8-K: Xenia Hotels & Resorts Reports Mixed Third Quarter Results Amidst Renovation Impacts and Hurricane Headwinds

Xenia Hotels & Resorts reported a net loss for the third quarter of 2024, with adjusted EBITDA and FFO per share decreasing compared to the same period last year, while occupancy saw an increase.

Summary

• Xenia Hotels & Resorts announced a net loss of $7.1 million, or $0.07 per share, for the third quarter of 2024.
• Adjusted EBITDA for the quarter was $44.3 million, a 4.4% decrease compared to the third quarter of 2023.
• Adjusted FFO per diluted share was $0.25, down 3.8% from the same quarter last year.
• Same-property occupancy increased by 320 basis points to 67.0%, while the average daily rate (ADR) decreased by 3.3% to $240.72.
• Same-property RevPAR increased by 1.5% to $161.20, but excluding the Grand Hyatt Scottsdale Resort, it was $168.48, a 1.1% increase.
• Same-property Hotel EBITDA decreased by 6.3% to $48.1 million, or 3.4% to $52.2 million excluding the Grand Hyatt Scottsdale Resort.
• The company sold the Lorien Hotel & Spa for $30.0 million.
• Xenia repurchased 146,863 shares of common stock for approximately $1.9 million during the quarter.
• Year-to-date net income was $16.8 million, or $0.16 per share.
• Year-to-date adjusted EBITDA was $178.0 million, a 7.5% decrease compared to the same period in 2023.
• Year-to-date adjusted FFO per diluted share was $1.20, a 6.2% increase compared to the same period in 2023.
• The company estimates a $2 million negative impact to Hotel EBITDA due to recent hurricanes.
• Full year 2024 guidance has been updated, with a revised net income range of $9 to $17 million, and adjusted EBITDAre of $234 to $242 million.

Sentiment

Score: 4

Explanation: The sentiment is moderately negative due to the reported net loss, decreased EBITDA and FFO, and lowered full-year guidance. While there are some positive aspects, such as increased occupancy and the completion of the Grand Hyatt Scottsdale renovation, the overall tone is cautious due to the challenges faced by the company.

Positives

• Same-property occupancy increased by 320 basis points in the third quarter of 2024.
• Year-to-date adjusted FFO per diluted share increased by 6.2% compared to the same period in 2023.
• The company completed the majority of the transformative renovation of the Grand Hyatt Scottsdale Resort.
• The company upsized and extended its corporate credit facility, increasing financial flexibility.
• The company has $125.5 million remaining under its share repurchase authorization.
• Preliminary October results indicate a 4% increase in RevPAR compared to last year.

Negatives

• The company reported a net loss of $7.1 million for the third quarter of 2024.
• Adjusted EBITDA decreased by 4.4% in the third quarter of 2024.
• Adjusted FFO per diluted share decreased by 3.8% in the third quarter of 2024.
• Same-property ADR decreased by 3.3% in the third quarter of 2024.
• Same-property Hotel EBITDA decreased by 6.3% in the third quarter of 2024.
• The Grand Hyatt Scottsdale Resort renovation had a greater negative impact than previously estimated.
• Hurricanes are estimated to have a $2 million negative impact on Hotel EBITDA.
• Full year 2024 guidance has been lowered.

Risks

• The company faces macroeconomic uncertainty that could impact demand for hotel rooms.
• Renovation disruptions, particularly at the Grand Hyatt Scottsdale Resort, are negatively impacting financial results.
• Hurricanes and other weather-related events can cause lost revenues and increased operating expenses.
• The company is dependent on third-party managers for its hotels.
• The company is exposed to risks associated with the hotel industry, including competition and increases in operating costs.
• The company is exposed to risks associated with the real estate industry, including environmental contamination and costs of complying with the Americans with Disabilities Act.
• The company is exposed to interest rate increases.
• The company is exposed to the risk of not qualifying as a REIT.
• The company is exposed to the risk of uninsured or underinsured losses.
• The company is exposed to the risk of labor shortages and supply chain disruptions.

