Xenia Hotels & Resorts, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. Xenia is a U.S. hotel REIT focused on premium full-service and lifestyle hotels. At quarter-end it owned 38 hotels with 10,852 rooms, including 75% interests in two consolidated hotel entities.
Financial results and liquidity
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | $264.5 million | $218.5 million |
| Operating income | $32.8 million | $20.4 million |
| Net income | $57.0 million | $8.2 million |
| Net income attributable to common stockholders | $55.7 million; $0.52 per diluted share | $8.1 million; $0.07 per diluted share |
| Operating cash flow | $42.8 million | $34.2 million |
| Capital expenditures | $23.9 million | $13.2 million |
| Adjusted EBITDAre attributable to common stock and unit holders | $73.7 million | $59.1 million |
| Adjusted FFO attributable to common stock and unit holders | $56.2 million | $47.6 million |
- Revenue rose 21.1%. Operating margin was approximately 12.4%, versus 9.3% a year earlier. Net income included a $42.3 million gain on the Aston Waikiki Beach Hotel sale, so reported profit growth substantially reflects this non-recurring item.
- Portfolio occupancy was 74.8% versus 73.5%; ADR was $212.35, up 6.0%; and RevPAR was $158.81, up 7.9%. Management attributed total portfolio RevPAR growth largely to acquisitions and dispositions changing the portfolio mix.
- Cash and cash equivalents were $255.5 million, with $62.3 million of restricted cash and escrows. Quarter-end cash and restricted cash totaled $317.8 million, up $187.4 million during the quarter, primarily because of hotel-sale proceeds.
- Gross debt was approximately $1.336 billion, at a 3.83% weighted-average interest rate; balance-sheet debt net of financing costs and discounts was $1.328 billion. The revolving credit facility had no balance outstanding. Debt maturities included $252.6 million in 2019 and $271.5 million in 2022.
- Interest expense increased 35.1% to $13.7 million, reflecting higher average debt and a higher weighted-average rate. $704.8 million of debt notional was covered by interest-rate swaps; management estimated a 1% sustained rate increase would raise annual interest expense by about $3.8 million on variable-rate debt.
Material changes versus the prior period
- Revenue increased $46.0 million. Four hotels acquired since May 2017 contributed materially, while eight dispositions since April 2017 reduced revenue. On management’s comparable-portfolio basis, rooms revenue fell 4.3%; renovations and difficult prior-year event comparisons weighed on results.
- Hotel operating expenses increased 22.0% to $171.4 million, mainly reflecting acquired properties; excluding acquisition and disposition effects, comparable-portfolio hotel operating expenses decreased 0.8%.
- Cash from investing activities was $173.0 million, versus a $13.2 million use in Q1 2017, principally due to $196.9 million of net proceeds from the Aston Waikiki Beach sale. The company recognized a $42.3 million gain on that disposition.
- In January, Xenia obtained a $65 million mortgage secured by The Ritz-Carlton, Pentagon City, repaid its $40 million revolver balance, and amended its revolving facility, increasing capacity from $400 million to $500 million and extending maturity to February 2022. In February, it repaid the $18.3 million Hotel Monaco Chicago mortgage.
- After quarter-end, Xenia repaid the $21.5 million Andaz Savannah and $41.0 million Hotel Monaco Denver mortgages.
Outlook, commentary and risks
- No specific company revenue, earnings or operating guidance is provided in the supplied filing text. Management expects to fund near-term needs through cash, operating cash flow, the revolving facility, refinancing and other financing sources; potential long-term sources include debt, equity and hotel-sale proceeds.
- Management reported U.S. lodging demand growth of 3% versus supply growth of 2% in Q1 2018, and industry RevPAR growth of 3.5%. It expects revenues and operating income generally to be highest in the first and second quarters given the current portfolio, while cautioning that results are seasonal and Q1 performance is not necessarily indicative of the full year.
- Eleven hotels were undergoing renovation, including guest-room work at seven properties representing nearly 15% of the room count. Management cited renovation disruption, timing of Easter, and unusually strong prior-year events in Houston and Washington, D.C. as pressures on comparable results.
- Key risks include lodging demand and economic cycles, competition and room supply, market concentration (Orlando and Phoenix each exceeded 10% of Q1 revenue), hotel renovations, reliance on third-party managers and brands, labor and operating costs, refinancing and interest-rate exposure, and natural disasters or other events affecting travel.
- Legal claims arise in the ordinary course; management said it did not expect their outcome to materially affect financial condition, results or liquidity. The company reported compliance with debt covenants, no off-balance-sheet arrangements, and no material change in previously disclosed risk factors.
- A $200 million at-the-market equity offering program was established in March; no shares had been sold under it by quarter-end. Approximately $96.9 million remained under the share-repurchase authorization; no shares were repurchased in Q1.
Important facts for investors to verify
- How much of revenue, Adjusted EBITDAre and Adjusted FFO growth reflects acquisitions and portfolio changes versus sustained comparable-hotel performance.
- The timing, scope and expected return of renovations, and their effect on occupancy, rates and cash needs.
- Debt refinancing plans and liquidity around the 2019 maturities, along with the impact of variable rates despite hedges.
- Whether the Aston Waikiki sale escrow holdback of $5.0 million was received as anticipated in September 2018.
- Actual results against the seasonal outlook and management’s stated lodging-market assumptions; the filing provides no specific numerical company guidance.