Xenia Hotels & Resorts(XHR) - 2019 Q4 - Annual Report

PART I Special Note Regarding Forward-Looking Statements Forward-looking statements in the report are subject to known and unknown risks and uncertainties that could cause actual results to differ materially - Forward-looking statements are based on estimates and assumptions, and actual results may differ materially due to various risks and uncertainties[11] - Key risks include business and financial risks inherent to real estate and lodging, seasonal/cyclical volatility, adverse changes in specialized industries (energy, technology, tourism), macroeconomic factors, declines in occupancy and ADR, changes in competitive environment, and events beyond control (war, cyber-attacks, natural disasters)[12] - Additional risks cover inability to operate properties directly, reliance on third-party managers, brand standard maintenance, loss of key personnel, acquisition/disposition challenges, renovation impacts, capital access, fixed costs, debt servicing, regulatory compliance, uninsured losses, and changes in distribution channels[15] Market and Industry Data Market and industry data, primarily from STR Inc., are believed reliable but not guaranteed for accuracy or completeness, with forecasts lacking assurance of achievement - Market and industry data are sourced from independent publications, government publications, and other independent sources, primarily STR Inc[17] - The accuracy and completeness of the information are not guaranteed, and forecasts are based on industry surveys and experience without assurance of achievement[17] Trademarks, Service Marks, and Tradenames Xenia Hotels & Resorts® and related marks are proprietary to Xenia, while other trademarks belong to their respective owners, with usage ceasing upon agreement termination - Xenia Hotels & Resorts® and related marks are proprietary to Xenia; other trademarks belong to their respective owners (e.g., Marriott International, Inc., Hyatt Corporation, Kimpton Hotel & Restaurant Group LLC, Fairmont Hotels & Resorts, Loews Hotels, Inc, and Hilton Worldwide Inc.)[19] - Termination of management or franchise agreements requires the cessation of brand mark use and removal of all associated signs and materials at the hotel, at Xenia's expense[19] Disclaimer Brand Companies disclaim responsibility for Xenia's shares or report content and may engage in competitive business ventures - Brand Companies (e.g., Marriott, Hyatt) are not issuers of Xenia's shares and are not responsible for the creation or content of this Annual Report[21] - Brand Companies do not have an exclusive relationship with Xenia and may pursue other business ventures, including those competitive with Xenia's properties[21] Certain Defined Terms Key terms such as ADR, occupancy, RevPAR, Top 25 U.S. lodging markets, and hotel classifications are defined for clarity throughout the report - Key terms defined include ADR (hotel rooms revenue / total rooms sold), occupancy (total rooms sold / total rooms available), and RevPAR (hotel rooms revenue / room nights available)[24] - Definitions also cover 'Top 25 U.S. lodging markets' and hotel classifications like 'upper upscale,' 'luxury,' and 'independent' as defined by STR, along with major brand companies such as Fairmont, Hilton, Hyatt, Kimpton, Loews, and Marriott[24] Item 1. Business Xenia Hotels & Resorts, Inc. is a self-advised, self-administered Maryland REIT investing in luxury and upper upscale hotels, owning 39 properties with 11,245 rooms as of December 31, 2019 - Xenia Hotels & Resorts, Inc. is a Maryland corporation and a REIT, investing primarily in uniquely positioned luxury and upper upscale hotels and resorts in the Top 25 U.S. lodging markets and key leisure destinations[25] - As of December 31, 2019, the Company owned 39 lodging properties with a total of 11,245 rooms[28] - To maintain REIT status, Xenia cannot operate its hotels directly; instead, its TRS leases properties and engages third-party independent operators[27] General Business Objectives and Growth Strategies Our Financing and Capital Strategy Competition Seasonality Cyclicality Regulations Our Tax Status Restrictions on Ownership and Transfer of Our Stock Insurance Employees Our History Where You Can Find