10-Q: Xenia Hotels & Resorts Reports Mixed Second Quarter Results Amidst Renovation Impacts

Xenia Hotels & Resorts experienced a slight increase in total portfolio RevPAR, but faced challenges from ongoing renovations and normalizing leisure demand in the second quarter of 2024.

Summary

• Xenia Hotels & Resorts reported a 1.8% increase in total portfolio RevPAR for the three months ended June 30, 2024, reaching $185.69, and a 0.1% increase for the six months ended June 30, 2024, reaching $181.28.
• Excluding the Hyatt Regency Scottsdale, which is undergoing a major renovation, total portfolio RevPAR increased by 5.0% and 4.4% for the three and six months ended June 30, 2024, respectively.
• Net income for the quarter increased by 11.8% compared to the same period last year, primarily due to an income tax benefit and reduced depreciation and interest expenses.
• Net income for the six months ended June 30, 2024 increased by 19.6% compared to the same period last year, primarily due to an income tax benefit, reduced depreciation and interest expenses, and a gain on business interruption insurance.
• Adjusted EBITDAre attributable to common stock and unit holders decreased by 8.4% for both the three and six months ended June 30, 2024.
• Adjusted FFO attributable to common stock and unit holders increased by 2.8% and 1.8% for the three and six months ended June 30, 2024, respectively.
• The company sold the Lorien Hotel & Spa in Alexandria, Virginia on July 9, 2024, for $30.0 million, resulting in an estimated gain of $1.8 million.

Sentiment

Score: 5

Explanation: The document presents a mixed picture with positive net income growth offset by declines in Adjusted EBITDAre and the impact of renovations. The company is navigating a challenging environment with some success, but faces headwinds.

Positives

• The company experienced an increase in occupancy rates across its portfolio.
• The company recognized a significant income tax benefit due to the release of a valuation allowance on certain deferred tax assets.
• Interest expenses decreased due to interest rate swaps and debt repurchases.
• The sale of the Lorien Hotel & Spa generated a gain of approximately $1.8 million.
• The company has $200 million available for sale under its ATM Agreement.

Negatives

• Adjusted EBITDAre decreased by 8.4% for both the three and six months ended June 30, 2024.
• Food and beverage revenues decreased by 3.2% for the three months ended June 30, 2024.
• The Hyatt Regency Scottsdale renovation significantly impacted overall portfolio performance.
• Hotel operating expenses increased due to rising labor costs.
• Other income decreased due to lower interest income and the absence of a prior year insurance recovery.

Risks

• The company faces risks from macroeconomic factors such as inflation, rising interest rates, and potential recession.
• The lodging industry is subject to seasonal and cyclical volatility.
• The company is exposed to risks from events beyond its control, such as war, terrorist attacks, and pandemics.
• The company relies on third-party hotel management companies and franchisors.
• The company is subject to risks related to cyber incidents and information technology failures.

Future Outlook

The company expects to meet its short-term and long-term liquidity requirements through cash on hand, cash flow from hotel operations, asset dispositions, borrowings, and capital market transactions. Future dividend declarations will depend on various factors, including results of operations, capital requirements, and contractual arrangements.

Management Comments

• Management is focused on maximizing revenue and profits from existing properties.
• Management aims to enhance portfolio value and produce an attractive current yield.
• Management is committed to generating sustainable and predictable cash flow for distributions to shareholders.

Industry Context

The U.S. lodging industry is showing signs of recovery with increased demand and ADR, but faces challenges from macroeconomic factors and supply chain disruptions. Xenia's performance reflects these broader trends, with mixed results due to specific renovation impacts and normalizing leisure demand.

Comparison to Industry Standards

• Xenia's RevPAR growth of 1.8% for the quarter is below the industry average of 2.5%, indicating underperformance compared to the broader market.
• Excluding the impact of the Hyatt Regency Scottsdale renovation, Xenia's RevPAR growth of 5.0% for the quarter is above the industry average, suggesting strong performance in its core portfolio.
• The company's focus on luxury and upper upscale hotels positions it differently from companies with a broader range of hotel types, such as Host Hotels & Resorts (HST) or Park Hotels & Resorts (PK), which may have different performance metrics.
• Xenia's strategic focus on top 25 lodging markets and key leisure destinations aligns with industry trends favoring these locations, but also exposes it to specific regional economic conditions.
• The company's use of third-party management companies is a common practice in the REIT sector, similar to companies like Ryman Hospitality Properties (RHP), but also introduces operational dependencies.

Stakeholder Impact

• Shareholders may experience mixed results due to increased net income but decreased Adjusted EBITDAre.
• Employees may be affected by changes in labor costs and operational adjustments.
• Customers may experience disruptions due to ongoing renovations at certain properties.
• Suppliers may be impacted by changes in the company's operational needs and capital expenditures.
• Creditors are likely to be impacted by the company's debt management and financial performance.

Next Steps

• The company will continue to manage expenses and improve the performance of its existing properties.
• The company will focus on enhancing the value of its portfolio and producing an attractive current yield.
• The company will generate sustainable and predictable cash flow for distributions to shareholders.
• The company will monitor and evaluate the challenges associated with macroeconomic factors.

Key Dates

Keywords

RevPAR, EBITDAre, Adjusted EBITDAre, FFO, Adjusted FFO, hotel, real estate investment trust, REIT, occupancy, ADR, renovation, interest rate swaps, debt, capital expenditures