Xenia Hotels & Resorts, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. Xenia is a self-advised REIT focused on premium full-service, lifestyle and urban upscale hotels. At quarter-end, it owned 50 hotels with 12,548 rooms. The 2015 comparison is affected by the February 2015 spin-off from InvenTrust; some prior-period results include allocated costs and may not be comparable.
Financial and operating performance
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Total revenue | $235.0 million | $227.9 million |
| Operating income | $11.2 million | $1.3 million |
| Net loss attributable to Xenia | $8.9 million | $14.9 million |
| Basic and diluted loss per share | $0.08 | $0.13 |
| Operating cash flow | $33.4 million | $4.9 million |
| Cash used in investing activities | $88.2 million | $22.9 million |
| Cash and cash equivalents at quarter-end | $159.6 million | $238.1 million |
Revenue rose 3.1%. Operating margin was approximately 4.7%, versus 0.6% a year earlier; net margin was approximately negative 3.9%, versus negative 6.5%. The company reported EBITDA of $46.3 million and Adjusted EBITDA of $62.6 million, compared with $39.8 million and $64.8 million, respectively. FFO was $36.5 million and Adjusted FFO was $47.2 million, versus $21.5 million and $50.9 million. These are non-GAAP measures and are not substitutes for GAAP results or cash flow.
Portfolio RevPAR increased 3.1% to $138.73, as ADR rose 5.2% to $191.67 while occupancy declined 2.0 percentage points to 72.4%. Hotel operating expenses increased 6.1% to $153.2 million. General and administrative expense rose 50.8% to $10.6 million, including management transition and severance costs.
Debt, liquidity and capital allocation
- Debt was approximately $1.299 billion gross ($1.290 billion net of discounts and financing costs), compared with approximately $1.131 billion gross at December 31, 2015. The weighted-average interest rate was 3.52%.
- The company had no borrowings under its $400 million unsecured revolving credit facility. Cash was $159.6 million; restricted cash and escrows were $74.4 million, largely hotel replacement reserves.
- Operating cash flow was supplemented by $125 million in term-loan proceeds and other mortgage financing. Investing outflows included the Hotel Commonwealth acquisition; financing uses included $49.3 million of share repurchases and $25.7 million of dividends paid.
- Scheduled debt maturities include $180 million in 2016 and $69.9 million in 2017. Management said it expected to meet near-term liquidity needs through cash, operating cash flow, the revolver and refinancing or extensions.
Material changes, outlook and risks
- January acquisition of the 245-room Hotel Commonwealth for $136 million; it contributed $3.5 million of revenue and a $0.9 million net loss from acquisition through quarter-end.
- Sold the Hilton University of Florida Conference Center Gainesville in February for $36 million, repaid its $27.8 million mortgage and recorded a $0.9 million gain. The company recorded a $7.6 million impairment on hotels classified as held for sale. Two additional hotel sales closed in April and May 2016 for $65 million and $20 million.
- A $4.7 million loss on extinguishment of debt reflected refinancing and prepayment costs. The quarter also included $3.1 million of non-recurring management transition and severance costs; Q1 2015 included $25.3 million of separation and start-up costs.
- Management described the lodging environment as generally favorable but noted signs of softening and industry supply growth exceeding demand growth. Company RevPAR was pressured by a 13.5% decline at four Houston-area hotels amid energy-market volatility, and by weakness and new supply in Chicago, Denver and Pittsburgh. Management gave no specific financial guidance in the provided filing text.
- Interest-rate sensitivity: a sustained 1 percentage-point move in rates on variable-rate debt was estimated to change annual interest expense and cash flows by approximately $5.8 million. Interest-rate swaps had a $7.9 million fair-value liability at quarter-end.
- Risks include lodging cyclicality and seasonality, demand and rate declines, reliance on third-party hotel operators and brands, debt and refinancing needs, interest rates, renovations, and maintaining REIT status. Management reported covenant compliance and said ordinary-course legal matters were not expected to have a material adverse effect. Disclosure controls were assessed as effective.
Most important facts for investors to verify
- Whether hotel demand, ADR and RevPAR trends remain resilient, particularly in Houston and other pressured markets.
- Debt maturities, refinancing access, covenant terms and the effect of interest-rate changes after hedging.
- Cash available for distributions and repurchases after required hotel capital spending and restricted reserve obligations.
- Assumptions supporting the $7.6 million impairment and the proceeds and final accounting for the held-for-sale property disposals.
- How much reported improvement versus Q1 2015 reflects the prior-year spin-off costs, acquisitions, dispositions and other non-recurring items.