Good day, and welcome to the Xenia Hotels & Resorts Incorporated Second Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Lisa Ramey. Please go ahead.

Thank you, Steven. Good afternoon, everyone, and welcome to the second quarter 2017 earnings call and webcast for Xenia Hotels & Resorts. I’m here with Marcel Verbaas, our President and Chief Executive Officer; Atish Shah, our Chief Financial Officer; and Barry Bloom, our Chief Operating Officer. Marcel will begin with an overview of our quarterly results and details on our recent transaction activity. Barry will follow with more details on second quarter performance and portfolio enhancements and Atish will conclude our remarks with an update to our 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 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 earlier this morning, along with the comments on this call, are made only as of today, August 8, 2017, 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. And with that, I'll turn it over to Marcel to get started.

Thanks, Lisa, and thank you all for joining our second quarter call. We were pleased with our portfolio’s performance during the quarter as top line results met our expectations and the portfolio outperformed on the bottom line through our continued focus on cost containments and portfolio initiatives. During the quarter, we had net income attributable to common stockholders of $69.4 million, which included a $49 million gain on property sold during the quarter. Our adjusted EBITDA was $79.6 million and our adjusted FFO per share declined to $0.59 due largely to our 2016 and 2017 dispositions which make a year-over-year comparison challenging. As a result of our previously announced transactions here in the quarter, the same property portfolio numbers we will be discussing today are reflective of the 37 property portfolio we owned as of June 30. We experienced a 1.4% decline in same property portfolio RevPAR in the second quarter with April, down 3.8%, May up 1.4% and June down 1.7%. As discussed in our first quarter call, April was negatively impacted by the Easter shift, which positively influenced our March performance. May and June came in as expected, with June particularly being impacted by four citywide convention business and some of our larger markets and continued disruptions from our now completed Westin Galleria rooms renovation. Our Houston area hotels had a negative impact of approximately 170 basis points on our same property portfolio RevPAR in the second quarter. When excluding the Houston area assets, our RevPAR increased by 0.3% over last year. We expect the negative impact of our Houston area assets on overall portfolio performance to moderate during the second half of the year, as the year-over-year comparisons get somewhat easier and the most disruptive part of the Westin Galleria renovation is now behind us. Barry will…

Thank you, Marcel. As a reminder, all the portfolio information I’ll be speaking about is reported on the same property basis for 37 hotels at quarter end. As Marcel mentioned, portfolio performance met our expectations on the top line as we anticipated the challenge of Easter shift in April. For second quarter 2017, our same property RevPAR declined 1.4% due primarily to a 120 basis point decline in occupancy as rate was essentially flat at 0.1%. Our group business was down approximately 0.9% for the quarter compared to last year with the transient contract business declining by approximately 1.8%. Excluding our Houston area hotels, our RevPAR grew 0.3% driven entirely by rate as occupancy was flat. Our top performing markets during the quarter were Napa, up 19.1%, Salt Lake City, up 15.7% Charleston, South Carolina, up 14.5% Birmingham up 11.9% and Santa Barbara up 9.3%. Both of our Napa properties benefited from good weather this year and Marriott continues the upside from the extensive renovation we completed in the first half of last year. Salt Lake City had great city wide business during the quarter and our strong group base allowed from the aggressive transient rate strategy. The Grand Bohemian and Mountain Brook also benefited from strong group production during the quarter. We are pleased with the performance of this hotel as it continues to stabilize in its second year of operation. The Grand Bohemian and Charleston, South Carolina has enjoyed a strong summer with strong weekend demand in the market. In total, we had eight markets of RevPAR growth over 6% including San Diego, Atlanta, and Boston. Our most challenged market this quarter continued to be Houston with RevPAR for our three hotels in the market down 18.6% comprised with the decline in occupancy of over 10% and the…

Thank you, Barry. I would like to discuss our revised guidance this morning. Our guidance reflects the 36 hotels owned today. Before getting into the specifics, one point that I would like to note is that the transactions that we’ve completed since we provided guidance in May are expected to have a net $2 million negative impact to our 2017 adjusted EBITDA. This is due to the seasonality of the Hyatt Regency Grand Cypress relative to that of the six hotels we have sold since May. Despite that, we have raised our full year guidance to reflect an improvement in our outlook. We raised our estimate of 2017 adjusted EBITDA to $250 million to $260 million; this is a $4 million increase of the midpoint. In terms of adjusted EBITDA, we earned approximately $3 million more than expected in the second quarter, this was due to the net impact of transactions as well as stronger than expected food and beverage revenues and better than expected margin performance. For the second half we anticipate adjusted EBITDA to increase $1 million compared to our prior guidance. The increase is due to strength we are seeing for the fourth quarter offset by the net impact of transactions. As to RevPAR we increased the midpoint of our full-year estimate by 50 basis points. This is due to an improved outlook for the fourth quarter versus prior guidance. Turning to hotel, EBITDA margins, when we started the year we had expected margins to decline approximately 150 basis points. Currently, we expect margin decline about 50 basis points. The reasons that full year margins are expected to be better than what we had expected in February include better RevPAR, higher food and beverage revenues and improved expense management. As to our confidence for the remainder of…

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. And our first question comes from Brian Dobson with Nomura Instinet. Please go ahead.

