Hello all, and welcome to Xenia Hotels & Resorts Second Quarter 2024 Earnings Conference Call. My name is Lydia, and I will be your operator today. After the prepared remarks there will be an opportunity to ask questions. I'll now hand you over to Aldo Martinez, Manager of Finance, to begin. Please go ahead.

Thank you, Lydia, and welcome to Xenia Hotels & Resorts second quarter 2024 earnings call and webcast. I'm 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 on our performance. Barry will follow with more details on operating trends and capital expenditure projects; and Atish will conclude today's remarks with commentary 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 differ materially from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issued yesterday afternoon along with the comments on this call, are made only as of today, August 2, 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 our second quarter earnings release, which is available on the Investor Relations section of our website. The property level information we will 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, Aldo, and good morning to everyone joining our call today. Our portfolio delivered meaningful RevPAR growth in the second quarter as we continue to benefit from improvement in corporate transient and group demand in many of our markets, offset by some weakness in leisure demand as the quarter progressed. We also continue to make significant progress on the most impactful project in the history of our company, the transformational renovation of Hyatt Regency Scottsdale. This project continues to be on track from a timing perspective. and the excitement is starting to build as we near the completion of most of the major components of the renovation and the relaunch of the property as the luxury Grand Hyatt Scottsdale Resort. Despite a continued strong focus on expense controls by our operators and asset management team, our hotel EBITDA margin in the second quarter was a bit lower than we had projected. This lower margin, combined with RevPAR growth that was slightly below our forecast caused our adjusted EBITDAre to come in approximately $2 million below our internal estimate for the quarter. This was offset by a tax benefit positively impacting adjusted FFO that Atish will highlight in his remarks. For the second quarter of 2024, the company's net income was $15.3 million. Adjusted EBITDAre was $68.4 million, and adjusted FFO per share was $0.52. The renovation disruption at Hyatt Regency Scottsdale continue to be a substantial headwind in year-over-year comparisons. As a resort, delivered particularly strong results in April and May of last year before the start of the renovation project in June. Year-over-year comparisons will become significantly more favorable as the year progresses. Now that we have started lapping the commencement of the renovation. Same-property RevPAR for our 32 hotel portfolio increased by 1.8% for the quarter, while RevPAR…

Thank you, Marcel, and good morning, everyone. For the second quarter, our 32 same-property portfolio RevPAR was $185.69 based on occupancy of 71% at an average daily rate of $261.5 an increase of 1.8% as compared to the second quarter in 2023. Excluding Hyatt Regency Scottsdale, second quarter RevPAR was $191.28, an increase of 5% as compared to 2023. This increase reflected 3.9 points of occupancy gain and a decline of approximately 0.5% in average daily rate as compared to the second quarter of 2023. As Marcel indicated in his remarks, the same property leaders in terms of RevPAR growth in the quarter including our hotels that underwent comprehensive renovations in 2023, Canary Santa Barbara, Grand Bohemian Orlando and Monaco Salt Lake City. Collectively, RevPAR of these hotels was up 42.3% in the second quarter. Additionally, RevPAR grew significantly at our two hotels in Dallas, collectively up 19.4%, Ritz-Carlton Pentagon City up 14.3%; Park Hyatt Aviara up 11.1% and Waldorf Astoria Atlanta Buckhead up 10%; Westin Oaks and Galleria up 9.6%; and Hyatt Regency Santa Clara, up 8%. The growth in these markets is a result of clearly improving business transient and group demand that we're seeing across the portfolio. Markets that experienced RevPAR weakness compared to the second quarter of 2023 as a result of softer group business, including New Orleans, Orlando and Nashville, while Savannah and Key West experienced softer leisure demand. Despite softening in the Nashville market as a result of new luxury supply absorption, our W Nashville continues to perform well relative to this new supply despite announcements of several of those properties. We do not expect them to be online for many years. Future group bookings are strengthening as evidenced by record group booking production month in June. And in the second quarter, business transient…

Okay. Thanks, Barry. I will provide an update on 2 items. Our balance sheet and our 2024 guidance. As to our balance sheet, it continues to be a point of strength for the company, we maintain a significant unencumbered asset base and ample liquidity Our next debt maturity is over a year from now, and we expect to address it well in advance. Our current leverage ratio pro forma for the Larian disposition is approximately 5.2 times trailing 12-month net debt to EBITDA. As a reminder, our long-term target is a leverage ratio in the low 3 times to low 4 times range. We expect to move closer to that range in 2025 as Grand Hyatt Scottsdale resort ramps up post renovation. Turning next to our 2024 full-year guidance. Beginning with RevPAR, we have lowered our expectation for RevPAR growth by 50 basis points to 3% at the midpoint. Excluding Scottsdale, we are lowering our expectations for RevPAR growth by 25 basis points to 3.75% at the midpoint. Our lower RevPAR expectation is a combination of slightly lower-than-expected second quarter RevPAR as well as more muted expectations across the portfolio, including in Scottsdale. As to adjusted EBITDAre, we have lowered the midpoint by $5 million to $249 million. This reduction is driven by 3 items as follows: $1 million due to the sale of the Lorien Hotel in July, $1 million due to higher renovation-related displacement in Scottsdale, and $4 million due to lower RevPAR and its corresponding impact on margins. Half of this or about $2 million was in the second quarter, and the other half relates to our second-half forecast. These 3 items are offset by $1 million in lower G&A expense. As to the weighting of adjusted EBITDA by quarter, we expect the third quarter to be…

