Xenia Hotels & Resorts, Inc. — 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. This annual filing also reports fourth-quarter results. Xenia is a lodging REIT focused on premium full-service, lifestyle and urban upscale hotels; at year-end it owned 42 hotels with 10,911 rooms.
Financial and operating performance
| Metric | 2016 | 2015 |
|---|---|---|
| Revenue | $950.2 million | $976.1 million |
| Operating income | $111.5 million | $104.1 million |
| Net income | $86.7 million | $88.6 million |
| Net income attributable to common stockholders | $85.9 million; $0.79 per share | $88.7 million; $0.79 per share |
| Adjusted EBITDA | $287.3 million | $293.0 million |
| Adjusted FFO | $238.3 million | $241.6 million |
| Cash from operating activities | $225.6 million | $193.2 million |
| Capital expenditures | $58.8 million | $53.8 million |
Portfolio occupancy was 75.6%, versus 76.2%; average daily rate (ADR) rose 5.6% to $197.44 and RevPAR rose 4.7% to $149.32. Hotel operating income was $357.8 million, down 2.2%. The fourth quarter recorded revenue of $219.8 million, continuing-operations net income of $49.3 million and common-stockholder EPS of $0.44; comparable 2015 figures were $248.6 million, $61.9 million and $0.55.
At December 31, cash and cash equivalents were $216.1 million, with another $71.0 million restricted. Debt principal was approximately $1.084 billion; the balance-sheet carrying value, net of financing items, was $1.077 billion. The $400 million revolving facility was undrawn. Weighted-average debt interest was 3.24%, weighted-average maturity was 4.7 years, and net debt to Adjusted EBITDA was 3.1x. Approximately $505.4 million, or 46.6% of debt, was exposed to unhedged variable rates. Common distributions were $1.10 per share for the year.
Changes and significant transactions
- Revenue decreased 2.7% year over year, while Adjusted EBITDA decreased 1.9% and Adjusted FFO decreased 1.4%. Common-stockholder net income declined 3.3%, although EPS was unchanged at $0.79.
- Portfolio RevPAR growth reflected improved pricing and portfolio mix, including the sale of nine lower-RevPAR hotels and the acquisition of Hotel Commonwealth. The nine 2016 sales generated gross proceeds of $290.3 million; the company acquired the 245-room Hotel Commonwealth for $136 million.
- Houston-area hotels were notably weak: RevPAR fell 17.5%, with ADR down 7.7% and occupancy down 800 basis points. The three Houston-area hotels represented about 10% of 2016 revenue.
- Xenia repurchased 4.97 million shares for approximately $74 million at a weighted-average $14.89 per share. About $101 million remained authorized at year-end.
Outlook, risks and unusual items
Management described the 2017 lodging outlook as uncertain and expected modest industry RevPAR growth, with supply growth potentially outpacing demand. It anticipated lower earnings from the 2016 hotel sales and renovation-related disruption, partly offset by a full year of Hotel Commonwealth operations, continued ramp-up at two developed hotels, and property-level initiatives. Management expected Houston-market weakness to continue, though at a slower rate than in 2016. No numerical company guidance was provided in the filing text.
Unusual items included a $10.0 million impairment charge on three hotels subsequently sold, $30.2 million of gains on property sales, and $5.2 million of debt-extinguishment losses, including prepayment costs. The prior year included $26.9 million of separation and start-up expenses. The company reported ordinary-course legal claims and stated that their expected resolution was not expected to materially affect its financial position, results or liquidity. KPMG issued an unqualified opinion on the financial statements and internal controls.
Key risks include lodging-cycle and demand weakness, new room supply, fixed operating costs, dependence on third-party hotel managers and major brand families, geographic exposure to Texas and California, debt refinancing and interest-rate exposure, capital needs, and maintaining REIT qualification. Historical pre-spin-off financial statements include allocations from former parent InvenTrust and may not be directly comparable with stand-alone results.
Important facts for investors to verify
- Whether RevPAR and margins improve in 2017, particularly in Houston, and how renovations affect results.
- Debt maturity, covenant headroom, liquidity available after restricted cash, and exposure to floating rates.
- The cash-flow and per-share effects of hotel dispositions, capital spending, distributions and share repurchases.
- Whether non-GAAP Adjusted EBITDA and Adjusted FFO reconciliations and exclusions are comparable with peers; these measures are not substitutes for GAAP cash flow or net income.
- REIT compliance, including the tax and contractual implications of the spin-off and hotel lease/management structure.