Xenia Hotels & Resorts, Inc.

Hello and welcome to today's Zinnia Hotels and Resorts Incorporated second quarter 2022 earnings conference call. My name is Bailey and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad. I would now like to pass the conference over to our host, Amanda Bryant, Vice President of Finance. Please go ahead.

Thank you, Bailey. Good afternoon, and welcome to Xenia Hotels and Resorts second quarter 2022 earnings call and webcast. I'm here with Marcel Verbas, our chairman and chief executive officer, Barry Bloom, our president and chief operating officer, and Atisha, our executive vice president and chief financial officer. Marcel will begin with a discussion on our quarterly performance and long-term growth opportunities. Barry will follow with more details about our recent operating trends and status of our capital expenditure projects. And Atish will conclude our remarks with an update on our balance sheet and full year guidance. 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 interim 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, 2022, and we undertake no obligation to publicly update any of those forward-looking statements as actual events unfold. You can find a reconciliation of non-GAAP financial measures to net loss and definitions of certain items referred to in our remarks in this morning's earnings release. The property level portfolio information we'll be speaking about today is on a same property basis for 32 hotels. This excludes Hyatt Regency Portland at the Oregon Convention Center and W Nashville. 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, Amanda, and good afternoon to all of you joining our call today. Momentum in our business picked up meaningfully since our last earnings call in early May. As we reported this morning, RETFAR grew 2% in the second quarter as compared to 2019, marking the first quarter since the onset of the pandemic where quarterly RETFAR exceeded the same period in 2019. With a strong leisure base, higher levels of corporate transit and group demand allowed our properties to grow revenues and profits above our expectations. In the second quarter, net income was $27.6 million. Adjusted EBITDA RE was $88.6 million, and adjusted FFO per share was $0.57. As demand continued to recover in what has historically been the seasonally strongest quarter for our portfolio, all of our properties generated positive hotel yield. Grab bar for the quarter was $186.75. With a 2% growth over the same period in 2019, reflecting a substantial sequential improvement from the first quarter, when RECPAR was 19.5% below 2019. The RECPAR growth was primarily driven by strong results in the months of April and June and was fueled by substantial ADR growth throughout the quarter. Average daily rate increased 16.6%, offset partially by about 10 points lower occupancy as compared to the second quarter of 2019. Graph Bar growth exceeded 30% in four of our top 10 markets, including Key West, Phoenix, San Diego, and Napa. We continue to be pleased with our operator's ability to control costs in this inflationary environment. Second quarter hotel EBITDA margin improved 365 basis points as compared to 2019, benefiting from the combination of robust rate growth and favorable expense controls. As a result, same-property hotel EBITDA for the quarter, exceeded the 2019 level by 15%, while our adjusted EBITDA RE came within 1% of the amount we generated in the second quarter of 2019. Like many of our peers, our portfolio of premium hotels in top 25 markets and key leisure destinations has benefited from a rapid recovery in leisure demand in recent quarters. However, we believe we are in the early innings of a multi-year recovery in overall lodging demand, and our portfolio remains well-positioned to experience the tailwinds of improving corporate trends in the group demand. Near-term trends remain favorable, and while visibility remains limited, we are not seeing signs of a meaningful slowdown in demand. We are off to a solid start to the third quarter, which historically has been the seasonally weakest quarter for our current same-property portfolio. Preliminary RAT bar for the month of July was approximately $157, driven by occupancy of approximately 64%, an average daily rate of approximately $247. July estimated RAP part was approximately 4% below the result achieved in July 2019, and approximately 16% higher than July 2021. Rate growth continues to be impressive, as our estimated ADR exceeded July 2019 by approximately 18%. Midweek demand improved steadily after the Fourth of July holiday caused business travel to be muted in the early part of the month. We continue to be well positioned to benefit from a diverse set of demand drivers, even as the summer travel season winds down over the next month. We have been pleased that our properties have been able to pivot to capture substantial leisure demand in their respective markets. However, pre-pandemic revenues at the majority of our hotels were primarily generated by corporate transients and group demands, particularly after Labor Day. We expect that improving demands from group and corporate transients, on top of continuing strong leisure demands, will enable our operators to drive occupancy gains in the months and quarters ahead. So, where are the greatest opportunities for growth in the portfolio? Let me highlight two key areas. First, we have meaningful growth left in our same property portfolio. Same property hotel EBITDA in the first half of 2022 was down 7% as compared to the first half of 2019. Seven of our top 10 markets, as measured by contribution to 2019 EBITDA, have yet to fully recover back to 2019 levels, which is reflective of the greater dependence on corporate transit and group demand in the hotels we own in those markets. Six of our larger corporate and group-focused hotels, namely Marriott San Francisco Airport, High Regency Santa Clara, our two Dallas hotels, and our two Westerns in the Houston Galleria market, we're collectively more than $20 million behind in terms of hotel EBITDA in the first half of 2022 as compared to the first half of 2019. These six hotels generated approximately 30% of our same property hotel EBITDA in 2019, significantly above the approximately 18% of hotel EBITDA they generated during the first half of this year. While 2019 did not reflect peak earnings for every market, it is a good starting point to assess opportunities for recovery and growth in the back half of this year and into 2023. Importantly, our hotels in most of the markets that have lagged thus far are currently experiencing good pickup in both group and corporate transient demand. We believe that this momentum will help us continue to close the EBITDA gap to 2019. The second significant driver of growth for our portfolio is represented by our two most recent acquisitions. As previously discussed, we expect W. Nashville and Highland Regency Portland to generate between $40 and $45 million in hotel key without annually upon stabilization. Both properties are building their books of group business in addition to corporate transit and leisure demand. High Green Sea Portland is already starting to benefit from city-wide and events at the adjacent Oregon Convention Center and the Moda Center. The hotel's group base has steadily improved throughout the year, with almost 60,000 group room nights actualized and on the books for 2022 as of the end of the second quarter. Profitability in Red Fire improved significantly in the quarter, with the hotel achieving occupancy of approximately 68% in June, the highest level since opening. Although the pandemic has caused stabilization to be delayed compared to underwriting when we acquired the hotel in late 2019, we remain confident in our belief that the hotel will reach the stabilized EBITDA we expected upon acquisition. Meanwhile, WNashville continues to perform well and in line with our expectations. RefR exceeded $250 every month during the second quarter, and significant upside remains as the outstanding food and beverage facilities are optimized from an operating perspective, and corporate transient and group demand builds. The hotel is a unique offering for groups with 18,000 square feet of meeting space in what is a very rapidly growing market. We believe this is an important element to achieve the optimal demand segmentation mix to drive maximum profitability. We continue to expect that the hotel will deliver between $13 and $15 million of EBITDA during our ownership period this year. While a potential recession may slow the rate of recovery in the lodging industry in the short term, we remain very optimistic about our growth prospects in the years ahead. We believe our strategic focus, allowing a multitude of demand generators to drive portfolio performance, as well as a balanced mix between group, corporate transients, and leisure demands, will continue to serve us well in the next phase of the industry recovery. With that, I will turn the call over to Barry, who will provide additional details on our second quarter performance and an update on significant CapEx projects we have scheduled for this year and early 2023.