Good morning, and welcome to the Xenia Hotels & Resorts Incorporated Third Quarter 2018 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 Cameron Frosch, Financial Analyst. Please go ahead.

Thank you, Gary. Good morning, everyone, and welcome to the third quarter 2018 earnings call and webcast for Xenia Hotels & Resorts. I'm here with Marcel Verbaas, our Chairman 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 an overview of our quarterly results and operating fundamentals. Barry will follow with more details on our portfolio performance and capital projects during the quarter. And Atish will conclude our remarks with a review of our current liquidity position and an update on our outlook for the year. 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 and the earnings release that we issued earlier this morning, along with the comments on this call, are made only as of today, November 5, 2018, 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. With that, I'll turn it over to Marcel to get started.

Thanks, Cameron, and good morning everyone. The U.S. lodging industry continued its trend of low single-digit RevPAR growth in the third quarter as industry-wide RevPAR increased by 1.7% during the quarter. Overall revenue growth was tempered by a number of factors that impacted demand. Early in the quarter, the 4th of July holiday falling on a Wednesday appeared to have an outsized negative impact on both transient and group demand during the week, which got the month off to a difficult start. Later in the quarter, the Jewish holiday shifting into an earlier part of September, difficult comparisons to last year's strong transient demand in markets such as Houston and Orlando after Hurricanes Harvey and Irma, as well as the negative impact this year from Hurricane Florence on markets such as Washington, D.C. caused industry RevPAR to decline by 0.3% during the month of September. Despite the monthly and quarterly fluctuations that the industry has experienced this year, it is our belief that overall industry fundamentals have not meaningfully changed over the past few quarters, and we remain cautiously optimistic about RevPAR growth trends as we finish up 2018 and look ahead to 2019. Now shifting to our third quarter portfolio results. Same property portfolio RevPAR remained essentially flat compared to last year as occupancy decreased by 189 basis points while ADR increased by 2.5%. Our adjusted EBITDAre was $60.5 million and our adjusted FFO per share was $0.46, decreases of 4.7% and 8% respectively. On a year-to-date basis, our same property RevPAR increased 0.4% through September 30th and our total portfolio RevPAR has grown by 5.1%, primarily as a result of the portfolio improvements we have made since the beginning of 2017. Through September 30, our adjusted EBITDAre has increased by 10.8% and our adjusted FFO per diluted share…

Thank you, Marcel. As a reminder, all of the portfolio information I'll be speaking about is reported on a same-property basis for the 40 hotels owned at quarter end, which includes our two third quarter acquisitions. Same-property RevPAR was flat for the quarter as ADR grew 2.5% and occupancy decreased 189 basis points. Group revenue was up approximately 2.9% for the quarter compared to last year while transient and contract business were down approximately 1.4%. While RevPAR performance was flat, food and beverage business was very strong, up 4.1% from last year, primarily from group-driven banquet business. This resulted in a 1.2% increase in overall revenues. When looking at our top 10 markets based on hotel EBITDA is presented in our earnings release from this morning, Phoenix, Santa Clara and Boston were our top performing markets with RevPAR up 16.9%, 4.8% and 2.5% respectively. Phoenix had a great quarter as we benefited from strong group business at both hotels and lapping of last summer's renovations at Royal Palms Resort & Spa. Hyatt Regency Santa Clara also benefited from strong group business and our Boston hotels were also notable performers in our portfolio this quarter with strong occupancy performance. Additionally, other top 10 markets posting RevPAR gains for the quarter included Denver, San Francisco, Napa and Washington, D.C. Other markets with significant RevPAR growth included Key West, up 23.7% as we lapped Hurricane Irma, Philadelphia up 11.7% and Chicago up 9.1%. The worst performing of our top 10 markets were Dallas down 11.4% primarily due to the guest room renovation at Marriott Dallas City Center; Orlando down 8.4% due to guest room renovation at Hyatt Regency Grand Cypress and a tough Hurricane Irma comp and Houston down 5.3% due to tough Hurricane Harvey comp. We are pleased with our margin performance…

