Xenia Hotels & Resorts, Inc.

Hello everyone and welcome to the Xenia Hotels and Resorts Inc Q3 2023 earnings conference call. My name is Charlie and I'll be coordinating the call today. You will have the opportunity to ask a question at the end of the presentation. If you'd like to register a question, please press star followed by one on your telephone keypad. I'll now hand over to our host, Amanda Bryant, Vice President of Finance to begin. Amanda, please go ahead.

Thank you, Charlie, and welcome to Xenia Hotels and Resorts third quarter 2023 earnings call and webcast. I'm here with Marcel Verbas, our chair and chief executive officer, Barry Bloom, our president and chief operating officer, and Atish Shaf, our executive vice president and chief financial officer. Marcel will begin with the discussion on our performance. Barry will follow with more details on operating trends and capital expenditure projects, and Atish will conclude today's remarks on our balance sheet and outlook. 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 or 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 and 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 yesterday, along with the comments on this call, are made only as of today, November 1, 2023, and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold. You can find reconciliations of non-GAAP financial measures to net loss and definitions of certain items referred to in our remarks in the earnings release, which is available on the investor relations section of our website. The third quarter 2023 property level information we will be speaking about today is on the same property basis for all 32 hotels unless specified otherwise. 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 morning, everyone. Overall results in the third quarter were in line with our expectations. Our demand segmentation mix continues to revert towards pre-pandemic levels. as business transit and group demand continue to recover. A couple important renovation projects have essentially wrapped up, and the transformation of the Hyde Regency Scottsdale Resort and Spa in Ganey Ranch is well underway. And our recently acquired hotels, W. Nashville and Hyde Regency Portland at the Oregon Convention Center, reported a solid quarter of earnings contribution, as they were among our top-performing assets during the third quarter. For the quarter, we reported a net loss of $8.5 million. Adjusted EBITRE was $46.3 million, and adjusted FFO per share was $0.26. Same property REFRA in the quarter was $158.48, a 0.4% increase as compared to the third quarter of 2022. Occupancy increased 70 basis points, while average daily rate decreased 0.6%. Our results were meaningfully impacted by three of our properties undergoing significant renovations in the quarter. This included the comprehensive renovation at the Kimpson Hotel Monaco Salt Lake City, the guest rooms renovation at Grand Bohemian Hotel Orlando, and the transformative renovation at Hyde Regency Scottsdale. As Barry will discuss in more detail in his remarks, the Salt Lake City renovation has now been completed. The Orlando project will be complete in the next several days, and the Scottsdale project is progressing as planned. Excluding Hyatt Regency Scottsdale, Ref Bar increased 4% as compared to the third quarter of 2022, highlighting the impact this project had on our results in the third quarter and will continue to have in the near term. As compared to the third quarter of 2019, for the 29 hotels we currently own that were open at that time, excluding Hyatt Regency Scottsdale, Ref Bar was down 1.1% in the third quarter. For these 29 hotels, occupancy was roughly 11 points below 2019, while ADR was up 14.3%. While expense growth continues to put pressure on bottom line results in the lodging industry, margin contraction for our portfolio moderated in the third quarter, as hotel EBITDA margin on a same property basis, declined by 169 basis points compared to the third quarter of 2022, which was in line with our expectations. Excluding Scottsdale, margins contracted just 60 basis points, which is a significant improvement compared to the second quarter margin decline. Recall that property level expenses in the third quarter of last year started normalizing as many of our properties filled open positions and resumed services as the year progressed. Turning to our individual markets, In the third quarter, the strongest REF PAR growth occurred in several markets that are more dependent on business transit than group demand. Houston, Dallas, Portland, and Nashville reported double-digit REF PAR growth, while Pittsburgh and San Francisco experienced high single-digit REF PAR growth. Due to renovation disruption, Phoenix and Salt Lake City were our two weakest REF PAR markets in the quarter, while several leisure-oriented markets, including Napa and Savannah, experienced mid-teen percentage REF PAR declines. We are clearly seeing signs of leisure demand normalizing from its historically high post-pandemic levels, both within our portfolio and in overall industry data. However, our portfolio has always benefited from a balanced mix of group, business transient, and leisure demand, and we are continuing to see the gradual shift back to our pre-pandemic segmentation mix. Group business remains a bright spot. Group room revenue in the third quarter was up a little over 3% over the third quarter of 2022. And excluding Scottsdale in both periods, our group room revenue was up about 9%. We continue to see meaningful improvements in group business at our important group oriented hotels in Orlando, Portland, Atlanta, and Dallas. By way of reminder, we estimate that group has historically been about a third of our overall business mix. Group revenue pace for full year 2023 is up about 13% versus last year for our same property portfolio, and up about 16% if we exclude Scottsdale, where the meeting space is now mostly unavailable. Group ADR for full year 2023 is up about 4%, again, excluding Scottsdale. Atisha will provide an early look into our 2024 group base during his remarks. Business transient demand continued to improve during the third quarter. Overall, occupancy improved on Mondays, Tuesdays, and Wednesdays as compared to the third quarter of 2022, while weekend occupancy was down slightly as compared to the same quarter last year. Two of our four strongest Grefgar growth markets reflected results from our most recent acquisitions, IDWC Portland at the Oregon Convention Center and W National. with Refbar increasing by 26.8% and 17.3%, respectively, at these hotels for the quarter. Both properties are benefiting from significant growth in group business as they continue