Good day, and welcome to the Xenia Hotels & Resorts First Quarter 2019 Earnings Conference Call and Webcast. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the call over to Lisa Ramey, Vice President, Finance. Please go ahead.

Thank you, Andrew. Good afternoon, everyone, and welcome to the First Quarter 2019 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 Chief Financial Officer. Marcel will begin with an overview of our quarterly results and an update on the portfolio. Barry will follow with additional details on our results and operational highlights as well as a discussion of our capital expenditure projects. And Atish will conclude our remarks with a discussion of our current balance sheet and revised 2019 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 earlier this morning, along with the comments on this call, are made only as of today, May 2, 2019, 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 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, Lisa. Good afternoon, everyone, and thank you for joining our call this quarter. The U.S. lodging market experienced modest growth in the first quarter with January and February performance outpacing March results as the Easter shift into the second half of April only modestly aided results for the latter part of March. U.S. RevPAR increased by 1.5% for the quarter, comprised of a 30 basis point increase in occupancy and 1.1% growth in ADR. The U.S. luxury and upper-upscale segments, where 98% of our room count resides, experienced RevPAR increases of 0.5% and 0.9%, respectively. While results nationwide were mixed and impacted by various local headwinds and tailwinds such as the partial government shutdown, variations in convention calendars and the shift of Super Bowl-related business from Minneapolis to Atlanta, we were very pleased with the quarterly results throughout our portfolio, including at our recently renovated hotels where the new product has been well received across the board. For the first quarter, we had net income attributable to common stockholders of $16.7 million. As a result of our strong same-property portfolio performance, our adjusted EBITDAre increased 5.9% over first quarter 2018 to $78.1 million, and our adjusted FFO grew 6.8% to $60 million. Our adjusted FFO per diluted share was flat as the growth in adjusted FFO was offset by the increase in our weighted average share and partnership unit counts as compared to the first quarter last year. Our 4.2% same-property RevPAR growth in the first quarter significantly outpaced the national average, with January RevPAR up 3.4%; February, up 6.7%; and March, up 2.7%. While our RevPAR growth benefited from the lapping of approximately 150 basis points of renovation disruption in our current portfolio during the first quarter last year, strength in group demand in a number of our…

Thank you, Marcel, and good afternoon. As a reminder, all of the portfolio information I'll be speaking about today is reported on a same-property basis for the 40 hotels we own as of today. Same-property RevPAR increased 4.2% for the quarter, with occupancy up 100 basis points and ADR growth of 2.9%. Rooms revenue from group was up over 10% for the quarter compared to last year, with transient and contract business rooms revenue also increasing by approximately 1%. The strong performance is related primarily to better-than-expected group business in February and March as well as year-over-year growth in hotels that were under renovation in the first quarter last year. Looking at our top 10 markets. Our top-performing market for the quarter was San Francisco, with RevPAR up 17.5% due to strong citywide activity with the reopening of Moscone. We continue to be extremely pleased with the positioning of the Marriott San Francisco Airport, which appears the strength this quarter, follows 3 consecutive years of significant annual RevPAR growth between 2016 and 2018 and a compounded annual growth rate of 7.5%. In Atlanta, our hotels were up 8.8% due primarily to the strong performance of the Waldorf Astoria, with the Super Bowl taking place in early February, as the Renaissance Waverly saw some softening in group business. Our hotels - our Houston hotels were up 7.1% as Westin Galleria and Oaks lapped the Oaks rooms renovation, and the market continues to rack favorably to our substantial renovations at both hotels, while the Marriott Woodlands had a slower start to the year. Dallas was up 6.6% primarily attributable to strong group business at the Fairmont, and Napa was up 4% over recovering 2018, with strong group business and ADR recovering particularly well at the Marriott Napa. Property performance for the remainder…

Thank you, Barry, and good afternoon, everyone. I have two topics for today before we turn to Q&A. First, I will discuss our revised 2019 outlook, and second, I will discuss our balance sheet and financing activities. We have increased our full year guidance to reflect our strong results in the first quarter. We currently expect our full year adjusted EBITDAre to be between $292 million and $304 million. Turning to adjusted FFO. We expect to earn between $238 million and $250 million that results in $2.08 to $2.18 of adjusted FFO per share based on 114.4 million shares. The change to our adjusted FFO guidance reflects the first quarter performance as well as lower estimated interest expense as a result of a loan payoff in March. While the cadence of our quarterly income tax expense has changed, our projected full year income tax expense hasn't since we last provided guidance. Additionally, there's been no change to our forecast for G&A expense for the year. As to full year RevPAR growth, we increased the midpoint of our RevPAR growth range by 25 basis points to 1.75%. This reflects a slight beat to our first quarter expectations. Our RevPAR outlook for the final 3 quarters of the year is unchanged from the guidance we provided in February. April RevPAR came in as expected, flat to last year, due to the shift in the timing of the Easter holiday relative to 2018. We continue to anticipate approximately 20 basis points of negative impact to RevPAR as a result of renovations over the course of this year. Turning to group pace. Our full year group revenue pace is unchanged from year-end 2018. It is up approximately 2% year-over-year as of the end of March, and that reflects over 80% of our budgeted group…

[Operator Instructions]. The first question comes from David Katz of Jefferies.

