Earnings Call Transcript - XHR Q1 FY2022

Operator

you for attending today's Xenia Hotels and Resorts Q1 earnings conference call. My name is Bethany, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad. I would now like to pass the conference over to our host, Amanda Bryant, VP of Finance with Xenia Hotels and Resorts.

Amanda Bryant, Other

Please go ahead. Thank you, Bethany. Good afternoon and welcome to Xenia Hotels and Resorts first quarter 22 earnings call and webcast. I'm here with Marcel Verboss, our Chairman and Chief Executive Officer, Barry Bloom, our President and Chief Operating Officer, and T. Shaw, our Executive Vice President and Chief Financial Officer. Marcel will begin with a discussion on industry fundamentals, our quarterly performance, and an update on our portfolio strategy. Barry will follow with more details about our operating results, recent operating trends, and status of our capital expenditure projects. And Atish will conclude our remarks with an update on our balance sheet, group business, and our earnings profile. 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, May 3rd 2022 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 loss and definitions of certain items referred to and remarks in this morning's earnings release the property level portfolio information we'll be speaking about today is on the same property basis for 32 hotels excluding hyatt regency portland at the oregon convention center and W Nashville. An archive of this call will be made available on our website for 90 days. I will now turn it over to Marcel to get started. Thanks Amanda and

Marcel Verbaas, CEO

good afternoon to all of you joining our call today. The pace of recovery has picked up since our last earnings call in early March. As reflected in the results we reported this morning, demand in March was strong and it has continued into April. With a strong leisure base, higher levels of business transit and group demand allowed our properties to grow revenues above our expectations. We expect this demand strength to continue in the months ahead. On a company-wide basis, we had a net loss of $5.5 million in the first quarter. Adjusted EBITDA RE was $49.9 million, and adjusted FFO per share was $0.25. Despite the tough operating environment in January and early February as the Omicron variant surged, 88 percent of our properties generated positive hotel even after year-end a quarter. The direct part for the quarter was $149.60 or about 20 percent below the same period in 2019, which we believe is an excellent result given the significant weakness we experienced in January and how seasonally strong the first quarter of 2019 was. When we reported year-end results, we provided information on both January and February. As we outlined at that time, the Omicron variant impacted performance at the beginning of the year. However, starting in mid-February, the recovery was back on track, and this was reflected in our February and March results, with a red bar of $157.28 and $189.36, respectively, representing decreases to 2019 levels of 19.1% and 5.9%, respectively. Our March results were particularly encouraging, as occupancy was almost 70%, ADR was approximately

Barry A.N. Bloom, COO

11% higher than March of 2019, and Hotel EBITDA margin was approximately 220 basis

Marcel Verbaas, CEO

points higher than 2019. As a result, our March Hotel EBITDA exceeded the level achieved in March of 2019. With ADR up 7.3% compared to the first quarter of 2019, we continue to be pleased with our operator's ability to drive rate growth as the demand mix evolves. Corporate transient and group demand continue to show significant improvements and accelerated into April. Our estimated April occupancy of approximately 72% marks the highest occupancy we have achieved since the onset of the pandemic and coupled with an approximately 18% growth in ADR over April of 2019 drove We have an estimated April REF bar that exceeded 2019 April REF bar by 4 percent, highly encouraging given the historical seasonal strength of the month of April within our portfolio. Our results during the early phase of the recovery have been evidence of the success of our long-term portfolio strategy, allowing us to recover at a faster pace than many of our peers. We continue to benefit from our geographic footprint as well as the high-quality level of our portfolio. We continue to be strong believers in the benefits of being located in higher growth sunbelt markets and having a diverse set of demand drivers for our assets. Our long-term strategy has allowed us to benefit from our demand mix, geography, and property type advantage without having to make a change in our investment strategy. While we have benefited from strong leisure demand throughout our portfolio, we believe we are poised for continued growth as business transit and group demand recovers. We have seen encouraging signs here over the past couple of months, which Barry will highlight in his remarks. With a number of our assets being geared more toward the corporate and group traveler, we believe we remain well positioned to see substantial revenue and profit growth in the months and years ahead as demand from these segments further accelerates. While many of our hotels and resorts were successfully able to pivot and capture the leisure demand throughout the early part of the recovery, including properties such as Hyatt Regency Grand Cypress, Hyatt Regency Scottsdale and Park Hyatt Aviara, as well as our Houston and Dallas hotels. We believe these assets should reap significant benefits from the recovery in the business transient and group demand that historically constituted a significant portion of overall demand at these hotels and resorts. Adding the growing demand from these segments on top of continuing strong leisure demand will further allow our operators to optimize demand mix and drive both occupancy and rate gains. Additionally, our hotels and markets that have been slower to recover, such as Santa Clara, San Francisco, and Portland, are now experiencing encouraging demand growth from all segments, providing further

