Xenia Hotels & Resorts(XHR) - 2019 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Presents the unaudited condensed consolidated financial statements and accompanying notes detailing key accounting policies Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands): | Metric | September 30, 2019 (Unaudited) | December 31, 2018 (Audited) | | :--------------------------------------- | :----------------------------- | :-------------------------- | | Total Assets | $3,158,982 | $3,170,087 | | Total Liabilities | $1,372,784 | $1,317,382 | | Total Equity | $1,786,198 | $1,852,705 | | Net Investment Properties | $2,805,673 | $2,875,146 | | Cash and Cash Equivalents | $116,483 | $91,413 | | Restricted Cash and Escrows | $84,484 | $70,195 | Condensed Consolidated Statements of Operations and Comprehensive Income Net Income Attributable to Common Stockholders (in thousands): | Period | 2019 | 2018 | | :-------------------------------- | :----- | :----- | | Three Months Ended Sep 30 | $10,315 | $9,244 | | Nine Months Ended Sep 30 | $39,791 | $93,695 | Total Revenues (in thousands): | Period | 2019 | 2018 | | :-------------------------------- | :------- | :------- | | Three Months Ended Sep 30 | $268,931 | $240,989 | | Nine Months Ended Sep 30 | $866,903 | $782,544 | Basic and Diluted Earnings Per Share: | Period | 2019 | 2018 | | :-------------------------------- | :--- | :--- | | Three Months Ended Sep 30 | $0.09 | $0.08 | | Nine Months Ended Sep 30 | $0.35 | $0.85 | - Gain on sale of investment properties for the nine months ended September 30, 2019, was $0, a significant decrease from $42,294 thousand in the same period of 2018[13] Condensed Consolidated Statements of Changes in Equity (Three Months) - Total Company stockholders' equity as of September 30, 2019, was $1,752,094 thousand[18] - Net income attributable to common stockholders for the three months ended September 30, 2019, was $10,315 thousand[18] - Dividends for common shares/units for the three months ended September 30, 2019, totaled $(31,059) thousand[18] - Unrealized loss on interest rate derivative instruments for the three months ended September 30, 2019, was $(2,096) thousand[18] Condensed Consolidated Statements of Changes in Equity (Nine Months) - Total Company stockholders' equity as of September 30, 2019, was $1,752,094 thousand[21] - Net income attributable to common stockholders for the nine months ended September 30, 2019, was $39,791 thousand[21] - Dividends for common shares/units for the nine months ended September 30, 2019, totaled $(93,139) thousand[21] - Unrealized loss on interest rate derivative instruments for the nine months ended September 30, 2019, was $(16,152) thousand[21] Condensed Consolidated Statements of Cash Flows Cash Flow Summary (Nine Months Ended Sep 30, in thousands): | Activity | 2019 | 2018 | | :------------------------------------ | :------- | :------- | | Net cash provided by operating activities | $205,059 | $196,760 | | Net cash used in investing activities | $(62,794) | $(29,662) | | Net cash used in financing activities | $(102,906) | $(149,476) | | Net increase in cash and cash equivalents and restricted cash | $39,359 | $17,622 | | Cash and cash equivalents and restricted cash, at end of period | $200,967 | $148,026 | Notes to the Condensed Consolidated Financial Statements Note 1. Organization - Xenia Hotels & Resorts, Inc is a Maryland corporation operating as a REIT, primarily investing in luxury and upper upscale hotels and resorts in the U.S[29] - As of September 30, 2019, the Company owned 96.7% of the common limited partnership units of XHR LP, its Operating Partnership[30] - The Company wholly-owned 40 lodging properties as of September 30, 2019[32] Note 2. Summary of Significant Accounting Policies - The unaudited interim condensed consolidated financial statements are prepared in accordance with U.S. GAAP and SEC rules[33] - The Company adopted Topic 842, Leases, on January 1, 2019, using a modified retrospective