Hey, guys. Just a quick question on Houston. So the trends in that market seem to be improving or rather deteriorating less rapidly every quarter you report earnings. I guess at this pace when do you expect RevPAR trends there to at least bottom out? And also what types of returns are you expecting on renovations that you’re undertaking in that market?

Thanks, Brian. This is Barry. I think all the observations you made are certainly correct. Looking forward, we think the market in Houston will continue to be somewhat choppy.Q1 obviously was great primarily due to Super Bowl. And we always expect that Q2 to be the poorest performing quarter this year for us both in terms of where our group bookings were as well as knowing that we really had the heavy lifting on the Galleria renovation this year. One of the things we’re looking at going forward is in the near-term with Galleria rooms renovation behind us we’re able to provide some differentiated pricing between the two towers, and that actually help the hotels perform better overall as Atish referenced to our strong performance there in July. There are still -- we are still absorbing demand of our key in the Galleria area. And in the Woodlands, we’re just now getting to where we’re lapping the addition of the new Westin which while that would ordinarily be a positive. We have in place some lower corporate rates this year than we had last year. So we’ll continue to see some deterioration on that in the near-term through Q3 and Q4. Q3 group business at both hotels looks fine in both locations, but on the blended basis Q4 is actually not as strong as Q3 in terms our books are setting up, but we know we have time sold the book in to that. Looking ahead to next year you we know that this year's Q1 [Indiscernible] has set up a really difficult comp for Q1 of next year. So we’re really not looking to see material improvement and kind of the – kind of if you will the real year-over-year positive lapping until the second half of 2018.

Okay. Thanks. That’s great color. And then just quickly on your recent transactions can you give a little color about who you are bidding against and who are the major buyers in the room for your assets are? And whether or not you're seeing perhaps more buyers in the market than you did, call it six months ago?

Brian, this is Marcel. I’ll answer that question. Obviously, as far as who we were competing with to acquire hotels, that question is a better question for the people that sold us the hotels frankly. But from what we gather it was kind of mix of potential buyers that we’re looking at it. And whenever we’re looking at acquisitions there is never a matter of that you’re just competing with five out of REIT sort of five out P/E companies, generally it’s a little bit driven by where people's concentration levels are, how interested they are in certain assets, certain brands, so generally just kind of changes a little bit when you’re looking at different deals when you’re competing with, in some cases, it could be more private equity, in some cases it could be more public company as you’re competing with. As it relates to the assets that we sold, it's been a mix of buyers on that side too frankly. I don't think the mix has changed significantly or the debt has changed very dramatically since last year frankly. The difference is that’s clearly we sold as you know to five select service hotels we sold to one of our peer. So as we in the public arena sometimes just kind of look at it through a public lens you could say there’s a little bit more activity with some of the public companies including ourselves looking at acquisitions. But in general I think the market is still maybe a little bit of improved somewhere what 12 months ago, but I wouldn't say it's dramatically different.

Okay, great. Thanks very much.

And our next question comes from Bill Crow with Raymond James. Please go ahead.

Hey, good morning, folks. Nice quarter. Question number one is what's left in the potential asset divestiture bucket? Where do you stay in this as far as kind of capital recycling at this point?

Good morning, Bill. It’s Marcel. As we’ve said in the past obviously we don't really comment on particular transactions until we complete them or get to a point where we feel it’s proven to disclose those. What I will tell you is that coming into the year and as I said in my prepared remarks too, we were definitely looking to be a little bit more balance between dispositions and acquisitions this year with a biased toward being an net acquirer. So I would say that lot of the heavy lifting has been done on the on the sales side with some of the assets on the lowering end of our portfolio, but as we continue to look forward we’ll always continue to look to upgrade the portfolio every time and particularly if we find more interesting acquisition opportunities that makes for us to look a little bit more closely at some additional dispositions. So again, I think it’s going to be a little bit of more balanced game as far as matching those acquisition opportunities with potential dispositions going forward.

