Xenia Hotels & Resorts, Inc.

Good day and welcome to Xenia Hotels & Resorts' third quarter earnings conference call. All participants will be enlisted on a note. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. Now I'd like to turn the conference over to meet Lisa Amey, Vice President of Finance. Please go ahead.

Thank you, Nick. Good afternoon, everyone, and welcome to the third quarter 2020 earnings call and webcast for Xenia Hotels & Resorts. I'm here with Marcel Verbaas, our Chairman and Chief Executive Officer, Barry Bloom, our President and Chief Operating Officer, and Atish Shah, our Chief Financial Officer. Marcel will begin with a discussion of our quarterly performance as well as recent transactions and capital markets activities. Barry will follow with operating details and an update on our major capital projects. And Atish will finish the call with a discussion of our balance sheet and various liquidity metrics. Following today's prepared remarks, we will open the call for Q&A. Before we get started, let me remind everyone that certain statements made on this call are not historical facts and are considered forward-looking statements. These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K and other SEC filings, which could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issued earlier this morning, along with the comments on this call, are made only as of today, October 30, 2020, and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold. You can find a reconciliation of non-GAAP financial measures to net income and definitions of certain items referred to in our remarks in this morning's earnings release. An archive of this call will be available on our website for 90 days. With that, I'll turn it over to Marcel to get started.

