Xenia Hotels & Resorts, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Xenia is a U.S. hotel REIT focused on luxury and upper-upscale properties. At quarter-end, it owned 39 hotels with 11,245 rooms across 16 states.
Financial and operating performance
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $215.4 million | $293.7 million |
| Operating income (loss) | ($31.5) million | $36.1 million |
| Net income (loss) | ($37.1) million | $17.3 million |
| Net income (loss) attributable to common stockholders | ($36.1) million; ($0.32) per diluted share | $16.7 million; $0.15 per diluted share |
| Operating cash flow | $5.4 million | $33.6 million |
| Capital expenditures | $22.2 million | $13.3 million |
| Adjusted EBITDAre | $24.5 million | $78.1 million |
| Adjusted FFO | $19.4 million | $60.0 million |
Total portfolio RevPAR fell 28.5% to $121.68; occupancy declined to 55.2% from 75.1%, while ADR fell 2.8% to $220.41. Rooms revenue decreased 27.2%, food and beverage revenue 28.7%, and total revenue 26.7%. Hotel operating expenses fell 12.8%, less than the revenue decline. Results included $16.4 million of goodwill impairment and a $7.3 million income tax benefit, primarily related to CARES Act net operating loss carryback provisions.
Liquidity, debt and cash flow
At March 31, 2020, cash and cash equivalents were $396.8 million and restricted cash was $79.5 million. Total debt was approximately $1.638 billion, with a weighted-average interest rate of 3.32%, up from approximately $1.299 billion at year-end 2019. The increase primarily reflected a $340 million draw on the revolving credit facility, which was fully drawn at $500 million.
Cash and restricted cash increased $281.4 million during the quarter, primarily from financing proceeds. Financing cash flow was $296.2 million, while operating cash flow was $5.4 million. Management estimated monthly recurring cash needs of $17–20 million if all hotels were temporarily closed, plus approximately $5 million in monthly debt service under existing terms.
The company breached a financial maintenance covenant as of March 31, triggering events of default under its revolving facility and unsecured term loans. Management expected it would be unable to meet most, if not all, debt maintenance covenants over the following 12 months. It was negotiating covenant relief and an extension of the term loan due February 2021; no relief was assured. The filing states there is substantial doubt about the company’s ability to continue as a going concern for the next 12 months.
Material changes, outlook and risks
- COVID-19 disruption: 24 of 39 hotels had suspended operations by March 31; seven more suspended operations in April. The remaining eight were operating at reduced demand levels. Five smaller leisure-focused properties were expected to reopen in May. March portfolio occupancy was 27.2%, after January and February occupancy of 65.0% and 74.6%, respectively.
- Management expected results to be further negatively affected in Q2 and anticipated material adverse effects on operations and results through the balance of 2020 and into 2021. The vast majority of Q2 group business had been canceled; the timing of reopening and recovery was uncertain. No quantified earnings guidance was provided.
- Management canceled or deferred approximately $50 million of planned capital spending, a 40% reduction, and estimated 2020 capital expenditures of approximately $70 million. It also reduced corporate personnel by over 20% and expected full-year corporate cash G&A to decline by over 20%, or approximately $5.5 million, excluding restructuring costs.
- The first-quarter dividend of $0.275 per share/unit was paid April 15. The company expected to suspend quarterly dividends through the remainder of 2020 unless a further payment was required to maintain REIT status.
- Potential liquidity sources included cash, permitted use of certain replacement reserves, asset sales and equity issuance. Use of reserves may require lender approval or later replenishment. Continued operating losses, accelerated debt repayment, and hedge liabilities could constrain liquidity.
- Goodwill impairment totaled $16.4 million: $6.1 million at Andaz Savannah and $10.3 million at Bohemian Hotel Savannah Riverfront. Management warned further impairments could occur if operating assumptions deteriorate.
- Hotel-sale uncertainty: the $100.5 million Renaissance Austin sale did not close and was terminated after quarter-end; Xenia retained a $2 million deposit. The $155 million Renaissance Atlanta Waverly sale was extended to July 31, 2020 and remained uncertain. The Kimpton portfolio sale, valued at approximately $483 million, did not close; after the buyers failed to close on May 4, Xenia terminated the agreement and was pursuing a disputed $20 million escrow deposit.
- Other risks included possible tenant rent defaults, reopening and enhanced-cleaning costs, canceled travel and group demand, LIBOR transition exposure, and potential recognition of accumulated hedge losses if hedge accounting is discontinued. The filing also cites potential severance costs for furloughed hotel employees.
Important facts for investors to verify
- Whether lenders granted covenant waivers, debt-service relief, and the requested extension of the February 2021 term loan, and the resulting terms and restrictions.
- Subsequent liquidity, cash burn, debt service capacity, and whether the stated going-concern uncertainty remains.
- Actual hotel reopening dates, occupancy, RevPAR, group cancellations and pace of recovery versus management’s expectations.
- Status and recoverability of the disputed $20 million Kimpton deposit, the Atlanta sale, and any other asset-sale proceeds.
- Whether the dividend remained suspended and whether any REIT distribution requirement affected cash needs.
- Potential additional impairments, tenant rent collection, use or replenishment of replacement reserves, and the effect of hedge values or accounting changes.