XENIA HOTELS & RESORTS, INC. Certain statements in this Quarterly Report on Form 10-Q, other than purely historical information, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements include statements about Xenia's plans, objectives, strategies, financial performance and outlook, trends, the amount and timing of future cash distributions, prospects or future events and involve known and unknown risks that are difficult to predict. As a result, our actual financial results, performance, achievements or prospects may differ materially from those expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by the use of words such as "may," "could," "expect," "intend," "plan," "seek," "anticipate," "believe," "estimate," "guidance," "predict," "potential," "continue," "likely," "will," "would," "illustrative" and variations of these terms and similar expressions, or the negative of these terms or similar expressions. Such forward-looking statements are necessarily based upon estimates and assumptions that, while considered reasonable by Xenia and its management based on their knowledge and understanding of the business and industry, are inherently uncertain. These statements are not guarantees of future performance, and stockholders should not place undue reliance on forward-looking statements. Forward-looking statements in this Form 10-Q include, among others, statements about our plans, strategies and the impact of macroeconomic factors, including inflation, rising interest rates and concerns over a near-term recession, as well as the ongoing economic recovery following the COVID-19 global pandemic, on our business, including on the demand for travel (including leisure travel and transient and group business travel), capital expenditures, supply chain issues, the ability to consummate acquisitions and dispositions of hotel properties, liquidity, staffing and derivations thereof, financial performance, prospects or future events. There are a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. Such risks, uncertainties and other important factors include, among others: the factors set forth under "Part I-Item 1A. Risk Factors" and "Part II-Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K filed with theU.S. Securities and Exchange Commission (the "SEC") onMarch 2, 2023 , as may be updated elsewhere in this report; and the information set forth in other Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that we have filed or will file with theSEC ; including general economic uncertainty and a contraction in theU.S. or global economy or low levels of economic growth; macroeconomic factors, including rising interest rates, bank failures and concerns over a near-term recession, and other factors beyond our control that can adversely affect and reduce demand for hotel rooms, food and beverage services, and/or meeting facilities; inflation which increases our labor and other costs of providing services to guests and meeting hotel brand standards as well as costs related to construction and other capital expenditures, property and other taxes, and insurance which could result in reduced operating profit margins; the pace and evenness of recovery following the COVID-19 pandemic and the long-term effects of the pandemic, COVID-19 variants or any future resurgence, including with respect to global and regional economic activity, travel limitations or bans, the demand for travel, levels of spending in transient or group business and leisure segments, and levels of consumer confidence; the ability of third-party managers or other partners to successfully navigate the impacts of the COVID-19 pandemic including the ability to provide adequate staffing levels required to effectively operating our hotels and meet customer needs; the impact of supply chain disruptions on our ability to source furniture, fixtures, and equipment required to comply with brand standards and guest expectations and the ability of our third-party managers to source supplies and other items required for operations; our ability to comply with contractual covenants; business, financial and operating risks inherent to real estate investments and the lodging industry; seasonal and cyclical volatility in the lodging industry; adverse changes in specialized industries, such as the energy, technology and/or tourism industries that result in a sustained downturn of related businesses and corporate spending that may negatively impact our revenues and results of operations; declines in occupancy and average daily rate; decreased demand for business travel due to technological advancements and preferences for virtual over in-person meetings and/or changes in guest and consumer preferences, including consideration of the impact of travel on the environment; fluctuations in the supply of hotels, due to hotel construction and/or renovation and expansion of existing hotels, and demand for hotel rooms; changes in the competitive environment in the lodging industry, including due to consolidation of management companies, franchisors and online travel agencies, and changes in the markets where we own hotels; events beyond our control, such as war, terrorist or cyber-attacks, mass casualty events, government shutdowns and closures, travel-related health concerns, global outbreaks of pandemics or contagious diseases, or fear of such outbreaks, weather and climate-related events, such as hurricanes, tornadoes, floods, wildfires, and droughts, and natural or man-made disasters; cyber incidents and information technology failures, including unauthorized access to our computer systems and/or our vendors' computer systems, and our third-party management companies' or franchisors' computer systems and/or their vendors' computer systems; changes in interest rates and operating costs, including labor and service related costs; our inability to directly operate our properties and reliance on third-party hotel management companies to operate and manage our hotels; our ability to maintain good relationships with our third-party hotel management companies and franchisors; our failure to maintain and/or comply with brand operating standards; our ability to maintain our brand licenses at our hotels; relationships with labor unions and changes in labor laws (including increases in minimum wages); retention and attraction of our senior management team or key personnel; our ability to identify and consummate acquisitions and dispositions of hotels; our ability to integrate and successfully operate any hotel properties acquired in the future and the risks associated with these 21 -------------------------------------------------------------------------------- hotel properties; the impact of hotel renovations, repositionings, redevelopments and re-branding activities; our ability to access capital for renovations and acquisitions and general operating needs on terms and at times that are acceptable to us; the fixed cost nature of hotel ownership; our ability to service, restructure or refinance our debt; compliance with regulatory regimes and local laws; uninsured or under insured losses, including those relating to natural disasters, the physical effects of climate change, civil unrest, terrorism or cyber-attacks; changes in distribution channels, such as through internet travel intermediaries or websites that facilitate short-term rental of homes and apartments from owners; the amount of debt that we currently have or may incur in the future; provisions in our debt agreements that may restrict the operation of our business; our organizational and governance structure; our status as a real estate investment trust ("REIT"); our taxable REIT subsidiary ("TRS") lessee structure; the cost of compliance with and liabilities under environmental, health and safety laws; adverse litigation judgments or settlements; changes in real estate and zoning laws; increases in insurance or other fixed costs and increases in real property tax valuations or rates; changes in federal, state or local tax law, including legislative, administrative, regulatory or other actions affecting REITs; changes in governmental regulations or interpretations thereof; and estimates relating to our ability to make distributions to our stockholders in the future. These factors are not necessarily all of the important factors that could cause our actual financial results, performance, achievements or prospects to differ materially from those expressed in or implied by any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth above. Forward-looking statements speak only as of the date they are made, and we do not undertake or assume any obligation to update publicly any of these forward-looking statements to reflect actual results, new information or future events, changes in assumptions or changes in other factors affecting forward-looking statements, except to the extent required by applicable laws. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. The following discussion and analysis should be read in conjunction with the Company's Unaudited Condensed Consolidated Financial Statements and accompanying notes, which appear elsewhere in this Quarterly Report on Form 10-Q.
