Xenia Hotels & Resorts, Inc. (NYSE:XHR) is a self-advised and self-administered real estate investment trust (REIT) that invests primarily in uniquely positioned luxury and upper upscale hotels and resorts across the United States. The company's portfolio consists of 32 hotels and resorts, comprising 9,515 rooms across 14 states, as of March 31, 2024.

Business Overview

Xenia's hotels are primarily operated and/or licensed by industry leaders such as Marriott, Hyatt, Fairmont, Kimpton, Loews, Hilton, The Kessler Collection, and Davidson. The company's revenue is primarily derived from hotel operations, including rooms revenue, food and beverage revenue, and other revenue, which consists of parking, spa, resort fees, other guest services, and tenant leases.

Financials

For the full year 2023, Xenia reported annual net income of $19,142,000, annual revenue of $1,025,443,000, annual operating cash flow of $198,065,000, and annual free cash flow of $77,160,000. In the first quarter of 2024, the company reported net income of $8,534,000, total revenues of $267,488,000, and adjusted EBITDAre of $65,251,000.

Xenia's first quarter 2024 results were encouraging, with the company reporting a 36.8% increase in net income compared to the same period in 2023. This was primarily attributed to a $4.5 million reduction in income tax expense, a $1.8 million reduction in depreciation and amortization expense, a $1.8 million reduction in interest expense, a $1.1 million reduction in loss on extinguishment of debt, a $1.1 million increase in other income, a $0.7 million increase in gain on business interruption, and a $0.2 million reduction in operating loss attributed to hotels sold in 2022.

These increases were partially offset by a $6.4 million decrease in hotel operating income, a $1.5 million increase in general and administrative costs, a $0.6 million increase in other operating expenses, and a $0.3 million increase in impairment and other losses. Adjusted EBITDAre and Adjusted FFO attributable to common stock and unit holders for the first quarter of 2024 decreased 8.5% and increased 0.6%, respectively, compared to the same period in 2023.

Xenia's total portfolio RevPAR, which includes the results of hotels sold or acquired for the period of ownership by the company, decreased 1.5% to $176.86 for the first quarter of 2024 compared to $179.55 for the first quarter of 2023. The decrease in total portfolio RevPAR was driven primarily by renovation disruption and normalizing leisure demand. Excluding Hyatt Regency Scottsdale, which is undergoing a transformative renovation, total portfolio RevPAR increased 3.7% to $178.07 for the first quarter of 2024 compared to $171.69 for the first quarter of 2023.

Geographically, Xenia had a concentration of revenues generated from hotels in the Orlando, Florida and Houston, Texas markets that exceeded 10% of total revenues for the first quarter of 2024. In the first quarter of 2023, the company had a concentration of revenues generated from hotels in the Orlando, Florida, Phoenix, Arizona, and Houston, Texas markets that exceeded 10% of total revenues.

Xenia's operating costs and expenses consist of the costs to provide hotel services, including rooms expense, food and beverage expense, other direct and indirect operating expenses, and management and franchise fees. Total hotel operating expenses increased $3.8 million, or 2.1%, to $183.0 million for the first quarter of 2024 from $179.3 million for the first quarter of 2023, largely due to increasing labor costs. Excluding Hyatt Regency Scottsdale, total hotel operating expenses for the first quarter of 2024 increased $8.7 million, or 5.2%, when compared to the prior period.

The company continues to focus on expense controls, and its operators were able to manage expenses while continuing to improve guest services and satisfaction. Overall, labor expenses increased over the prior year, which was expected due to higher occupancy levels. Xenia's operators continue to control overtime more effectively as staffing levels have normalized.

Outlook

Looking ahead, Xenia remains cautiously optimistic for the remainder of 2024. The company expects to see significant embedded earnings growth potential within its portfolio, primarily through its recently renovated properties, hotels that primarily cater to group and business transient customers, and its two most recent acquisitions, W Nashville and Hyatt Regency Portland at the Oregon Convention Center.

Additionally, Xenia continues to expect strong RevPAR growth at its properties in recovering northern California markets, such as San Francisco and Santa Clara. The company is also excited about the earnings growth potential from the completion of the transformative renovation and up-branding of the 491-room Hyatt Regency Scottsdale Resort & Spa at Gainey Ranch, which is expected to be completed by the end of 2024.

Liquidity

Xenia's balance sheet remains strong, with ample liquidity and limited interest rate exposure. As of March 31, 2024, the company had $140.1 million of consolidated cash and cash equivalents, $56.8 million of restricted cash and escrows, and no outstanding balance on its $450 million revolving line of credit. Xenia's leverage ratio was 5.2x trailing 12 months net debt to EBITDA at the end of the first quarter, with a long-term target leverage ratio in the low 3x to low 4x range.

The company continues to evaluate capital allocation strategies, balancing share repurchases, capital expenditures, and potential acquisitions. During the first quarter of 2024, Xenia repurchased $6.3 million of its common stock, and it has approximately $127.4 million remaining under its share repurchase authorization.

Conclusion

Overall, Xenia is well-positioned to capitalize on the continued recovery in the lodging industry, with a high-quality portfolio, strong balance sheet, and strategic initiatives focused on driving long-term growth and value creation for shareholders.