Xenia Hotels & Resorts, Inc. — 2018 Form 10-K Summary
Business context and reporting period
For the fiscal year ended December 31, 2018 (with quarterly results reported, including Q4), Xenia operated as a lodging REIT focused on luxury and upper-upscale hotels in major U.S. markets and leisure destinations. At year-end it owned 40 hotels with 11,165 rooms across 17 states; substantially all operations were conducted through its operating partnership, with third-party managers operating the hotels.
Financial and operating metrics
| Metric | 2018 | 2017 | Change / context |
|---|---|---|---|
| Total revenue | $1,058.2 million | $945.3 million | +11.9% |
| Operating income | $131.8 million | $103.6 million | Operating margin about 12.5%, versus 11.0% |
| Net income | $198.5 million | $100.8 million | Increase substantially benefited from hotel-sale gains |
| Net income attributable to common stockholders | $193.7 million | $98.9 million | Basic and diluted EPS: $1.75 versus $0.92 |
| Adjusted EBITDAre attributable to common stock and unit holders | $299.8 million | $270.3 million | +10.9%; non-GAAP measure |
| Adjusted FFO attributable to common stock and unit holders | $245.4 million | $220.0 million | +11.6%; non-GAAP measure |
| Operating cash flow | $254.2 million | $212.8 million | +19.4% |
| Capital expenditures | $108.2 million | $86.4 million | Renovations and property improvements |
| Debt | $1,162.5 million principal | $1,329.8 million principal | Reported debt net of discounts and financing costs was $1,155.1 million |
| Cash and liquidity | $91.4 million unrestricted cash; $70.2 million restricted cash | $71.9 million unrestricted cash; $58.5 million restricted cash | $161.6 million total cash and restricted cash; $500 million revolving facility had no year-end balance |
| Leverage and interest | 3.6x net debt / Adjusted EBITDAre; 3.82% weighted-average debt rate | — | Debt maturity averaged 4.8 years, including extension options |
| Portfolio operating statistics | 75.8% occupancy; $214.51 ADR; $162.64 RevPAR | 76.3%; $203.39; $155.12 | Occupancy down 0.5 percentage point; ADR up 5.5%; RevPAR up 4.8% |
Hotel operating income was $368.4 million, up 7.9%; as a share of revenue it was approximately 34.8%, compared with 36.1% in 2017. The company declared $1.10 per common share for 2018, paid in quarterly installments of $0.275.
Material changes versus the prior comparable period
- Revenue growth primarily reflected portfolio turnover: four hotels acquired in 2018 and four in 2017, offset by three hotels sold in 2018 and seven in 2017. Comparable-hotel room revenue rose only 0.3% and comparable hotel operating expenses increased 0.8%, excluding the identified acquisition and disposition effects.
- Xenia acquired four hotels in 2018 for a combined net purchase price of about $360.0 million and sold three hotels for gross proceeds of $420.0 million. The sales generated reported gains of $123.5 million in total for the year, compared with $50.7 million in 2017.
- Interest expense rose 11.0% to $51.4 million, primarily due to higher average debt and a higher weighted-average rate. Year-end principal debt declined year over year, and variable-rate exposure fell to 16% of debt from 28%.
- The company issued 5.72 million shares through its at-the-market program at a weighted-average price of $24.02, generating $137.4 million gross proceeds. No shares were repurchased under its authorization in 2018.
- Q4 revenue was $275.7 million versus $259.1 million in Q4 2017. Q4 net income was $102.6 million versus $9.8 million, with Q4 2018 results materially boosted by gains on hotel dispositions.
Outlook, commentary, risks, and unusual items
- Management expected U.S. lodging growth to moderate in 2019 and anticipated moderate growth for its portfolio. It noted rising labor and overhead costs would challenge margin growth and expected 2019 net income to decline due to 2018 dispositions, largely offset by acquired hotels. No specific 2019 financial guidance figures were provided.
- Management expected completed renovations to support future RevPAR, while warning that increased new hotel supply in several markets could weigh on performance. Renovation work was expected to continue, including projects that could disrupt hotel operations.
- Significant unusual contributions to reported earnings included $123.5 million of hotel-sale gains and $5.0 million of business-interruption insurance gains, largely related to hurricanes and California wildfires in 2017. These items make reported net income growth less representative of recurring operations.
- Key exposures include lodging cyclicality and seasonality, fixed operating costs, new supply and alternative accommodations, dependence on third-party hotel managers and major brands, regional concentration, labor costs, natural disasters and insurance adequacy, and debt refinancing and interest-rate risks. The filing also discusses REIT qualification and tax risks.
- Ordinary-course legal proceedings were disclosed; management said it did not expect their outcomes to have a material effect. The auditor issued an unqualified opinion on the financial statements, and management and the auditor reported effective internal control over financial reporting as of year-end.
Important facts for investors to verify
- Reconcile reported net income and EPS to recurring performance, particularly the $123.5 million in sale gains and insurance proceeds; review the company’s non-GAAP reconciliations and limitations.
- Assess comparable-hotel trends separately from acquisitions and dispositions, including occupancy decline, ADR and RevPAR growth, and operating-margin pressure.
- Review debt maturities, covenant headroom, refinancing plans, variable-rate exposure, and the terms and accounting of interest-rate swaps.
- Evaluate liquidity available for operations, dividends, and renovations, distinguishing unrestricted cash from restricted reserves and considering the effect of equity issuance and dilution.
- Monitor the 2019 outlook assumptions for demand, new supply, labor and overhead costs, and the expected contribution from acquisitions and renovations.