Xenia Hotels & Resorts, Inc. (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 comprises 32 properties with 9,520 rooms, strategically located in the top 25 lodging markets and key leisure destinations.
Founded in 2011, Xenia has established itself as a leading player in the hospitality industry, leveraging its expertise to capitalize on evolving market dynamics and deliver consistent value to its shareholders. The company's diversified portfolio, balanced approach to growth, and commitment to operational excellence have been instrumental in navigating the challenges of the past few years, positioning Xenia for continued success in the years ahead.
Early Years and Growth
In its early years, Xenia focused on building a diversified portfolio of hotel properties, acquiring hotels in key markets such as Orlando, Houston, and San Diego. The company faced challenges during this time, including navigating the aftermath of the 2008 financial crisis and its impact on the hospitality industry. However, Xenia was able to strategically grow its portfolio and establish itself as a player in the hotel REIT space.
Over the next several years, Xenia continued to expand its reach, acquiring hotels in additional markets like Phoenix, Atlanta, and Washington D.C. The company also undertook major renovation projects at some of its properties, working to upgrade guest rooms, dining options, and other amenities to maintain the high-quality standards of its portfolio. This proved to be an important strategy as Xenia sought to differentiate itself in a competitive hotel market.
By the mid-2010s, Xenia had grown to own 32 hotels comprising over 9,500 rooms across 14 states. The company's focus on the top 25 lodging markets and key leisure destinations had allowed it to build a strong, geographically diverse portfolio. While Xenia faced some operational challenges over the years, such as softening demand in certain markets, the company was able to navigate these obstacles and continue executing on its strategic vision of being a leading investor in unique, high-end hotel properties.
Financial Overview and Operational Highlights
Xenia's financial performance has demonstrated resilience in the face of industry-wide headwinds. For the full year 2023, the company reported total revenue of $1.03 billion, a 9.2% increase from the prior year. Net income for 2023 came in at $19.14 million, compared to $55.92 million in 2022, reflecting the ongoing recovery efforts and the impact of various one-time charges.
The company's adjusted EBITDA, a key metric for REITs, stood at $238.34 million in 2023, compared to $275.21 million in 2022. Adjusted funds from operations (FFO), a measure of a REIT's cash flow, was $20.05 million in 2023, down from $28.76 million in the previous year. These figures highlight Xenia's ability to navigate the challenges posed by the pandemic and the broader economic uncertainty, while maintaining a solid financial footing.
In the most recent quarter, Xenia reported revenue of $272.90 million, representing a 0.7% year-over-year growth. Net income for the quarter was $15.34 million, with operating cash flow (OCF) of $57.21 million and free cash flow (FCF) of $21.37 million. The increase in revenue was primarily driven by an increase in occupancy, partially offset by disruption from renovations and normalizing leisure demand.
Navigating the Pandemic and Beyond
Xenia's performance during the COVID-19 pandemic underscores the company's adaptability and strategic vision. As the hospitality industry faced unprecedented disruption, Xenia took proactive measures to strengthen its balance sheet and optimize its operations. The company secured additional financing, reduced costs, and implemented innovative strategies to address the evolving needs of its customers.
One of Xenia's key initiatives during this period was the transformative renovation and rebranding of its Hyatt Regency Scottsdale Resort and Spa. This $70 million project, which is expected to be completed in 2024, will elevate the property to a new level of luxury, positioning it as the Grand Hyatt Scottsdale Resort. The company's investment in this project reflects its commitment to enhancing the value of its portfolio and delivering an exceptional guest experience.
Diversified Portfolio and Balanced Growth Strategy
Xenia's diversified portfolio, with a focus on luxury and upper upscale properties, has been a key strength in navigating the industry's challenges. The company's assets are strategically located in the top 25 lodging markets and popular leisure destinations, providing exposure to a diverse range of demand drivers.
In addition to its organic growth initiatives, Xenia has demonstrated a disciplined approach to portfolio optimization. The company's acquisition and disposition strategy has been centered on identifying and capitalizing on opportunities that align with its long-term vision. For instance, in 2024, Xenia announced the sale of the Lorien Hotel & Spa in Alexandria, Virginia, for $30 million, representing a 21.3x multiple on hotel EBITDA. This transaction underscores Xenia's ability to generate attractive returns and redeploy capital in a manner that enhances shareholder value.
Positioning for the Future
As the hospitality industry continues to evolve, Xenia is well-positioned to capitalize on emerging trends and opportunities. The company's focus on the luxury and upper upscale segments, which have historically demonstrated resilience, aligns with the evolving preferences of discerning travelers. Additionally, Xenia's commitment to sustainability and its investments in enhancing the guest experience position the company to appeal to the growing eco-conscious and experiential-driven customer base.