Okay. I wanted to focus on margins and terrific performance not just by yourselves but number of other REITs. I'm just wondering what's left in the tank from a margin perspective? And that would be question one. Number two would be how does the change of the portfolio composition impact absolute margins, it seems like your expense opportunity, reduction up to maybe have grown because of the Hyatt purchase in Orlando but maybe your absolute margins are going to be lower than they would've been, had you maintained the 5-pack select service assets. Is that is a poor way to think about it?

I think it is a fair way to think about it and I certainly let Barry jump in and talk a little bit more about where we feel there are some -- what’s left in the tank frankly. But your characterization is inappropriate one which is the absolute levels of margins could be a little bit lower when you sell some of these select service assets and add some of the full service assets. However from our experience what we find particularly attractive about some of these changes in our portfolio is that we think there are ways to be more efficient in some of these acquisitions we’ve made and that there are some opportunities to find margin improvements in those assets that would've been much harder to come by in the number of the assets that we have sold. So, we certainly are absolutely looking at the way you're describing it which is we think that there are ways to attack some of those operations and both in a growth environment and in a relatively stagnant RevPAR growth environment. There is opportunities to continue to improve that margin.

Absolutely true, Bill it’s Barry. I think it's very hard for us obviously to quantify what’s left in the tank. The couple of things and I think they’re relevant as it relates to us in our portfolio in particular the majority of our portfolio has been required since 2013, so we don't feel like those assets are stale, with us and that we continue to surprise ourselves a little bit quite frankly with the opportunity we’re finding on a week-to-week and month-to-month basis as we’re in the assets, I think you see some of that in our Q1 and Q2 performance particularly in a very soft RevPAR environment. We are very proud of both the asset management team we have here who are all incredibly experience and have been to a number of both up and down cycles, and I think that's helpful as we’ve seen kind of deceleration last year. These people know what to do and how to work with our properties to drive performance. Are prop program, the property optimization process I mentioned in the prepared remarks. We’re about 70% of the way to the portfolio with about $5.5 million of annual realizable net benefits in that program. Whether that ratio continues or not, it’s not clear, because quite frankly as we find good ideas, we try to spread them very quickly to the portfolio. We’re out there every day working on those. We've also done some reorganization on the asset management team in terms of putting fresh set of bias on assets, so even when kind of [Indiscernible] on an asset for two, three, four years we think it’s very relevant to kind of put, to reshuffle the deck little bit and get fresh perspectives on the properties and working with the managers to help uncover things that philosophers might not seen and has a different relationship with the manager have somebody with more food and beverage experience in our property than one of the other players who may achieve things like that.

All right. And then finally from me, Barry what’s a good number to think about from a property tax increase pace going forward?

I think we're looking at about 5% by year-end, year-over-year. This quarter really was unique. We had to some very large credits back last year. We had some decent credits back this year as well, but last year it was fairly unique. So I think we’re looking at about 5% for the year on the property tax number alone.

And as you may recall Bill we actually pointed out in the second quarter of last year when we had pretty significant margin improvement that we did benefit from some tax refunds. They were little bit more outside in the second quarter of last year. So we obviously saw the flipside of that in this quarter, but particularly as you pointed out earlier with that type of increase in our real estate taxes we’re pleased with our margin performance overall.

Yes. Terrific. Thanks. That’s it from me.

Our next question comes from Thomas Allen with Morgan Stanley. Please go ahead.

Can you just talk about – you’re talking about 2017 [group pictures], you’re talking about 2018? Thank you.

Thomas, it’s Marcel. Not really prepared to start off about 2018. Yes, we did talk a little bit obviously about what we’re seeing here in the second half of the year with particularly lot of strength we’re seeing in the second half of the year here. So, we’ll get into that more as we as we talk about it next quarter and give you an update then on how 2018 is shaping up. Booking windows overall are still relatively short, so as much as we can talk about some of the pace for 2018 now, it is still a percentage of overall bookings that are relatively modest compared to where you are when you get closer to the end of the year. So we prefer to start talking about that in the next quarter.

Okay. Cool. And then just your home market, Orlando, obviously doesn't have acquisition, can you just talk about have the longer term outlook for the market, I know there is now lot of supply growth over the next few years, but I was noticing kind of an influx of news articles about supply coming or new construction start. I think there is JW Marriott coming in, or breaking ground soon. So can you just talk about kind of the longer term outlook for the market? Thank you.

