Xenia Hotels & Resorts, Inc. — Q2 2022 Form 10-Q
Business context and reporting period
For the quarter and six months ended June 30, 2022. Xenia is a U.S. REIT focused on luxury and upper-upscale hotels and resorts. At quarter-end it owned 34 hotels with 9,812 rooms. Results reflect recovery in hotel demand, the March acquisition of W Nashville, and the sale of Kimpton Hotel Monaco Chicago in January.
Financial and operating performance
- Q2 revenue: $283.5 million, up 86.5% year over year. Rooms revenue rose 73.9% to $165.6 million; food and beverage revenue rose 141.1% to $96.8 million.
- Q2 earnings: Operating income was $50.7 million versus an operating loss of $18.7 million a year earlier. Net income attributable to common stockholders was $27.6 million, or $0.24 per diluted share, compared with a loss of $42.0 million, or $0.36 per share.
- Six-month results: Revenue was $493.8 million, up 105.9%. Net income attributable to common stockholders was $22.3 million, or $0.19 per diluted share, versus a loss of $98.4 million, or $0.86 per share, in 2021.
- Hotel metrics: Q2 portfolio occupancy was 68.9% versus 48.8%; ADR was $269.20, up 25.8%; and RevPAR was $185.44, up 77.5%. For the first half, RevPAR increased 98.4% to $165.16. Management said first-half portfolio ADR exceeded the comparable 2019 level.
- Margins and costs: Q2 operating margin was about 17.9% of revenue, compared with a negative margin in 2021. Hotel operating expenses rose 67.3% to $177.2 million, reflecting higher occupancy and operating costs; management also cited labor and inflation pressures.
- Cash flow: First-half operating cash flow was $98.6 million, versus $4.8 million in 2021. Investing used $314.7 million, mainly for the $328.5 million W Nashville acquisition and $21.8 million of capital expenditures, partly offset by sale and insurance proceeds. Financing used $67.5 million, principally for mortgage repayment. Cash and restricted cash ended at $270.7 million, down from $554.2 million at year-end 2021.
- Debt and liquidity: Gross debt was approximately $1.448 billion, with a 5.20% weighted-average rate; balance-sheet debt net of financing items was $1.430 billion. Cash and equivalents were $223.8 million, and the full $450 million revolving facility was undrawn and available. The company reported meeting modified corporate credit-facility covenants for the quarter and exiting the covenant-waiver period; modified covenant testing continues through Q2 2023.
Material changes, outlook, and risks
- Recovery in leisure demand continued, with higher business-transient demand and improving group demand. Management cautioned that business travel and larger meetings may take time to return to pre-pandemic levels and recovery may vary by market.
- Xenia acquired W Nashville for $328.5 million and repaid the $65.0 million mortgage on The Ritz-Carlton, Pentagon City. The Chicago hotel sale generated $32.8 million in net proceeds and no gain or loss.
- Q2 included $1.5 million of insurance recovery income related to Hurricane Ida; first-half insurance recovery income was $2.5 million. First-half results also included $1.3 million of hurricane repair and cleanup costs. The prior-year comparison included a $12.3 million impairment charge and $1.1 million of business-interruption insurance income.
- One property-level mortgage was not in covenant compliance at June 30, without an event of default; the lender may impose a cash sweep. Interest-rate swaps covering $250 million of notional debt were scheduled to expire later in 2022, increasing exposure to rate rises. Management estimated a 1% rate change on variable-rate debt would affect annual earnings and cash flow by about $0.3 million.
- Dividends remained suspended. The board will assess any resumption based on business and economic conditions and REIT distribution requirements. No quantified earnings or operating guidance is provided in the filing.
- Key risks include COVID-19 uncertainty, inflation, rising interest rates, possible recession, labor shortages, supply-chain constraints, and the company’s reliance on third-party hotel managers. Management stated that ordinary-course legal matters were not expected to have a material adverse effect.
Important facts for investors to verify
- Whether operating recovery, especially business-transient and group demand, sustains occupancy, ADR, and RevPAR as comparisons normalize.
- Liquidity and covenant status, including the property-level cash-sweep risk and the modified corporate covenant requirements through Q2 2023.
- Debt repricing and refinancing exposure as swaps expire and major maturities approach, including the $500 million 2025 Senior Notes.
- Capital needs and cash allocation, including the $14.5 million of outstanding renovation commitments, suspended dividends, and any future repurchases or equity issuance.
- How inflation, labor costs, insurance, and supply constraints affect hotel margins, and the timing and amount of any further hurricane-related insurance recoveries.