Xenia Hotels & Resorts, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Xenia is a U.S. lodging REIT focused on luxury and upper-upscale hotels and resorts. At quarter-end, it owned 34 hotels with 9,812 rooms.
Key financial results
Amounts in $ millions except per-share data and operating statistics.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | 240.7 | 172.8 | 734.5 | 412.6 |
| Operating income (loss) | 16.1 | (1.5) | 84.5 | (59.4) |
| Operating margin | 6.7% | (0.9)% | 11.5% | (14.4)% |
| Net income (loss) | (1.7) | (22.7) | 21.3 | (123.4) |
| Net income (loss) attributable to common stockholders | (1.7) | (22.2) | 20.7 | (120.6) |
| Basic and diluted EPS | $(0.01) | $(0.20) | $0.18 | $(1.06) |
| Operating cash flow | — | 157.9 | 29.4 | |
| Adjusted EBITDAre | 53.8 | 35.4 | 192.4 | 59.1 |
| Adjusted FFO | 35.6 | 15.3 | 130.7 | 3.6 |
Q3 revenue increased 39.3%; nine-month revenue increased 78.0%. Portfolio RevPAR rose 32.5% to $157.91 for Q3 and 70.6% to $162.69 year to date, supported by higher occupancy and ADR. Q3 occupancy was 63.4% and ADR was $249.02; nine-month occupancy was 63.0% and ADR was $258.05.
At September 30, cash and cash equivalents were $259.9 million; restricted cash and escrows were $50.8 million. Total cash and restricted cash of $310.7 million was down from $554.2 million at year-end 2021. Gross debt was $1,446.4 million, with a weighted-average rate of 5.28%; the balance-sheet debt carrying value, net of financing costs and other adjustments, was $1,429.5 million. The $450 million revolving facility was undrawn and available.
Material changes and notable items
- Recovery in hotel demand drove higher revenue and operating income versus 2021, when results were significantly affected by pandemic-related operating disruption and impairment charges.
- Xenia acquired the 346-room W Nashville in March for $328.5 million, funded with cash. It sold Kimpton Hotel Monaco Chicago in January for $36.0 million.
- Two hotels were classified as held for sale at quarter-end. The Bohemian Hotel Celebration sale closed October 20 for approximately $27.8 million, with estimated gain of $12.6 million and net cash proceeds of $25.5 million. The Kimpton Hotel Monaco Denver sale, at approximately $69.8 million, was expected to close in Q4, subject to customary conditions and approvals.
- Insurance recoveries related to Hurricane Ida and Texas winter-storm disruptions contributed $3.6 million of insurance-recovery gains and $2.5 million of business-interruption insurance gains in the nine-month period. These are unusual items.
- Cash from operations was $157.9 million; investing cash outflow was $330.9 million, including the W Nashville purchase and $40.7 million of capital expenditures; financing cash outflow was $70.5 million, including repayment of $65.0 million of mortgage debt.
- The company resumed quarterly dividends after suspending them from Q2 2020 through Q2 2022. It declared $0.10 per share/unit for Q3, payable October 14, 2022. It repurchased 120,978 shares during the first nine months for $1.9 million.
Outlook, risks and contingencies
The filing provides no specific numerical earnings or operating guidance. Management reported continued leisure demand, higher business-transient demand and improving group demand, with business and group activity broadening after Labor Day. It cautioned that recovery may be uneven and that the timing of a return to pre-pandemic business travel and large meetings remains uncertain.
Management highlighted persistent inflation, rising interest rates, recession concerns, labor shortages and wage costs, supply-chain constraints, and continuing uncertainty related to COVID-19 as risks to demand, margins, operations and access to capital. The remaining interest-rate swaps expired in October 2022, increasing exposure to rising rates; management estimated that a sustained 1% rate move on variable-rate debt outstanding at quarter-end would affect annual interest expense and cash flow by approximately $1.5 million.
Xenia was not in compliance with covenants on one mortgage loan at September 30, although this did not constitute an event of default; the lender may impose a cash sweep. The company had exited the corporate credit-facility covenant-waiver period after demonstrating compliance for Q2 2022, but modified covenant testing remained in effect through Q2 2023. Renovation contracts had $10.7 million of remaining commitments. Management stated that ordinary-course legal matters were not expected to have a material adverse effect. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether RevPAR and demand gains persist as business travel and group bookings recover, and how seasonality and a possible recession affect performance.
- The effect of labor, insurance and other inflationary costs on hotel margins, and the impact of expired swaps and higher rates on interest expense.
- Progress on the Denver hotel sale and the realized proceeds and gain from dispositions, including the Celebration sale completed after quarter-end.
- Compliance with the mortgage and corporate debt covenants, including whether the mortgage lender implements a cash sweep.
- Cash needs for planned capital work and the sustainability of the restored dividend and share-repurchase activity.
- Adjusted EBITDAre and Adjusted FFO are non-GAAP measures; review their reconciliations and do not treat them as substitutes for GAAP earnings or cash flow.