More Information Item 1A. Risk Factors Various risks could materially and adversely affect Xenia's business, financial condition, results of operations, and cash flow, including industry, separation, debt, REIT status, and corporate structure factors - The lodging industry is highly cyclical and sensitive to economic conditions, with luxury and upper upscale hotels potentially more susceptible to revenue decreases during downturns[69] - Reliance on third-party hotel management companies poses risks, including potential conflicts of interest, limited operational control, and adverse effects if managers fail to perform or maintain brand standards[80][81][88] - Geographic concentration of hotels (e.g., Texas, California, Florida) exposes the company to regional economic downturns, increased competition, and adverse acts of nature[92][93] - Failure to maintain REIT qualification would result in corporate taxation, significantly reducing funds available for distributions and adversely affecting stock value[168][169] - High leverage, restrictive debt covenants, and interest rate fluctuations (including LIBOR transition risks) could limit financial flexibility, increase costs, and impact distributions[140][151][156] Risks Related to Our Business and Industry Risks Related to Our Relationship with InvenTrust and the Separation Risks Related to Debt Financing Risks Related to Our Status as REIT Risks Related to Ownership of Our Common Stock and our Corporate Structure Item 1B. Unresolved Staff Comments No unresolved staff comments from the SEC - There are no unresolved staff comments[225] Item 2. Properties Xenia's hotel portfolio overview includes brand affiliations, property listings, and summaries of key management, franchise, and ground lease agreements crucial for REIT compliance - As of December 31, 2019, Xenia owned 39 operating hotels across 16 states, with 88% of rooms under Marriott, Hyatt, or Kimpton brands[228][229] Hotel Brand Affiliations (as of December 31, 2019) | Brand | Number of Hotels | Number of Rooms | Percentage of Total Rooms | | :----------------------- | :--------------- | :-------------- | :------------------------ | | Marriott | 17 | 5,340 | 47.5% | | Hyatt | 10 | 3,394 | 30.2% | | Kimpton | 7 | 1,124 | 10.0% | | Fairmont | 2 | 730 | 6.5% | | Loews | 1 | 285 | 2.5% | | Hilton - Waldorf Astoria | 1 | 127 | 1.1% | | Total branded | 38 | 11,000 | 97.8% | | Independent | 1 | 245 | 2.2% | | Total portfolio | 39 | 11,245 | 100% | - To maintain REIT status, Xenia leases its hotels to TRS lessees, which then engage independent third-party management companies. Approximately 82% of hotels are brand-managed, and 15% are franchised[234] - Management agreements for brand-managed hotels typically have 20-30 year initial terms (average 11 years remaining, 27 years with renewals) and a two-tiered fee structure (base and incentive fees)[238][239] - Five hotels are subject to ground leases, with an average remaining term of approximately 46 years (74 years with renewal options)[104] Hotel Properties Our Brand Af iliations Our Hotels Our Principal Agreements Item 3. Legal Proceedings Xenia is involved in various legal proceedings and claims, mostly covered by insurance, with management believing no material adverse effect on financial position or operations - Xenia is involved in various legal proceedings and claims, including tort, general liability, workers' compensation, and employee claims[265] - Most occurrences are covered by insurance, and management believes the ultimate outcome will not materially affect financial position, results of operations, or liquidity[265] Item 4. Mine Safety Disclosures Mine Safety Disclosures are not applicable to the company - Mine Safety Disclosures are not applicable to Xenia Hotels & Resorts, Inc[266] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Xenia's common stock market, shareholder details, dividend policy, and share repurchase program are discussed, including NYSE listing and REIT distribution requirements - Xenia's common stock trades on the NYSE under the symbol 'XHR' since February 4, 2015[269] - As of February 21, 2020, there were 13,226 holders of record of common stock and 12 holders of Operating Partnership Units[270] - To maintain REIT qualification, Xenia