Xenia Hotels & Resorts, Inc.

Good day and welcome to the Xenia Hotels and Resorts Second Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then 2. Please note, this event is being recorded. I would now like to turn the conference over to Danielle Burgun, Vice President of Finance. Please go ahead.

Danielle Burgun Thank you, Andrew. Good afternoon, and welcome to Xenia Hotels and Resorts Second Quarter 2021 Earnings Call-In Webcast. I'm here with Marcel Verbaugh, our Chairman and Chief Executive Officer, Barry Bloom, our President and Chief Operating Officer, and Atish Shah, our Executive Vice President and Chief Financial Officer. Marcel will begin with a discussion of our quarterly performance, industry fundamentals, and the positioning of our portfolio. Barry will follow with more details about our operating results, details on our capital expenditure projects, and the current operating environment. And Atish will conclude our remarks with an update on our recent capital market activities and balance sheet. We will then 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 this morning, along with the comments on this call, are made only as of today, August 3, 2021, 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. I will now turn it over to Marcel to get started.

Thanks, Danielle, and good afternoon to all of you joining our call today. Since reaching an inflection point and turning cash flow positive at the end of the first quarter, the pace of recovery has accelerated. The quarter came in well ahead of our expectations. The results we reported this morning reflected positive momentum in demand across our portfolio and across each segment of business. During the second quarter, we recorded a net loss of $42 million. However, adjusted EBITRE and adjusted FFO per share were each positive at $27.4 million and 8 cents respectively. In addition to continuous sequential improvement in occupancy during the quarter, reaching 55.5 percent for our same property portfolio in June, our operating performance was fueled by strong rates and outstanding cost controls. Our June ADR was virtually equal to the ADR we achieved during June of 2019. Impressively, our same property hotel EBITDA margin was 24% for the quarter. The hotel EBITDA margin we achieved during the quarter was the result of not only excellent cost controls and lower staffing levels at the property level, but also a shift in the revenue mix generated at the hotels and the sequential improvement in ADR as the quarter progressed. With leisure transient demand continuing to be the majority of overall room demands, and group demand being a much smaller piece of the pie, food and beverage revenues continue to lag significantly behind pre-pandemic levels. This shift in revenue mix continues to be a driver of margin performance. On the rate side, the Delta to 2019 same property monthly ADR was reduced from 16% in March to only 0.3% in June. and 17 hotels and resorts, or half of our same property portfolio, achieved a higher ADR in June 2021 compared to June 2019. While the makeup and geographic mix of our current portfolio has historically caused the third quarter to be the portfolio's softest quarter, we are encouraged by a continuing improvement in top-level performance that we have witnessed thus far. Based on preliminary data, our July occupancy of approximately 59.2% and ADR of approximately $223 are the highest we have achieved since the beginning of the pandemic. The resulting red bar of $132.38 would be approximately 18% below July of 2019, continuing the sequential monthly improvement since January of this year, when our red bar was 73% below 2019 levels. Rates have been particularly strong, with July ADR exceeding July 2019 by 9 percent. The continued shrinking of the red bar variance to 2019 gives us reason for optimism for a continued recovery. As I mentioned previously, leader demand continues to drive short-term results in our portfolio and the U.S. logging industry as a whole. While the expectations for strong leader demand during the summer months were high, The actual demand generated by the leisure segment has not disappointed, and we are not seeing signs of a slowdown. While leisure has been the primary driver of the recovery, we have seen an uptick in business transient demand, with midweek occupancy showing significant improvement in recent weeks. Clearly, the recent resurgence of COVID-19 cases and the concern regarding the Delta variant will be a variable as the summer continues, and we prepare for a post-Labor-Day environment. Most signs are pointing to a strengthening of corporate transient and group demand this fall. However, it is unclear at this time how newly mandated or recommended social restrictions might impact the return to work, corporate travel, and meetings business. Despite an operating environment that continues to be difficult to forecast and subject to many uncertainties, we are optimistic about our medium and long-term growth prospects. Our strategy of owning a geographically diverse portfolio of high-quality luxury and upper upscale hotels and resorts has clearly benefited us as we have navigated the impact of the pandemic. Our operating results during this early phase of recovery, highlighted by generating positive monthly adjusted FFOs since March, are reflective of the desirability of our assets to diverse sources of demand and our longstanding focus on investing in Sunbelt and Drive-Thru leisure locations. While we have seen the short-term benefits of our strategy, we believe that we have further opportunities to drive differentiated internal growth. Two specific examples of embedded growth opportunities are a higher-gradiency Portland, which had only been open for a few months when operations were suspended in early 2020, and our repositioned Park High La Vieira Resort, where post-renovation results have been highly encouraging, especially as it relates to room rates. In the second quarter, property ADR was up 64.5 percent relative to the second quarter of 2019, a clear indication of the successful reintroduction to the market of this significantly enhanced resort. Additionally, we expect to benefit from recent capital expenditure projects, with the most significant of these being the renovation of high-agreency Grand Cypress and the addition of the new meeting facilities at the resort. We believe this asset is particularly well-positioned as group demand starts to recover. Since the beginning of 2018, we have completed substantial renovation projects and an additional 16 properties in our current portfolio. We expect to experience the full benefits of these enhancements as the recovery continues. During last quarter's call, I discussed evaluating the portfolio for further ROI opportunities that may go beyond cyclic renovations. Two projects that we highlighted in our release this morning fall into that category, with both the scheduled renovation of Grand Bohemia in Orlando and the planned capital investment at Waldover Storia Atlanta Buckhead being more comprehensive than previously planned. We expect these projects to strengthen the competitive profile of each property and generate strong returns. Barry will provide more details on these projects shortly. We continue to evaluate a number of potential additional ROI projects and repositionings. Regarding potential dispositions, we have done the less heavy lifting over the past several years. However, we expect that we will continue to fine-tune the portfolio while we look to upgrade portfolio quality over time. As always, there will be a particular focus on assets with a lower RETBAR profile and what we believe are lower growth prospects. that have significant upcoming CapEx requirements. One of these hotels is our Marriott in Charleston, West Virginia, a legacy asset in a non-core market that we decided to take to market during the quarter. I will conclude with our thoughts on potential external growth opportunities. Through our most recent balance sheet activities and credit facility amendments, we now not only have more liquidity, but also substantial flexibility to complete transactions. We have analyzed an increasing number of marketed and potential off-market single property transactions. While we are hopeful that potential transactions could materialize in the quarters ahead, and our track record through the prior cycle gives us confidence, we are maintaining a disciplined approach to underwriting acquisition opportunities. Given the strong embedded growth and the expected ramp on assets that we acquired at attractive prices from 2017 to 2019, we can be patient. and act when we believe the transaction fits our strategy and return requirements. While the number of potential opportunities is slowly increasing, we remain of the belief that there will be more properties available as owners gain more clarity on each asset's recovery path, there are more available reference points on pricing, and financing issues are worked through. I will now turn the call over to Barry, as he will provide additional details on our second quarter performance, our capital projects, and the current operating environment.