Overview
Xenia Hotels & Resorts, Inc. ("we", "us", "our", "Xenia" or the "Company") is a self-advised and self-administered REIT that invests in uniquely positioned luxury and upper upscale hotels and resorts with a focus on top 25 lodging as well as key leisure destinations inthe United States . As ofMarch 31, 2023 , we owned 32 hotels, comprising 9,508 rooms, across 14 states. Our hotels are operated and/or licensed by industry leaders such as Marriott, Hyatt, Fairmont, Kimpton, Loews, Hilton, The Kessler Collection and Davidson.
Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of the Company, theOperating Partnership , andXHR Holding . The Company's subsidiaries generally consist of limited liability companies, limited partnerships and the TRS. The effects of all inter-company transactions have been eliminated. Corporate costs directly associated with our principal executive offices, personnel and other administrative costs are reflected as general and administrative expenses on the condensed consolidated statements of operations and comprehensive income (loss).
Our Revenues and Expenses
Our 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, among other items. Our 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. Rooms expense includes housekeeping wages and associated payroll taxes, room supplies, laundry services and front desk costs. Food and beverage expense primarily includes the cost of food, beverages and associated labor. Other direct and indirect hotel expenses include labor and other costs associated with the other operating department revenue, as well as labor and other costs associated with general and administrative departments, sales and marketing, information technology and telecommunications, repairs and maintenance and utility costs. We enter into management agreements with independent third-party management companies to operate our hotels. The management companies typically earn base and incentive management fees based on the levels of revenues and profitability of each individual hotel.
Key Indicators of Operating Performance
We measure hotel results of operations and the operating performance of our
business by evaluating financial and nonfinancial metrics such as
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earnings before interest, income taxes, depreciation and amortization for real
estate ("EBITDAre") and Adjusted EBITDAre; and funds from operations ("FFO") and
Adjusted FFO. We evaluate individual hotel and company-wide performance with
comparisons to budgets, prior periods and competing properties. RevPAR, ADR, and
occupancy may be impacted by macroeconomic factors as well as regional and local
economies and events. See "Non-GAAP Financial Measures" for further discussion
of the Company's use, definitions and limitations of EBITDAre, Adjusted
EBITDAre, FFO and Adjusted FFO and the reasons management believes these
financial measures are useful to investors.
Results of Operations
Lodging Industry Overview
TheU.S. lodging industry historically exhibits a strong correlation toU.S. GDP, which increased at an estimated annual rate of approximately 1.1% during the first quarter of 2023, according to theU.S. Department of Commerce , representing a decrease in the annual rate growth trend from the third and fourth quarters of 2022 of 3.2% and 2.6%, respectively. The increase during the first quarter reflected increases in consumer spending, exports, federal government spending, state and local government spending and nonresidential fixed investment that were partially offset by decreases in private inventory investment and residential fixed investment as well as increases in imports. In addition, the unemployment rate remained flat at 3.5% inMarch 2023 compared toDecember 2022 andSeptember 2022 . We continue to monitor and evaluate the challenges associated with inflationary pressures, rising interest rates, a potential domestic and/or global recession, the evolving workforce landscape and potential ongoing supply chain issues. The impact of these potential challenges could negatively impact the Company's operating results as well as its ability to consummate acquisitions and dispositions of hotel properties in the near term. Demand and new hotel supply increased 6.4% and 0.4%, respectively, during the three months endedMarch 31, 2023 . The increase in demand led to an increase in industry RevPAR of 16.7% for the three months endedMarch 31, 2023 compared to 2022, which was driven by an increase in occupancy of 5.9% coupled with a 10.2% increase in ADR. AllU.S. data for the three months endedMarch 31, 2023 are per industry reports. First Quarter 2023 Overview Our total portfolio RevPAR, which includes the results of hotels sold or acquired for the period of ownership by the Company, increased 24.7% to$179.55 for the three months endedMarch 31, 2023 compared to$143.99 for the three months endedMarch 31, 2022 . The increase in our total portfolio RevPAR for the three months endedMarch 31, 2023 compared to the same period in 2022 was driven by strong RevPAR growth in both business transient and corporate group demand, robust leisure transient demand and by easier comparable performance during January and February of 2022 when the Omicron variant significantly impacted travel. Further, while leisure demand remains at historically high levels, demand has continued to shift to a more traditional mix within our portfolio. Net income increased 219.6% for the three months endedMarch 31, 2023 compared to net loss for the three months endedMarch 31, 2022 , which was primarily attributed to an increase in hotel operating income of$19.2 million from the 31-comparable hotels owned during the three months endedMarch 31, 2023 and 2022, other income of$1.3 million in 2023 compared to other loss of$0.8 million in 2022, a$1.3 million reduction in impairment and other losses and a$1.1 million increase in hotel operating income attributed to