[Operator Instructions] Our first question today comes from Michael Bellisario with Baird. Please go ahead. Your line is open.

Good morning, everyone.

Good morning.

Barry, first question for you. booking channels. What are you seeing with loyalty redemptions I guess, what does any change there, maybe historically tell you about demand and demand patterns? And is there any change in the loyalty bookings? Is that affecting RevPAR and margins at your hotels and across the portfolio?

Yes. Good question. So we have relatively few hotels that are significant redemption hotels. In those hotels, we are seeing lower redemptions this year than we had seen in prior year. But one of the reasons we've continued to drive documents in those hotels is because we want to make sure we're getting redeemed at the premium redemption rates. We don't -- we've not gotten a lot of insight from the properties as to really why redemptions are down. There's some conversation about people having used up and spent a lot of their points historically and in our hotels that had been high redeemers, continue to be high redeemers within their various brand families.

Got it. Understood. And then just second question, just on the -- I think I heard you correctly, the better business transient outlook for the second-half of the year in a handful of those markets like SFO in Houston and a few others. Can we kind of dig in there a little bit, what customers, what types of industries are you seeing the pickup there? And how much of it is rate versus occupancy driven?

Yes. We certainly continue to see continued growth in small and medium-sized businesses. But in some of these larger markets, whether that's -- and I think it's part of what we saw in Q2, and we look forward to seeing continue through the year is in some of these more major markets, whether that's Houston or Dallas, San Francisco. We're seeing more Santa Clara as well, we're seeing more significant increase than we have historically in the larger corporate accounts. So thinking more Fortune 100 accounts and the consulting and accounting firms are showing greater growth than they have thus far in the recovery from the pandemic.

I mean is that pickup that's primarily demand then, not just rate?

The pickup is primarily in demand. But again, where that business is coming in on Tuesday and Wednesday nights in particular, hotels were able to compress their corporate rate or nonlarge corporate account business. So as you know, last year, the increases that we got as an industry across the largest negotiated corporate accounts were not terribly significant. But we do rely and are looking forward to and part of what we've seen is that as we are able to fill with more large volume account business that lets the hotel compress and drive rate from the non-negotiated accounts.

Thank you. That's all for me.

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

Hi, morning everyone. Thanks for taking my questions. I wanted to just talk about leisure and the portfolio and some of the commentary, it does seem as though leisure at least for the moment, right, is slowing. And obviously, that may not bode well for an ideal opening in Scottsdale. But does it inform any sort of other strategies that you can pursue or any other sort of deals that you can make, obviously, I'm thinking more disposition wise? Or anything you can do sort of in that context sort of deal with or approach leisure slowing a bit?

Yes. Thanks for the questions, David. As you know, our portfolio is very balanced and being able to really play with all demand segments. And we've obviously spoken on this call already quite a bit in our prepared remarks about where we're seeing strength coming on the corporate transient and group side that is really offsetting some of the weakness that we are seeing to a certain extent on the leisure side. Now when you look at our leisure markets, and I think Atish pointed out in his remarks, we do have a few markets that are holding up fairly well on the leisure side, and we have some markets where you are absolutely seeing some softening. But even in some of the markets where you're seeing kind of a more kind of a greater softening. For example, Orlando is absolutely a softer leisure market this year than it was last year. And some of that probably has to do with Universal opening up a new part next year, which generally kind of drives more demand into that year and a little bit of a slowing going into that. That's not really what's impacting us in a market like Orlando, for example. And we have our Grand Bohemian Orlando downtown that is really corporate transient-driven hotel that is doing very well coming off of its renovation. And some of the softness that we saw in Grand Cypress was more just about some group business that was down there as compared to really suffering from the leisure demand that's pulling back. you translate that to your kind of the second part of your question as it relates to first Costo and kind of the rest of the portfolio. Scottsdale, as you know, a very big component of what we're doing there…

Understood. And I'm not sure that I fully understand the sort of outbound international versus inbound international travel. I guess I had thought that this was going to be a little better summer for that than perhaps what it's turned out to be. Is there anything more to it than just the sort of cost decision or the value of the dollar as you see it?

