Xenia Hotels & Resorts, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; comparisons are with the three months ended March 31, 2018 unless otherwise stated. Xenia is a lodging REIT that owned 40 hotels with 11,167 rooms across 17 states at quarter-end.
Financial and operating performance
Dollar amounts below are in millions except per-share data.
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Total revenue | $293.7 | $264.5 | +11.0% |
| Operating income | $36.1 | $32.8 | +9.9% |
| Net income | $17.3 | $57.0 | -69.7% |
| Net income attributable to common stockholders | $16.7 | $55.7 | |
| Diluted EPS | $0.15 | $0.52 | |
| Cash from operating activities | $33.6 | $42.8 | |
| Capital expenditures | $13.3 | $23.9 | |
| Adjusted EBITDAre attributable to common stock and unit holders | $78.1 | $73.7 | +5.9% |
| Adjusted FFO attributable to common stock and unit holders | $60.0 | $56.2 | +6.8% |
Portfolio occupancy was 75.1% versus 74.8%; ADR was $226.72 versus $212.35; and RevPAR was $170.28 versus $158.81. For the 36 comparable hotels, RevPAR grew 4.4%, reflecting 2.4% ADR growth and 2.0% occupancy growth. Total portfolio RevPAR growth also reflected changes in the hotel portfolio.
Balance sheet, debt and liquidity
- At March 31, 2019, cash and cash equivalents were $74.5 million and restricted cash and escrows were $69.8 million. Cash and restricted cash totaled $144.2 million, down from $161.6 million at the beginning of the quarter.
- Total debt outstanding was approximately $1.157 billion, with a 3.90% weighted-average interest rate; the balance-sheet carrying amount, net of financing costs and discounts, was $1.150 billion. Debt was approximately $1.162 billion at December 31, 2018.
- No balance was outstanding under the senior unsecured revolving credit facility. Xenia funded the remaining $85 million of a $150 million unsecured term loan and repaid a $90 million mortgage during the quarter.
- Scheduled debt maturities include approximately $180.4 million in 2021, $182.9 million in 2022 and $211.9 million in 2023. Xenia reported compliance with applicable debt covenants.
- Financing cash outflows included $31.3 million of dividends. The declared quarterly dividend was $0.275 per share/unit, payable April 12, 2019.
- Adoption of the new lease standard resulted in a $47.0 million right-of-use asset and a $27.9 million lease liability at quarter-end.
Material changes, outlook and risks
- Revenue growth reflected four premium full-service hotel acquisitions in 2018, partly offset by three hotel dispositions, as well as improved comparable-hotel results. Food and beverage revenue rose 19.7%, with much of the increase associated with the acquired hotels.
- Net income fell sharply largely because Q1 2018 included a $42.3 million gain on the sale of the Aston Waikiki Beach Hotel; no hotels were sold in Q1 2019. Management also cited acquisition/disposition effects and higher income taxes. Interest expense declined $1.1 million year over year.
- Management reported that U.S. lodging-industry RevPAR increased 1.5% in Q1 2019. It described expected portfolio seasonality, with revenue and operating income generally highest in Q2, followed by Q1, Q3 and Q4. The filing provides no specific full-year financial guidance.
- Risks include lodging demand and economic cyclicality, operating-cost inflation, reliance on third-party managers and franchisors, hotel renovation needs, refinancing and interest-rate exposure, and adverse events. Orlando and Phoenix each represented more than 10% of revenue in the periods presented. A permanent 1 percentage-point rate change on variable-rate debt outstanding at quarter-end was estimated to affect annual interest expense and cash flow by approximately $2.2 million.
- The company reported ordinary-course legal claims that management did not expect to have a material adverse effect, and no material changes to previously disclosed risk factors. Management concluded disclosure controls were effective; no material change in internal control was reported.
Investor verification priorities
- Separate comparable-hotel operating trends from the effects of acquisitions, dispositions and portfolio seasonality.
- Assess the sustainability of operating cash flow after capital spending, dividends and required hotel reserve funding.
- Review debt maturities, covenant terms, available revolving-credit capacity and exposure to variable interest rates.
- Evaluate the recurring earnings picture apart from the prior-year property-sale gain and compare GAAP results with the company’s non-GAAP measures.