transition approach[46] - The Company has a geographical concentration of revenues from hotels in the Orlando, Florida market, exceeding 10% of total revenues for the nine months ended September 30, 2019 and 2018[37] Note 3. Revenues Total Revenue by Primary Geographical Markets (Nine Months Ended Sep 30, 2019, in thousands): | Primary Markets | Revenue | | :-------------- | :------ | | Orlando, FL | $88,494 | | Houston, TX | $75,178 | | Phoenix, AZ | $73,062 | | San Diego, CA | $63,215 | | Dallas, TX | $57,063 | Total Revenue by Primary Geographical Markets (Nine Months Ended Sep 30, 2018, in thousands): | Primary Markets | Revenue | | :-------------- | :------ | | Orlando, FL | $87,924 | | Phoenix, AZ | $70,889 | | Houston, TX | $69,725 | | Washington, DC-MD-VA | $55,856 | | San Francisco/San Mateo, CA | $54,839 | Note 4. Investment Properties - No hotels were acquired or sold during the three and nine months ended September 30, 2019[67][71] - In 2018, the Company acquired The Ritz-Carlton, Denver for $99.5 million and Fairmont Pittsburgh for $30.6 million[67][68] Disposition Details (Nine Months Ended Sep 30, 2018, in thousands): | Property | Date | Rooms | Gross Sale Price | Net Proceeds | Gain on Sale | | :---------------------- | :------- | :---- | :--------------- | :----------- | :----------- | | Aston Waikiki Beach Hotel | 03/2018 | 645 | $200,000 | $196,920 | $42,430 | Note 5. Debt Total Debt Outstanding (in thousands): | Date | Balance Outstanding | | :---------------- | :------------------ | | September 30, 2019 | $1,155,000 | | December 31, 2018 | $1,162,000 | - Weighted average interest rate decreased from 3.82% at December 31, 2018, to 3.74% at September 30, 2019[77] Scheduled Principal Payments and Debt Maturities (as of Sep 30, 2019, in thousands): | Year | Total Debt | | :--------- | :--------- | | 2019 | $912 | | 2020 | $19,218 | | 2021 | $180,401 | | 2022 | $182,915 | | 2023 | $211,863 | | Thereafter | $559,568 | | Total Debt | $1,154,877 | - The Company was in compliance with all debt covenants as of September 30, 2019[77] - The Company repriced its $125 million unsecured term loan in September 2019, reducing borrowing costs by 35 to 55 basis points[80] Note 6. Derivatives - The Company primarily uses interest rate swaps as cash flow hedges for variable-rate debt[81] Derivative Financial Instruments (as of Sep 30, 2019, in thousands): | Metric | Amount | | :-------------------- | :------- | | Total Notional Amounts | $689,250 | | Estimated Fair Value | $(7,149) | - Unrealized loss on interest rate derivative instruments for the nine months ended September 30, 2019, was $(16,703) thousand[83] - Approximately $1.3 million is expected to be reclassified from accumulated other comprehensive loss to interest expense in the next 12 months[83] Note 7. Fair Value Measurements - The Company uses a fair value hierarchy (Level 1, 2, 3) to prioritize inputs for fair value measurements[84][85] - Interest rate swap fair values are classified within Level 2 of the fair value hierarchy[87] - An impairment charge of $14.8 million was recorded for Marriott Chicago at Medical District/UIC during the nine months ended September 30, 2019, due to a projected decline in operating profits[88][89] - The estimated fair value of total debt, net of discounts, was $1,177,021 thousand as of September 30, 2019[91] Note 8. Income Taxes Income Tax Benefit (Expense) (in thousands): | Period | 2019 | 2018 | | :-------------------------------- | :------- | :------- | | Three Months Ended Sep 30 | $2,442 | $1,985 | | Nine Months Ended Sep 30 | $(9,844) | $(8,325) | - Estimated federal and state statutory combined tax rate was 31.41% for 2019 and 31.24% for 2018[92][93] Note 9. Stockholders' Equity - No shares were sold under the At-the-Market (ATM) program during the three and nine months ended September 30, 2019[94] - As of September 30, 2019, $62.6 million was available for sale under the ATM Agreement[94] - No shares were purchased under