Xenia Hotels & Resorts, Inc. (XHR) Earnings Call Transcript & Summary

Thank you, Marcel. Good afternoon, everyone. For the second quarter, our 30-hotel same-property portfolio RevPAR was $206.54, an increase of 5.6% compared to the second quarter of 2025 with growth entirely rate-driven. Based on occupancy at 72.3%, flat with last year at an average daily rate of $285.71, up 5.7%. As Marcel mentioned, the second quarter saw an anticipated shift in room spend for the same-property total RevPAR of $366.17, an increase of 3.3% compared to last year's second quarter. This modest growth in non-room spend reflects a shift in mix related to an increase in transient demand and the anticipated mix of association versus corporate group demand resulting in a difficult comparison to the same quarter last year. Looking at the quarter compared to 2025 on a same-property basis. April RevPAR was $219.74, up 6% and May RevPAR was $199.78, up 2.6%. June was the strongest performing month in terms of growth with RevPAR of $200.32, up 8.6% with occupancy relatively flat. 19 of our 22 markets posted positive RevPAR growth for the quarter. Palomar Philadelphia led our portfolio with same-property RevPAR growth of 22%, while Monaco Salt Lake City followed at 13.1%. Our Phoenix properties grew at a combined 12.7%. We also saw a double-digit percentage growth in Grand Bohemian Mountain Brook of 12.2%; Park Hyatt Aviara, up 11.3%; and Hyatt Regency Santa Clara 11.1%. The Ritz-Carlton Pentagon City was up 8.4%. The Ritz-Carlton, Denver and Fermont Pittsburgh also posted healthy growth of 7.2% and 7.1%, respectively. Growth was fairly balanced on day of week trends in the quarter. For all segments on the same property basis, weekly RevPAR, [ Sunday ] was up 5.9%, while weekend RevPAR Friday and Saturday was up 5.2%. Rate growth was broad-based and well balanced across every day of the week, ranging just under 5% on Thursdays to nearly 7% on Mondays. On the expense side, total same-property hotel operating expenses were $210.6 million for the quarter, an increase of 4.2%, outpacing our 3.3% revenue growth resulting in 65 basis points of margin decline, with the largest single factor being the lapping of a significant real estate tax credit in the second quarter of last year. Looking at the individual components, rooms expense grew approximately 4% on a per occupied room basis, while food and beverage expenses grew 2.3%, greater than the 1% growth in food and beverage revenue, which impacted F&B profitability. This was a direct result of a 1.5% increase in less profitable outlet business and a 1.1% decline in typically more profitable banquet business. This last income declined nearly 12% due primarily to less cancellation and attrition revenue compared to last year but is expected to balance itself out over the course of the full year. A&G expenses grew approximately 7.9% for the quarter, to a large part to higher credit card commissions related to the higher transient taxes. Sales and marketing expenses continue to be well controlled and were nearly flat to last year. Property operation and maintenance expenses declined just over 1% for the quarter. While energy expenses increased nearly 11% due primarily to significant increases in gas and water expenses, offset by a more moderate 4% increase in electricity due in part to efficiencies from our ongoing refurbishment and replacement of chillers at many of our properties. Same-property EBITDA was $84.9 million for the quarter, an increase of 1% and a margin of 28.7%. Turning to CapEx. We invested $15.4 million of portfolio improvements during the second quarter, bringing our year-to-date total to $30.6 million. During the second quarter, we finalized planning at Royal Palms Resort and Spa, the renovation of guest rooms and corridors in the 68-room MontaVista building and renovation of Tea Cooks restaurant, which will take place during the third quarter. Additional ongoing upgrades across the portfolio include upgrading mechanical systems at 8 hotels and ongoing minor improvements to guest rooms at [indiscernible]. Looking ahead to the fourth quarter, we have two significant renovations scheduled to begin, both of which are currently on track. We will perform the first two phases of a comprehensive room renovation of corridors and guest rooms at Andaz Napa and a renovation of guest rooms, corridors and meeting space at the Ritz-Carlton, Denver. We continue to expect full year capital denetures of between $70 million and $80 million unchanged from our prior guidance. Before I conclude, I want to provide an update on our four Marriott Autograph Collection hotels. These four hotels have been strong performers, and we are in the midst of further strengthening these hotels by evolving their individual names and positioning better tied to their local markets. The hotels will continue to maintain their autograph collection branding, but the new names and positioning will better fit our rep collections philosophy. With hotel being distinctive in part by capturing the local essence of each market in which they reside. The first step of this effort began earlier this year we transitioned property management to Davidson Hotel Group that transition went smoothly with no disruption in hotel performance. In the next few months, we will be renaming these [indiscernible] properties. As with the management transition, we do not anticipate any meaningful disruption of hotel operations. We look forward to even stronger performance from each of these hotels under Davidson's management as they continue to be part of Marriott's Monograph Collection. With that, I will turn the call over to Atish.

