Hello, everyone and welcome to the Xenia Hotels & Resorts Q4 2023 Earnings Conference Call. My name is Emily and I’ll be facilitating your call today. [Operator Instructions] I will now turn the call over to our host, Amanda Bryant, Vice President of Finance. Please go ahead, Amanda.

Thank you, Emily and welcome to Xenia Hotels & Resorts fourth quarter 2023 earnings call and webcast. I am here with Marcel Verbaas, 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 of our performance, Barry will follow with more details on our operating trends and capital expenditure projects, and Atish will conclude today’s remarks 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 this morning, along with the comments on this call, are made only as of today, February 27, 2024 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 and earnings supplemental, which is available on the Investor Relations section of our website. The property level information that we’ll 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, Amanda and good afternoon everyone. We are pleased to report on our results and achievements in 2023 as we successfully executed against our long-term strategy by further investing in our high-quality and diversified portfolio while remaining focused on working with our operating partners to drive top line growth and control expenses in a challenging operating environment. During the quarters of 2023, we invested over $120 million in capital expenditures across the portfolio, all of which was supported by our in-house project management team. We believe that our recent capital projects will enable us to capture significant revenue and income growth in the years to come. Our 2023 portfolio performance was broadly in line with our expectations despite a challenging economic backdrop. And our fourth quarter financial results allowed us to finish the year near the upper end of our full year guidance ranges for net income, adjusted EBITDAre and adjusted FFO per share that we provided when we reported our third quarter results. Same-property portfolio RevPAR for full year 2023 increased 3.9% compared to 2022, just shy of the low end of our most recent guidance as November and December RevPAR were a bit softer than expected. Our 2023 RevPAR increase was driven by a healthy 250 basis point occupancy gain as average daily rate was essentially flat. If we exclude Hyatt Regency Scottsdale Resort & Spa Gainey Ranch, where the transformational renovation is well underway, same-property RevPAR for the remainder of the portfolio increased a solid 6.4% as compared to 2022. In 2023, 23 of the – out of the 32 hotels in our same-property portfolio achieved RevPAR growth as compared to 2022. RevPAR increased by double-digit percentages in 7 of our 22 markets, including Portland, Houston, Dallas, San Francisco, San Jose, Nashville and Atlanta. We expect most…

Thanks, Marcel, and good afternoon, everyone. For the full year of 2023, our 32 same-property portfolio RevPAR was $169.46 based on occupancy of 65.1% and an average daily rate of $260.40. Same-property portfolio RevPAR increased 3.9% as compared to 2022. This increase reflected a 2.5-point gain in occupancy and flat average daily rate as compared to full year 2022. Excluding Hyatt Regency Scottsdale, full year RevPAR was $170.57, an increase of 6.4% as compared to 2022. This increase reflected over 3.5 points of occupancy gain and nearly flat average daily rate as compared to full year 2022. Our properties achieving the strongest RevPAR growth as compared to full year 2022, including the Hyatt Regency Portland with RevPAR of 30.8%; our 3 Houston properties with RevPAR up 19.9%; and our 2 Dallas properties, which are up 17.9%, all of which benefited from recovering business transient and strong group demand. In addition, our properties in San Francisco, Santa Clara and Nashville all achieved double-digit RevPAR growth for the year. Conversely, the greatest RevPAR declines compared to 2022 were experienced at Hyatt Regency Scottsdale, Kimpton Monaco Salt Lake City, Grand Bohemian Orlando and Kimpton Canary Santa Barbara, all of which were undergoing comprehensive renovations, which will position each of these hotels extremely well for the years ahead. The RevPAR declines at Andaz Napa and Hyatt Centric Key West reflected weaker leisure demand against an extremely tough prior year comparison, although both properties’ RevPAR was above 2019 levels. At W Nashville, RevPAR grew by over 10% for the full year with 33% growth in group revenue as our business strategy for this hotel continues to become more refined. EBITDA margin improved by over 170 basis points in 2023 as compared to 2022. We continue to focus the hotel’s efforts on improving food and beverage…