Sure. We think that as I said in my remarks, so that Orlando is a great long-term, actually it’s a great long-term market then it’s also a great near term market. It’s a market that we know extremely well not only from being headquartered here in this city but also the experience that we have as an executive team and as an asset management team with assets in this market in this company and prior companies. We feel very comfortable with our knowledge in this market. The market is a strong one that has as a large supply of available rooms currently, the percentage increases in supply are very modest compared to national averages over the next few years. Of course you do see occasional development that happens, including the JW that was announced that you’d mentioned which obviously well aware of. When you think about all the positives that are happening in the market from a demand standpoint those we believe more than easily make up for these supply increases over the next few years. Lot of positive things happening at that the theme parks, both Universal and Disney, you think that's on the new attractions that have been announced that will be tremendous drivers on leisure side. There's a lot of investment that has been going into the convention center overall, which is really helping overall market compression and the group business. And then specific do our hotel we’ve obviously talked about where we think some of the upside is, which is some of the renovations we’re talking about and the expansion of the meeting facilities which we think will really allow us to much more effectively put groups on top of each other and really optimize the facilities at Delta.

And then what’s going to be your Orlando exposure now first through the recent transactions?

We had actually disclosed in our release to that based on [2016 EBITDA] for our portfolio we’re had about 9% of the portfolio that is coming from our lineup?

So, that’s inclusive all the transactions?

That is inclusive of the transactions [Indiscernible] not Westin, but obviously doesn't really change, so doesn’t move the needle. So it becomes our effectively neck and neck with Houston our most concentrated market. Yes, and 17 number obviously as you think about the trajectory of Houston versus Orlando, you could obviously surmise that Orlando maybe becomes our number one exposure market by the end of the year.

Great. Thank you.

And our next question comes from Whitney Stevenson with JMP Securities. Please go ahead.

Hi, guys. Good afternoon. And maybe sticking with supply a little bit, the brands are talking about peak sign-ins being in the rearview mirror now. So question for you, one, has rate of supply growth hovelled off yet for you in your portfolio. And two, when do you anticipated deceleration in the rate of supply growth this cycle?

When you look little bit further out, so when you start looking at 2020 and beyond it becomes a lot more murky obviously, there is a lot of deals that will get announced sort of may happen after 2020 where it will gets kind of thrown into the basket of three plus years is being out. So we obviously look at that very closely and try to get a measure of what's happening there to see if there's some slowdown. In our portfolio we’re at roughly about 2.5% in our actual tracks supply -- actual market tracks that we operate in our market, so we’re not talking about MSA numbers, but our particular tracks were at about 2.5% growth for 2017 on the supply side which takes up a little bit for 2018 and 2019 is pretty stable compared to the 2018. Just anecdotally which I'm sure you’re hearing as well. It does seem like it's getting harder and harder to get deals depends going forwards when people are underwriting relatively modest RevPAR growth and they are looking at the increases in cost on the construction side and they are looking at the more difficult environment to get construction financing for deals. So, we certainly are hopeful and the way we’re looking at it currently is that we would expect that supply growth to start tapering off little bits as you get past 2018, 2019.

Okay. And then Marcel just kind of to expand on your consistent comment of been a net acquirer this year. Just any commentary on where you’re seeing the most interesting or contrarian opportunities. And how would you gauge your interest level in terms of urban versus leisure market?

Yes. We will continue to look at the opportunities in kind of a wide range of both markets and assets. What we thought was particularly a feeling about some of the changes that we made to our portfolio in the second quarter is that it's really highlighted the further refinement and upgrade of our portfolio, even though there’s a something that we've been really doing the last few years. I think it really highlighted the fact that we are an investor in very high quality assets and then primarily in the luxury and upper upscale segments. And we like playing in primarily top 25 large markets in key leisure destinations. And that's our acquisitions can come in the form of any those or combination of any of those. So we like having diverse demand generators in our portfolio. We like having leisure as a component of the portfolio, but we look at each individual acquisition opportunity based on lot of characteristics including how diverse are these demand generators, what’s the supply picture for this specific market. Where are the opportunities from an operational perspective on some of these assets, but our strategy has and will remain the same, which is top 25 markets, key leisure destinations and primarily in the luxury and upper upscale segment and some cases it may be assets that are little bit more skewed towards leisure side and in some cases it may be a little bit more skewed towards the corporate side…..

And this concludes our question and answer session. I’d like to turn the conference back over to Marcel Verbaas for any closing remarks.

Thank you, Steven. We like to thank you again for joining us today and we look forward to speaking with you again next quarter and continuing our positive momentum, both within our existing portfolio and hopefully we will continue to move forward with certain transactions that will continue to operate the quality of our portfolio overtime. We are very pleased with how we’ve performed over the last few years in this aspect of our business and look forward as I say to continue that momentum going forward.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.