the Repurchase Program during the three and nine months ended September 30, 2019[95] - As of September 30, 2019, approximately $96.9 million remained under the share repurchase authorization[95] Dividends Declared (2019): | Dividend per Share/Unit | For the Quarter Ended | Record Date | Payable Date | | :---------------------- | :-------------------- | :---------- | :----------- | | $0.275 | March 31, 2019 | March 29, 2019 | April 12, 2019 | | $0.275 | June 30, 2019 | June 28, 2019 | July 12, 2019 | | $0.275 | September 30, 2019 | September 30, 2019 | October 15, 2019 | - As of September 30, 2019, 3,818,925 LTIP partnership units were outstanding, representing a 3.3% partnership interest[97] Note 10. Earnings Per Share Basic and Diluted Earnings Per Share: | Period | 2019 | 2018 | | :-------------------------------- | :--- | :--- | | Three Months Ended Sep 30 | $0.09 | $0.08 | | Nine Months Ended Sep 30 | $0.35 | $0.85 | - Weighted average number of common shares (diluted) for the nine months ended September 30, 2019, was 112,918,790[101] Note 11. Share Based Compensation - In February 2019, the Company granted 84,944 time-based and 50,846 performance-based Restricted Stock Units[102] - In February 2019, the Company granted 90,273 time-based and 781,898 performance-based LTIP Units[104] - As of September 30, 2019, total unrecognized compensation costs related to unvested awards were $12.8 million, expected to be recognized over a weighted-average period of 1.8 years[112][113] - Share-based compensation expense (net of forfeitures) for the nine months ended September 30, 2019, was approximately $6.5 million[112] Note 12. Commitments and Contingencies - Upon adoption of Topic 842, a Right-of-Use (ROU) asset of $46,503 thousand and a lease liability of $27,472 thousand were recorded as of September 30, 2019[116] - The weighted average remaining lease term, including reasonably certain extension options, is 30 years[116] Reserve Funds for Furniture, Fixtures and Equipment (in thousands): | Date | Amount | | :---------------- | :------- | | September 30, 2019 | $72,200 | | December 31, 2018 | $60,600 | - Management believes the ultimate outcome of current legal proceedings will not have a material adverse effect on the Company's financial condition[120] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's analysis of financial condition, operational results, liquidity, and key performance indicators Overview - Xenia Hotels & Resorts, Inc is a self-advised and self-administered REIT investing in luxury and upper upscale hotels in the U.S[125] - As of September 30, 2019, the Company owned 40 hotels, comprising 11,167 rooms, across 17 states[125] Basis of Presentation - The condensed consolidated financial statements include the accounts of the Company, the Operating Partnership, and XHR Holding, with inter-company transactions eliminated[126] Our Revenues and Expenses - Primary revenue sources are rooms, food and beverage, and other ancillary hotel services[127] - Operating costs include rooms, food and beverage, management and franchise fees, and other direct and indirect operating expenses[128] - Hotels are operated by independent, third-party management companies[128] Key Indicators of Operating Performance - Key performance metrics include Revenue Per Available Room (RevPAR), average daily rate (ADR), occupancy rate, EBITDAre, Adjusted EBITDAre, Funds From Operations (FFO), and Adjusted FFO[129] Results of Operations Overview - U.S lodging industry RevPAR growth slowed to 0.7% for Q3 2019 and 1.0% for the nine months ended September 30, 2019[131] Total Portfolio RevPAR: | Period | 2019 | 2018 | Change | | :-------------------------------- | :------- | :------- | :----- | | Three Months Ended Sep 30 | $164.25 | $155.88 | +5.4% | | Nine Months Ended Sep 30 | $171.85 | $164.13 | +4.7% | - Net income increased 14.3% for Q3 2019 but decreased 57.1% for the nine months ended September 30, 2019, primarily due to a prior-year gain on sale