Xenia Hotels & Resorts, Inc. 2014 10-K Summary
Business Context and Reporting Period
This Form 10-K covers the fiscal year ended December 31, 2014, for Xenia Hotels & Resorts, Inc. (Xenia). The filing details the company's operations as a subsidiary of Inland American Real Estate Trust, Inc. ("Inland American") prior to its spin-off. On February 3, 2015, Xenia was distributed to Inland American stockholders and began trading on the NYSE under the ticker "XHR" on February 4, 2015. Xenia is a self-advised REIT focused on premium full-service, lifestyle, and urban upscale hotels in the U.S. Top 25 Markets and key leisure destinations. As of December 31, 2014, the portfolio consisted of 46 hotels with 12,636 rooms.
Key Financial Metrics
The following metrics reflect the company's performance on a pro forma basis for the year ended December 31, 2014, adjusted for the separation from Inland American and recent dispositions:
- Pro Forma Revenues: $919.0 million
- Pro Forma Adjusted EBITDA: $254.8 million
- Net Income Attributable to Company (Pro Forma): $44.4 million
- Funds from Operations (FFO): $186.8 million (Pro Forma)
- Adjusted FFO: $201.1 million (Pro Forma)
- Total Debt (Pro Forma): $1.173 billion
- Cash and Cash Equivalents (Pro Forma): $317.7 million
- Net Debt to Adjusted EBITDA: 4.4x (Pro Forma)
Operating Statistics (Pro Forma 2014):
- Occupancy: 76.3%
- Average Daily Rate (ADR): $177.95
- Revenue Per Available Room (RevPAR): $135.76
Material Changes vs. Prior Period
Comparing 2014 to 2013 on a pro forma basis, the company experienced significant growth driven by acquisitions and improved market fundamentals:
- Revenue Growth: Total revenues increased to $919.0 million in 2014 from $651.9 million in 2013 (historical). Pro forma 2014 revenues reflect the inclusion of the Aston Waikiki Beach Hotel acquisition and the exclusion of three hotels sold during 2014.
- Operating Performance: RevPAR increased 8.0% year-over-year on a pro forma basis, driven by a 6.4% increase in ADR and a 1.5% increase in occupancy.
- Portfolio Changes: The company acquired one hotel (Aston Waikiki Beach Hotel) in 2014 and sold three hotels. Additionally, the company sold the "Suburban Select Service Portfolio" (52 hotels) in November 2014; these results are reported as discontinued operations.
- Asset Impairments: A provision for asset impairment of $5.4 million was recorded in 2014, compared to $49.1 million in 2013.
Guidance, Outlook, and Risks
Outlook and Management Commentary:
- Dividends: The Board authorized a cash dividend of $0.1457 per share for Q1 2015, representing a prorated portion of the anticipated regular quarterly dividend of $0.23 per share.
- Capital Structure: Concurrent with the spin-off, Xenia entered into a new $400 million unsecured revolving credit facility. The company also completed a tender offer to repurchase approximately 1.6% of its outstanding shares for $36.9 million.
- Earthquake Impact: The August 2014 South Napa earthquake damaged two properties (Andaz Napa and Marriott Napa Valley). Management estimates this will negatively impact 2015 Adjusted EBITDA by approximately $4 million to $5 million.
- Strategy: Xenia plans to grow through acquisitions in targeted markets and aggressive asset management. It intends to elect REIT status for the taxable year commencing January 5, 2015.
Risks and Contingencies:
- Separation Risks: As a newly independent entity, Xenia faces risks related to establishing its own infrastructure, potential conflicts of interest with Inland American, and the loss of Inland American's purchasing power.
- Market Risks: The lodging industry is cyclical and sensitive to economic downturns, over-building, and changes in travel demand.
- Debt Covenants: The company is subject to various debt covenants. While generally in compliance, the earthquake damage at the Napa properties raised potential covenant compliance issues that were addressed through property reopening and refinancing.
- REIT Qualification: Failure to qualify as a REIT would subject the company to corporate income tax, significantly reducing funds available for distribution.
Key Facts for Investor Verification
- Spin-off Completion: Verify the final terms of the separation from Inland American, including the allocation of assets, liabilities, and the $125 million capital contribution received.
- Debt Maturity Profile: Review the schedule of mortgage debt maturities, noting that approximately $91 million was due in 2015 (with some refinanced or paid off in Q1 2015) and $349 million due in 2016.
- Earthquake Recovery: Monitor the full operational recovery and financial impact of the Napa earthquake on the two affected properties in 2015.
- REIT Status: Confirm the company's successful election and maintenance of REIT status for the 2015 tax year to avoid corporate taxation.
- Dividend Sustainability: Assess whether operating cash flows and the new credit facility are sufficient to support the declared dividend policy of $0.23 per share quarterly.