Thank you, Barry. I will provide an update on our balance sheet, touch on the second quarter versus our prior expectations and then talk though our updated 2026 guidance. At quarter end, we had approximately $1.4 billion of outstanding debt. Approximately 3/4 of our debt was at fixed interest rates. Our weighted average interest rate at quarter end was about 5.5%. Our leverage ratio, as calculated under our credit facility was approximately 4.8x trailing 12-month net debt to EBITDA. Over time, we expect our leverage ratio to achieve our long-term target of sub-4x net debt to EBITDA. As a reminder, we have no preferred equity or senior capital. During the quarter, we further resized the Andaz Napa mortgage loan by paying it down by approximately $5 million ahead of the hotel's planned renovation, which is scheduled to begin next quarter. Approximately 7% of our debt matures next year with our most significant maturities in 2029 and '30. We continue to believe our capital structure is a source of strength, given we have mostly a mostly unencumbered asset base, a well-laddered maturity profile and a strong syndicate of banking partners. At quarter end, available cash was $112 million, and our $500 million revolving line of credit was fully undrawn, which resulted in total liquidity of $612 million. We did not repurchase or issue any shares during the quarter. We have $97.5 million remaining on our buyback authorization and $200 million of capacity under our ATM offering program. We paid a second quarter dividend of $0.14 per share. If annualized, this reflects an approximate 2.5% yield on our share price. We continue to balance dividend level with the utilization of significant COVID era NOLs. We also continue to prioritize ways in which we can drive shareholder value such as investments in our existing assets or share repurchases. As a reminder, in 2025, we finished the Grand Hyatt Scottsdale project, which we are benefiting from now. And as we wrap that up, we turned more aggressively to share repurchases, buying approximately 9% of our outstanding shares last year at a sub $13 weighted average price per share. Moving ahead to the second quarter relative to prior expectations, just two points to frame the discussion ahead on guidance. First, as Marcel mentioned, second quarter results came in slightly ahead of our expectations with better RevPAR and EBITDA margin than expected, resulting in a $1 million beat to the adjusted EBITDAre implied by the quarterly weighting that we had previously indicated. Second, as to our expectation for event-driven demand this year, we had previously guided to a range of 25 to 50 basis points of RevPAR growth due to special events. Our current estimate is that event-driven demand materialized at the low end of that range. And the mix of business being more transient and group didn't provide as much of a total revenue lift as had been anticipated. Turning next to our 2026 guidance. We've raised our full year adjusted EBITDAre guidance by $7 million to $273 million at the midpoint. The $7 million increase to adjusted EBITDAre guidance is on top of the $6 million increase we made last quarter. Our adjusted EBITDAre expectation has moved up approximately 2.5% since last quarter or 5% since we initially provided full year guidance in February. As to the weighting by quarter for the remainder of the year, we expect to earn in the high teens percentage range of full year adjusted EBITDA in the third quarter and just under 1/4 of full year adjusted EBITDAre in the fourth quarter. As to RevPAR growth, we've increased the midpoint by 150 basis points to 5.5%. As we look ahead, a couple of things give us confidence in our outlook. First, group room revenue pace for the second half was up 12% at the end of June versus the year prior. That reflects a 300 basis point increase from where it stood a quarter ago. The pace increase is 80% demand-driven and 20% rate driven. This higher pace reflects strong production in the second quarter with group room revenue production up over 25% for the back half of this year compared to production in the second quarter of 2025 for the back half of 2025. We have more than 3/4 of our expected second half group business already booked. Second, we continue to see strong transient demand reflected both by results from our more transient-oriented hotels and overall transient pace. Based on our July projected RevPAR, several of our transient-oriented hotels, excluding those that benefited from special events, showed strong year-over-year gains. Those properties include our hotels in Salt Lake City, Pittsburgh and Downtown Orlando. As to transient pace at the end of June, it was up in the high single-digit percentage range for both August and September. Turning next to our expectation for total RevPAR. We have increased our total RevPAR growth guidance by 75 basis points to 5.75% at the midpoint. The variance in growth of RevPAR versus total RevPAR reflects second quarter transient versus group mix. We expect second half total RevPAR to grow about 200 basis points more than RevPAR. None of our other guidance assumptions have changed. Guidance for interest expense, G&A expense, income tax expense and capital expenditures are all the same as a quarter ago. We expect adjusted FFO per diluted share of $2.02 at the midpoint, which is an increase of $0.08 at the midpoint. That expectation reflects about 15% growth in FFO per share relative to 2025. In closing, our high-quality, well-located portfolio of luxury and upper upscale hotels affiliated with strong brands and managers makes us well positioned for growth, particularly given the supply backdrop and fundamentals. We will now open the call for questions. Jen, may we please start the Q&A session.