Thanks, Barry. I will provide an update on three items: our balance sheet, return of capital and 2024 full year guidance. As to our balance sheet, we are well positioned to take advantage of opportunities given our liquidity and balance sheet profile. With no debt maturities until August of 2025, all of our debt at fixed interest rates at present, no preferred equity and 29 of our 32 hotels unencumbered of property level debt, our balance sheet continues to be strong. At year-end, our leverage ratio was about 5x trailing 12 months debt – net debt to EBITDA. We expect our leverage ratio to decline as earnings increase in the years ahead. Now I want to turn to our return of capital. I have two specific items here as follows. First, we repurchased about 3.9 million shares in the fourth quarter, bringing our full year 2023 buyback total to approximately 10.4 million shares. In total, during 2023, we repurchased about 9% of our outstanding shares at about $12.75 a share. Together with shares repurchased in the prior year and the small amount purchased thus far in 2024, we believe our repurchase activity at these price levels will prove to be a driver of long-term value creation. Second, our Board of Directors increased our first quarter dividend to $0.12 per share. Based on the closing price of our shares yesterday, this level of dividend equates to an annualized yield of approximately 3.7%. As to our payout ratio, this level of dividend reflects approximately 40% of FAD based on 2023 FFO. Over time, we expect the dividend to grow to prior levels or to roughly double and that our payout ratio will return to prepandemic levels in the mid-60% range. The third item I wish to discuss is our 2024 guidance. At…

Thank you. [Operator Instructions] Our first question today comes from David Katz with Jefferies. David, please go ahead. Your line is open.

Hi, afternoon. Appreciate it. And congrats on your quarter. I wanted to just touch base on the W Nashville in particular, it’s such a – it was a large hotel, a large presence and obviously seems to be getting some traction there. Can you – and I did hear the prepared remarks. Just color us in a little bit more about how high the ceiling is for that property now that it seems like you have it facing in the right direction and maybe how many years or what inning we’re in, in terms of getting that normalized, please?

Yes. David, as we’ve talked about the last couple of – good afternoon, by the way. This is Marcel. As we’ve talked about the last couple of quarters, we do think there is a significant amount of upside there over the next few years. We saw some of that upside coming last year. But clearly, we’re still kind of in the first half of that ball game, let’s put it that way, of really optimizing both the business mix and truly continue to optimize the food and beverage offering. So Barry spoke about a few of the things that we’re doing there. I think we’re seeing some really good results there on the group side. And we are certainly hard at work at looking to optimize these food and beverage basis, including kind of the first step that we took there as far as reconcepting the 3-meal restaurant that we’re really working through that progress – process right now. So at this point, I think we’re still, like I said, kind of in the first half of the ball game. We have a lot of work to – kind of cut out for us. And it’s not going to be a straight line, frankly. And you saw some of that in the fourth quarter, where RevPAR declined a bit as a result of the absorption of some of those newer luxury hotels that came online. But that was not unexpected. And as we’ve talked about, again, over the last few quarters, we’re really trending overall with – on the room side in the direction that we wanted to go. And we still do have some work left on the food and beverage side particularly. But I think our strategy is starting to pay off, and we expect that to continue over the next couple of years.

Understood. Look, I also wanted to just, Atish, touch on leverage for a few minutes because we’ve had obviously a dozen different interest rate expectations over the last 90 days. Where do you want to put your leverage now based on what the current interest rate environment is? And I suppose, why do you want to put it there?