Thanks, Barry. I will discuss two main topics this afternoon. First, I'll discuss our recent activities on the balance sheet and second I'll address our outlook for the balance of the year. Our balance sheet continues to be a strength for the company. It enabled us to acquire two hotels during the quarter. We remain well positioned to take advantage of new opportunities in the months ahead. At present, approximately 85% of our debt is fixed or has been fixed through hedges. The weighted average interest rate of our debt is under 3.8% and our debt maturities are well staggered. As to specific activities in the quarter, there were two. First, we closed the new $150 million five year term loan. The term loan is priced on a grid similar to that of our other unsecured debt with the spread over LIBOR based on our leverage ratio. In October, we drew $65 million on this term loan and we intend to draw the remaining amount as needed in months ahead. Second, we completed a modification on the mortgage loan for the Andaz Napa. We were able to draw $18 million of incremental proceeds while reducing the interest rate and extending the maturity date. Turning to equity capital raising, we utilized our ATM during third quarter. We sold approximately $15 million of stock at a weighted average price of $24.13. Since the beginning of the second quarter, we've sold over $135 million of common stock through the ATM at a weighted average price of $24.02. At September 30, our leverage ratio was 3.6 times net debt to EBITDA that level is within our historical range and positions the company well. Overall, we finished the quarter with approximately $90 million of unrestricted cash and full availability on our $500 million line of…

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Thomas Allen with Morgan Stanley. Please go ahead.

Hi, good morning. Just on the Grand Bohemian acquisitions, can you just talk about the rationale of doing those, and what the implied multiple was? Thanks.

Yes. Sure, Thomas. It's a great question. Those were two new developments. As of a few years ago, we had a joint venture partner in those hotels. The rationale really was to simplify the balance sheet, as Marcel discussed, and now we have no joint venture hotels. If you think about the comments we made, we were able to acquire our partner's interest at a discount to their basis. And the total investment, if you look at the initial investment plus the investment we've made now and the debt payoff, was a multiple in the mid-teens level for 2018, which given the quality of these assets, we think, is appropriate. They're boutique lifestyle hotels. As of last year, the Charleston properties' RevPAR was in the $260 range, and the Mountain Brook properties' RevPAR was in the $190 range, and we do think there's potential upside at these hotels over time as well, particularly on the margin side. So we were pleased to be able to execute this transaction, and again, I think from a portfolio perspective, it's helpful because it really does clean up the balance sheet, and all our hotels are wholly owned now. And then with regard to the assets and specific, I think the pricing was not only fair, but we have some upside that we expect over the next couple of years.

Perfect, thanks. And then just two more questions on acquisitions. The first, if I did my quick math correctly, your comments around potentially being a net neutral buyer versus seller would imply that you would buy about $50 million more of assets this year. Can you just give us more color on that? And second, Sunstone announced this morning that they had sold two assets in Houston. Did you – have you looked at that – those assets, and any thoughts on kind of where those trade at? Thanks.

Sure. Thomas I'll take those. Yes, as I mentioned in my comments, we're continuing to work on a number of transactions that we think may come to fruition before the end of the year. And certainly, we'd look to, obviously, provide more information if and when those do come to fruition and talk about those in more detail, hopefully, on our next quarter call. And your math is obviously accurate if you just balance out what we've bought and sold so far this year. I wouldn't take my comments to mean that it's going to be absolutely zero, but it's going to be relatively balanced between acquisitions and dispositions in our submission right now. So – and what we're looking at and how we're looking to continue to improve the quality level of the portfolio, the things we're currently looking at potentially completing are very much in line with what you've seen us do over the last few years. Now as it relates to your particular question on the Sunstone sale of assets, I mean, obviously, it's not really for us to specifically talk about what drove valuations for those assets in their particular case, and they're obviously a lot closer to that than we are. As it relates to the quality level of those assets compared to the assets that we own in that market, those are completely different stratosphere, obviously, and that's something that I'm sure Sunstone has talked about as far as how they're – those assets are not a good strategic fit for them, different from the type of assets that we own in that market.

Great, thank you.

The next question comes from Michael Bellisario with Baird. Please go ahead.

Good morning everyone.

Good morning.