I just wanted to go back to Marcel's comments on the acquisition landscape, and I'd say the one issue that's top of mind for us is the prospect that there could be more acquisitions, say, within the span of this year or the next 12 months and what you're seeing out there.

Sure, David. As I mentioned, and probably not too differently from when I got the question a few months ago after our year-end earnings call, the landscape, in our mind, hasn't changed that much, frankly. We certainly have a pipeline of potential acquisitions we are constantly underwriting and reviewing. I wouldn't say it's a very extensive and deep pipeline today, but I'd made this comment before, we necessarily didn't feel the same way 12 months ago or 24 months ago either. So we're hopeful we'll find interesting acquisition opportunities, but we're also very happy with what we have done over the last few years and where we have positioned our portfolio with the assets that we own today. So we think there is a lot of opportunity for us to find growth opportunities within our existing portfolio at this point. But clearly, we will continue to look for what we believe are potentially appealing additional acquisition opportunities and are hopeful to find some through the balance of the year.

The next question comes from Thomas Allen of Morgan Stanley.

So in terms of one of your peers reported this morning and talked a lot about benefits they're getting from the Marriott-Starwood integration, can you talk about that a little bit?

Yes. Good afternoon. Keep in mind, when we look and think about the Marriott acquisition, we had only one legacy Starwood hotel, the Westin Oaks and Galleria in Houston, and we've kept a very close eye on that property, how that property's been integrated into the Marriott sale system. As it relates to the large number of Marriott hotels we own, we intentionally accelerated, as you'll recall, a number of our Marriott renovations to ensure that we have the best overall Marriott product in many of our markets. And we are seeing in those hotels some significant acquisition of previously Starwood-brand loyal customers. We certainly recognize and I think we'll see throughout the year, although it's a little early in the year to quantify it, that we will see some continued net benefit from the refined program service fees that were put in place, and we expect that to continue to be a portion of our cost improvement for this year.

Helpful. And then just in terms of your H2 RevPAR outlook, can you talk just market-by-market of your largest markets, like where you're more and less bullish?

Yes. Sure. I'll start with this one, and then Marcel or Barry can chime in. We raised the bottom end of our RevPAR outlook, and I think that reflects a slight increase in group pace for the final 3 quarters of the year as well as really how the first quarter came in more than a wholesale change in any markets. But just to go back to think about the full year, we expect obviously Northern California to be a really strong good market for us, Houston to be a strong market, Key West to also be strong and Dallas to be a strong market. So those are kind of the big markets that are expected to do well from a top line perspective for us. And I'll ask if Barry or Marcel have anything to add to that.

I think that captured it. I think, just going back to your question, Thomas, I don't think it's as much a matter, and Atish touched upon this, of saying 1 or 2 particular markets that aren't necessarily really outperforming what we expected going into the year. We saw some outperformance throughout the portfolio, and in particular, with some of the markets that Barry highlighted that were strong markets for us in the first quarter. So hopeful to see some continued strength in those markets. We saw some good group strength in a lot of our markets, like we talked about in the first quarter, and that really drove our outlook for the year, coming up a little bit from where we were before.

The next question comes from Michael Bellisario of Baird.

Probably a question for Barry here. Can you help us dissect the first quarter, the group strength you mentioned? Maybe high level, how much of that do you think is renovation-driven and kind of recapture of lost share and maybe more recapture than you were expecting versus kind of market-specific strength that you saw in the first quarter?

Yes. Sure. Definitely, the majority of that group strength came not from the renovated hotels. Most of the hotels we renovated last year were generally heavily transient-focused and more urban hotels. It was really strength in our largest convention hotels across the board this quarter that helped drive the majority of that growth in group, for sure. Whether you included it in - we obviously also had some benefit from Super Bowl in Atlanta, specifically at the Waldorf, which I mentioned, whether you clearly count as group or not is kind of an individual matter. But certainly, when you think about our largest group-focused hotels, those are the ones that really have that outsized group performance.

