projects at the resort include the conversion of the existing specialty restaurant into a new three-meal dining concept, which is expected to be completed by the end of 2020, and the renovation to the golf club house, including the addition of a new celebrity chef-driven concept, which is expected to be completed by the end of the first quarter of 2021.

Additionally during the quarter, the Company completed the guestroom renovation at Marriott Woodlands Waterway Hotel & Convention Center, as well as substantially completed the renovation of the existing ballroom and meeting space at Hyatt Regency Grand Cypress.

Impairment Loss

During the third quarter, the Company recorded a non-cash impairment charge of $8.9 million related to Renaissance Austin Hotel, which was attributable to the sale price in the purchase and sale agreement that was executed subsequent to quarter end.

2020 Outlook and Guidance

The Company does not expect to issue earnings guidance until it has more clarity on fundamentals and trends within the industry.  The Company is providing the following guidance on certain corporate expenses:

• General and administrative expenses are projected to be approximately $18 million, excluding non-cash share-based compensation and non-recurring restructuring costs.
• Interest expense is projected to be approximately $59 million, excluding non-cash loan related costs. Interest expense reflects the recent issuance of $500 million of senior secured notes and all completed loan pay downs.
• Capital expenditures are projected to be approximately $70 million.

About Xenia Hotels & Resorts, Inc.

Xenia Hotels & Resorts, Inc. is a self-advised and self-administered REIT that invests in uniquely positioned luxury and upper upscale hotels and resorts, with a focus on the top 25 U.S. lodging markets as well as key leisure destinations in the United States. The Company owns 37 hotels comprising 10,749 rooms across 16 states. Xenia's hotels are in the luxury and upper upscale segments, and operated and/or licensed by industry leaders such as Marriott, Hyatt, Kimpton, Fairmont, Loews, and Hilton, as well as leading independent management companies including The Kessler Collection and Sage Hospitality.

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").  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 depreciation and amortization related to corporate assets, hotel property acquisition, terminated transaction and pre-opening expenses, amortization of share-based compensation, non-cash ground rent and straight-line rent expense, 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. 

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 significant 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 and comprehensive income 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, as amended in the December 2018 restatement whitepaper, 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 common stock and units holders.

We further adjust FFO for certain additional items that are not in Nareit's definition of FFO such as hotel property acquisition, terminated transaction and pre-opening expenses, amortization of debt origination costs and share-based compensation, non-cash ground rent and straight-line rent expense, operating results from properties that are sold and other items we believe do not represent recurring operations.  We believe 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 our operating performance.

Adjusted FFO per diluted share

The diluted weighted average common share count used for the calculation of Adjusted FFO per diluted share differs from diluted weighted average common share count used to derive net income per share available to common stockholders.  The Company calculates Adjusted FFO per diluted share by dividing the Adjusted FFO by the diluted weighted average number of shares of common stock outstanding plus the weighted average vested Operating Partnership units.  Any anti-dilutive securities are excluded from the diluted earnings per-share calculation.