Xenia Hotels & Resorts, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019; comparisons are with the same 2018 periods. Xenia is a U.S. hotel REIT focused on luxury and upper-upscale properties. At quarter-end it owned 40 hotels with 11,167 rooms across 17 states.
Financial and operating performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $268.9m | $241.0m | $866.9m | $782.5m |
| Operating income | $20.3m | $19.2m | $87.9m | $100.2m |
| Net income | $10.7m | $9.3m | $41.2m | $95.9m |
| Net income attributable to common stockholders | $10.3m | $9.2m | $39.8m | $93.7m |
| EPS, basic and diluted | $0.09 | $0.08 | $0.35 | $0.85 |
| Adjusted EBITDAre attributable to common stock and unit holders | $62.6m | $60.5m | $230.1m | $224.1m |
| Adjusted FFO attributable to common stock and unit holders | $53.3m | $51.4m | $184.8m | $179.5m |
- Revenue grew 11.6% in Q3 and 10.8% year to date. Portfolio RevPAR rose 5.4% to $164.25 in Q3 and 4.7% to $171.85 year to date; occupancy and ADR were 76.8% and $213.94 for Q3, versus 75.8% and $205.65 in 2018.
- Operating income margin was approximately 7.5% in Q3 versus 8.0% a year earlier, and 10.1% year to date versus 12.8%. Hotel operating expenses increased faster than revenue in both comparisons.
- Q3 net income increased 14.3%. Nine-month net income fell 57.1%, principally because 2018 included a $42.3m gain on the Aston Waikiki Beach Hotel sale; 2019 also included a $14.8m impairment charge.
- Adjusted EBITDAre grew 3.4% in Q3 and 2.7% year to date; Adjusted FFO grew 3.8% and 3.0%, respectively. These are non-GAAP measures and are not substitutes for GAAP results or cash flow.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $205.1m, compared with $196.8m in 2018. Investing cash use was $62.8m, mainly $62.8m of capital expenditures; financing cash use was $102.9m, including $94.3m of dividends and $90.0m of mortgage repayment, partly offset by $85.0m drawn on an unsecured term loan.
- Cash and cash equivalents were $116.5m and restricted cash and escrows were $84.5m at September 30, 2019. Restricted cash primarily included $72.2m of required hotel replacement reserves. The company reported $200.97m of cash and restricted cash combined.
- Debt outstanding was approximately $1.155bn, with a 3.74% weighted-average interest rate, down from 3.82% at year-end 2018. No amount was drawn on the revolving credit facility; the company reported compliance with debt covenants. Approximately $216m of debt was variable-rate, and a 1 percentage-point sustained rate change was estimated to affect annual earnings and cash flow by about $2.2m.
- The company paid $0.825 per share/unit in dividends for the first nine months of 2019. Quarterly dividend declared was $0.275 per share/unit.
Material changes, outlook and risks
- Portfolio RevPAR gains reflected comparable-hotel improvement, completed renovations and the impact of four luxury hotel acquisitions completed in 2018; portfolio changes also affected revenue mix and seasonality. Xenia made no hotel acquisitions or dispositions in the first nine months of 2019.
- Management attributed comparable-hotel RevPAR growth to improved ADR and occupancy. In Q3, strong transient demand in July and August offset weaker group contributions, including food and beverage performance against a strong prior-year quarter. Industry RevPAR growth was modest, while industry supply growth exceeded demand growth in Q3.
- Hurricane Dorian disrupted several properties and was estimated to reduce revenue by approximately $1.0m; management did not expect recovery for business lost. The company recognized $0.8m of business interruption insurance proceeds in the first nine months, largely relating to prior-period Hurricane Irma losses.
- Management provided no specific forward financial guidance in the supplied filing text. It described liquidity sources as operating cash flow, cash, its revolving facility, refinancing or extending debt, unencumbered assets and possible equity or asset sales.
- Risks include lodging demand and economic cycles, labor and operating-cost inflation, hotel-manager and franchisor reliance, natural disasters, debt refinancing and interest-rate exposure. The company was monitoring LIBOR’s anticipated transition after 2021, including potential effects on loans and swaps. No material change to previously disclosed risk factors was reported.
- A $14.8m impairment was recorded for Marriott Chicago at Medical District/UIC based on projected operating declines and estimated fair value. Adoption of lease accounting resulted in recognition of a $46.5m right-of-use asset and $27.5m lease liability. Management said ordinary-course legal matters were not expected to have a material adverse effect.
Important facts for investors to verify
- Whether RevPAR and comparable-hotel trends persist, and how portfolio mix and seasonality affect reported growth.
- Performance and assumptions underlying the Chicago hotel impairment, and any further property impairment indicators.
- Debt maturities, covenant headroom, refinancing availability and the effect of LIBOR transition on variable debt and hedges.
- Cash available for distributions after required capital spending and hotel reserve funding; restricted cash is not freely available for general purposes.
- The recurring versus nonrecurring components of adjusted EBITDAre and Adjusted FFO, and the reconciliation of those measures to GAAP results.