the acquisition ofW Nashville . These increases were partially offset by a$3.6 million increase in income tax expense, a$3.2 million increase in depreciation and amortization expense, a$1.6 million increase in interest expense, a$1.2 million increase in general and administrative expenses, a$1.2 million reduction in hotel operating income attributed to the three hotels sold in 2022, a$0.8 million increase in loss on extinguishment of debt and a$0.1 million increase in other operating expenses. Adjusted EBITDAre and Adjusted FFO attributable to common stock and unit holders for the three months endedMarch 31, 2023 increased 42.8% and 55.5% respectively, compared to three months endedMarch 31, 2022 . Refer to "Non-GAAP Financial Measures" for the definition of these financial measures, a description of the reasons we believe they are useful to investors as key supplemental measures of our operating performance and the reconciliation of these non-GAAP financial measures to net income (loss) attributable to common stock and unit holders. 23
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Operating Information Comparison
The following table sets forth certain operating information for the three
months ended
Three Months Ended
March 31,
2023 2022 Change
Number of properties at January 1 32 34 (2)
Properties acquired - 1 (1)
Properties disposed - (1) 1
Number of properties at March 31 32 34 (2)
Number of rooms at January 1 9,508 9,659 (151)
Rooms in properties acquired - 346 (346)
Rooms in properties disposed - (191) 191
Number of rooms at March 31 9,508 9,814 (306)
Three Months Ended
March 31,
2023 2022 Increase
Total Portfolio Statistics:
Occupancy(1) 66.1 % 56.6 % 950 bps
ADR(1) $ 271.79 $ 254.57 6.8 %
RevPAR(1) $ 179.55 $ 143.99 24.7 %
(1) For hotels acquired during the applicable period, includes operating statistics since the date of acquisition. For hotels disposed of during the period, operating results and statistics are included through the date of the respective disposition.
Revenues
Revenues consists of rooms, food and beverage, and other revenues from our hotels, as follows (in thousands):
Three Months Ended March 31,
Increase /
2023 2022 (Decrease) % Change
Revenues:
Rooms revenues $ 153,645 $ 123,198 $ 30,447 24.7 %
Food and beverage revenues 96,124 67,735 28,389 41.9 %
Other revenues 19,204 19,414 (210) (1.1) %
Total revenues $ 268,973 $ 210,347 $ 58,626 27.9 %
Rooms revenues
Rooms revenues increased by $30.4 million , or 24.7%, to $153.6 million for the
three months ended March 31, 2023 from $123.2 million for the three months ended
March 31, 2022 driven by strong RevPAR growth in both business transient and
corporate group demand and robust leisure transient demand. Additionally, the
acquisition of W Nashville in March 2022 contributed to the increase in rooms
revenue by $5.4 million . The increase is net of a reduction of $3.3 million
attributed to the sale of Kimpton Hotel Monaco Chicago in January 2022 , Bohemian
Hotel Celebration , Autograph Collection in October 2022 and Kimpton Hotel Monaco
Denver in December 2022 (collectively, "the three hotels sold in 2022"). Rooms
revenue increased $28.4 million , or 23.8%, for remainder of our 31-comparable
hotels, which was attributed to a 23.8% increase in RevPAR compared to 2022,
driven by a 5.1% increase in ADR and an increase in occupancy of 1,010 basis
points.
Food and beverage revenues
Food and beverage revenues increased by
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corporate group demand. Additionally, the acquisition of W Nashville in March
2022 contributed to the increase in food and beverage revenue by $4.5 million .
This increase is net of a reduction of $1.7 million attributed to the three
hotels sold in 2022. Food and beverage revenues increased $25.6 million , or
39.0%, for the remainder of our 31-comparable hotels.
Other revenues
Other revenues decreased by$0.2 million , or 1.1%, to$19.2 million for the three months endedMarch 31, 2023 from$19.4 million for the three months endedMarch 31, 2022 . This decrease was primarily attributable to a$1.8 million reduction in revenues from cancellation and attrition for our 31-comparable hotels as well as a reduction of$0.4 million attributed to the three hotels sold in 2022. These decreases are net of a$1.4 million increase in other revenue, excluding revenue from cancellations and attrition for our 31-comparable hotels and a$0.5 million increase attributed to the acquisition ofW Nashville inMarch 2022 .Hotel Operating Expenses
Hotel operating expenses consist of the following (in thousands):
Three Months Ended March 31,
2023 2022 Increase % Change
Hotel operating expenses:
Rooms expenses $ 36,203 $ 29,217 $ 6,986 23.9 %
Food and beverage expenses 60,687 45,610 15,077 33.1 %
Other direct expenses 5,698 5,294 404 7.6 %
Other indirect expenses 66,499 53,860 12,639 23.5 %
Management and franchise fees 10,189 7,626 2,563 33.6 %
Total hotel operating expenses
$ 37,669 26.6 %
Total hotel operating expenses
In general, hotel operating costs generally correlate to increases or decreases in revenues and fluctuate based on various factors, including occupancy, labor costs, utilities and insurance costs. Luxury and upper upscale hotels generally have higher fixed costs than other types of hotels due to the level of services and amenities provided to guests. Total hotel operating expenses increased$37.7 million , or 26.6%, to$179.3 million for the three months endedMarch 31, 2023 from$141.6 million for the three months endedMarch 31, 2022 . Additionally,W Nashville contributed to the increase in hotel operating expenses by$8.6 million . The increase in total hotel operating expenses is net of a reduction of$4.2 million attributed to the three hotels sold in 2022. Hotel operating expenses increased$33.1 million , or 24.2%, for the remainder of our 31-comparable hotels, which was attributed to the increase in total revenues in 2023 compared to 2022.
