Xenia Hotels & Resorts, Inc. — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; filed February 25, 2020. Although the request specifies 2019 Q4, this is an annual filing. Fourth-quarter figures are noted separately below. Xenia is a lodging REIT focused on luxury and upper-upscale hotels and resorts. At year-end, it owned 39 hotels with 11,245 rooms across 16 states; substantially all hotel operations are conducted by third-party managers.
Financial and operating performance
| Metric | FY 2019 | FY 2018 | Change |
|---|---|---|---|
| Total revenue | $1,149.1 million | $1,058.2 million | +8.6% |
| GAAP operating income | $111.5 million | $131.8 million | -15.4% |
| Net income | $57.2 million | $198.5 million | -71.2% |
| Net income per diluted share | $0.49 | $1.75 | Down $1.26 |
| Adjusted EBITDAre | $302.1 million | $299.8 million | +0.8% |
| Adjusted FFO | $250.6 million | $245.4 million | +2.1% |
| Net cash from operating activities | $246.6 million | $254.2 million | Down $7.6 million |
All amounts are in U.S. dollars. Adjusted EBITDAre and Adjusted FFO are non-GAAP measures and are not substitutes for GAAP results or cash flow.
- Hotel performance: Portfolio RevPAR rose 3.6% to $168.43, driven by a 3.3% increase in ADR to $221.59 and occupancy up 20 basis points to 76.0%. Comparable-hotel RevPAR increased 2.3%.
- Margins: Total hotel operating income increased 2.1% to $376.2 million, while total revenue grew 8.6%; hotel operating income was approximately 32.7% of revenue versus 34.8% in 2018. Management cited higher wages and benefits, property taxes and insurance as pressures.
- Fourth quarter: Revenue was $282.2 million versus $275.7 million in Q4 2018. Net income was $16.1 million versus $102.6 million, and diluted EPS was $0.14 versus $0.88. The filing attributes the annual earnings decline principally to the much larger 2018 gains on hotel sales.
- Cash and liquidity: Year-end cash and cash equivalents were $110.8 million; restricted cash and escrows were an additional $84.1 million, for $194.9 million combined. The $500 million revolving facility had $160 million drawn and $340 million available. Operating cash flow was $246.6 million; capital expenditures were $93.0 million.
- Debt: Debt outstanding was approximately $1.299 billion, with a 3.72% weighted-average rate. Net debt to Adjusted EBITDAre was 3.9x. Secured mortgage loans had a 5.1-year weighted-average maturity; unsecured term loans and the revolver had a 3.0-year weighted-average maturity, including extension options. About $376 million, or 29% of debt, was unhedged variable-rate debt.
- Distribution: The company declared $1.10 per common share for 2019, or $0.275 quarterly; dividends were reported as 100% ordinary income for tax purposes.
Material changes and notable items
- Revenue growth reflected, in substantial part, four luxury hotel acquisitions completed in 2018 and changes in portfolio mix. Food-and-beverage and other revenue increased faster than rooms revenue, alongside higher operating expenses.
- In December 2019, Xenia acquired the newly built 600-room Hyatt Regency Portland at the Oregon Convention Center for $190 million, funded with cash and a revolver draw. It sold two hotels for gross proceeds of $61.5 million; the sales resulted in approximately $1.0 million of losses, including closing costs.
- Net income included $24.2 million of impairment charges: $14.8 million for Marriott Chicago at Medical District/UIC, later sold, and $9.4 million of goodwill impairment for Bohemian Hotel Savannah Riverfront. The filing reported no impairment in 2018.
- In 2018, hotel dispositions generated $123.5 million in gains; this comparison materially amplified the 2019 decline in GAAP net income. Adjusted EBITDAre and Adjusted FFO, by contrast, increased modestly.
- Cash used in investing activities was $222.9 million, mainly for the Portland acquisition and property improvements, partly offset by sale proceeds. Financing cash flow was positive $9.7 million, including new term-loan and revolver borrowings, offset by debt repayments and dividends.
- The company paid off the $90 million Hyatt Regency Santa Clara mortgage and approximately $15 million of Marriott Charleston Town Center mortgage debt, drew the remaining $85 million on its $150 million term loan, and repriced a $125 million term loan to reduce its pricing spread.
Outlook, risks and contingencies
Management anticipated modest U.S. lodging and portfolio revenue growth in 2020, while warning that wage and benefit, property-tax and insurance increases could compress margins and that modest revenue growth could still result in lower portfolio Adjusted EBITDA. Renovations at Park Hyatt Aviara were expected to disrupt revenue; the Portland acquisition and completed renovations were expected to contribute to future performance. These are forward-looking expectations, not guarantees.
- Key exposures include lodging-cycle volatility, business-travel demand, new hotel supply, seasonality, fixed operating costs, competition from hotels and alternative accommodations, and reliance on third-party managers and major brands. Thirty-four of 39 hotels operated under Marriott-, Hyatt- or Kimpton-owned brands.
- Management identified regional concentration, natural disasters and climate-related impacts, labor costs and union activity, insurance availability, cyber incidents, renovation requirements and REIT qualification as material risks. The filing mentions COVID-19 among potential pandemic risks; it does not quantify an operating or financial impact from the outbreak.
- Debt and liquidity risks include refinancing and covenant constraints, variable-rate exposure, and the transition away from LIBOR. Management reported compliance with debt covenants at year-end. A 1% sustained rate change on year-end variable-rate debt was estimated to affect annual interest expense and cash flows by approximately $3.8 million.
- Outstanding renovation and construction commitments were $22.3 million at year-end. The Portland acquisition agreement also allows for up to $35 million of additional consideration based on adjusted profits in 2022 and 2023.
- In February 2020, Xenia agreed to sell Renaissance Austin Hotel for $100.5 million, with an estimated gain of approximately $19 million, subject to customary closing conditions. The filing also reports ordinary-course legal claims; management did not expect their outcome to materially affect the company.
KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. The audit identified critical audit matters involving the Portland land valuation and impairment assessments for Savannah goodwill and hotel properties.
Important facts for investors to verify
- Whether portfolio RevPAR and operating margins meet or diverge from management’s modest-growth and cost-pressure expectations.
- Actual operating ramp, capital needs and any contingent consideration for the Portland hotel; completion and realized proceeds from the Renaissance Austin sale.
- Debt maturities, revolver availability, covenant headroom, variable-rate exposure and LIBOR-to-successor-rate transition terms.
- Cash available for distributions after capital spending and required reserves; the filing’s non-GAAP measures do not represent cash available for dividends.
- Progress and disruption from the Park Hyatt Aviara renovation, and whether the impairment assumptions for Savannah and other properties remain supportable.
- Effects of hotel demand, labor and insurance costs, regional concentration, severe weather and pandemic-related risks on operations and liquidity.