Xenia Hotels & Resorts, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2017; unaudited. Xenia is a U.S. hotel REIT focused on premium full-service and lifestyle hotels. At quarter-end, it owned 36 hotels with 10,556 rooms across 17 states and Washington, D.C.
Financial and operating performance
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $223.3 million | $233.9 million | $686.1 million | $730.4 million |
| Operating income | $21.0 million | $32.1 million | $80.3 million | $88.3 million |
| Net income | $11.8 million | $20.4 million | $91.0 million | $37.4 million |
| Net income per common share | $0.11 | $0.19 | $0.83 | $0.34 |
| Adjusted EBITDA attributable to common stock and unit holders | $63.6 million | $72.9 million | $202.2 million | $223.4 million |
| Adjusted FFO attributable to common stock and unit holders | $53.1 million | $61.7 million | $164.1 million | $179.1 million |
Q3 revenue declined 4.6%, while nine-month revenue declined 6.1%. Q3 net income fell 42.4%; nine-month net income rose 143.3%, primarily reflecting $50.7 million of gains on hotel sales. Adjusted EBITDA declined 12.8% for the quarter and 9.5% year to date; Adjusted FFO declined 13.9% and 8.4%, respectively. These non-GAAP measures are supplemental and are not substitutes for GAAP results or cash flow.
Total portfolio RevPAR rose 0.3% to $157.13 in Q3 and 2.4% to $156.18 for the first nine months. Nine-month occupancy was 77.1%, versus 77.0%, and ADR was $202.53, up 2.2%. Portfolio changes, including dispositions of lower-RevPAR hotels, affected comparisons.
Operating cash flow was $171.2 million for the nine months, versus $172.9 million a year earlier. Investing activities used $56.6 million, including hotel purchases and $52.1 million of capital expenditures, partly offset by sale proceeds. Financing activities provided $111.7 million. Cash and cash equivalents were $450.4 million, with $62.9 million of restricted cash and escrows, at September 30.
Total debt was approximately $1.294 billion, with a weighted average rate of 3.60%, compared with $1.084 billion and 3.24% at year-end 2016. The $400 million revolving facility had no balance outstanding at quarter-end; the company reported compliance with debt covenants. Scheduled 2019 maturities were $273.1 million. Management estimated that a sustained 1% change in rates on variable-rate debt would affect annual earnings and cash flows by approximately $4.6 million.
Material changes and notable items
- Revenue and earnings comparisons reflect hotel portfolio turnover: Xenia acquired the 815-room Hyatt Regency Grand Cypress in May for $205.5 million and sold seven hotels during the first nine months, recording $50.7 million in gains.
- Hurricanes Harvey and Irma affected properties in Q3. Xenia recorded $950,000 of property losses, net of estimated insurance recoveries, and $1.2 million of repair and cleanup costs. No business-interruption insurance receivable was accrued; further recoveries depend on final settlements.
- After quarter-end, Northern California wildfires affected the company’s Napa hotels. Management expected operating performance there to be affected in Q4 2017 and into 2018; neither hotel had reported direct fire damage at the time of filing.
- Subsequent to quarter-end, Xenia acquired two Arizona resorts for $305 million and the Ritz-Carlton Pentagon City for $105 million, plus customary adjustments and closing costs. Funding included cash, term and mortgage loan proceeds, and a $40 million revolver draw.
Outlook, risks and contingencies
The filing provides no numerical company guidance. Management said U.S. lodging-industry RevPAR increased 1.9% in Q3, but new supply was also up 1.9% and was expected to restrain industry RevPAR growth through the remainder of 2017 and into 2018. Management expected Houston-area RevPAR to remain steady for the rest of 2017, with hurricane-related demand partly offset by hotel renovations and soft corporate demand. Westin Galleria Houston renovations were expected to finish in early 2018, and renovations at Westin Oaks Houston were beginning in Q4.
Key risks include lodging-demand and rate volatility, new hotel supply, economic and market conditions, natural disasters and potentially uninsured losses, reliance on third-party managers and brands, renovation and acquisition execution, debt service and interest-rate exposure, and the ability to fund distributions. Xenia disclosed ordinary-course claims and lawsuits but said their outcomes were not expected to have a material adverse effect. It reported no material changes to previously disclosed risk factors and stated that disclosure controls were effective.
Important facts for investors to verify
- How much of the year-to-date earnings increase is attributable to property-sale gains versus recurring hotel operations.
- Comparable-hotel operating trends, including the effects of acquisitions, dispositions, renovations, and hurricane disruption on RevPAR and margins.
- Insurance claim outcomes for hurricane losses and the extent of wildfire-related business interruption and consequential damage.
- Funding and leverage following the three October acquisitions, including the revolver draw, debt maturities, and interest-rate hedging.
- Capital spending needs, restricted reserve cash, and the sustainability of distributions relative to operating cash flow.