Yes. We obviously see the same things you do as it relates to kind of overall market data. And certainly, the international outbound travel has been very strong still, it appears. And I think overall, everyone was expecting maybe that will be a little bit weaker this year and see that balance shift in a different direction a little bit. Our portfolio isn't driven very heavily by inbound international traffic. We have very few assets where that's a meaningful component of our portfolio. So even though we see kind of the overall trends in the market, we're probably not the best position to take a very strong position on that.

Understood. Thanks for taking my questions.

Our next question today comes from Aryeh Klein with BMO Capital Markets. Please go ahead. Your line is open.

Thanks and good morning. Maybe just following up on the leader comment. Just from an out-of-room perspective, what are you seeing on that front? And even beyond leisure, is that -- are you seeing any kind of impact elsewhere, whether it's group or BT or anywhere else? Thank you.

Yes. I think in particular, on leisure, we've been I wouldn't say surprised but encouraged that outlets are still busy generally across the portfolio and that the consumers seem to comparing to certainly pre-COVID, they seem to be -- they seem to eat and drink in the hotel more frequently meaning our in-house capture in general across the portfolio is better than it was pre-COVID. Some of that obviously is because of pricing and the price increases we've taken in restaurant in bar in bar pricing. But we feel pretty good about that out of the out-of-room spend. And what we're seeing in ancillary areas like parking and spa and even retail in some of the properties we have that has held up pretty well, in fact, very well. I mentioned that at some of those departments are the other operating departments combined were up over 20% in Q2 versus prior year. So we feel pretty good about that out of room spend.

I think that Barry just highlighted in his comments as well. A little bit of a shift in the mix of the group business with associations just take being a bit stronger than corporate group at this point, which does impact the additional spend by -- to some extent.

Certainly, the bank would spend in food and beverage, for sure.

Thanks for that. And then just on the expense side of things. I guess what has changed there from your perspective versus your prior expectations? Because it does seem like some peers are seeing softening on the expense pressure side of things. I guess what's embedded from a same-store expense growth for this year? And do you think that moderates as we look ahead to next year?

We do think it moderates and Atish mentioned that we do expect it to moderate for the remainder of the year. I think we -- a big picture, and I went through some of the detail in the remarks, but I think big picture, that we're like -- we're driving occupancy very well, which means we're servicing more guests. And I think I feel much better when we look at the per occupied room expense growth. as opposed to the raw expense growth. And I think that's obviously kind of proof to us in part that a lot of this is occupancy driven. I think there's also. And I mentioned it, that part of our strategy and part of the hotel strategy of driving occupancy is at a higher cost, particularly in sales and marketing, where we're utilizing where we have more salespeople on board across the portfolio. We have -- we're doing more paid search and more digital marketing, and we're doing more paid search in part in certain markets to OTA channels, which is an expensive channel. But in those properties that are doing that. The goal is to make sure that we're filling the hotel and driving enough business into the hotel to support the overall operation and grow bottom line dollars even if it's an expense of margin.

Thank you.

Our next question is from Jack Armstrong with Wells Fargo. Please go ahead.

Hey, good morning, everyone. So Nashville had a kind of a tough quarter from a leisure perspective. Did the -- we continue to gain market share in that environment? And are there any updates on the new restaurant concept there or any other out-of-route drivers?

Yes. No update on the restaurant concept. We're working on some -- we think there will be some pretty exciting ideas that hopefully, we'll be able to share in the near future. Our for Nashville, we actually held up fairly well relative to the comp set in terms of leisure in Q2. We did very well, as I mentioned, in the corporate transient, but we had a challenging time on the in-house group side. It's really the front view, we've experienced that. We had some turnover in the sales department in the month leading into the second quarter and just -- and we're not able to really recover from that. Having said that, and I mentioned earlier, that production in June and what we're first hearing about July for future dates is that we're back on track in terms of driving group business into the hotel. And the way that we've talked before, I think, is much more meaningful than we had originally anticipated in our underwriting.

Okay. That's helpful color. And then just kind of based on your take on the macro environment and the slowdown you're seeing in leisure, are you assuming the stabilization of coal might be pushed out a bit? Or do you think the group booking pace that you're seeing for '25 to keep it on track with the original underwriting?

Really not seeing anything at this point that would cause us, like I said earlier, to change our view of where this will stabilize and how this will stabilize. So leisure is obviously an important component, but group is really the most important component as we kind of build up the occupancy there. And then, again, because of the seasonality in the markets, really make sure that we take advantage of how frothy those first essentially five months of the year are to really drive the increased rates and everything that we're looking to do as a result of the renovation. So any kind of overall global softening of leisure demand. I mean, certainly, the stronger leisure and the better. But at this point, we're not -- we're not seeing anything that gives us any pause on how we think this is actually the same bus.

Okay, great. That's it for me. Thanks.