on their path towards stabilization. For 2023, group room revenue on the books at both properties has increased more than 40% over 2022 levels, driven by solid increases in room nights. Business transit production is also driving growth, as both properties increased volumes with important corporate accounts in recent months. Our other top performing markets for the quarter were both located in Texas, where the Houston and Dallas markets reported third quarter ref park growth of 25.2% and 14.2% respectively. Our hotels in these markets not only drove outstanding third quarter results, but they are also well positioned to capture additional growth in the coming years. because of favorable market dynamics and important capital investments made in recent years. Overall market fundamentals reflect a favorable supply and demand backdrop. Texas continues to be a high-growth state, both in terms of population growth and business incubations and relocations. Supply growth through 2025 in our specific submarkets is also benign. The Dallas CBD submarket is expected to peak at 2.3%, the Houston North Woodland Submarket at 2.7%, and the Houston Galleria Submarket is expected to see no new supply over the next two years. In terms of earnings contribution, our Houston properties peaked in 2015, and since that time have successfully broadened their base of business and reduced reliance on citywide conventions. We also invested a significant amount of capital into our three Houston hotels leading up to and through the pandemic. The two westerns received about $50 million in capital, mostly by renovating and upgrading guest-facing areas. And in 2020 and 2022, we invested approximately $12 million in additional capital expenditures at Marriott Woodlands, primarily on significant improvements to guest rooms and guest bathrooms. We are pleased to see the benefits of these investments as the market continues its recovery from the pandemic and as economic activity in the region continues to improve. And despite the significant capital expenditures we have made into these hotels during our ownership period, our overall investment basis of approximately $360,000 per key on average for the three hotels remains attractive, especially given their excellent locations, high quality, and extensive meeting facilities and supporting amenities. I would now like to turn to our Scottsdale project. As I mentioned earlier, this transformational renovation is progressing as planned. from a schedule and cost perspective. While the disruption to our short-term results is significant, this disruption also continues to be in line with our expectations. As we anticipated, demand in the Phoenix-Scottsdale market has softened a bit this year, particularly after a very strong first quarter that was aided by the Super Bowl in early February. The market is experiencing similar signs of moderating leisure demand that we are witnessing in other markets. As we indicated when we initially announced this transformational renovation, our strategy revolves around further optimizing the demand segmentation mix at the resort and being able to drive greater and higher rated group business. We also are aiming to create an upgraded experience that will allow the resort to compete more effectively within its luxury competitive set for higher rated corporate transit and leisure demand. This competitive set includes a number of resorts that have also received significant capital investments in recent years. The expansion of our meeting space, the significant upgrades to our pool complex, the relaunching and revitalization of our food and beverage amenities, the substantial investment in our upgraded rooms product, and the ultimate up-branding to a Grand Hyatt resort are all important components of this transformation. When we initially discussed this project, we indicated that we believe that the record 2022 results at the resort were driven by an unusually high level of post-pandemic domestic leisure demand, as well as expenses that were well below normalized levels. We also spoke about viewing 2019 as a more normalized year, both from a demand segmentation perspective and earnings base for the property. Given the resort's aging facilities and expected normalization of leisure demand in the U.S. overall, and the Phoenix-Cottsdale market in particular, we completed an extensive analysis of long-term supply and demand trends, the competitive landscape, and the challenges and opportunities that the resort presented. Everything we are seeing in the market this year has further increased our confidence in the decision we made to commence this transformational renovation and up branding to a grand height, from both a scope and a timing perspective. The Phoenix-Scottsdale market continues to be very attractive for all segments of hotel demand, which will be bolstered by the expected economic and population growth in the markets in the years and decades ahead. With a well-located and upgraded and expanded Grand Hyatt Resort, we believe we will be able to compete very effectively in the Scottsdale luxury resort market. And as a result, we expect the resort to grow earnings significantly over both the 2019 pre-pandemic peak year and the outsized leisure driven results we achieved in 2022. As a reminder, we have a relatively low investment basis in the resort, and we will continue to do so after making this approximately $110 million additional investment. Our anticipated gross investment basis of less than $700,000 per key upon completion of the project is especially attractive when compared to recent sales of comparable resorts. We remain extremely excited about the resort's future and continue to believe strongly that this project will be a meaningful driver for portfolio earnings growth in the years ahead. Despite a lot of economic and geopolitical uncertainty right now, the year has unfolded largely as expected as it relates to our portfolio performance. While we have been impacted by substantial renovation disruption as anticipated, we are optimistic that our continued investments in the portfolio will drive attractive returns. A teacher will provide additional details regarding our revised full year 2023 outlook. We have slightly lowered the midpoint of our projected adjusted EBITDA RE range to reflect recent demand trends. However, we continue to believe that our portfolio is well positioned to outperform in the years ahead, given its high quality, excellent locations, diversity of demand makes, and recent and ongoing capital investments. I will now turn the call over to Barry, as he will provide more detail on our portfolio's performance and an update on our capital expenditure projects.