Corporate and Other Expenses
Corporate and other expenses consist of the following (in thousands):
Three Months Ended March 31,
Increase /
2023 2022 (Decrease) % Change
Depreciation and amortization $ 33,741 $ 30,565 $ 3,176 10.4 %
Real estate taxes, personal property taxes
and insurance 12,470 10,855 1,615 14.9 %
Ground lease expense 710 517 193 37.3 %
General and administrative expenses 8,783 7,611 1,172 15.4 %
Other operating expenses 232 175 57 32.6 %
Impairment and other losses - 1,278 (1,278) (100.0) %
Total corporate and other expenses
9.7 %
Depreciation and amortization
Depreciation and amortization expense increased$3.2 million , or 10.4%, to$33.7 million for the three months endedMarch 31, 2023 from$30.6 million for the three months endedMarch 31, 2022 . This increase was primarily attributed to the acquisition of 25
--------------------------------------------------------------------------------W Nashville inMarch 2022 and to the timing of fully depreciated assets during the comparable periods. These increases are net of a reduction in depreciation expense related to the three hotels sold in 2022.
Real estate taxes, personal property taxes and insurance
Real estate taxes, personal property taxes and insurance expense increased$1.6 million , or 14.9%, to$12.5 million for the three months endedMarch 31, 2023 from$10.9 million for the three months endedMarch 31, 2022 . This increase was primarily attributed to increases in insurance premiums of$0.9 million , an increase related to the acquisition ofW Nashville inMarch 2022 of$0.7 million and a$0.1 million increase in real estate taxes. These increases are net of a$0.2 million reduction related to the three hotels sold in 2022.
Ground lease expense
Ground lease expense increased$0.2 million , or 37.3%, to$0.7 million for the three months endedMarch 31, 2023 from$0.5 million for the three months endedMarch 31, 2022 . The increase was primarily attributable to an increase in percentage rent in 2023, which is based on revenues at certain hotels with ground leases, compared to 2022.
General and administrative expenses
General and administrative expenses increased$1.2 million , or 15.4%, to$8.8 million for the three months endedMarch 31, 2023 from$7.6 million for the three months endedMarch 31, 2022 primarily due to increases in the number of corporate employees, employee-related expenses and increased incentive compensation.
Impairment and other losses
InAugust 2021 , Hurricane Ida impactedLoews New Orleans Hotel located inNew Orleans, Louisiana . During the three months endedMarch 31, 2022 , the Company expensed additional hurricane-related repair and cleanup costs of$1.3 million .
Non-Operating Income and Expenses
Non-operating income and expenses consist of the following (in thousands):
Three Months Ended March 31,
2023 2022 Increase % Change
Non-operating income and expenses:
Other income (loss) $ 1,284$ (777) 2,061 265.3 % Interest expense (22,134) (20,538) 1,596 7.8 % Loss on extinguishment of debt (1,140) (294) 846 287.8 % Income tax expense (5,218) (1,607) 3,611 224.7 % Other income (loss) Other income increased$2.1 million , or 265.3%, to$1.3 million for the three months endedMarch 31, 2023 from a loss of$0.8 million for the three months endedMarch 31, 2022 . Other income for the three months endedMarch 31, 2023 was primarily attributable to interest income from higher interest rates on cash balances, partially offset by non-capitalizable loan issuance costs. The other loss for the three months ended March 31 2022 was primarily attributable to costs associated with the termination of two interest rate hedges, partially offset by a gain from the receipt of insurance proceeds in excess of recognized losses associated with hurricane-related damage atLoews New Orleans Hotel .
Interest expense
Interest expense increased$1.6 million , or 7.8%, to$22.1 million for the three months endedMarch 31, 2023 from$20.5 million for the three months endedMarch 31, 2022 . The increase was primarily due to rising interest rates on variable rate debt, partially offset by a reduction in interest payments to swap counterparties.
Loss on extinguishment of debt
The loss on extinguishment of debt of$1.1 million for the three months endedMarch 31, 2023 was attributable to the write-off of certain unamortized debt issuance costs associated with the existing revolving credit facility, which was refinanced with the Revolving Line of Credit inJanuary 2023 , as well as the early repayments of the corporate credit facility term loan that was due to mature inSeptember 2024 and one mortgage loan. The loss on extinguishment of debt of$0.3 million for the three months 26 --------------------------------------------------------------------------------
ended
Income tax expense
Income tax expense increased$3.6 million , or 224.7%, to$5.2 million for the three months endedMarch 31, 2023 from$1.6 million for the three monthsMarch 31, 2022 . The increase from prior year was primarily attributed to higher projected taxable income and the acquisition ofW Nashville inMarch 2022 coupled with an increase in the effective tax rate for the first quarter of 2023 compared to 2022. These increases were partially offset by the use of state net operating loss carryforwards.