must distribute at least 90% of its REIT taxable income annually[272] Common Stock Dividends Paid (2019 & 2018) | Year | Dividend per Share/Unit (Quarterly) | Total Annual Dividend per Share/Unit | | :--- | :---------------------------------- | :----------------------------------- | | 2019 | $0.275 | $1.10 | | 2018 | $0.275 | $1.10 | - Dividends paid in 2019 and 2018 were 100% taxable as ordinary income[278][279] - A share repurchase program of up to $175 million was authorized, with approximately $96.9 million remaining as of December 31, 2019. No shares were purchased in 2018 or 2019[285][286] Market Information Shareholder Information Dividends Share Performance Graph Recent Sales of Unregistered Securities Issuer Purchases of Equity Securities Item 6. Selected Financial Data A summary of Xenia's consolidated historical financial and operating data for 2015-2019 is presented, including income statement, balance sheet, and non-GAAP metrics Consolidated Selected Financial Data (2015-2019, in thousands) | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | | :------------------------------------------------- | :--------- | :--------- | :--------- | :--------- | :--------- | | Revenues: | | | | | | | Rooms revenues | $686,485 | $659,697 | $623,331 | $653,944 | $663,224 | | Food and beverage revenues | $382,031 | $335,723 | $266,977 | $246,479 | $259,036 | | Other revenues | $80,571 | $62,787 | $54,969 | $49,737 | $53,884 | | Total revenues | $1,149,087 | $1,058,207 | $945,277 | $950,160 | $976,144 | | Total expenses | $1,037,606 | $926,383 | $841,660 | $838,657 | $872,072 | | Operating income | $111,481 | $131,824 | $103,617 | $111,503 | $104,072 | | Net income attributable to common stockholders | $55,400 | $193,688 | $98,862 | $85,855 | $88,746 | | Basic and diluted earnings per share | $0.49 | $1.75 | $0.92 | $0.79 | $0.79 | | Selected Balance Sheet Data: | | | | | | | Net investment properties | $2,926,370 | $2,875,146 | $2,690,855 | $2,443,589 | $2,414,799 | | Cash and cash equivalents | $110,841 | $91,413 | $71,884 | $216,054 | $122,154 | | Total assets | $3,263,006 | $3,170,087 | $3,115,308 | $2,860,345 | $3,005,944 | | Total debt, net | $1,293,054 | $1,155,088 | $1,322,593 | $1,077,132 | $1,094,536 | | Total equity | $1,775,158 | $1,852,705 | $1,645,086 | $1,651,567 | $1,743,358 | | Other Financial Data: | | | | | | | Adjusted EBITDAre attributable to common stock and unit holders | $302,118 | $299,813 | $270,286 | $287,328 | $293,010 | | Adjusted FFO attributable to common stock and unit holders | $250,598 | $245,399 | $219,978 | $238,241 | $241,635 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Xenia's financial condition and operating results for 2019 and 2018, covering business overview, market outlook, portfolio changes, key performance indicators, and liquidity - Xenia is a self-advised and self-administered REIT focused on luxury and upper upscale hotels in top U.S. lodging markets and leisure destinations[295] - The U.S. lodging industry saw modest RevPAR growth of 0.9% in 2019, driven by a 1.0% increase in ADR, with supply growth matching demand at 2.0%[299] - In 2019, Xenia completed $93 million in portfolio renovations and acquired the 600-room Hyatt Regency Portland, while disposing of two hotels (Marriott Chicago at Medical District/UIC and Marriott Griffin Gate Resort & Spa)[301][305] Key Operating Performance Indicators (2019 vs. 2018) | Metric | 2019 | 2018 | Change | | :-------------------- | :----- | :----- | :----- | | Occupancy | 76.0% | 75.8% | 20 bps | | ADR | $221.59 | $214.51 | 3.3% | | RevPAR | $168.43 | $162.64 | 3.6% | | Hotel operating income | $376,230 | $368,445 | 2.1% | Total Revenues (2019 vs. 2018, in thousands) | Revenue Type | 2019 | 2018 | Increase | % Change | | :-------------------- | :--------- | :--------- | :--------- | :--------- | | Rooms revenues | $686,485 | $659,697 | $26,788 | 4.1% | | Food and beverage revenues | $382,031 | $335,723 | $46,308 | 13.8% | | Other revenues | $80,571 | $62,787 | $17,784 | 28.3% | | Total revenues | $1,149,087 | $1,058,207 | $90,880 | 8.6% | Adjusted EBITDAre and Adjusted FFO (2019 vs. 2018, in thousands) | Metric | 2019 | 2018 | % Change | | :------------------------------------------------- | :--------- | :--------- | :--------- | | Adjusted