Future Outlook

The company expects financial results at the Grand Hyatt Scottsdale Resort to ramp up gradually over the next few quarters and remains optimistic about its portfolio's growth potential in 2025 and beyond. Full year 2024 guidance has been updated to reflect current economic conditions and renovation impacts.

Management Comments

• Our third quarter Adjusted EBITDARe came in modestly below our expectations, as greater renovation impact at the now newly branded Grand Hyatt Scottsdale Resort, softer leisure demand, impact from multiple hurricanes and continued expense pressures weighed on our results, said Marcel Verbaas, Chair and Chief Executive Officer of Xenia.
• Based on preliminary October results, we estimate that RevPAR increased by approximately 4% as compared to last year, which represents an acceleration from our RevPAR growth in the third quarter, continued Mr. Verbaas.
• Although recent results have trended below our prior expectations, we continue to be optimistic about our portfolios growth potential in 2025 and beyond due to the unique growth drivers embedded in our portfolio and strong group revenue pace at many of our hotels and resorts.
• We are thrilled to now have completed the majority of the major components of the transformative renovation and upbranding of Hyatt Regency Scottsdale which was officially relaunched as Grand Hyatt Scottsdale Resort on November 1, said Mr. Verbaas.

Industry Context

The results reflect a challenging quarter for the hospitality industry, with renovation disruptions and weather events impacting performance. The company's focus on luxury and upper upscale hotels in key markets positions it to benefit from a recovery in travel demand, but it must navigate current economic uncertainties and operational challenges.

Comparison to Industry Standards

• Comparing Xenia's Q3 2024 results to peers like Host Hotels & Resorts (HST) and Park Hotels & Resorts (PK), which also operate in the upscale hotel segment, reveals a mixed performance.
• While Xenia's occupancy increased, the decrease in ADR and subsequent impact on RevPAR and EBITDA margin is a concern, as these metrics are key indicators of profitability and operational efficiency.
• Host Hotels & Resorts, for example, has shown a stronger ability to maintain ADR and manage expenses, resulting in better EBITDA margins in recent quarters.
• Park Hotels & Resorts, while also facing challenges, has demonstrated a more stable performance in terms of RevPAR growth.
• The impact of the Grand Hyatt Scottsdale renovation on Xenia's results is significant, and the company's ability to ramp up performance at this property will be crucial for future growth.
• Compared to industry benchmarks, Xenia's same-property RevPAR growth of 1.5% is below the average growth seen in the upscale segment, which has been closer to 3-5% in recent quarters.
• The company's EBITDA margin of 20.3% is also below the industry average for upscale hotels, which is typically in the range of 25-30%.

Stakeholder Impact

• Shareholders will be impacted by the net loss and decreased profitability.
• Employees may be affected by the company's performance and any potential cost-cutting measures.
• Customers may experience improved facilities and services at renovated properties.
• Suppliers may be impacted by the company's capital expenditure plans.
• Creditors may be impacted by the company's debt levels and financial performance.

Next Steps

• The company will conduct its quarterly conference call on November 7, 2024.
• The company expects financial results at the Grand Hyatt Scottsdale Resort to ramp up gradually over the next few quarters.
• The company will continue to make select upgrades to guestrooms at various properties.
• The company will continue to make significant infrastructure upgrades at various properties.
• The company will complete the expansion of the Arizona Ballroom at the Grand Hyatt Scottsdale Resort by the end of 2024.

Key Dates

Keywords

Hotel REIT, Real Estate Investment Trust, Hospitality, Hotel Operations, Hotel Renovation, EBITDA, FFO, RevPAR, Occupancy, ADR, Share Repurchase, Capital Expenditures, Debt Financing, Grand Hyatt Scottsdale Resort, Hurricane Impact