Liquidity and Capital Resources
We expect to meet our short-term liquidity requirements from cash on hand, cash flow from hotel operations, use of our unencumbered asset base, asset dispositions, borrowings under our Revolving Line of Credit, and proceeds from various capital market transactions, including issuances of debt and equity securities. The objectives of our cash management policy are to maintain the availability of liquidity and minimize operational costs. On a long-term basis, our objectives are to maximize revenue and profits generated by our existing properties and acquired hotels, to further enhance the value of our portfolio and produce an attractive current yield, as well as to generate sustainable and predictable cash flow from our operations to distribute to our common stock and unit holders. We believe successful improvements to the performance of our portfolio will result in increased operating cash flows over time. Additionally, we may meet our long-term liquidity requirements through additional borrowings, the issuance of equity and debt securities, which may not be available on advantageous terms or at all, and/or proceeds from the sales of hotels. Liquidity As ofMarch 31, 2023 , we had$283.2 million of consolidated cash and cash equivalents and$58.2 million of restricted cash and escrows. The restricted cash as ofMarch 31, 2023 primarily consisted of$43.5 million related to FF&E reserves as required per the terms of our management and franchise agreements,$8.2 million in deposits made for capital projects, cash held in restricted escrows of$4.8 million primarily for real estate taxes and mortgage escrows and$1.7 million for disposition-related holdbacks. As ofMarch 31, 2023 , there was no outstanding balance on our Revolving Line of Credit and the full$450 million is available to be borrowed. Proceeds from future borrowings may be used for working capital, general corporate or other purposes.
As of
We remain committed to increasing total shareholder returns through the following priorities: (1) maximize revenue and profits generated by our existing properties and acquired hotels, including the continued focused management of expenses, (2) further enhance the value of our portfolio and produce an attractive current yield and (3) generate sustainable and predictable cash flow from our operations to distribute to our common stock and unit holders. Future determinations regarding the declaration and payment of dividends will be at the discretion of our Board of Directors and will depend on then-existing conditions, including our results of operations, payout ratio, capital requirements, financial condition, prospects, contractual arrangements, any limitations on payment of dividends present in our current and future debt agreements, maintaining our REIT status and other factors that our Board of Directors may deem relevant.
Debt and Loan Covenants
As of
Mortgage Loans
InJanuary 2023 , the Company repaid in full the$99.5 million outstanding balance on the mortgage loan collateralized byRenaissance Atlanta Waverly Hotel & Convention Center using proceeds from the 2023 Delayed Draw Term Loan. Also inJanuary 2023 , the Company amended the mortgage loan collateralized by Andaz Napa to update the variable index from one-month LIBOR to Term SOFR, increase the credit spread, increase the principal amount to$55 million and extend the maturity date throughJanuary 2028 .
Our mortgage loan agreements require contributions to be made to FF&E reserves and the compliance with certain financial covenants.
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--------------------------------------------------------------------------------Corporate Credit Facilities
InJanuary 2023 ,XHR LP (the "Borrower") entered into a new$675 million senior unsecured credit facility comprised of a$450 million revolving line of credit (the "Revolving Line of Credit"), a$125 million term loan (the "2023 Initial Term Loan") and a$100 million delayed draw term loan (the "2023 Delayed Draw Term Loan" and, together with the 2023 Initial Term Loan, the "2023 Term Loans") pursuant to a Revolving Credit and Term Loan Agreement, dated as ofJanuary 10, 2023 , by and among the Borrower,JPMorgan Chase Bank, N.A ., as administrative agent, and the lenders and other parties thereto (the "2023 Credit Agreement"). The Revolving Line of Credit and the 2023 Initial Term Loan refinanced in full our existing corporate credit facilities outstanding under the Company's prior credit agreement, and as a result of such refinancing, the existing pledges of equity of certain subsidiaries securing obligations under the prior credit facilities were released. The 2023 Delayed Draw Term Loan was funded onJanuary 17, 2023 and was used to repay in full the mortgage loan collateralized byRenaissance Atlanta Waverly Hotel & Convention Center that was dueAugust 2024 . Proceeds from future Revolving Line of Credit borrowings may be used for working capital, general corporate or other purposes permitted by the 2023 Credit Agreement. The Revolving Line of Credit matures inJanuary 2027 and can be extended up to an additional year. The interest rate on the Revolving Line of Credit and the 2023 Term Loans is based on a pricing grid with a range of 145 to 275 basis points over the applicable Term SOFR rate as determined by the Company's leverage ratio, subject to a 10 basis point credit spread adjustment and a zero basis point floor. The 2023 Term Loans mature inMarch 2026 , can be extended up to an additional year, and bear interest rates consistent with the pricing grid on the Revolving Line of Credit.
Senior Notes
The indentures governing the Senior Notes contain customary covenants that limit theOperating Partnership's ability and, in certain circumstances, the ability of its subsidiaries, to borrow money, create liens on assets, make distributions and pay dividends, redeem or repurchase stock, make certain types of investments, sell stock in certain subsidiaries, enter into agreements that restrict dividends or other payments from subsidiaries, enter into transactions with affiliates, issue guarantees of indebtedness and sell assets or merge with other companies. These limitations are subject to a number of important exceptions and qualifications set forth in the indentures. In connection with the entry into the 2023 Credit Agreement and the refinancing of the obligations under the prior corporate credit facilities, the collateral securing the Senior Notes was released in full. On and afterJanuary 10, 2023 , the Senior Notes constitute unsecured obligations.
Debt Covenants
As ofMarch 31, 2023 , we were in compliance with all debt covenants, current on all loan payments and not otherwise in default under the mortgage loans, the 2023 Credit Agreement or the Senior Notes.