EBITDAre attributable to common stock and unit holders | $302,118 | $299,813 | 0.8% | | Adjusted FFO attributable to common stock and unit holders | $250,598 | $245,399 | 2.1% | - Net income decreased 71.2% in 2019 compared to 2018, primarily due to differences in gains/losses on asset sales and impairment charges[325] Debt Outstanding (as of December 31, 2019, in thousands) | Debt Type | Balance Outstanding | | :------------------------------------------ | :------------------ | | Mortgage Loans | $564,017 | | Unsecured Term Loan $175M | $175,000 | | Unsecured Term Loan $125M | $125,000 | | Unsecured Term Loan $150M | $150,000 | | Unsecured Term Loan $125M | $125,000 | | Senior Unsecured Revolving Credit Facility | $160,000 | | Loan discounts and unamortized deferred financing costs, net | $(5,963) | | Total Debt, net | $1,293,054 | | Weighted average interest rate | 3.72% | | Weighted average maturity (secured mortgage loans) | 5.1 years | | Weighted average maturity (unsecured term loans and revolving credit facility) | 3.0 years | Overview Basis of Presentation Market Outlook Significant Events Our Customers Our Revenues and Expenses Factors that May Affect Results of Operations Key Indicators of Operating Performance Critical Accounting Policies and Estimates Results of Operations Non-GAAP Financial Measures Liquidity and Capital Resources Item 7A. Quantitative and Qualitative Disclosures About Market Risk Xenia's market risk exposure, primarily from interest rate changes on variable-rate debt, is managed through hedges, with a 1% rate change impacting annual earnings by approximately $3.8 million - Xenia is exposed to market risk from changes in interest rates on variable-rate debt and the cost of new fixed-rate debt[433] - A 1% increase or decrease in variable interest rates would impact future earnings and cash flows by approximately $3.8 million per annum as of December 31, 2019 (compared to $1.8 million in 2018)[433] - The company uses interest rate swaps to hedge interest rate risk, which are subject to credit risk (counterparty failure) and market risk (adverse effect from interest rate changes)[437] Maturing Debt and Weighted Average Interest Rates (as of December 31, 2019, in thousands) | Year | Fixed Rate Debt | Variable Rate Debt | Senior Unsecured Revolving Credit Facility | Total | Weighted Average Interest Rate (Fixed) | Weighted Average Interest Rate (Variable) | Weighted Average Interest Rate (Revolving) | | :--- | :-------------- | :----------------- | :----------------------------------------- | :---------- | :------------------------------------- | :---------------------------------------- | :----------------------------------------- | | 2020 | $4,365 | — | — | $4,365 | 4.45% | — | — | | 2021 | $180,135 | $270 | — | $180,405 | 2.94% | 3.66% | — | | 2022 | $181,840 | $1,080 | — | $182,920 | 3.60% | 3.66% | — | | 2023 | $60,788 | $151,080 | $160,000 | $371,868 | 4.16% | 3.32% | 3.41% | | 2024 | $217,969 | $63,570 | — | $281,539 | 3.61% | 3.69% | — | | Thereafter | $277,920 | — | — | $277,920 | 4.66% | — | — | | Total | $923,017 | $216,000 | $160,000 | $1,299,017 | 3.83% | 3.43% | 3.41% | Interest Rate Sensitivity Item 8. Financial Statements and Supplementary Data Consolidated financial statements and supplementary data are located in the Index to Financial Statements on page F-1 - Financial statements and supplementary data are located in the Index to Financial Statements on page F-1[440] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure No changes in or disagreements with accountants on accounting and financial disclosure - There have been no changes in or disagreements with accountants on accounting and financial disclosure[441] Item 9A. Controls and Procedures Xenia's disclosure controls and internal control over financial reporting were effective as of December 31, 2019, with an unqualified opinion from KPMG LLP - Disclosure controls and procedures were evaluated as effective as of December 31, 2019, ensuring timely and accurate reporting of required information[442][443] - Management concluded that internal control over financial reporting was effective as of December 31, 2019, based on the COSO framework[445] - KPMG LLP issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting[446] - No material changes in internal control over financial reporting occurred during the fourth quarter of 2019[447] Evaluation of Disclosure on Controls and Procedures Management's Report on Internal Control Over Financial Reporting Independent Registered Public Accounting Firm's Report on Internal Control Over Financial Reporting Changes in Internal Control over Financial Reporting Item 9B. Other Information Additional U.S. federal income tax consequences from the TCJA of 2017 and the First Amendment to the Bylaws, permitting stockholder amendments, are detailed - The Tax Cuts and Jobs Act (TCJA) of 2017 significantly changed U.S. federal income tax laws, reducing the corporate tax rate to 21% and the highest individual rate to 37%[449] - The First Amendment to the Bylaws, effective February 19, 2020, permits stockholders to amend the Bylaws by affirmative vote of a majority of outstanding common stock, provided proposals are properly submitted[451][452] Additional Material U.S. Federal Income Tax Consequences First Amendment to our Second Amended and Restated Bylaws PART III Item 10. Directors, Executive Officers and Corporate Governance Information on Directors, Executive Officers, and Corporate Governance is incorporated by reference from the 2020 Annual Meeting of Stockholders Proxy Statement - Information on Directors, Executive Officers, and Corporate Governance is incorporated by reference from the 2020 Annual Meeting of Stockholders Proxy Statement[453] Item 11. Executive Compensation Information on Executive Compensation is incorporated by reference from the 2020 Annual Meeting of Stockholders Proxy Statement - Information on Executive Compensation is incorporated by reference from the 2020 Annual Meeting of Stockholders Proxy Statement[454] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Details on securities authorized for issuance under Xenia's 2015 Incentive Award Plan, including outstanding options and available securities, are provided Securities Authorized for Issuance Under Equity Compensation Plan (as of December 31, 2019) | Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted Average Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance | | :------------------------------------------------- | :---------------------------------------------------------------- | :--------------------------------------------------------------- | :----------------------------------------------------------- | | Xenia Hotels & Resorts, Inc., XHR Holding, Inc. and XHR LP 2015 Incentive Award Plan | 1,931,073 | $9.84 | 2,608,071 | | Equity compensation plans not approved by security holders | — | — | — | Securities Authorized for Issuance Under Equity Compensation Plan Item 13. Certain Relationships and Related Transactions Information on Certain Relationships and Related Transactions is incorporated by reference from the 2020 Annual Meeting of Stockholders Proxy Statement - Information on Certain Relationships and Related Transactions is incorporated by reference from the 2020 Annual Meeting of Stockholders Proxy Statement[458] Item 14. Principal Accounting Fees and Services Information on Principal Accounting Fees and Services is incorporated by reference from the 2020 Annual Meeting of Stockholders Proxy Statement - Information on Principal Accounting Fees and Services is incorporated by reference from the 2020 Annual Meeting of Stockholders Proxy Statement[460] PART IV Item 15. Exhibits and Financial Statement Schedules Financial statements, schedules, and exhibits filed as part of the Annual Report on Form 10-K are listed, including the Independent Auditor's Report and Consolidated Financial Statements - The section includes the Report of Independent Registered Public Accounting Firm and Consolidated Financial Statements[462][465] - Schedule III - Real Estate and Accumulated Depreciation for Xenia Hotels & Resorts, Inc. is filed herein[462] - A comprehensive list of exhibits, including agreements, bylaws, and certifications, is provided, with some incorporated by reference and others filed herewith[463][466][468] Item 16. Summary of Form 10-K Disclosures No summary of Form 10-K disclosures is provided - No summary of Form 10-K disclosures is provided[469]