Financials and Liquidity
Xenia's strong balance sheet and ample liquidity provide the flexibility to pursue strategic growth initiatives, such as accretive acquisitions and value-enhancing renovations, while maintaining a prudent approach to capital allocation. The company's leverage ratio, measured as net debt to EBITDA, stood at 5.2x as of the end of 2023, which is within the company's long-term target range.
As of June 30, 2024, Xenia had $1.40 billion in total debt, net of loan premiums, discounts, and unamortized deferred financing costs. The company maintained a strong liquidity position with $143.61 million in cash and cash equivalents and $61.49 million in restricted cash and escrows. Additionally, Xenia has a $450 million revolving line of credit, with no outstanding balance as of June 30, 2024.
The company's debt-to-equity ratio stands at 1.09, indicating a balanced capital structure. Xenia's current ratio of 2.24 and quick ratio of 2.26 demonstrate its ability to meet short-term obligations comfortably.
Revenue Streams and Performance Metrics
Xenia's primary sources of revenue are derived from its hotel operations, which include:
1. Rooms Revenue: For the three and six months ended June 30, 2024, the company's rooms revenues were $160.79 million and $313.91 million, respectively.
2. Food and Beverage Revenue: For the three and six months ended June 30, 2024, food and beverage revenues were $89.08 million and $181.85 million, respectively.
3. Other Revenue: This includes revenue from parking, spa services, resort fees, and other guest services. For the three and six months ended June 30, 2024, other revenues were $23.04 million and $44.63 million, respectively.
The company's total portfolio RevPAR (Revenue per Available Room) increased 1.8% and 0.1% to $185.69 and $181.28 for the three and six months ended June 30, 2024, compared to $182.49 and $181.03 for the same periods in 2023. This increase was driven primarily by an increase in occupancy, partially offset by disruption from renovations and normalizing leisure demand.
Recent Performance and Guidance
For the second quarter of 2024, Xenia reported net income of $15.3 million, adjusted EBITDAre of $68.4 million, and adjusted FFO per share of $0.52. The company's second quarter same-property RevPAR increased by 1.8%, while excluding Hyatt Regency Scottsdale, RevPAR increased by 5%. However, same-property hotel EBITDA of $73.4 million was 7.5% below 2023 levels, and hotel EBITDA margin decreased 238 basis points. Excluding Hyatt Regency Scottsdale, hotel EBITDA increased 1.2%, and hotel EBITDA margin decreased 100 basis points.
Looking ahead, Xenia has revised its guidance for the full year 2024:
- The company has lowered its expectation for full-year 2024 RevPAR growth by 50 basis points to 3% at the midpoint. Excluding Hyatt Regency Scottsdale, RevPAR growth expectation is lowered by 25 basis points to 3.75% at the midpoint. - The midpoint of full-year 2024 adjusted EBITDAre guidance has been lowered by $5 million to $249 million. This reduction is due to $1 million from the sale of the Lorien Hotel, $1 million from higher renovation-related displacement at Hyatt Regency Scottsdale, and $4 million from lower RevPAR and its impact on margins. - Full-year 2024 adjusted FFO per diluted share guidance is reduced by $0.005 to $1.68. - Capital expenditure guidance for 2024 has increased by $5 million to a range of $125 million to $135 million, mainly due to increased spending on the Hyatt Regency Scottsdale renovation project.
Industry Trends
The U.S. lodging industry has historically exhibited a strong correlation to U.S. GDP. In the first and second quarters of 2024, GDP increased at an estimated annual rate of approximately 1.4% and 2.8%, respectively. This represents a decrease in the annual rate growth trend from the third and fourth quarters of 2023, which may impact the overall performance of the hospitality sector.
Risks and Challenges
Despite Xenia's impressive track record, the company is not immune to the broader industry and macroeconomic risks. The hospitality sector remains susceptible to factors such as economic downturns, changes in consumer preferences, and increased competition. Additionally, the company's reliance on third-party management and franchise agreements introduces operational and regulatory risks that must be actively managed.
The ongoing workforce challenges and inflationary pressures facing the industry also present potential headwinds for Xenia. The company's ability to effectively manage labor costs and supply chain disruptions will be crucial in maintaining its competitive edge and profitability.
Conclusion
Xenia Hotels & Resorts has demonstrated its resilience and adaptability in navigating the challenges of the past few years. With a diversified portfolio, balanced growth strategy, and strong financial position, the company is well-positioned to capitalize on the recovering hospitality market and deliver long-term value to its shareholders. As Xenia continues to enhance its portfolio and explore new opportunities, investors will closely monitor the company's ability to navigate the evolving industry landscape and maintain its position as a leading player in the luxury and upper upscale hotel segment.