Just wanted to focus a little bit more on the disruptive renovations. Can you give us a sense of why that's occurring and then maybe where you missed your budget, especially in the context of you guys expecting more disruption, at least that's what you guys communicated on the conference call 90 days ago. So I guess, maybe what you're seeing at those assets and maybe where you see the market and why it's happening.

Yes, sure. I'll start as often. Barry, feel free to jump in. As it relates to the disruption, last quarter, we talked about 75 to 100 basis points. So we put obviously a little bit finer pencil to that again the quarter down the road as we get closer to the end of the year here. So our expectations for the full year is right about that 100 basis points, which means a little bit more disruption that we saw in the third quarter, particularly as it related to the guest room renovations, particularly in Dallas, a little bit more so than what we saw in some of the other projects we outlined. How that ties in with the expenditures, we didn't lower our expenditures in these renovations or did anything less in these renovations. Frankly, the number for the full year guidance that we're giving on CapEx is just related to timing and a little bit of timing of particularly how we spend money on the ballroom renovation, or the ballroom expansion that we're doing at Grand Cypress. So some of that money moved into next year, frankly. It was not a reduction in scope or anything related to those kind of things.

That’s helpful. And then just maybe in terms of the capital recycling and all these upgrading you guys have done in the portfolio, higher-quality brands, higher RevPAR. But maybe what do you see the market is still missing? And what else do you guys need to do or want to do to get the investment community in the market to be more appreciative of the portfolio and all the upgrades you've made recently?

Well, we can control what we can control, which is obviously talking about and actually executing on the strategy that we've talked about for years, and I think we've been very kind of steadfast in executing on that strategy of continuing to operate the portfolio, not just acquiring assets just from a standpoint of increasing RevPAR, but acquiring assets that we believe have some real operational upside. So if you look at what we've done with the done with the existing portfolio we own and how we've invested in that portfolio, the type of assets that we've added, if you look at even where we started as a listed company 3.5 years ago versus where we are today, we've significantly upgraded that portfolio. Clearly, we've been in an environment of some very muted RevPAR growth. But if you look at how we've been able to move the bottom line in our portfolio during that time, I think it's actually very impressive from our perspective. And Barry highlighted some of the numbers for – on the expense side this year and how we've been able to drive some growth through our POP processes, I think that's what kind of what set us apart over the next few years, when you look at growth that we should be able to drive in this portfolio, we've been able to build. And I think our portfolio is a very high-quality portfolio that stacks up very well compared to our peers.

That’s helpful. Thank you.

The next question comes from Bryan Maher with B. Riley FBR. Please go ahead.

Good morning Marcel. A quick question for you, I guess. You guys are making kind of above-average progress on your acquisitions relative to a number of your peers. Can you talk about – given kind of the lateness of the lodging cycle, are you seeing any narrowing of the bid-ask spread that could compel future transactions? And are you seeing any changes in cap rates relative to the increase in interest rates?

Well, I think the last part of the question; it's probably still a little bit early to say if there's any kind of meaningful change in cap rates or expectations, I think. A lot of it comes down very much to the individual asset and individual markets and what drives potential growth in those assets. So I can speak very specifically, obviously, to the acquisitions we've made, and we feel that regardless of where you are in the cycle that these are really high-quality assets that we have been able to buy at a discount sort of replacement cost with what we believe is operational upside that exists in those assets because of some of the factors that I mentioned. They're assets where we think we can improve bottom line performance because of our ownership of these type of assets and having strong relationships with Marriott and with Fairmont as it relates to Ritz-Carlton and Fairmont, the Fairmont acquisition. So we think there is a way to move the bottom line. We think that us and the type of owner that we are versus nonlodging-dedicated investors that own these two assets previously provides a real good opportunity. And in both of these cases, we dealt with very limited competition because of the network that we have in place. So The Ritz-Carlton, Denver, it's been publicized, I believe, that it was an off market transaction for us, which it was. And the Fairmont Pittsburgh, because of the size of the transaction and probably a market that maybe not quite as many people were looking at, created a really compelling opportunity for us to acquire that asset. So that's how we turned over a lot of stones to find the right kind of assets for us. We have a lot of stuff in the pipeline that we underwrite, and some work out, some don't, and these are two that we were very excited about adding to the portfolio.

