Xenia Hotels & Resorts, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. Xenia is a lodging REIT focused on premium full-service, lifestyle and urban upscale hotels. At quarter-end it owned 42 hotels with 10,902 rooms across 20 states and Washington, D.C.
Financial performance
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Total revenue | $218.5 million | $235.0 million |
| Operating income | $20.4 million | $11.2 million |
| Net income (loss) | $8.2 million | $(9.2) million |
| Net income (loss) attributable to common stockholders | $8.1 million; $0.07 per share | $(8.9) million; $(0.08) per share |
| Cash provided by operating activities | $34.2 million | $33.9 million |
| Adjusted EBITDA attributable to common stock and unit holders | $59.1 million | $62.5 million |
| Adjusted FFO attributable to common stock and unit holders | $47.6 million | $47.1 million |
Operating margin was approximately 9.3%, compared with 4.7% in Q1 2016. Total portfolio RevPAR increased 6.1% to $147.14, with occupancy of 73.5% and ADR of $200.25. Portfolio statistics include properties acquired or sold during the periods and reflect changes in portfolio mix.
At March 31, 2017, cash and cash equivalents were $202.4 million and restricted cash and escrows were $69.2 million. Total debt outstanding was approximately $1.083 billion, at a 3.48% weighted-average interest rate; debt net of discounts and financing costs was $1.077 billion. The $400 million unsecured revolving facility was undrawn. The company reported compliance with debt covenants. Dividends declared were $0.275 per share/unit.
Changes versus the prior-year quarter
- Revenue declined 7.1%, primarily reflecting the 2016 disposition of nine hotels; room revenue fell 9.3%. Hotel operating expenses decreased 8.5%.
- Management reported total portfolio RevPAR growth of 6.1%, aided by industry demand, the Easter calendar shift, the Washington, D.C. inauguration and portfolio mix. Houston-area hotels’ RevPAR rose 2.2%.
- Net income improved substantially, but comparison is affected by Q1 2016 charges: a $7.6 million impairment and a $4.7 million debt-extinguishment loss. Adjusted EBITDA decreased 5.5%, while Adjusted FFO increased 1.1%.
- Interest expense declined $2.7 million, which management attributed principally to prior-year debt repayments and a lower weighted-average rate. Operating cash flow was broadly similar year over year.
Outlook, risks and unusual items
- The filing provides no specific earnings or operating guidance. Management noted that lodging-industry supply growth of 1.9% was expected to temper RevPAR for the remainder of 2017.
- Management expected Houston-area RevPAR to weaken later in 2017 due to soft corporate demand, new supply and renovation disruption at the Westin Galleria and Westin Oaks. The three Houston-area hotels generated approximately 13% of Q1 2017 revenue.
- Interest-rate sensitivity: a sustained 1% change in rates on variable-rate debt outstanding at quarter-end was estimated to affect annual earnings and cash flows by approximately $3.6 million. Interest-rate swaps hedged portions of debt exposure.
- In April 2017, Xenia sold the Courtyard Birmingham Downtown at UAB for $30 million, excluding closing costs. The filing stated an expected gain of approximately $13 million before closing; it does not provide the realized gain. The hotel was classified as held for sale at quarter-end.
- Also in April, Xenia obtained a $115 million, fixed-rate 4.63% mortgage maturing in 2027, secured by the Marriott San Francisco Airport Waterfront, and repaid two mortgage loans totaling $73 million.
- Management cited ordinary-course legal claims but did not expect their resolution to materially affect financial condition, results or liquidity. No material change to previously disclosed risk factors was reported. Management concluded disclosure controls were effective.
Important facts for investors to verify
- Whether RevPAR momentum offsets revenue pressure from dispositions, renovations and expected industry supply growth.
- Actual proceeds, costs and realized gain from the April Birmingham hotel sale, and the effect of the April financing and loan repayments on interest costs and maturities.
- Liquidity available after restricted cash, capital spending, debt service and quarterly distributions; restricted cash included $56.8 million in hotel furniture, fixtures and equipment reserves.
- Performance and demand trends in Houston, including renovation-related disruption and the market’s revenue concentration.
- Adjusted EBITDA and Adjusted FFO are non-GAAP measures and are not substitutes for GAAP earnings or operating cash flow; review their reconciliations and adjustments in the filing.