Xenia Hotels & Resorts, Inc.

Hello all and welcome to Xenia Hotels and Resorts Second Quarter 2024 Earnings Conference Call. My name is Lydia and I'll be your operator today. After the prepared remarks, there'll be an opportunity to ask questions. If you'd like to ask a question during the Q&A, you can do so by pressing star followed by one on your telephone keypad. I'll now hand you over to Aldo Martinez, Manager Finance, to begin. Please go ahead.

Thank you, Lydia. And welcome to Xenia Hotels and Resorts second quarter 2024 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 Shah, our executive vice president and chief financial officer. Marcel will begin with a discussion on our performance. Barry will follow with more details on operating trends and capital expenditure projects. And Atish will conclude today's remarks with commentary 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 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 yesterday afternoon along with the comments on this call are made only as of today, August 2nd, 2024, and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold. You can find the reconciliation of non-GAAP financial measures to net income and definitions of certain items referred to in our remarks in our second quarter earnings release, which is available on the investor relations section of our websites. The property level information we will be speaking about today is on a 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 Aldo, and good morning to everyone joining our call today. Our portfolio delivered meaningful referral growth in the second quarter, as we continue to benefit from improvement in corporate transient and group demand in many of our markets. offset by some weakness and leisure demand as the quarter progressed. We also continue to make significant progress on the most impactful project in the history of our company, the transformational renovation of Hyatt Regency Scottsdale. This project continues to be on track from a timing perspective, and the excitement is starting to build as we near the completion of most of the major components of the renovation and the relaunch of the property as the luxury Grand Hyatt Scottsdale Resort. Despite a continued strong focus on expense controls by our operators and asset management team, our hotel EBITDA margin in the second quarter was a bit lower than we had projected. This lower margin, combined with RFR growth that was slightly below our forecast, cost our adjusted EBITDA REIT to come in approximately $2 million below our internal estimate for the quarter. This was offset by a tax benefit positively impacting adjusted FFO that Atish will highlight in his remarks. For the second quarter of 2024, the company's net income was $15.3 million. Adjusted EBIT IRE was $68.4 million, and adjusted FFO per share was 52 cents. The renovation disruption of Hyde Regency Scottsdale continued to be a substantial headwind in year-over-year comparisons, as the resort delivered particularly strong results in April and May of last year, before the start of the renovation project in June. Year-over-year comparisons will become significantly more favorable as the year progresses, now that we have started lapping the commencement of the renovation. Same-property REF PAR for our 32-hotel portfolio increased by 1.8% for the quarter, while REF PAR increased by 5% when excluding Hyadrine C. Scottsdale. For these 31 hotels, occupancy increased by 389 basis points, while ADR decreased by 0.5%. RFR growth was driven by strong results at our newly renovated Grand Bohemian Hotel Orlando, Canary Hotel Santa Barbara, and Hotel Monaco Salt Lake City. Additionally, we continue to achieve encouraging results at a number of our large group-oriented hotels, such as our three Houston hotels, Park Hyatt Aviara, Fairmont Dallas, the Ritz-Carlton Pentagon City, and Hyatt Regency Santa Clara. On the same property basis, second quarter same property hotel EBITDA of $73.4 million was 7.5% below 2023 levels, and hotel EBITDA margin decreased 238 basis points. Excluding high-agreedancy Scottsdale, second quarter hotel EBITDA increased 1.2%, and hotel EBITDA margin decreased by 100 basis points. The increase in occupancy, slight decrease in ADR, and a mixed shift in food and beverage revenues contributed to the margin decline for the quarter in comparison to last year. Our portfolio demand segmentation continues to revert towards pre-pandemic levels, with group and corporate transient demand recovering and leisure demand softening a bit during the quarter. Same-property group room revenues, excluding high-revenue C. scottsdale, increased 5% as compared to the second quarter last year, and corporate transient demand continued to strengthen, as evidenced by increases in midweek occupancy. Turning to our capital expenditure projects, we now project that we will spend between $125 and $135 million on property improvements during the year, an increase of $5 million compared to our prior estimate. This is driven by an increase of the Scottsdale project, as we have opted to add and accelerate some exterior upgrades. We now expect to spend $70 to $75 million on the Scottsdale