Capital Markets
We maintain an established "At-the-Market" ("ATM") program pursuant to an Equity
Distribution Agreement ("ATM Agreement") with Wells Fargo Securities, LLC ,
Robert W. Baird & Co. Incorporated , Jefferies LLC , KeyBanc Capital Markets Inc.
and Raymond James & Associates, Inc. In accordance with the terms of the ATM
Agreement, we may from time to time offer and sell shares of our common stock
having an aggregate offering price up to $200 million . No shares were sold under
the ATM Agreement during the three months ended March 31, 2023 and, as of
March 31, 2023 , $200 million of common stock remained available for issuance.
Our Board of Directors has authorized a stock repurchase program (the
"Repurchase Program") for up to $275 million of outstanding common stock in the
open market, in privately negotiated transactions or otherwise, including
pursuant to Rule 10b5-1 plans. Such repurchases or exchanges, if any, will
depend on prevailing market conditions, our liquidity requirements, contractual
restrictions and other factors. The Repurchase Program does not have an
expiration date, may be suspended or discontinued at any time and does not
obligate us to acquire any particular amount of shares.
During the three months ended March 31, 2023 , 1,905,820 shares were repurchased
under the Repurchase Program, at a weighted-average price of $14.03 per share
for an aggregate purchase price of $26.7 million . No shares were purchased as
part of the Repurchase Program during the three months ended March 31, 2022 . As
of March 31, 2023 , we had approximately $139.7 million remaining under our share
repurchase authorization.
Capital Expenditures and Reserve Funds
We maintain each of our properties in good repair and condition and in
conformity with applicable laws and regulations, franchise agreements and
management agreements. Routine capital expenditures are administered by the
hotel management companies. However, we have approval rights over the capital
expenditures as part of the annual budget process for each of our properties.
From time to time, certain of our hotels may undergo renovations as a result of
our decision to expand or upgrade portions of the hotels, such as guest rooms,
public space, meeting space and/or restaurants, in order to better compete with
other
28
-------------------------------------------------------------------------------- hotels in our markets. In addition, upon the acquisition of a hotel we may be required to complete a property improvement plan in order to bring the hotel into compliance with the respective brand standards. If permitted by the terms of the management agreement, funding for a renovation will first come from the FF&E reserves. We are obligated to maintain reserve funds with respect to certain agreements with our hotel management companies, franchisors and lenders to provide funds, generally 3% to 5% of hotel revenues, sufficient to cover the cost of certain capital improvements to the hotels and to periodically replace and update furniture, fixtures and equipment. Certain of the agreements require that we reserve this cash in separate accounts. To the extent that the FF&E reserves are not available or adequate to cover the cost of the renovation, we may fund a portion of the renovation with cash on hand, borrowings from our Revolving Line of Credit and/or other sources of available liquidity. We have been, and will continue to be, prudent with respect to our capital spending, taking into account our cash flows from operations. As ofMarch 31, 2023 andDecember 31, 2022 , we had a total of$43.5 million and$46.3 million , respectively, of FF&E reserves. During the three months endedMarch 31, 2023 and 2022 we made total capital expenditures of$11.6 million and$7.5 million , respectively.
Off-Balance Sheet Arrangements
As ofMarch 31, 2023 , we had various contracts outstanding with third-parties in connection with the renovation of certain of our hotel properties. The remaining commitments under these contracts as ofMarch 31, 2023 totaled$11.0 million .
Sources and Uses of Cash
Our principal sources of cash are cash flows from operations, borrowing under debt financings, including draws on our Revolving Line of Credit, and from various types of equity offerings or the sale of our hotels. Along with rising rates of inflation and interest rates and implications of a potential recession and related market impacts, certain sources of capital may not be as readily available to us as they have been historically or may come at higher costs. Our principal uses of cash are asset acquisitions, capital investments, routine debt service and debt repayments, operating costs, corporate expenses and dividends. We may also elect to use cash to buy back our common stock in the future under the Repurchase Program.
Comparison of the Three Months Ended
The table below presents summary cash flow information for the condensed consolidated statements of cash flows (in thousands):
Three
Months Ended
2023 2022
Net cash provided by operating activities $ 30,313 $ 32,572
Net cash used in investing activities (10,563) (301,092)
Net cash used in financing activities (44,300) (66,476)
Net decrease in cash and cash equivalents and restricted cash
$ (24,550)
365,910 554,231
Cash and cash equivalents and restricted cash, at end of
period $ 341,360 $ 219,235
Operating
•Cash provided by operating activities was $30.3 million and $32.6 million for
the three months ended March 31, 2023 and 2022, respectively. Cash flows from
operating activities generally consist of the net cash generated by our hotel
operations, partially offset by the cash paid for interest, corporate expenses
and other working capital changes. Our cash flows from operating activities may
also be affected by changes in our portfolio resulting from hotel acquisitions,
dispositions or renovations. The net decrease in cash from operating activities
during the three months ended March 31, 2023 compared to the three months ended
March 31, 2022 was primarily due to increases in accounts receivable and other
assets as well as decreases in accounts payable and other liabilities. Refer to
the "Results of Operations" section for further discussion of our operating
results for the three months ended March 31, 2023 and 2022.