Yes. Great question, David. Thanks. Our long-term view on the target for leverage is really getting back to the range that we were in pre-COVID. So that’s low 3x net debt-to-EBITDA to below 4x. So kind of that 1-point range between low 3x and low 4x. So we’re still a bit away from that. And our view is at this point in the cycle, we’ll – as earnings continue to ramp from here, we should get back into that target range, low 3x to low 4x, over the next couple of years, particularly as we get past the renovation at Gainey Ranch and we see the lift at Nashville and Portland. So – and the reason really has less to do with kind of the current interest rates and more just about how we want to run the company for our asset base and the level of activity that we usually undertake in terms of acquisitions and dispositions. So making sure we have significant levels of flexibility. With regard to near-term interest rates, I will also just add, as I mentioned in my comments, that we are currently 100% fixed. So we don’t have that interest rate exposure that maybe some others do. We’re actually in a really good position balance sheet-wise and also having no maturities till really 1.5 years from now also positions us pretty well.

Noted. Thank you.

Thank you.

The next question comes from Michael Bellisario with Baird. Please go ahead, Michael. Your line is now open.

Thanks. Good afternoon, everyone. Just want to stick on that same topic, so just on capital allocation. You didn’t touch on dispositions in the prepared remarks, but presumably that’s a possibility this year as the transaction market improves. What’s your thinking on asset sales? How are you thinking about which markets, which assets? And then maybe what would you do with any sale proceeds, kind of to follow up on David’s question there?

Yes. So on the – I’ll answer that really on both sides of the transaction equation, so both on acquisitions and dispositions. It really depends on what the opportunity set is on the acquisition side. And as you know, we haven’t seen a – kind of a wide – kind of a broad range of good acquisition opportunities over the last couple of years. And we’re hopeful that we’re starting to see some signs there of improvement as it relates to potential acquisitions that could be appealing to us. So as you know, going into COVID and even a little bit coming out of COVID, the transaction side has been an important pillar for how we want to create shareholder value over time. So I would say that we will continue to look at both dispositions and acquisitions to drive future value. And as it relates to the dispositions, a lot of our prior dispositions have really been in light of potential additional capital expenditures, whether that’s in – we see an appropriate ROI in those kind of potential projects. And I would look at it the same way as what we’ve done historically. I think what our track record has been there is kind of what you could expect going forward, that we will look at every hotel very carefully and do a very deep analysis, particularly when there is some additional CapEx needs. And to the extent that we don’t feel the return will be there, that it might be the right time to sell some of those assets. I wouldn’t expect any wholesale changes as it relates to dispositions. And certainly, we’re going to remain very disciplined as it relates to potential acquisitions. And as you saw last year, we clearly felt that there was a very significant value in our own portfolio and in our own stock, which made that a bigger priority for us on the capital allocation front and potential acquisitions that really were too expensive and not really out there enough for us to get excited about.

Understood. That’s helpful. And then just for Barry on Scottsdale, you mentioned the group booking pace has picked up. Can you maybe just help us frame that up? I don’t know if it’s comparison to 2019 or maybe there’s a different year, but how many group rooms were maybe booked in 2019? What do you think the group upside is upon stabilization? Kind of how should we think about the curve of group bookings over the course of the renovation and completion? And then how much higher are those ADRs – excuse me, on the group rooms that have been so far? Thanks.

Yes. Thanks, Mike. It’s a really good question. I think it’s a little early to really become that focused on it. What we are seeing is we are clearly seeing activity, a lot of activity for ‘25 and rates that are absolutely incredible in – both in Q1 of – for ‘25 – for Q1 of ‘25 and kind of throughout the rest of the year. But one of the things that we have seen in all of the renovations we have done of this type is that it takes a lot of show and tell for a lot of the groups to really make the commitment and to really get rooms on the books right now. It’s not a pretty property to tour, quite frankly. And as we move through the year and it becomes much more clear to the planners what the product is like, we expect group base to ramp significantly over the course of the year, particularly for ‘25. We do have some pretty good business on the books for Q4 of ‘24 in the space that is not being added to. So, the non-Arizona Ballroom, the other smaller meeting spaces, we have continued to do through the renovation by maintaining about 300 rooms in inventory across the entire year. We have been able to capture a large number of small groups – smaller groups to the hotel that has really helped us maintain occupancy as best we can and to help drive EBITDA and reduce the displacement during this year.

