Xenia Hotels & Resorts, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Xenia owned 39 luxury and upper-upscale U.S. hotels and resorts. Results were severely affected by COVID-19 closures and sharply reduced travel demand.
Financial performance
| Metric | Q2 2020 | Q2 2019 | First half 2020 | First half 2019 |
|---|---|---|---|---|
| Revenue | $14.8 million | $304.3 million | $230.2 million | $598.0 million |
| Operating income (loss) | ($93.2 million) | $31.6 million | ($124.8 million) | $67.7 million |
| Net income (loss) attributable to common stockholders | ($99.1 million) | $12.8 million | ($135.3 million) | $29.5 million |
| EPS, basic and diluted | ($0.88) | $0.11 | ($1.20) | $0.26 |
| Adjusted EBITDAre | ($43.0 million) | $89.5 million | ($18.5 million) | $167.5 million |
| Adjusted FFO | ($53.0 million) | $71.5 million | ($33.6 million) | $131.5 million |
- Operating metrics: Q2 occupancy was 3.7% versus 79.9%; ADR was $182.36 versus $226.74; RevPAR was $6.80 versus $181.09, down 96.2%. First-half RevPAR fell 63.4% to $64.24.
- Cash flow: First-half operating cash flow was negative $48.2 million, compared with positive $132.9 million a year earlier. Capital expenditures were $40.6 million. Financing provided $260.6 million, principally reflecting a $340 million revolver draw. Cash and restricted cash totaled $366.8 million at June 30.
- Debt and liquidity: Debt totaled approximately $1.639 billion, including $500 million fully drawn on the revolving facility; weighted-average interest rate was 3.39%. Balance-sheet cash was $305.9 million, separate from $60.9 million of restricted cash. The company reported no debt maturities until 2022 following amendments.
- Margins: Hotel operating expenses were $42.9 million against Q2 revenue of $14.8 million; the company reported a $93.2 million operating loss. The filing does not present a single comparable operating-margin measure as a headline metric.
Material changes and significant events
- Q2 revenue fell 95.1% year over year. Thirty-one of 39 hotels were temporarily suspended for all or part of the quarter; 26 were open at June 30, with 13 still closed. Portfolio occupancy was 3.7%.
- Goodwill impairment charges were $3.7 million in Q2 and $20.1 million for the first half, related to Savannah-area properties. No long-lived asset impairment was recorded at June 30.
- The company drew the remaining $340 million on its revolver in March as a precaution, raising revolver borrowings to $500 million. Interest expense increased to $13.6 million in Q2 from $12.4 million.
- At March 31, Xenia had breached a corporate credit-facility interest-coverage covenant. June 30 amendments waived that default and suspended specified corporate financial-covenant testing through Q1 2021, with a phased return to prior levels by mid-2022. Amendments added restrictions, a minimum-liquidity covenant, mandatory-prepayment provisions and subsidiary equity pledges; they also raised borrowing costs. A mortgage-loan covenant failure at June 30 was reported as not constituting a default.
- Seven of eight secured mortgage loans were amended by quarter-end; the remaining loan was amended in July. Amendments included temporary payment deferrals and covenant waivers.
- Cash dividends were suspended through 2020 unless needed to maintain REIT status. Approximately $50 million of capital projects were canceled or deferred; estimated 2020 capital expenditures were reduced to about $70 million.
Outlook, risks and unusual items
- Management expected gradual revenue improvement in the second half of 2020 as hotels reopened, but said recovery—especially in group business—would lag other industries. It expected operating results to remain materially adversely affected through the balance of 2020 and into 2021 or longer, and noted recovery to historical levels could take several years. No specific earnings or revenue guidance was provided.
- By July 31, the company expected to reopen nine additional hotels and anticipated reopening the final four by year-end. Resurgent infections, renewed restrictions, reduced corporate travel and widespread group cancellations could delay recovery or force further closures.
- Management stated that completed loan amendments, liquidity actions and its forecast alleviated substantial doubt about the company’s ability to continue as a going concern. That conclusion depends on uncertain operating recovery and continued compliance with amended financing terms.
- The planned $483 million sale of seven Kimpton hotels did not close after the buyers alleged breach and failed to complete the transaction. The dispute was resolved July 28, 2020, with $19 million plus a pro rata share of escrow interest released to Xenia. A separate planned Atlanta hotel sale was not expected to close as contemplated; the Austin sale terminated, and Xenia retained a $2 million deposit recognized as other income.
- Other notable items included a $10.4 million first-half income-tax benefit, primarily from CARES Act net-operating-loss carryback provisions; $3.4 million of hotel furlough-related costs expected to be paid in Q3; and $1.4 million of severance payable over 12 months to a departing executive.
Important facts for investors to verify
- Current hotel reopening status, occupancy, ADR and RevPAR trends, particularly group and business-transient demand.
- Cash burn, unrestricted liquidity, restricted-reserve availability and the company’s ability to satisfy amended minimum-liquidity and other debt covenants.
- Actual interest costs under amended facilities, deferred mortgage payments, and the timing and amount of upcoming debt maturities.
- Whether planned capital spending remains near the $70 million estimate and whether further cuts or liquidity measures are needed.
- Whether the Savannah impairment assumptions remain supportable and whether additional impairments or tenant rent defaults emerge.
- Any future dividend decision, considering REIT distribution requirements and financing restrictions.