[Operator Instructions] Our next question comes from Tyler Batory with Oppenheimer. Please go ahead.

Hey, good morning. Thanks for taking my questions. I wanted to ask about the group business. I think you said you're pacing up 1% for the second-half. What are you seeing in terms of -- in the quarter for the quarter bookings? And then can you talk a little bit about the citywide calendar in the second-half of this year as well?

Yes. Why don't I start on that? Maybe, Barry, you can talk about the citywide calendar. So in terms of production, I think I referred to production being strong in the second quarter and being up 5% for the third quarter relative to last year. So we continue to see healthy levels of near-term business? And similarly, for sort of in the quarter, for the quarter, activity continues to be good. So while our pace numbers 1% excluding Scottsdale is not that strong for the back half of the year. Again, we're seeing good levels of activity. So we have confidence in that and the rate profile continues to be good, up over a couple of percent. So that's really informing our guidance. And then, Barry, if you want to add anything citywide calendar?

Yes. On city-wide, we've talked about this before that our portfolio in general is not heavily reliant on city-wide’s as it relates to the portfolio overall. Some of the properties where we do enjoy traditionally big city-wide business would be Portland, obviously, where we're next in convention center and the setup there is we've long known is a little bit soft in the second-half of this year, but the hotel has worked hard to try to offset that with in-house business. And that's certainly one of the pluses of understanding citywide business and knowing kind of where those gaps are. So we've done a good job of doing that. Dallas, we participate in some city-wide’s there were Q3 and Q4 are both down a little bit from prior years. But again, they were also quite a bit down in Q1 as well, and we were able to perform very well through that in Dallas. And then the other markets are relatively little importance as it relates to how much compression we get from citywide business and/or whether we tend to not fill when city-wide’s aren't in, but other markets where we do participate in city-wide’s are or Nashville, which has a good setup for Q3 and Q4 as well.

Okay. Quick follow-up on the leisure discussion here. In terms of your channel mix, have you increased using OTAs or other discount channels more to drive business? I'm not sure if that's something that's impacting the cost structure, too.

In some hotels, where they really believe that driving occupancy is going to be -- is the best overall strategy because it's going to drive the most ancillary spend, keep the building busy. We have hotels that are definitely using more OTA marketing than they have historically, and it is a lower revenue, higher cost channel. So that certainly is one of the factors that has had some impact on margin.

Okay. And then just the last question for me. I'm trying to think about what 2025 might look like from an EBITDA perspective. I know you can't give guidance. I guess one thing at a time, I got to get through 2024 first. But with your portfolio, I think there's a lot of moving pieces to some of the acquisitions with some of the renovations, some disruption. So if you could kind of run through some of the potential building blocks on the EBITDA side of things, just to try to help us frame a starting point, if you will, for next year.

Well, I think one thing to refer to is the slide in our prior investment -- investor deck bridges to the future. And obviously, it doesn't go by year, but you have some major components, one being Scottsdale, where we expect $20 million of EBITDA lift between now a stabilization plus disruption. So getting that back, that's a big piece. Obviously, the newer assets, W Nashville and Portland are big drivers. And then finally, outsized growth and some assets in the portfolio, particularly those in Northern California, which are still have a lot of recovery potential and have certainly shown strong signs of recovery this year. So those building blocks are there. And I think as we get closer into next year and certainly in the beginning of the year, we can highlight those with more specificity as to how each one of those are shaping up for next year. It's just a little bit too early given that our hotels are just now starting the budgeting process. So getting into a lot of detail on that at this point is just really tough for us to do.

So obviously, a long way to get to '25. We -- and Atish did highlight some of the positives as we go into next year. And it's a little earlier than we normally like to speak about kind of where group base is shaking out, but we're seeing some very encouraging signs there. And the one piece that we can move out ahead. And then Atish pointed there about at this time of the year, like every year, there's probably about -- only about one-third of your group business for next year on the books. But our pace is very healthy thus far. And especially some -- when you think about some of the things Atish talked about with the booking base and what we've seen over the last couple of months, we're very encouraged about what the hotels are able to put on the books for next year. And that's even outside of what we expect to get from Scottsdale, which is showing some very encouraging signs, particularly on the rate side. So we are -- we've talked a number of times about that we look at the setup for '25 and beyond being very positive for us, and we continue to feel that way.

Okay, very helpful. Thank you

Thank you. We have no further questions. So I'd now like to turn the call back to Marcel Barbas for any closing comments.

All right. Thanks, Eli, and thanks, everyone, for joining us this morning. I know it's been a busy week of earnings calls in our space. So we thank you for joining us, and hope you enjoy whatever is remaining of the summer, and we'll speak with you over the next few months. Thanks again, and we'll look forward to updating you in the future.

This concludes today's call. Thank you for joining. You may now disconnect your lines.