And one of the things we did see was some strength of group on the weekends, particularly, in a number of our hotels, which was really a focus for us going into the quarter to make sure that we were able to fulfill some of those needs that we saw on the weekends, and we were able to compress pretty well off of that business that we replaced on the group side in those hotels over the weekends.

That's helpful. And then just on San Francisco, and maybe it's specific to your airport property, but I think, last quarter, you expected kind of minimal compression to reach your asset. Given the performance in the first quarter, would you say that San Francisco has maybe even been stronger than expected, and now do you expect a greater degree of compression to reach your hotel after seeing what occurred in the first quarter?

Yes. I'll make an overall comment on that and the positioning of the hotel, and then I'll let Barry speak a little bit more directly about some of the specifics that drive the hotel and that we expect to continue driving the hotel. We've pointed out a number of times that we clearly didn't see the kind of drop over the last few years in San Francisco that some of our peers saw, that have hotels that were more directly impacted by the Moscone closing and renovation. So we had seen very good growth in our hotel over the last 3 years. And certainly, we're looking at this year and are continuing to look at this year as a good growth year for the hotel, but it wasn't coming off of any kind of depressed levels. So that's something that is just something to keep in mind as we're looking at the performance of the hotel. We were certainly pleased to see - to experience the kind of performance that we had in the first quarter, but it was something that we had long seen as a strength for the hotel, the group business that was booked very directly at the hotel that isn't necessarily compression coming from Moscone. So I'll let Barry provide a little bit more detail on that for you.

Yes. Particularly on the group side FFO, it's a little bit of a group compression story actually, and it's been a little different. And I give a lot of credit to our asset management team and to the property in kind of recognizing year-to-year the trends we were going to see. So last year, we did comparatively little group business downtown. A lot of the group business we would traditionally book direct went downtown because downtown had availability. That's been the case really over the - through '17 and '18. What we're seeing now and where we're really benefiting is the ability to get that business back to our hotel because they can't or don't have the opportunity to book downtown at the same kind of availability and the same kind of pricing that they were able to in the last couple of years. And that's really led us then to go back to what the hotel has always done a great job of, which is have a nice group base and then really compress our transient on top of that, both the true corporate transients because we're in a great corporate market there as you know as well as pick up the leisure business and the airport-driven business directly.

Understood. And then just lastly, for Atish, just what does the midpoint of your updated guidance range imply for the margin outlook for the full year?

It's about the same as it was when we gave guidance in February. I mean we said margin outlook for the full year is flat. Now it's up about 10 bps. So roughly about the same.

The next question comes from Bryan Maher of B. Riley FBR.

Just one question for me. Can you talk about what the current supply outlook is in your most important markets and where you see that trending between now and maybe the end of 2020?

Yes. Sure. I'll start with that one. So if you look at our portfolio overall across all of our markets on a weighted basis, supply - the supply outlook for this year is in the 2.75-ish range, so below 3%. And frankly, it goes down next year. If you looked at our most important markets, it's actually lower than that. Where we're seeing higher levels of supply growth is, frankly, in some of our smaller markets like Savannah and Portland. So that gives you a sense of overall supply growth and also how it shakes out between important markets versus some of the smaller markets.

The next question comes from Brian Dobson of Nomura Instinet.

Could you elaborate a little bit on POP 2.0 and its implementation and kind of some early indications of cost savings, if any, that you're seeing and also about implementing POP initiatives at recently acquired hotels?

Sure, Brian. So POP 2.0 is really not a change in the process. It's really the - what different kinds of things the portfolio initiative team goes back and looks at when they go to a property for the second time. Obviously, in the first go-through, we find a lot. We work with our operators on encouraging them to implement a lot. And certainly, they didn't plan the majority of the recommendations we've come up with. POP 2.0 was really designed to - both to be a compliance check to make sure that they're doing all the things that they said they were going to do and the things that they agreed to put into the property as well as dive a little deeper. So it's a next level down in terms of looking at each of the revenue items and looking at each of the items in the cost structure. So it's just a little bit deeper because again, our team hasn't changed. So they're going back a second time to have better sense of what to look for and what areas to probe. And also, given the transition we've had in terms of upgrading our asset management team over the last few years, they've also identified, and they identify a lot of guideposts for that team to do as they go into the properties. I think there's - certainly, as it relates to our 2017 acquisitions, we've seen pretty significant growth in margin at those hotels. Over time, you can see that if you look at the year-end '18 versus year-end '17 numbers on those hotels. And most - a lot of that was a direct result of the POP implementations. As it relates to our 2018 acquisitions, we're really just getting started with those POPs now. We like to - most of those, you'll recall, were bought deep into the third and fourth quarter. So we like to make sure our asset managers understand those properties well and how they work before we send the POP team in to look at those. So they've been to two of those hotels and have the other two scheduled in the next couple of months, but it's really probably too early to talk about those because we're still in the process of really working with the management teams at the properties and agreeing on which initiatives make sense for the hotel and which ones don't.

