10-Q: Xenia Hotels & Resorts Reports Mixed Q1 2024 Results Amidst Renovation Impacts

Xenia Hotels & Resorts experienced a slight decrease in total revenue and RevPAR in the first quarter of 2024, primarily due to renovation disruptions and normalizing leisure demand.

Summary

• Xenia Hotels & Resorts reported a total revenue of $267.488 million for the first quarter of 2024, a slight decrease from $268.973 million in the same period last year.
• The company's total portfolio RevPAR decreased by 1.5% to $176.86, while excluding the Hyatt Regency Scottsdale, which is undergoing renovations, RevPAR increased by 3.7% to $178.07.
• Net income attributable to common stockholders increased to $8.534 million, compared to $6.280 million in the first quarter of 2023.
• The increase in net income was primarily due to a reduction in income tax expense, depreciation and amortization, and interest expense, as well as a gain on business interruption insurance.
• Adjusted EBITDAre decreased by 8.5% and Adjusted FFO increased by 0.6% compared to the same period last year.
• The company repurchased 468,107 shares of common stock at a weighted-average price of $13.51 per share for an aggregate purchase price of $6.3 million.
• Capital expenditures for the quarter totaled $33.4 million, primarily for hotel renovations.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While net income increased, the decrease in RevPAR and Adjusted EBITDAre, along with rising expenses, suggests some challenges. The company is also facing macroeconomic headwinds and renovation disruptions.

Positives

• Net income attributable to common stockholders increased by 36.8% year-over-year.
• Other income increased by $1.1 million, primarily due to a gain on insurance recovery.
• Interest expense decreased by $1.8 million due to interest rate swaps and reduced debt.
• Income tax expense decreased by $4.5 million due to lower projected taxable income and the use of net operating loss carryforwards.
• The company has $450 million available on its revolving line of credit and $200 million available under its ATM program.

Negatives

• Total portfolio RevPAR decreased by 1.5% due to renovation disruptions and normalizing leisure demand.
• Adjusted EBITDAre decreased by 8.5% compared to the first quarter of 2023.
• Hotel operating expenses increased by $3.8 million, primarily due to rising labor costs.
• General and administrative expenses increased by $1.5 million due to stock compensation expense and professional fees.
• Other operating expenses increased by $0.6 million due to pre-opening costs and franchise tax expense.

Risks

• The company is exposed to macroeconomic factors such as inflation, rising interest rates, and potential recession, which could negatively impact operating results.
• The company faces risks related to supply chain disruptions, which could affect its ability to source furniture, fixtures, and equipment.
• The company is subject to the fixed cost nature of hotel ownership, which can impact profitability during periods of decreased demand.
• The company is exposed to risks related to reliance on third-party hotel management companies and franchisors.
• The company is subject to risks related to uninsured or underinsured losses, including those relating to natural disasters and cyber-attacks.
• One mortgage loan was not in compliance with a debt covenant, although the lender waived this through March 31, 2024.

Future Outlook

The company expects to meet its short-term liquidity requirements from cash on hand, cash flow from hotel operations, use of its unencumbered asset base, asset dispositions, borrowings under its revolving line of credit, and proceeds from various capital market transactions. The company remains committed to increasing total shareholder returns through maximizing revenue and profits, enhancing the value of its portfolio, and generating sustainable cash flow.

Management Comments

• Management is monitoring and evaluating the challenges associated with inflationary pressures, rising interest rates, a potential domestic and/or global recession, global conflicts, and the evolving workforce and wage landscape.
• Management believes that its cash position, short-term investments, cash from operations, borrowing capacity, and access to capital markets will be adequate to meet all funding requirements and capital deployment objectives.

Industry Context

The U.S. lodging industry experienced a 0.2% increase in RevPAR during the first quarter of 2024, with demand decreasing by 1.4% and supply increasing by 0.6%. Xenia's results reflect these broader industry trends, with the company experiencing a slight decrease in RevPAR due to renovation disruptions and normalizing leisure demand.

Comparison to Industry Standards

• While the overall industry saw a slight increase in RevPAR of 0.2%, Xenia's total portfolio RevPAR decreased by 1.5%, indicating underperformance compared to the average.
• However, excluding the impact of the Hyatt Regency Scottsdale renovation, Xenia's RevPAR increased by 3.7%, suggesting that the company's core portfolio is performing better than the industry average.
• Companies like Host Hotels & Resorts and Park Hotels & Resorts, which also operate in the upscale hotel segment, may serve as benchmarks for comparison, though their specific results were not detailed in this document.
• The company's focus on luxury and upper upscale hotels in top 25 lodging markets and key leisure destinations positions it to benefit from the recovery in travel, but also exposes it to higher fixed costs and the impact of renovations.

Stakeholder Impact

• Shareholders may be concerned about the decrease in RevPAR and Adjusted EBITDAre, but encouraged by the increase in net income and share repurchases.
• Employees may be affected by the company's efforts to manage labor costs.
• Customers may experience disruptions due to ongoing renovations at some properties.
• Suppliers may be impacted by the company's efforts to manage costs and navigate supply chain challenges.
• Creditors may be concerned about the company's debt levels and compliance with debt covenants.

Next Steps

• The company will continue to focus on maximizing revenue and profits from existing properties.
• The company will continue to enhance the value of its portfolio and produce an attractive current yield.
• The company will continue to generate sustainable and predictable cash flow from operations to distribute to its common stock and unit holders.

Key Dates

Keywords

RevPAR, EBITDAre, Adjusted FFO, hotel, REIT, renovation, occupancy, interest rate, debt, capital expenditure