So you've talked a couple of times on this call about relationships and finding transactions via your relationships. How deep is that market? Is it measured in hundreds of millions? Is it more than that? How deep should we think that, that pipeline could be?

Well, it's everyone's dream to find off-market transactions, and those are hard to find. And most sellers and virtually all sellers are sophisticated sellers that will not let a buyer necessarily steal an asset from them. So I wouldn't say that we can always count on being able to get off-market transactions like we did in the case of the Denver acquisition. But it comes down to having the type of relationships throughout the industry that we have, with management companies, with brands, with owners. We bought from many different types of owners in the industry, and this is not something we started 3.5 years ago when we became a listed company. We've been at this in this company for the last 11 years, really, and much more so before that through prior companies and prior positions. So I think overall, our relationships are a strength of this company, and our expertise in doing acquisitions and dispositions is a real strength for this company. It's kind of hard to say, "Look, the market for off-market transactions is x amount", because that's just hard to quantify, obviously.

Alright, thank you.

The next question comes from David Katz with Jefferies. Please go ahead.

Hi, good morning all.

Good morning.

I wanted to – I just wanted to follow that up from the perspective of the visibility into that pipeline, which you have, and the likelihood of success relative to others who may be looking at marketed transactions. Is there any difference in the sort of timing visibility or likelihood of success when you focus on off-market versus on-market transactions?

Well, to be fair, the bulk of the transactions that we look at and that we underwrite are certainly marketed transactions, too. So I wouldn't say that there's this big kind of difference in the way that we look at potential pipeline versus maybe some of our peers. I just think that because of the expertise we have and the experience we have, we have found a real balance in our pipeline of some of these type of transactions and then transactions that are maybe a little bit more widely marketed. But ultimately, it all comes down to your belief in an asset and how you think your company can drive growth and profitability in a particular asset going forward. And these are two very good examples of transactions we were able to add to the portfolio that fit extremely well for us and where we can move the bottom line, like I talked about before. But that's not to say that we don't look very hard at a number of more heavily marketed transactions where we also believe that we bring something special to the table or something different to the table, and where maybe some of our peers feel the same way. And in some of those cases, it comes down to how do you execute and how are you able to underwrite? Can you underwrite maybe more quickly than other people can? Can you provide certainty for sellers a little bit more quickly maybe than other people can? And can you put certain things – can you do certain things during that process that make you the type of buyer that people want to transact with? And that's certainly the case on some of our acquisitions, too, where it comes down to that, where we have a track record, where people know how we perform in the space and how we are providing certainty and how we are a very good buyer for those type of sellers that are going through that process.

Alright, thank you for that. And just one other, if I may. Obviously, this is a solid quarter and the deals that you made are attractive and additive. But just to be – to look at the devil's advocate perspective, with higher-end properties like Fairmont who are higher RevPAR and farther up the pricing scale, is there not embedded more long-term volatility and operating performance embedded in those versus things that may be more midrange?

Well, we've talked about some in the past. And our view of this is we've owned – in the past, in this company, we've also owned a lot of select service assets, and we owned a lot of select service assets during the downturn – during the last downturn. And frankly, our view of it is if we acquired these types of assets, like we have just acquired recently, at the right kind of basis and at – with the right kind of operational upside that we believe exist in those assets, that offsets some of the things you're talking about. And also, we feel that in our space where we currently play in the luxury and upper-upscale segments, there is just more where we can move the needle and where we can use our asset management practices to actually drive profitability. You get to a point where a select service hotel is running very efficiently at high margins, but during a downturn, it is also very tough to scale down anything in those assets because you're already running a very lean operating model. In our case, we feel like these are assets where we can still pull a lot of different kind of levers, both on the upside, driving growth going forward, and to the extent that there – you do hit a time where things might be a little bit more difficult, there's also more that you can just do in the operational side than you can necessarily do on the select service side.

That’s fair. I appreciate your answers. Thanks for taking my questions.

Thank you.

This concludes our question-and-answer session. I would now like to turn the conference back over to Marcel Verbaas for any closing remarks.

Thank you, Gary. Thanks everyone for joining us today. And we look forward to seeing many of you later this week at the Nareit conference in San Francisco

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