That's helpful. And then in terms of group demand and RevPAR growth, when you're thinking about cadence for the balance of the year, are there any periods that you'd like to call out as being particularly stronger or weaker in terms of 2Q, 3Q, 4Q?

Yes, absolutely. I mean, there's - where we sit today, without question, I think Q1 will shape up to be our best group quarter in terms of growth, and certainly, I think that's obviously kind of implied when you look at Q1 and where guidance was and where we've moved guidance to for the rest of the year. Just directionally, things will be - things are fine in Q2 and Q3. Right now, we are seeing some softness in Q4, but that doesn't particularly concern us because we still have a lot, a big booking window to get into that and have - and are focused on that obviously as it relates to our end-of-year, full year business.

Yes. I mean the only thing I'd add on that, Brian, is if you look at production in the first quarter, where we were - first of all, production was up, and we closed the gap in the fourth quarter quite a bit. So we feel good about kind of booking activity, and certainly, our operators are very focused on that fourth quarter for us. So we hope to continue to see progression in that over the weeks ahead.

The next question comes from Bill Crow of Raymond James.

Maybe kind of a general question. Is there any reason why room expenses need to accelerate up north of 2%? Or can you maintain that growth rate as low as you have?

So the room expense, the fact that we've been able to maintain that at below 2% levels is your question and would we be able to maintain that?

Yes, yes. Is it inevitable that it's going to accelerate above that number? Or how much runway do you have to maintain cost controls?

No. And I'll start off, and I'll let Barry jump in here. But in general, we obviously, just like everyone else, are seeing pressures on labor costs and particularly kind of throughout the P&L, and the room sizes mostly have it under that. So we - what we've talked about in the past and what we still strongly believe in is that we've been able to find efficiencies kind of throughout the P&L as a result of having newer assets in our portfolio and that we haven't been stagnant with the portfolio. And so it's not just about the labor side of it. It's every component of the rooms' expenses that we've been able to find some efficiencies to continue to keep those costs down below with kind of our ordinary inflation levels on that side. And I'll let Barry jump in here.

Yes. Having said that, I mean, it's certainly not an indefinite runway, Bill, for sure. And I think one of the things we're seeing in there we're seeing because we've got generally - general increases in cost of labor. We've kind of - and this goes to, a little bit, to Brian's question about POP 2.0. We've really refocused on and spent a lot of time on the operating expense side of the rooms department where we think things are potentially much more controllable. And we also have some benefit, and I think that's some of where, and this relates to Thomas' question, that, that is one of the areas of the P&L where we're seeing some of the benefit from, the Marriott program service fee is actually hitting that line item.

Got you. Got you. I've got a couple of questions on individual markets. Is the Grand Hyatt development at SFO a game changer for that market? Does that make you concerned?

It does, and I mean, we're certainly watching it the way we'd watch any competitor. We think, again, we've got - one of the benefits that we've had at SFO is we really believe we have the best Marriott product on the peninsula. We've touched every surface of that hotel now in the last 4 years, and we've got a great - the hotel is positioned really, really well. I think the Grand, and not to get into what we think their business strategy is, but they're certainly positioned differently in the meetings market. And we think that, that loyal Marriott customer has a great reason to want to stay with us and enjoy, quite frankly, all the amenities of that hotel and sit in that great room and look out on the runway, the planes landing and things that they - that people tell us are really unique about that hotel.

Yes. Okay. And then Houston, good quarter there, obviously benefiting from lack of disruption from renovations. But is that market - should we think about that market as finally stabilizing? Or is there still too much - too many comp issues, too much supply for us to kind of say it's out of the woods?

I think the comp issues certainly make it choppier to look at from a room perspective. I mean we're seeing on the ground, for sure, is that business is definitely starting to stabilize. We are seeing energy business that we haven't seen in a few quarters or a few years. We're seeing more of that consulting and - more of the consulting and support business coming back into the market. And again, we think also, given particularly at the Galleria where our goal was to create the best Marriott-branded product in that market, that's going to really help us there in a unique way.

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

Thanks, Andrew. Thank you for joining our call this quarter. We were obviously very pleased with our performance during the quarter. And as Atish pointed out, we feel that we've positioned the portfolio very well over the last few years to continue to drive shareholder value going forward. So as I pointed out in my comments before, we'll continue to look for opportunities that will drive additional external growth for us, but we are very much focused on driving the internal growth that we will be able to call from our portfolio. So thank you for joining us today, and I look forward to updating you again next quarter.

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