Understood. Thank you.

Our next question comes from Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead, Austin.

Yes. Thanks and good afternoon. Just going back to the W Nashville for a minute and really, I guess in the context of overall portfolio upside potential. I mean do you guys think that the prior hotel EBITDA stabilization level that you underwrote is still achievable at the outset of the acquisition? And I guess, are there any real headwinds you see that could see that pushing that out, I guess over a longer time period, like the supply that you identified here more recently?

Thanks Austin. I think as we look at the property and as I have said earlier, we would obviously like to see that stabilization level a little bit earlier than what we are seeing so far. As we are thinking about the market longer term and as we are thinking about the levers that can be pulled at the property and where this hotel is positioned and can be positioned going forward, we still believe we can get to that range. It’s certainly going to take a little bit longer than we were hoping for that we were expecting to achieve when we underwrote the property. And so that won’t come as a big surprise to you. But clearly, we still believe that the asset can get there. And it takes some time to kind of change the strategy as it relates to what Barry explained as far as where we are on the group side and how we are really optimizing the room side and how that kind of plays into driving further food and beverage revenues. So, as we sit here today, like I have said, I think it’s a lengthening of getting to the stabilized number, but we don’t see a specific reason of why it can’t get to the range.

That’s helpful. And then, Barry, you have kind of highlighted in the past, I think that group bookings for the overall portfolio were trending a little bit better in the first half of the year. And you have continued to see sort of good short-term bookings, but that’s lengthening. I mean how does sort of the group set up for the year from a cadence perspective first half or second half? And what is sort of embedded in the guidance from a – in the year, for the year versus maybe what you had to do last year?

Yes. It’s interesting. We are definitely seeing the bookings cycle lengthen, which means we are – which is actually, we think a very positive because we are seeing a lot more business going on the books for the second year or the first next year. So, we are seeing a real trend and some really good positive momentum in 2025. But quite frankly, when we are sitting in the same place in ‘23, we weren’t seeing for 2024. The group business is pretty balanced throughout the year, although we view a little more upside in the latter half of the year than the first half of the year. But some of that is based on just some of the particulars in the portfolio and which properties are performing well. We have got some issues this year between Q3 and Q4 on the group side as it relates to the Jewish holidays. But it’s pretty steady through the year in terms of front half versus back half.

Just to refine that a little bit, I mean is there any more significant kind of go getter in the year for the year assumed this year relative to last year embedded in guidance, or is it sort of a similar or even less amount than what you ended up achieving in 2023? And that’s all for me. Thanks.

It’s pretty comparable in – for ‘24 versus ‘23.

Our next question comes from Ari Klein with BMO Capital Markets. Ari, please go ahead.

Thanks and good afternoon. Just going back to the Hyatt Scottsdale, I think for the year, it’s around the 50 basis point headwind. Maybe – year-to-date, I think it’s been around the 500 basis point headwind. Can you talk about the tailwinds in the second half of the year? How significant are they? And I guess to the extent you can talk about bridging the gap between where things are today and versus the stabilized EBITDA, how does that cadence look over the next few years? How long does it take to get there?

