Company Overview

Xenia Hotels & Resorts, Inc. (XHR) is a self-advised and self-administered real estate investment trust (REIT) that has demonstrated remarkable resilience in the face of industry challenges. With a focus on uniquely positioned luxury and upper upscale hotels and resorts in the top 25 lodging markets and key leisure destinations across the United States, Xenia has consistently delivered value to its shareholders through strategic investments and disciplined operational management.

Xenia Hotels & Resorts was formed in 2011 and became a publicly traded company in 2015 when it listed on the New York Stock Exchange. Since its inception, the company has built a diverse portfolio of 31 hotels comprising 9,408 rooms across 14 states. The company's properties are primarily operated and licensed by industry leaders such as Marriott, Hyatt, Fairmont, Kimpton, Loews, Hilton, and The Kessler Collection, reflecting Xenia's commitment to partnering with renowned hospitality brands.

Historical Challenges

Throughout its history, Xenia has faced and overcome various challenges. In 2016, the company experienced a significant setback when Hurricane Matthew impacted a number of its hotels, resulting in property damage and business interruption. Xenia demonstrated its crisis management capabilities by working closely with insurance providers and hotel operators to quickly restore the affected properties and minimize financial impact. This experience showcased the company's ability to effectively navigate unexpected events and recover swiftly.

COVID-19 Impact

The COVID-19 pandemic in 2020 presented another major challenge for Xenia, as it did for the entire hospitality sector. During this period, the company focused on cost management, preserving liquidity, and collaborating closely with its hotel operators to support their operations and prepare for an eventual recovery in travel demand. This proactive approach helped Xenia weather the storm and position itself for future growth.

Portfolio Management

Despite these obstacles, Xenia has maintained a disciplined approach to portfolio management. The company has selectively acquired and disposed of properties to optimize its asset base, while also investing in renovations and strategic repositionings to enhance the competitiveness and profitability of its hotels. These efforts have strengthened Xenia's portfolio and positioned the company to capitalize on opportunities as the industry rebounds.

Financials

Xenia's financial performance has been impressive, with the company reporting net income of $16.1 million and adjusted funds from operations (FFO) per share of $1.59 for the full year 2024. The company's revenue for the year was $1.04 billion, showcasing its ability to generate consistent and reliable cash flows. Operating cash flow (OCF) for 2024 was $133.14 million, while free cash flow (FCF) stood at $6.18 million.

For the most recent quarter (Q4 2024), Xenia reported revenue of $261.85 million, a 3.3% increase year-over-year. However, the company experienced a net loss of $0.64 million in Q4 2024, compared to a net income of $8.88 million in Q4 2023. OCF for the quarter decreased to $30.58 million from $40.83 million in the same period last year, while FCF remained flat at $6.18 million.

Xenia's revenues are primarily derived from hotel operations, including rooms revenue, food and beverage revenue, and other revenue. For the three months ended September 30, 2024, rooms revenue increased by 0.7% to $139.6 million, food and beverage revenue grew by 4.1% to $74.8 million, and other revenue rose by 4.2% to $22.4 million compared to the same period in 2023. These increases were primarily driven by higher occupancy rates, partially offset by disruptions from renovations and the impact of hurricanes.

Total hotel operating expenses increased by 4.8% to $175.7 million for the three months ended September 30, 2024, largely due to rising labor costs. This increase in expenses highlights the challenges Xenia faces in maintaining profitability in a competitive labor market.

Strategic Capital Investments

One of the key drivers of Xenia's success has been its focus on strategic capital investments. In 2024, the company invested $140.6 million in portfolio improvements, including the completion of a transformative $150 million renovation of the former Hyatt Regency Scottsdale Resort and Spa, which was rebranded as the Grand Hyatt Scottsdale Resort. This project, which expanded the property's Arizona ballroom and upgraded its guest rooms, public areas, and food and beverage offerings, is expected to be a significant contributor to Xenia's future growth.

Liquidity

Balance Sheet Strength

Xenia's balance sheet remains strong, with a debt-to-equity ratio of 1.07 and a current ratio of 1.47. The company had $161.47 million in cash and cash equivalents as of the latest reporting period, providing a solid liquidity cushion. Additionally, Xenia has access to a $450 million revolving credit facility, which remained undrawn as of September 30, 2024, further enhancing its financial flexibility.

The company's debt ratio stood at 47.1% and net debt to EBITDA ratio was 5.4x at the end of 2024. Xenia has successfully addressed its near-term debt maturities, further strengthening its financial position and providing flexibility for potential strategic opportunities.

Future Outlook

Looking ahead, Xenia's guidance for 2025 suggests continued momentum. The company expects same-property RevPAR to grow between 3.5% and 6.5%, with adjusted EBITDAre projected to increase by 7% and adjusted FFO per share to rise by 3.5% to $1.64 per share at the midpoint of the guidance range. This optimistic outlook is underpinned by Xenia's strong group booking pace, which is up 17% year-over-year, as well as the anticipated ramp-up of the Grand Hyatt Scottsdale Resort.

The Grand Hyatt Scottsdale is expected to contribute over 300 basis points to the projected 5% RevPAR growth in 2025. Hotel EBITDA margins are anticipated to remain relatively flat compared to 2024, with margins declining slightly in the first half of the year before growing in the second half. The company expects hotel-level expenses to increase by about 4% on a per-occupied room basis, with wages and benefits increasing slightly higher than that rate.

Industry Trends

The U.S. lodging industry has historically exhibited a strong correlation to U.S. GDP, which increased at an estimated annual rate of approximately 2.8% during the third quarter of 2024. Industry RevPAR increased by 0.9% for the three months ended September 30, 2024, compared to the same period in 2023, driven by a 1.4% increase in ADR, partially offset by a 0.5% decrease in occupancy. For the nine months ended September 30, 2024, industry RevPAR grew by 1.2%, with ADR increasing by 1.6% and occupancy decreasing by 0.5%.

Despite the challenges posed by the pandemic and broader economic uncertainty, Xenia has demonstrated its ability to navigate the industry's complexities. The company's strategic focus on high-quality assets, disciplined capital allocation, and partnerships with leading hospitality brands have positioned it for continued success.

Conclusion

In conclusion, Xenia Hotels & Resorts is a well-diversified, financially strong REIT that has proven its resilience in the face of industry headwinds. With a robust portfolio, strategic capital investments, and a promising outlook for 2025, Xenia is poised to capitalize on the recovery of the hotel industry and deliver long-term value to its shareholders. The company's ability to maintain revenue growth, manage expenses, and execute strategic renovations like the Grand Hyatt Scottsdale project demonstrates its commitment to enhancing shareholder value and adapting to evolving market conditions.