Xenia Hotels & Resorts, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Unless noted otherwise, dollar figures are in millions. Xenia is a U.S. hotel REIT focused on luxury and upper-upscale hotels and resorts. At quarter-end it owned 39 hotels with 11,245 rooms; 37 hotels were operating.
Financial performance and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $64.0 | $268.9 | $294.1 | $866.9 |
| Operating income (loss) | $(70.0) | $20.3 | $(194.8) | $87.9 |
| Net income (loss) | $(53.6) | $10.7 | $(192.2) | $41.2 |
| Net income (loss) per share | $(0.46) | $0.09 | $(1.66) | $0.35 |
| Adjusted EBITDAre | $(21.1) | $62.6 | $(41.6) | $230.1 |
| Adjusted FFO | $(30.6) | $53.3 | $(66.2) | $184.8 |
Q3 revenue fell 76.2% year over year; nine-month revenue fell 66.1%. Q3 rooms revenue declined 75.7%, food and beverage revenue 85.3%, and other revenue 45.4%. Operating losses reflected sharply lower hotel activity and $8.9 million of impairment charges. Other income included $26.8 million of forfeited deposits from terminated transactions, a nonrecurring item excluded from the company’s adjusted measures.
Portfolio occupancy was 23.4% in Q3 versus 76.8% a year earlier; ADR was $169.76 versus $213.94, and RevPAR was $39.71 versus $164.25. For the nine months, occupancy was 27.4%, ADR $204.19, and RevPAR $56.00; RevPAR declined 67.4% year over year. Thirteen hotels generated positive Hotel EBITDA in Q3.
For the first nine months, operating cash flow was negative $43.7 million, compared with positive $205.1 million in 2019. Capital expenditures were $58.2 million. Financing activities provided $271.4 million, largely from the $300 million senior secured notes issuance and revolver activity. Cash and cash equivalents were $321.1 million at September 30; restricted cash was $46.3 million. The company reported $306.2 million drawn on its revolving facility and approximately $194 million of availability.
Total debt outstanding was approximately $1.658 billion, with a 4.08% weighted-average interest rate. Balance-sheet debt, net of discounts and financing costs, was $1.584 billion. Total assets were $3.340 billion and total liabilities $1.804 billion. Debt service coverage tests failed for two secured mortgage loans, triggering property-level cash sweeps but not defaults. Interest expense was $17.0 million in Q3 and $43.6 million year to date, up 38.3% and 17.0%, respectively.
Material changes and unusual items
- COVID-19 drove historic reductions in lodging demand. The vast majority of Q3 group business was canceled; management said it did not expect that business to be rebooked. A majority of Q4 group business was canceled or expected to be canceled, with ongoing cancellations and limited new bookings into early 2021.
- The company recorded $20.1 million of goodwill impairments at two Savannah hotels and an $8.9 million impairment at Renaissance Austin. Total impairment and other losses were $29.0 million for the nine months, versus $14.8 million in 2019.
- In August, the Operating Partnership issued $300 million of 6.375% senior secured notes due 2025. In October, it issued an additional $200 million at 100.25% of face value; proceeds and cash on hand were used to repay two term loans and the Marriott Dallas Downtown mortgage.
- October amendments extended the revolving facility maturity to February 2024, increased commitments to $523 million through February 2022, extended covenant testing waivers through year-end 2021, and extended the minimum-liquidity covenant through Q2 2022. The company also reported that covenant levels would phase back over time.
- After quarter-end, Residence Inn Boston Cambridge sold for $107.5 million, with the buyer assuming its $60.3 million mortgage; Marriott Napa Valley sold for approximately $100.1 million. The company reported estimated gains of $56.2 million and $38.2 million, respectively. Renaissance Austin’s proposed $70 million sale was reinstated after a termination and remained subject to closing conditions. Hotel Commonwealth was under a $113 million sale agreement, expected to generate an estimated $2.0 million loss.
Outlook, risks, and contingencies
Management said lodging recovery, particularly group business, would be gradual and uneven, could lag other industries, and might take several years to return to historical levels. It did not provide specific earnings or revenue guidance and said future performance could not be estimated with certainty. The company reduced or deferred approximately $50 million of planned 2020 capital expenditures and estimated full-year spending of about $70 million. It also reduced corporate personnel by over 20%, cut full-year cash G&A by over 20% (approximately $5 million, excluding nonrecurring restructuring costs), and suspended quarterly dividends for the balance of 2020 unless needed to maintain REIT status.
Although the company had breached a corporate credit-facility interest-coverage covenant for Q1 2020, lenders waived that default and suspended certain covenant tests. Management concluded that its amendments, liquidity measures, and forecast alleviated substantial doubt about its ability to continue as a going concern. Risks include renewed hotel closures or restrictions, slow leisure and business travel recovery, group cancellations, further secured-loan covenant failures and possible paydowns, refinancing and liquidity needs, and further impairments. Management noted it may need additional mortgage covenant waivers. It also cited exposure to LIBOR transition and interest-rate movements; a permanent 1% rate change on variable-rate debt was estimated to affect annual interest expense and cash flow by approximately $4.3 million.
Key facts for investors to verify
- Whether hotel occupancy, ADR, RevPAR, and group bookings recover as management anticipates, and whether any properties suspend operations again.
- Completion and actual net proceeds from the disclosed asset sales, and the use of proceeds to reduce debt or fund operations.
- Compliance with minimum-liquidity and other amended debt covenants, availability under the revolving facility, and any further lender waivers or required repayments.
- Cash burn, capital spending, working-capital use of $12.1 million in replacement reserves, and the timing of expected $19.8 million tax refunds.
- Whether the reported impairments and estimated sale gains or losses change as transactions close and hotel forecasts are updated.
Adjusted EBITDAre and Adjusted FFO are non-GAAP measures; the filing cautions that they are not substitutes for GAAP results or measures of liquidity.