Yes. Sure, Ari. Great question. So, it is a pretty significant drag, as you just pointed out, in the first quarter in particular, probably in the order of magnitude of 500 basis points. That moderates a bit in the second quarter, where it should be about a couple of hundred basis point drag. And then in the back half, it’s about a 300 basis point tailwind. So, as I was mentioning in my upfront comments, you see a lot of variability in performance. And that has to do with a couple of things. I mean one is the market was really strong last year in the first half. Prior to us starting the renovation, we had the Super Bowl and really strong leisure and group demand, so that, we are coming off of that. And then on top of that, we have got the timing of the renovation, where really the second half of last year was heavily impacted as is the first half of this year. And when we get into the second half of this year, we really have a tailwind from a comparison perspective. So, you have got a few moving parts there with regards to that property. And so hopefully, the color I have given you helps a little bit in terms of how you think about kind of the cadence this year as it relates to RevPAR. In terms of getting to the low-$40 million in terms of hotel EBITDA, which was our underwriting, we think that’s a couple of years post commenced – sort of wrapping up the renovation. So, we will wrap up the renovation kind of at the very end of this year. And it should take a couple of years given the group mix at the hotel to get into that low-$40 million range. And we continue to be really confident about that based on kind of what we are seeing in the market, some of the color Barry provided around what our key customers are telling us as well as how the renovation is starting to come together and how it’s starting to look. So, I think those are the things that continue to give us confidence in the long-term underwriting on that asset.

Thanks. And then maybe just CapEx outside of Hyatt, it’s around $60 million for the year. How should we think about the level of spend beyond this year once that project is completed? And maybe to the extent you could talk about some future projects that are of significance that maybe you can – you might start to look at post the Hyatt?

I mean I will start on that one. We have been spending on average about $70 million to $75 million a year pre-COVID between kind of the usual MEP stuff and typical stuff that we do as well as some ROI-type projects. Now, it varied quite a bit based on acquisitions. So, sometimes we acquired assets that required CapEx like Aviara, so you saw more elevated spending, particularly in associated with that project. So, I would say longer term, for the portfolio, we should get back to that range. But again, there is going to be some lumpiness associated on transactions, what you are buying and selling and how that impacts CapEx and as well as ROI projects, which really kind of fall on the cycle that an asset has as opposed to necessarily the overall cycle for the company, so.

Thanks.

You’re welcome.

Our next question comes from Dori Kesten with Wells Fargo. Please go ahead Dori.

Thanks. Good afternoon. As you think through the renovations in the portfolio that you have completed over the last several years, how much EBITDA upside would you estimate remains until they stabilize?

Yes. That’s a great question, Dori. So, we estimate about $25 million of upside from the renovations we have done over the last few years. This is excluding Scottsdale that have yet to ramp for us. And then Scottsdale is roughly another $25 million. So, it’s $50 million of upside from the CapEx that we have done in the last few years and are currently doing this year. And we expect that $50 million will take a few years again, getting back to the earlier question on stabilization for Scottsdale. But the other projects as well, including the few projects that we had last year, they will take a little bit of time to stabilize. So, that’s the overall target on stabilization from CapEx spend this year and in the past few years.

So, that’s $25 million ex-Gainey Ranch? Is that what you meant?

Yes, $25 million ex-Gainey Ranch. So, it’s $25 million for all the other CapEx and then $25 million for Gainey Ranch. So, a total of $50 million.

Got it. Okay. I may have missed this, but was there an incremental EBITDA headwind assumed this year for Gainey Ranch? I wasn’t sure if that was a little incremental conservatism or a shift in group bookings or maybe just the timing of when the renovation completes.

No, it’s about 14 – it was about a $14 million headwind last year and it’s about $14 million this year in terms of EBITDA loss due to disruption. So, it’s the same level of disruption for the project. Now last year, in 2023, we had some other projects, right. So, that – so our aggregate level of disruption was $18 million. So, it’s $18 million of disruption last year compared to primarily Gainey Ranch this year at $14 million. So, that’s the $4 million benefit. But if you are just looking at Gainey Ranch, it’s $14 million to $14 million. Now again, the timing varies by quarter because of the timing of the renovation. And last year, it was much more second half disruption. This year, it was much more first half disruption. But the number overall is the same.