Thanks, Lisa, and thank you all for joining our third quarter 2020 earnings call. The lodging industry continues to be impacted severely by the COVID-19 pandemic and the resulting restrictions imposed by governmental authorities and consumers' attitudes towards travel. While the industry has seen encouraging levels of leisure demand since the relaxation of lockdowns and other restrictions over the past several months, demand from the corporate transit and group segments continues to be limited, particularly in the upper upscale and luxury segments. While these segments continue to be impacted most severely when comparing year-over-year results, we remain steadfast in our belief that the luxury and upper upscale segments will experience a robust rebound, particularly as COVID-19 treatments and therapeutics improve and effective vaccines are widely available. Looking back on the previous few downturns in our industry, luxury and upper upscale rebounded very strongly. We see no reason to believe this time will be any different. Especially as new supply additions should be very limited in the next few years, particularly after properties that are currently under construction are completed. We also continue to believe that the quality of our uniquely positioned portfolio and our market strategy will benefit us greatly as the lodging industry will experience its inevitable recovery in the years ahead. was negative $21.1 million, and adjusted FFO per share was negative 27 cents. With both numbers representing sequential improvements over the second quarter, when the majority of our properties were closed for a significant portion of the quarter. Like the second quarter, the third quarter continues to provide an extremely challenging operating environment. Yet we were pleased with the gradual improvement of our portfolio's performance, which has continued through the month of October. Our geographic diversification, with an emphasis on Sunbelt locations and a focus on key leisure destinations, has benefited us in the past, but it has become even more important in the current environment and as we look towards the future. Our market strategy, as well as our focus on owning hotels and resorts that appeal to various demand segments, has contributed to our ability to have 36 of the 37 hotels and resorts that we currently own open and operating. with 12 of these properties achieving positive EBITDA during the third quarter. We have recommenced operations at our hotels and resorts in a very thoughtful and methodical way over the past few months, emphasizing the need to thoroughly analyze potential sources of demand and the competitive landscape as we projected operating performance compared to a closed scenario for each individual asset. As a result, we have been able to reduce our monthly cash firm while enhancing our ability to stabilize operations at each of our assets as quickly as market conditions will allow. Barry and Atish will provide additional detail on our operating results and cash burns later during this call. On the capital markets front, we have made significant strides in bolstering our liquidity through strategic capital raising initiatives. In August, we completed our debut Senior Secured Notes offering raising $300 million at 6.38%, and we raised an additional $200 million this month through an add-on at a slight premium to PARP. A portion of the net proceeds from both offerings were used to repay outstanding balances on our various corporate credit facilities, with the remaining proceeds retained by the company for general corporate purposes. Following the October offering, we addressed all of our near-term debt maturities by paying off the remaining balance of our two term loans that were due to mature in 2022, as well as the mortgage loan related to our Marriott Dallas Hotel. As a result, we now have no debt maturities until 2023. Our strong relationships with our lender group resulted in collaborative negotiations as we also were able to negotiate amendments to our corporate credit facilities, which include covenant waivers through all of 2021, Relaxed Covenants through the first quarter of 2023, and a two-year extension of our revolving credit facility, pushing this maturity out to 2024. Turning to our transaction activity, after the three transactions that were announced in the early part of the year did not close, we were able to collect a total of approximately $29 million in non-refundable deposits, as we have previously disclosed. After these transactions did not close as anticipated, we thoroughly analyzed our portfolio for opportunities to gain additional balance sheet flexibility and liquidity through the potential disposition of assets. Our collection of high-quality, desirable assets has proven to be an efficient source of liquidity, as we have been able to negotiate a number of dispositions and attract a pricing, particularly given the current operating environment. We previously announced two of these dispositions which were both completed in October, and we recently entered into agreements to sell two additional hotels. We believe that these transactions, coupled with our recent senior notes offerings, are the most logical and cost-effective paths for capital raising at the moment. Our capital markets and disposition activities have bolstered liquidity, addressed near-term maturities, and we believe this has reduced any potential near-term needs for dilutive equity issuances. We strongly believe that none of these dispositions alter our long-term strategy or negatively impact our growth outlook. While each transaction is unique, each disposition generally shared one or more of the following characteristics. Substantial near-term capital requirements without an appropriate projected return, significant directly competitive supply additions, projected difficulty in recovery, and or assets that are not closely aligned with our long-term strategy. These transactions further shape the profile of our company and we believe will further improve the quality and growth prospects of our company in the near and longer term. On October 1st, we completed the sale of residence in Boston Cambridge, the only remaining select service or extended stay hotel in our portfolio for $107.5 million for $486,500 per key. The sale of this asset was a highly competitive process that resulted in a very attractive sale price. The price represented an 11.6 times multiple on the hotel's 2019 EBITDA, an impressive number in the current environment, particularly when considering upcoming capital needs of the hotel, which we were able to avoid through the sale of this asset. In addition to the purchase price, we retained the $3.8 million FF&E Reserve. In connection with the sale, the buyer assumed the existing $60 million Orange Loan, which, along with the net proceeds received in the transaction, further increased our balance sheet flexibility. On October 22nd, we completed the previously announced sale of Marriott Napa Valley Hotel & Spa for $100.1 million. are $364,000 per key. We acquired this hotel in 2011 for $72 million and realized an unlevered IRR of 10.5% on these investments during our ownership. This was another competitive process, and we were pleased with the execution and pricing, which reflected a 9.8 times multiple on the property's 2019 EBITDA, which was the high watermark during our ownership of the hotel. We remain bullish on the long-term strength of the Napa market, as evidenced by our continued ownership of Ondas Napa, which is a high-quality luxury hotel. However, the sale of the Marriott Napa allowed us to reduce our exposure in the market by selling this more group-oriented hotel in this high-end leisure-focused market. Similarly to the Residence in Cambridge sale, this transaction helped us eliminate a significant additional capital investment in the coming years. In addition to the net proceeds received from the transaction, we also retained the $1.5 million FF&E reserve. In this morning's earnings release, we announced that we recently entered into separate agreements to sell two additional hotels, Renaissance Austin Hotel and Hotel Commonwealth in Boston. We previously had Renaissance Austin under contract to be sold earlier this year. After a thorough evaluation, we decided to re-market the Austin Hotel, as our views regarding the desirability of long-term ownership of this hotel had not changed, and certain characteristics of the asset, particularly its dependence on group demand and the outsized impact of COVID-19 on this demand segment, made it less appealing to delay potential disposition of this asset. Despite the discount in price as compared to the original sale agreement, we firmly believe the benefits of selling Renaissance Austin outweigh holding the asset, as it will allow us to continue our strategy of improving the overall quality of the portfolio while also avoiding significant near-term capital expenditure needs. The Sales Hotel Commonwealth, upon completion, will mark our exit from the Boston market for the time being. We acquired this hotel almost four years ago for $136 million, but a sale price of $113 million represents a disappointing outcome for this investment. However, the sale price reflects an 11.8 times multiple on 2019 Hotel Ibadan, which is an attractive pricing level in this pandemic environment, and we are pleased with the results of this competitive process. As is the case with Ransom's Austin, We believe the benefits of selling this hotel at this price now outweigh holding the asset longer term. As we evaluated our liquidity needs and desire to shape our balance sheet to not only get through the current crisis but set ourselves up to be opportunistic as the recovery takes hold, we believe the sale of this hotel provides an opportunity to efficiently raise a significant amount of capital at a superior cost to other alternatives. While both of these transactions are subject to ordinary closing conditions, there are no financing contingencies, and both buyers have posted substantial at-risk deposits. We currently expect each of these transactions to close in the fourth quarter. Successfully completing the two sales in October and signing these two additional contracts shows the liquidity of our high-quality diverse portfolio, as well as our ability to pivot when the need arises. If the two pending transactions are completed as anticipated, we will have sold these four properties for nearly $400 million at an approximately 10 times 2019 EBITDA multiple, an overall valuation that is significantly above the level where our shares are currently trading. We have always prided ourselves on being transaction-oriented, and this is another indicator that even in difficult markets and unprecedented times, we are able to move forward, quickly make decisions, and through the strong relationships we have throughout the industry, drive these transactions to completion. Finally, we continue to appreciate the dedication and efforts of all of our operators associates at our hotels and resorts and our corporate employees during these difficult times in our industry. We continue to believe that our efforts before and during this pandemic to shape our portfolio and balance sheet have positioned us well to not only deal with these short-term challenges, I will now turn the call over to Barry, who will provide details on our third quarter and recent operating performance, as well as an update on our capital expenditures, including the exciting progress on the transformative renovation and the recent reopening of Park High at Avian.