and a 2019 impairment charge[134][135] - Hurricane Dorian negatively impacted total revenues by approximately $1.0 million for the three and nine months ended September 30, 2019[133] Operating Information Comparison Total Portfolio Operating Statistics (Three Months Ended Sep 30): | Metric | 2019 | 2018 | Change | | :------- | :----- | :----- | :------- | | Occupancy | 76.8% | 75.8% | +100 bps | | ADR | $213.94 | $205.65 | +4.0% | | RevPAR | $164.25 | $155.88 | +5.4% | Total Portfolio Operating Statistics (Nine Months Ended Sep 30): | Metric | 2019 | 2018 | Change | | :------- | :----- | :----- | :------- | | Occupancy | 77.3% | 76.9% | +36 bps | | ADR | $222.45 | $213.53 | +4.2% | | RevPAR | $171.85 | $164.13 | +4.7% | - Number of properties at September 30 remained at 40 for both 2019 and 2018[138] Revenues Total Revenues (in thousands): | Period | 2019 | 2018 | Increase | % Change | | :-------------------------------- | :------- | :------- | :------- | :--------- | | Three Months Ended Sep 30 | $268,931 | $240,989 | $27,942 | +11.6% | | Nine Months Ended Sep 30 | $866,903 | $782,544 | $84,359 | +10.8% | Rooms Revenues (in thousands): | Period | 2019 | 2018 | Increase | % Change | | :-------------------------------- | :------- | :------- | :------- | :--------- | | Three Months Ended Sep 30 | $168,744 | $156,973 | $11,771 | +7.5% | | Nine Months Ended Sep 30 | $523,912 | $495,378 | $28,534 | +5.8% | Food and Beverage Revenues (in thousands): | Period | 2019 | 2018 | Increase | % Change | | :-------------------------------- | :------- | :------- | :------- | :--------- | | Three Months Ended Sep 30 | $79,825 | $69,179 | $10,646 | +15.4% | | Nine Months Ended Sep 30 | $282,685 | $242,014 | $40,671 | +16.8% | Other Revenues (in thousands): | Period | 2019 | 2018 | Increase | % Change | | :-------------------------------- | :------- | :------- | :------- | :--------- | | Three Months Ended Sep 30 | $20,362 | $14,837 | $5,525 | +37.2% | | Nine Months Ended Sep 30 | $60,306 | $45,152 | $15,154 | +33.6% | - Rooms revenues for 36-comparable hotels increased 2.9% for both the three and nine months ended September 30, 2019, driven by RevPAR increases[144][145] Hotel Operating Expenses Total Hotel Operating Expenses (in thousands): | Period | 2019 | 2018 | Increase | % Change | | :-------------------------------- | :------- | :------- | :------- | :--------- | | Three Months Ended Sep 30 | $187,180 | $163,001 | $24,179 | +14.8% | | Nine Months Ended Sep 30 | $580,053 | $506,269 | $73,784 | +14.6% | Food and Beverage Expenses (in thousands): | Period | 2019 | 2018 | Increase | % Change | | :-------------------------------- | :------- | :------- | :------- | :--------- | | Three Months Ended Sep 30 | $57,356 | $49,130 | $8,226 | +16.7% | | Nine Months Ended Sep 30 | $184,151 | $155,633 | $28,518 | +18.3% | - Hotel operating expenses for 36-comparable hotels increased 1.7% for the three months and 2.0% for the nine months ended September 30, 2019, attributed to increased total revenues[155][159] Corporate and Other Expenses Total Corporate and Other Expenses (in thousands): | Period | 2019 | 2018 | Increase / (Decrease) | % Change | | :-------------------------------- | :------- | :------- | :-------------------- | :--------- | | Three Months Ended Sep 30 | $61,487 | $58,747 | $2,740 | +4.7% | | Nine Months Ended Sep 30 | $198,915 | $176,040 | $22,875 | +13.0% | Real Estate Taxes, Personal Property Taxes and Insurance (in thousands): | Period | 2019 | 2018 | Increase | % Change | | :-------------------------------- | :------- | :------- | :------- | :--------- | | Three Months Ended Sep 30 | $13,331 | $11,652 | $1,679 | +14.4% | | Nine Months Ended Sep 30 | $38,968 | $35,331 | $3,637 | +10.3% | - An impairment charge of $14.8 million was recorded for Marriott Chicago at Medical District/UIC for the nine months ended September 30, 2019[160][168] - Acquisition, terminated transaction and pre-opening expenses increased significantly to $0.9 