As Atish pointed out in his comments, that’s not to say that’s the number off of a kind of bare stabilized number, because clearly we had a lot of really good business in the first five months of last year. So, Gainey Ranch overall would be down kind of absent the renovation as well. So, the $14 million is really the renovation disruption we are speaking of. But as kind of an answer – as we talked about earlier and how we kind of get sort of upside going forward, in the years that the market did extremely well and in some ways, was overly frothy, particularly in ‘22 and also really in ‘23, if we hadn’t done the renovation, the property would have been somewhere in the high-$20 million, whereas going into COVID in ‘19, it was in the low-$20 million. And given kind of the condition of the asset over time, that was a more reasonable expectation of where in a normal year, the property was produced and on. Clearly, the way we are looking at this renovation is it’s going to give us very significant upside over both what we kind of view as a true kind of stabilized number and even some of the frothy years that we have seen over the last couple of years in the market.

Right. No, I appreciate that. What I was – sorry, what I was referring to is I thought last quarter, the expectation for ‘24 was that there would be a $12 million headwind, and then it was $14 million. That was just the spread that I was asking about.

Yes. Like – that’s a good question. I mean to – we did speak about $12 million last quarter. And we did talk at that point about the fact that we would have some additional disruption coming from some of the other CapEx that we are spending. So, our expectation at the time was that we would probably end up around – somewhere around $14 million of total renovation disruption for the full year with $12 million of that coming from Gainey Ranch. As we sit here today, we think that that’s probably a little bit higher for Gainey Ranch and less coming from any other projects. So, the total of $14 million disruption is kind of similar to what we thought last quarter with a little bit more disruption from Gainey Ranch than we projected last quarter.

Got it. Okay. Thank you.

Our next question comes from Tyler Batory with Oppenheimer. Tyler, please go ahead.

Yes. Thank you. Good afternoon. This is Jonathan on for Tyler. Thanks for taking our question. Just one for me today, it’s a multipart question on the common dividends. Any additional details that you can share in terms of what factors were contributing to that decision to raise and why you think this level is appropriate in the current environment? I am also interested in your perspective on the bridge to returning to that prior payout ratio that Marcel mentioned and kind of what you would need to see to get there?

Yes. Sure. Great question. So, on the dividend, I think why the increase I think that was the first part of your question. One is just looking at the demand that we are seeing in the business as well as the company’s earnings profile. We have confidence in that. And so it seemed to be an appropriate time to recommend to the Board to increase the dividend, which they agreed to do. I think as we think about kind of the payout ratio, the point in that comment was just to indicate that our expectation is that the business will continue to recover and we will get back to that pre-COVID payout ratio level. There is no specific timeline we want to articulate at this point, but just to indicate that, that is the long-term goal just to get back to that prior payout level, which was in the – as I mentioned the mid-60% range.

Okay. Very good. Thank you for all the color. That’s all for me today.

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

Hi. Thanks for letting me circle back. I just want to make sure we have this bridge properly. If we were to sort of take your ‘24 guidance, right, which includes $14 million of impact, right, and take the remaining $11 million of that notional $25 million from Scottsdale, right, and then the other $25 million is totally on top of the ‘24 guidance, or is there any of that $25 million that’s sort of in ‘24 already?

Well, no, some of it is in ‘24. I think we didn’t break it out with that level of detail. But certainly, you are seeing some – because that $25 million was off of last year. So, it’s a good point. I should have clarified that. So, that $25 million was off of last year. And certainly, the three renovation projects we did last year, you are seeing lift this year in the numbers. I don’t have kind of the breakout by year on that, but it’s something we can look to provide in the future. But that – certainly, there is a piece of the $25 million that’s this year.

Alright. So, there is some of that $25 million that’s in your ‘24 guidance already, and we can venture our own guess. Okay. Got it. Thank you.

Okay.

We have no further questions, so I will hand back to Marcel Verbaas for closing comments.

Thanks Emily. Thanks everyone for joining us today. I know it’s – you are getting to the tail end of a long earnings season. So, we appreciate everyone’s interest and questions today and look forward to updating you over the next couple of quarters as we progress through some important projects, particularly Scottsdale. And as you can tell, we are very excited about the progress that we are making there, so we look forward to updating you on that next quarter, please.

Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.