Xenia Hotels & Resorts, Inc. — FY 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. This is an annual report, not a standalone fourth-quarter filing. Xenia is a U.S. lodging REIT focused on premium full-service and lifestyle hotels. At year-end it owned 39 hotels with 11,533 rooms; 37 hotels were wholly owned.
Financial and operating results
| Metric | FY 2017 | FY 2016 | Change |
|---|---|---|---|
| Total revenue | $945.3 million | $950.2 million | Down 0.5% |
| Operating income | $103.5 million | $111.5 million | Down 7.2% |
| Net income | $100.8 million | $86.7 million | Up 16.2% |
| Net income attributable to common stockholders | $98.9 million; $0.92 per diluted share | $85.9 million; $0.79 per diluted share | Per-share earnings rose |
| Adjusted EBITDA attributable to common stock and unit holders | $270.3 million | $287.3 million | Down 5.9% |
| Adjusted FFO attributable to common stock and unit holders | $220.0 million | $238.2 million | Down 7.7% |
| Net cash from operating activities | $212.8 million | $229.4 million | Down $16.6 million |
Hotel operating income was $342.0 million, or about 36.2% of revenue, versus $357.2 million, or about 37.6%, in 2016. Portfolio RevPAR increased 3.9% to $155.12; occupancy rose 70 basis points to 76.3% and ADR increased 3.0% to $203.39. These portfolio measures include properties only during the period owned and reflect portfolio changes.
At December 31, 2017, total assets were $3.12 billion, equity was $1.65 billion and reported debt, net of discounts and deferred financing costs, was $1.32 billion. Cash and cash equivalents were $71.9 million; restricted cash and escrows were $58.5 million. Net debt to Adjusted EBITDA was 4.7x. Debt carried a weighted-average interest rate of 3.71% and an average maturity of 5.2 years, including extension options; approximately 28% of debt was variable-rate and unhedged. The company reported covenant compliance.
Operating cash flow funded only part of investment needs: investing activities used $487.6 million, including $605.5 million for acquisitions and $86.4 million of capital expenditures, partly offset by $204.4 million in sale proceeds. Financing activities provided $118.1 million. The company paid $1.10 per common share in 2017 and reported $118.4 million of distributions to common stockholders and Operating Partnership unit holders.
Material changes versus the prior year
- Revenue declined modestly, while operating income and hotel operating income fell. Room revenue decreased 4.7%, partly offset by higher food-and-beverage revenue, up 8.3%, and other revenue, up 10.5%.
- Net income increased largely because gains on hotel sales rose to $50.7 million from $30.2 million. The increase in GAAP net income therefore contrasts with declines in Adjusted EBITDA and Adjusted FFO.
- Xenia acquired four hotels for stated aggregate purchase prices of $615.5 million and sold seven hotels for $212.0 million gross consideration. Portfolio mix and timing materially affected year-over-year comparisons.
- Capital expenditures increased to $86.4 million from $58.8 million. Debt net of financing costs rose to $1.32 billion from $1.08 billion, while cash and equivalents fell to $71.9 million from $216.1 million.
Outlook, commentary and risks
- Management expected favorable U.S. lodging-industry trends to continue into 2018 and anticipated higher net income from 2017 acquisitions, partly offset by the hotels sold. Management cautioned that renovations would weigh on RevPAR during 2018, with benefits expected in later years.
- Management cited continuing new hotel supply and lingering effects from Hurricanes Harvey and Irma and California wildfires. Certain California and Key West properties were expected to remain affected into 2018; Houston hotels were expected to benefit from recovery-related demand, subject to renovation disruption and a difficult comparison with the 2017 Super Bowl.
- In December 2017, Xenia agreed to sell the Aston Waikiki Beach Hotel for $200 million, excluding closing costs, with closing expected in the first quarter of 2018. The hotel was classified as held for sale at year-end.
- Hurricane-related property damage and repairs resulted in $2.3 million of impairment and other losses, including $0.95 million net of estimated insurance recoveries and $1.3 million of repair and cleanup costs. Insurance claims and potential business-interruption recoveries remained under assessment.
- The Tax Cuts and Jobs Act prompted a one-time $0.6 million deferred tax expense in 2017; management expected the lower corporate tax rate to reduce future tax expense for taxable subsidiaries. Xenia’s REIT status and its taxable REIT subsidiary structure remain important tax considerations.
- Key risks include lodging-cycle sensitivity, fixed operating costs, dependence on third-party managers and major hotel brands, geographic concentration (about 51% of rooms in Texas, California and Florida), refinancing and interest-rate exposure, required hotel renovations, and the possibility that cash available for distributions may be insufficient. The company had no material legal proceeding identified in the supplied filing text.
Subsequent financing: In January 2018, Xenia increased its revolving credit facility from $400 million to $500 million and extended its maturity to February 2022, with two six-month extension options. It also obtained a $65 million mortgage secured by The Ritz-Carlton, Pentagon City and repaid the $40 million year-end revolver balance. In February 2018, it repaid the $18.3 million Hotel Monaco Chicago mortgage.
Most important facts for investors to verify
- Reconcile reported net-income growth with the $50.7 million gain on sales and the declines in Adjusted EBITDA and Adjusted FFO; review the company’s non-GAAP definitions and adjustments.
- Confirm unrestricted liquidity separately from restricted cash, and review the 2018 debt maturity and refinancing schedule, covenant headroom, and variable-rate exposure after subsequent financing actions.
- Track the Aston Waikiki sale closing and proceeds, and verify how the sale affects portfolio performance, leverage and liquidity.
- Monitor insurance recoveries and business-interruption claims related to 2017 storms and wildfires, along with the operating and capital costs of ongoing renovations.
- Assess whether 2018 lodging demand, supply growth and property-level performance support management’s outlook and the sustainability of the $1.10 annual dividend.