million for the nine months ended September 30, 2019 (from $0.2 million in 2018)[160][167] Results of Non-Operating Income and Expenses - No gain on sale of investment properties was recognized for the nine months ended September 30, 2019, compared to $42,294 thousand in 2018[170][171] Interest Expense (in thousands): | Period | 2019 | 2018 | Increase / (Decrease) | % Change | | :-------------------------------- | :-------- | :-------- | :-------------------- | :--------- | | Three Months Ended Sep 30 | $(12,293) | $(11,902) | $391 | +3.3% | | Nine Months Ended Sep 30 | $(37,260) | $(38,672) | $(1,412) | -3.7% | Income Tax Benefit (Expense) (in thousands): | Period | 2019 | 2018 | Increase / (Decrease) | % Change | | :-------------------------------- | :-------- | :-------- | :-------------------- | :--------- | | Three Months Ended Sep 30 | $2,442 | $1,985 | $457 | +23.0% | | Nine Months Ended Sep 30 | $(9,844) | $(8,325) | $1,519 | +18.2% | Liquidity and Capital Resources - Short-term liquidity is expected from cash on hand, operations, and borrowings under the senior unsecured revolving credit facility[175] - Long-term liquidity may be met through additional borrowings, issuance of equity and debt securities, and/or proceeds from hotel sales[178] - As of September 30, 2019, $62.6 million was available for sale under the At-the-Market (ATM) Agreement[179] - As of September 30, 2019, approximately $96.9 million remained under the share repurchase authorization[181] - Consolidated cash and cash equivalents were $116.5 million and restricted cash and escrows were $84.5 million as of September 30, 2019[182] - Total outstanding debt was $1.2 billion with a weighted average interest rate of 3.74% as of September 30, 2019[183] - The Company is monitoring and evaluating risks related to the transition from LIBOR to alternative reference rates[188][189] Sources and Uses of Cash Summary Cash Flow Information (Nine Months Ended Sep 30, in thousands): | Activity | 2019 | 2018 | | :------------------------------------ | :------- | :------- | | Net cash provided by operating activities | $205,059 | $196,760 | | Net cash used in investing activities | $(62,794) | $(29,662) | | Net cash used in financing activities | $(102,906) | $(149,476) | - Cash used in investing activities for the nine months ended September 30, 2019, was primarily attributed to $62.8 million in capital improvements[197] - Cash used in financing activities for the nine months ended September 30, 2019, included $94.3 million in dividends and $90.0 million in mortgage debt repayment, partially offset by $85.0 million from an unsecured term loan drawdown[198] Capital Expenditures and Reserve Funds Furniture, Fixtures and Equipment Reserves (in thousands): | Date | Amount | | :---------------- | :------- | | September 30, 2019 | $72,200 | | December 31, 2018 | $60,600 | - Total capital expenditures for the nine months ended September 30, 2019, were $63 million[200] Off-Balance Sheet Arrangements - As of September 30, 2019, the Company had no off-balance sheet arrangements[201] Non-GAAP Financial Measures Adjusted EBITDAre Attributable to Common Stock and Unit Holders (in thousands): | Period | 2019 | 2018 | | :-------------------------------- | :------- | :------- | | Three Months Ended Sep 30 | $62,579 | $60,547 | | Nine Months Ended Sep 30 | $230,123 | $224,127 | Adjusted FFO Attributable to Common Stock and Unit Holders (in thousands): | Period | 2019 | 2018 | | :-------------------------------- | :------- | :------- | | Three Months Ended Sep 30 | $53,330 | $51,356 | | Nine Months Ended Sep 30 | $184,848 | $179,459 | - EBITDAre for the nine months ended September 30, 2019, was $221,792 thousand, up from $217,296 thousand in 2018[208] Critical Accounting Policies and Estimates - The preparation of financial statements requires management to make estimates and assumptions that affect reported amounts[214] - All significant accounting policies, including critical ones, are