Investing
•Cash used in investing activities was$10.6 million and$301.1 million for the three months endedMarch 31, 2023 and 2022, respectively. Cash used in investing activities for the three months endedMarch 31, 2023 was attributed to$11.6 million in capital improvements at our hotel properties, which was partially offset by$1.1 million of performance guaranty payments received that were recorded as a reduction in the respective hotel's cost basis. Cash used in 29 -------------------------------------------------------------------------------- investing activities for the three months endedMarch 31, 2022 was attributed to$328.5 million for the acquisition ofW Nashville and$7.5 million in capital improvements at our hotel properties, which was partially offset by net proceeds of$32.8 million from the disposition ofKimpton Hotel Monaco Chicago ,$1.2 million of proceeds from property insurance and$0.9 million of performance guaranty payments received that were recorded as a reduction in the respective hotel's cost basis. Financing •Cash used in financing activities was$44.3 million and$66.5 million for the three months endedMarch 31, 2023 and 2022, respectively. Cash used in financing activities for the three months endedMarch 31, 2023 was attributed to the repayment of the existing corporate credit facility term loan maturing in 2024 totaling$125.0 million , the repayment of mortgage debt totaling$99.5 million , the repurchase of common stock totaling$26.7 million , the payment of$11.5 million in dividends, payment of loan fees and issuance costs of$5.6 million , principal payments of mortgage debt totaling$0.9 million and shares redeemed to satisfy tax withholding on vested share-based compensation of$0.6 million , which was partially offset by proceeds from the 2023 Term Loans totaling$225.0 million and proceeds from the amendment of one mortgage loan of$0.4 million . Cash used in financing activities for the three months endedMarch 31, 2022 was attributed the repayment of mortgage debt totaling$65.0 million , principal payments of mortgage debt totaling$0.9 million and shares redeemed to satisfy tax withholding on vested share-based compensation of$0.5 million .
Non-GAAP Financial Measures
We consider the following non-GAAP financial measures to be useful to investors as key supplemental measures of our operating performance: EBITDA, EBITDAre, Adjusted EBITDAre, FFO and Adjusted FFO. These non-GAAP financial measures should be considered along with, but not as alternatives to, net income or loss, operating profit, cash from operations, or any other operating performance measure as prescribed per GAAP.
EBITDA, EBITDAre and Adjusted EBITDAre
EBITDA is a commonly used measure of performance in many industries and is defined as net income or loss (calculated in accordance with GAAP) excluding interest expense, provision for income taxes (including income taxes applicable to sale of assets) and depreciation and amortization. We consider EBITDA useful to investors in evaluating and facilitating comparisons of our operating performance between periods and between REITs by removing the impact of our capital structure (primarily interest expense) and asset base (primarily depreciation and amortization) from our operating results, even though EBITDA does not represent an amount that accrues directly to common stockholders. In addition, EBITDA is used as one measure in determining the value of hotel acquisitions and dispositions and, along with FFO and Adjusted FFO, is used by management in the annual budget process for compensation programs. We calculate EBITDAre in accordance with standards established by theNational Association of Real Estate Investment Trusts ("Nareit"). Nareit defines EBITDAre as EBITDA plus or minus losses and gains on the disposition of depreciated property, including gains or losses on change of control, plus impairments of depreciated property and of investments in unconsolidated affiliates caused by a decrease in the value of depreciated property in the affiliate, and adjustments to reflect the entity's share of EBITDAre of unconsolidated affiliates. We further adjust EBITDAre to exclude the impact of non-controlling interests in consolidated entities other than our Operating Partnership Units because our Operating Partnership Units may be redeemed for common stock. We also adjust EBITDAre for certain additional items such as depreciation and amortization related to corporate assets, hotel property acquisition, terminated transaction and pre-opening expenses, amortization of share-based compensation, non-cash ground rent and straight-line rent expense, the cumulative effect of changes in accounting principles, and other costs we believe do not represent recurring operations and are not indicative of the performance of our underlying hotel property entities. We believe it is meaningful for investors to understand Adjusted EBITDAre attributable to all common stock and unit holders. We believe Adjusted EBITDAre attributable to common stock and unit holders provides investors with another useful financial measure in evaluating and facilitating comparison of operating performance between periods and between REITs that report similar measures.
FFO and Adjusted FFO
We calculate FFO in accordance with standards established by Nareit, as amended in theDecember 2018 Restatement White Paper, which defines FFO as net income or loss (calculated in accordance with GAAP), excluding real estate-related depreciation, amortization and impairments, gains or losses from sales of real estate, the cumulative effect of changes in accounting principles, similar adjustments for unconsolidated partnerships and consolidated variable interest entities, and items classified by GAAP as extraordinary. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market 30 -------------------------------------------------------------------------------- conditions, most industry investors consider presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. We believe that the presentation of FFO provides useful supplemental information to investors regarding operating performance by excluding the effect of real estate depreciation and amortization, gains or losses from sales for real estate, impairments of real estate assets, extraordinary items and the portion of these items related to unconsolidated entities, all of which are based on historical cost accounting and which may be of lesser significance in evaluating current performance. We believe that the presentation of FFO can facilitate comparisons of operating performance between periods and between REITs, even though FFO does not represent an amount that accrues directly to common stockholders. Our calculation of FFO may not be comparable to measures calculated by other companies who do not use the Nareit definition of FFO or do not calculate FFO per diluted share in accordance with Nareit guidance. Additionally, FFO may not be helpful when comparing us to non-REITs. We present FFO attributable to common stock and unit holders, which includes our Operating Partnership Units because our Operating Partnership Units may be redeemed for common stock. We believe it is meaningful for the investor to understand FFO attributable to common stock and unit holders. We further adjust FFO for certain additional items that are not in Nareit's definition of FFO such as hotel property acquisition, terminated transaction and pre-opening expenses, amortization of debt origination costs and share-based compensation, non-cash ground rent and straight-line rent expense, and other items we believe do not represent recurring operations. We believe that Adjusted FFO provides investors with useful supplemental information that may facilitate comparisons of ongoing operating performance between periods and between REITs that make similar adjustments to FFO and is beneficial to investors' complete understanding of our operating performance. The following is a reconciliation of net income (loss) to EBITDA, EBITDAre and Adjusted EBITDAre attributable to common stock and unit holders for the three months endedMarch 31, 2023 and 2022 (in thousands): Three Months Ended March 31, 2023 2022 Net income (loss) $ 6,553$ (5,477) Adjustments: Interest expense 22,134 20,538 Income tax expense 5,218 1,607 Depreciation and amortization 33,741 30,565 EBITDA and EBITDAre$ 67,646 $ 47,233 Reconciliation to Adjusted EBITDAre Depreciation and amortization related to corporate assets $ (73)$ (102) Gain on insurance recoveries(1) - (994) Loss on extinguishment of debt 1,140 294 Amortization of share-based compensation expense 2,591 2,207 Non-cash ground rent and straight-line rent expense (4) 16 Other non-recurring expenses(2) - 1,292
Adjusted EBITDAre attributable to common stock and unit holders
(1) During the three months endedMarch 31, 2022 , the Company received$1.0 million of insurance proceeds in excess of recognized losses related to damage sustained atLoews New Orleans Hotel during Hurricane Ida inAugust 2021 . This gain on insurance recovery is included in other loss on the condensed consolidated statement of operations and comprehensive loss for the period then ended.