[Operator Instructions] Your first question comes from the line of Chris Darling with Green Street.

Marcel, hoping you could talk a little bit more about what you're seeing in the transaction market these days, both maybe from a pricing perspective, but also in terms of depth of the bidding tent and anything else that has caught your eye?

Yes, sure. Thanks for the question, Chris. Yes. Like I said in my prepared remarks, I do think we're seeing a slightly more robust transaction market than we've seen over the past several years. And I think some of that obviously has to do with the fact that we are, overall, as an industry, seeing some pretty good sustained growth over the last couple of quarters. I think that creates an environment where it does become a little bit easier for buyers and sellers to potentially find each other and end up with pricing that could work on both sides. It's obviously a little bit easier to look at a property that you can point a little bit more easily towards growth over the next several years to give you some more confidence about completing the transaction and it also make getting to pricing that actually makes more sense for a seller in that situation. So overall, I think we're just seeing, like I said, a little bit more robust markets, certainly allows us to to build the pipeline a little bit more than what we've seen over the last several years and dig a little bit deeper into some of those opportunities.

Yes, it's helpful. And maybe a question for Barry here. But as it relates to expense growth, you spoke about some of the moving pieces this quarter. And how that may have been a bit of a headwind in the second quarter. How should we be thinking about OpEx per occupied room on a go-forward basis for the portfolio, both second half of the year and then sort of on a run rate basis?

Yes. I think on a [indiscernible] room basis, I think things are overall relatively normalized and that we're seeing [indiscernible] room growth in the 3% to 4% range. That's tempered obviously and varies by quarter given how much occupancy growth it is. So obviously, this quarter, we had flat occupancy. So the overall expense levels were a little bit higher than we had hoped for. I think embedded in the guidance and forecast is that we're going to drive a little more occupancy over prior year in Q3 and Q4, and that should help make or certainly assist in, at least on a property room basis, the expense levels being kind of towards the lower end of that range.

Your next question comes from the line of David Katz with Jefferies.

You've, I think, done a very solid job with your existing portfolio. And I know that history suggests otherwise. But is the prospect of any corporate M&A on or off the table?

Well, I think as we've talked about in the past, corporate M&A is really driven by what the overall environment looks like from a potential buyer and solar interest, obviously. I think we've focused very much on continuously upgrading the portfolio, making the portfolio as robust against potential challenges and similarly, positioning it well for future FFO growth through continuously upgrading our portfolio and making sure it's an attractive portfolio from whatever perspective. We -- Atish pointed out, we've grown FFO pretty significantly over the past several years. And we're on a day-to-day basis, just doing all the things that we think are going to drive value for us in this portfolio over time, no matter what form that ultimately benefits all of our shareholders. So I think what you've seen in the overall transaction environment is that you're still not seeing a lot of large portfolio transactions that people are pursuing on the buy or sell side, and there's just been more focus on individual properties or smaller portfolios just overall in the transaction market. And I don't have a -- currently, I don't have an expectation of that significantly changing or shifting here in the near term.

Understood. And just in a different direction, the conversation around generally speaking, around fee structures and what I'll refer to as owner [indiscernible] over certain aspects of the fee costs and fee streams, et cetera. I'd love whatever shareable perspective, you may have about that issue whether all of us are spending more time and attention to it than it deserves or it's really a thing.

Well, from an ownership perspective, obviously, we are looking for ways to grow value in the portfolio, and that includes every single element of operations. So it's extremely important for us over time to make sure there -- we keep our expenses under control and that the growth in expenses over time has obviously been pretty significant in every aspect of the income statement. And similarly, especially in an environment like today, we want to make sure that we have all the right channels in place and all the opportunity to drive as much on the sales side as possible at the lowest acquisition cost possible. So there's nothing new or different about that. I think everyone knows that over time, there has been a lot of pressure for owners on bringing down revenues to the largest percentage possible to the bottom line, and that's something that we're all focused on, obviously. So I don't think it's anything unusual that we would look at every aspect of that as owners to make sure that we are doing right by ourselves and our shareholders.

Your next question comes from the line of Michael Bellisario with Baird.

I want to focus on the second half group pace commentary, sort of two parts. One, where are you seeing that pickup in terms of markets? And then two, how does that pickup maybe change sort of operator confidence or sort of pricing strategies into the back half of the year?