renovation in 2024. We still anticipate full completion of the project, including the ballroom and pre-function space expansion, by the end of this year. However, we expect to complete the vast majority of the renovation by the end of the third quarter. We have made tremendous progress on the project over the past several months and continue to do so during the seasonally slower summer months in the Phoenix-Copsdale market. After completing this spectacular new pool complex, and its food and beverage amenities earlier in the year, we are now also nearing the completion of the guest room renovation, with almost 90% of the guest rooms having been renovated to date. The remaining guest rooms are still expected to be completed by the end of the third quarter, after which our room count will have increased to 496. The renovation of the public space, including the lobby, lobby bar, hotel markets, and all indoor and outdoor dining spaces, is also progressing as planned, And we also expect to complete these components by the end of the third quarter. We remain particularly excited about our collaboration with Chef Richard Blais on the restaurant concepts and menus, as we believe that the upgrade of food and beverage offerings at the resort will be extremely well received by resort guests as well as local residents. Given the expected completion of all the aforementioned components by the end of the third quarter, we expect that the resort will be relaunched as the Grand Hyatt Scottsdale Resort in early October. At that time, the resort will be fully functional and highly attractive for our anticipated higher-rated leisure and group segments, with just the completion of the ballroom expansion and a limited amount of exterior upgrades to follow by the end of the year. Given the revenue displacement we experienced in the second quarter and are now expecting in the third quarter, we have increased our estimate of renovation disruption on our adjusted EBITRE in 2024 by $1 million. While the renovation will continue to displace a significant amount of revenue in EBITDA during the third quarter, this disruption will largely be eliminated in the fourth quarter, as the impact of the ballroom expansion on the overall operations and fuel of the resort is expected to be minimal. We are thrilled to be nearing the completion of this significant project and continue to be very excited about the earnings growth potential that we expect we will create through this transformative renovation and upbranding. Turning to transaction activity, we previously disclosed that subsequent to the end of the second quarter, we sold the Laurien Hotel and Spa in Alexandria, Virginia, for a sale price of $30 million. While it is a relatively small transaction, we were pleased with the execution of the sale, with the price representing a 21.3 times multiple on Hotel EBITDA for the 12 months ended May 31, 2024. We believe that a successful sale of this hotel at this attractive pricing and the ability to use the proceeds in a more accretive manner was a prudent capital allocation decision for the company and is reflective of the value embedded in our portfolio. We will continue to exercise patience as we evaluate any further potential dispositions and possible acquisitions to drive shareholder value in the years ahead. Meanwhile, we remain pleased with the overall quality and diversification of the portfolio. and our internal growth potential. While we don't expect meaningful shifts in the composition of our portfolio in the near term, we will continue to look for opportunities to enhance our portfolio's quality and earnest growth potential if market conditions are conducive, as we have done throughout the history of our company. We intend to continue to manage our balance sheet prudently as we evaluate these potential growth opportunities. Looking ahead to the second half of the year, we are taking a slightly more cautious stance compared to our expectations last quarter. We estimate that current same-property REF BAR increased approximately 2.6% in July as compared to the same period in 2023. When excluding Hydro in C. Scottsdale, we estimate that July REF BAR is up approximately 1.9% compared to last year. Despite these positive top-line results in July, we have slightly reduced our estimates for adjusted EBIT IRA for 2024 as compared to last quarter. This is reflective of both our recent operating results and greater uncertainty regarding our portfolio and market performance in the second half of the year. The teacher will provide additional detail on our updated guidance during his remarks. Despite short-term uncertainty, we remain optimistic regarding our portfolio performance and earnings growth potential as we look ahead to 2025 and beyond. We continue to expect that embedded growth in the portfolio will be a significant driver for future outperformance. particularly as the Grand Hyatt Scottsdale Resort ramps up. And importantly, supply growth is anticipated to remain muted in the luxury and upper upscale segments in our markets over the next several years. I will now turn the call over to Barry to provide more details on our operating results and capital projects.