(2) During the three months ended
31
--------------------------------------------------------------------------------
The following is a reconciliation of net income (loss) to FFO and Adjusted FFO
attributable to common stock and unit holders for the three months ended
Three Months Ended
2023 2022
Net income (loss) $ 6,553 $ (5,477)
Adjustments:
Depreciation and amortization related to investment properties 33,668 30,463
FFO attributable to common stock and unit holders $
40,221
Reconciliation to Adjusted FFO Gain on insurance recoveries(1) $ -$ (994) Loss on extinguishment of debt 1,140 294
Loan related costs, net of adjustment related to non-controlling interests(2)
1,282 1,286
Amortization of share-based compensation expense 2,591 2,207
Non-cash ground rent and straight-line rent expense (4) 16
Other non-recurring expenses(3) - 1,292
Adjusted FFO attributable to common stock and unit holders
(1) During the three months endedMarch 31, 2022 , the Company received$1.0 million of insurance proceeds in excess of recognized losses related to damaged sustained atLoews New Orleans Hotel during Hurricane Ida inAugust 2021 . This gain on insurance recovery is included in other loss on the condensed consolidated statement of operations and comprehensive loss for the period then ended.
(2) Loan related costs include amortization of debt premiums, discounts and deferred loan origination costs.
(3) During the three months ended
Use and Limitations of Non-GAAP Financial Measures
EBITDA, EBITDAre, Adjusted EBITDAre, FFO, and Adjusted FFO do not represent cash generated from operating activities under GAAP and should not be considered as alternatives to net income or loss, operating profit, cash flows from operations or any other operating performance measure prescribed by GAAP. Although we present and use EBITDA, EBITDAre, Adjusted EBITDAre, FFO and Adjusted FFO because we believe they are useful to investors in evaluating and facilitating comparisons of our operating performance between periods and between REITs that report similar measures, the use of these non-GAAP measures has certain limitations as analytical tools. These non-GAAP financial measures are not measures of our liquidity, nor are they indicative of funds available to meet our cash needs, including our ability to fund capital expenditures, contractual commitments, working capital, service debt or make cash distributions. These measurements do not reflect cash expenditures for long-term assets and other items that we have incurred and will incur. These non-GAAP financial measures may include funds that may not be available for discretionary use due to functional requirements to conserve funds for capital expenditures, property acquisitions, and other commitments and uncertainties. These non-GAAP financial measures as presented may not be comparable to non-GAAP financial measures as calculated by other real estate companies. We compensate for these limitations by separately considering the impact of the excluded items to the extent they are material to operating decisions or assessments of our operating performance. Our reconciliations to the most comparable GAAP financial measures, and our condensed consolidated statements of operations and comprehensive income (loss), include interest expense, and other excluded items, all of which should be considered when evaluating our performance, as well as the usefulness of our non-GAAP financial measures. These non-GAAP financial measures reflect additional ways of viewing our operations that we believe, when viewed with our GAAP results and the reconciliations to the corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting our business than could be obtained absent this disclosure. We strongly encourage investors to review our financial information in its entirety and not to rely on a single financial measure.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity withU.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts may differ significantly from these estimates 32 -------------------------------------------------------------------------------- and assumptions. We evaluate our estimates, assumptions and judgments to confirm that they are reasonable and appropriate on an ongoing basis, based on information that is then available to us as well as our experience relating to various matters. All of our significant accounting policies, including certain critical accounting policies, are disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2022 and Note 2 in the accompanying condensed consolidated financial statements included herein.
Seasonality
Demand in the lodging industry is affected by recurring seasonal patterns, which are greatly influenced by overall economic cycles, the geographic locations of the hotels and the customer mix at the hotels. The impact of the COVID-19 pandemic and continuing recovery has and may continue to disrupt our historical seasonal patterns. Subsequent Events
In April and
New Accounting Pronouncements Not Yet Implemented
See Note 2 in the accompanying condensed consolidated financial statements included herein for additional information related to recently issued accounting pronouncements.
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