disclosed in the Annual Report on Form 10-K for 2018 and Note 2 of the condensed consolidated financial statements[214] Inflation - The Company relies on hotel operators' ability to adjust room rates daily to keep pace with inflation, though competitive pressures may limit this[215] Seasonality - Revenues and operating income are generally expected to be highest during the second quarter, followed by the first, third, and fourth quarters, based on the current portfolio[216] New Accounting Pronouncements Not Yet Implemented - Additional information related to recently issued accounting pronouncements not yet implemented is available in Note 2 to the condensed consolidated financial statements[217] Item 3. Quantitative and Qualitative Disclosures About Market Risk Details the company's exposure to market risks, primarily interest rate fluctuations, and related hedging strategies - The Company is subject to market risk associated with changes in interest rates on variable-rate debt and the price of new fixed-rate debt[218] - A permanent 1% increase or decrease in market rates on variable-rate debt would impact future earnings and cash flows by approximately $2.2 million per annum (as of September 30, 2019)[218] - Interest rate swaps are used to hedge exposures to changes in interest rates on loans[220][221] Maturing Debt and Weighted Average Interest Rates (as of Sep 30, 2019, in thousands): | Debt Type | Total | Weighted Average Interest Rate | | :-------------------------------- | :---------- | :----------------------------- | | Fixed rate debt (mortgage and term loans) | $938,877 | 3.78% | | Variable rate debt (mortgage and term loans) | $216,000 | 3.58% | | Total | $1,154,877 | 3.74% | Item 4. Controls and Procedures Confirms the effectiveness of disclosure controls and procedures and notes no material changes in internal controls - Disclosure controls and procedures were evaluated and deemed effective at a reasonable assurance level as of the end of the reporting period[225] - There has been no material change in the Company's internal control over financial reporting during the most recent fiscal quarter[226] PART II. OTHER INFORMATION Item 1. Legal Proceedings Discloses ongoing legal proceedings and management's assessment of their potential financial impact - The Company is involved in various claims and lawsuits arising in the normal course of business[227] - Management believes the ultimate outcome of such matters will not have a material adverse effect on the Company's financial condition, results of operations, or liquidity[227] Item 1A. Risk Factors States no material changes to risk factors disclosed in the most recent Annual Report on Form 10-K - No material changes from the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2018[228] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Reports no unregistered sales of equity securities or use of proceeds for the period - None[229] Item 3. Defaults Upon Senior Securities Confirms no defaults upon senior securities occurred during the reporting period - None[230] Item 4. Mine Safety Disclosures Indicates that mine safety disclosures are not applicable to the company - Not applicable[231] Item 5. Other Information States there is no other material information to report for the period - None[232] Item 6. Exhibits Lists all exhibits filed with the report, including certifications and corporate documents - Exhibits include Articles of Restatement, Articles Supplementary, Bylaws, First Amendment to the Fourth Amended and Restated Agreement of Limited Partnership of XHR LP, CEO/CFO Certifications (Sarbanes-Oxley Act), and XBRL documents[233] Signatures Contains the official signatures of the company's principal officers affirming the report - The report is signed by Marcel Verbaas (Chairman and Chief Executive Officer), Atish Shah (Executive Vice President, Chief Financial Officer and Treasurer), and Joseph T Johnson (Senior Vice President and Chief Accounting Officer)[238]