Marcel Verbaas, CEO

opportunities for meaningful revenue growth within our portfolio. I've spoken many times over the years of our desire to continually grow to quality and

Marcel Verbaas, CEO

growth profile of our portfolio. We have steadfastly adhered to our strategy of primarily owning uniquely positioned luxury and upper upscale hotels and resorts in higher growth top 25 US logging markets and key leader destinations through our acquisition and disposition activities our current 34 property portfolio has improved substantially from the portfolio we owned in early 2015 we believe this is not only reflected in shorthand statistics such as portfolio ref bar and even operative but also in the way we have been able to recover from the impact of COVID and our favorable positioning as the recovery continues our recent investment activities have been a continuation of the execution of our long-term strategy as we discussed last quarter we completed the opportunistic sale of Hotel Monaco Chicago in January at attractive prices allowing us to exit a challenging market and divestable hotel that we believe could struggle to return to priority performance and in March we completed the acquisition of W National a transaction that we announced at the time of our previous earnings report We continue to be extremely excited about this acquisition and the earnings growth that we expect WNashville to deliver over the next several years. The property is ramping up well, and the results during our first full month of ownership were highly encouraging, as the direct bar of approximately $270 during the month of April has us excited for the busy season that lies ahead. As the hotel opened in October of last year, this spring and summer season is marking the first time that the hotel is offering all of its impressive amenities to guests and locals alike with its rooftop bar and its pool facilities that are both second to none in the market. We believe the hotel is poised to see significant growth in food and beverage revenues as well as room revenues over the months ahead. Nashville is a tremendous high growth market and we are thrilled to own what we believe is the most desirable hotel in Nashville. In addition to the earnings growth that we expect to achieve at W Nashville, we are encouraged by recent results at some of our more recent portfolio additions such Park Hyde Albiara, and Hyatt Regency Portland, as well as record performances at Hyatt Regency Grand Cypress and Hyatt Regency Scottsdale. Our investment thesis for all of our recent acquisitions remains intact, and we are excited about the growth opportunities we believe we have created for our company through our investment activities over the past several years. We remain focused on driving superior risk-adjusted returns through ownership of premium hotels in higher growth, top 25 markets, and key leader destinations. We remain focused on allocating capital to drive strong returns. As we have shown consistently over the seven years since our listing, we will continue to execute on this strategy through both targeted capital expenditure projects and a combination of acquisitions and dispositions. With that, I will turn the call over to Barry, who will provide additional details on our performance during the quarter and an update on the significant CapEx projects we have scheduled for this year.

Barry A.N. Bloom, COO

Thank you, Marcel, and good afternoon, everyone. For the first quarter, her same property portfolio occupancy was 58 percent and an average daily rate of $258.12, resulting in REVPAR of $149.60. On an absolute basis, this marks our highest REVPAR quarter since the start of the pandemic, coming in 7.3 percent higher in ADR and 19.5 percent lower in REVPAR compared to the first quarter of 2019. With sequential improvement each month during the quarter, March rev par was just 5.9 percent below March of 2019. We experienced significantly weaker-than-expected corporate and group business related to the Omicron variant in January, with occupancy coming in at 44.1 percent, albeit at an average rate of $233.45, which exceeded the average rate in January 2019 by 1.2 percent. By mid-February, we saw lessening impact from Omicron and very strong leisure business over Valentine's Day and President's Day, with overall February occupancy of 60.8 percent and an average rate of $258.53, which was 6 percent higher than the average rate achieved in February 2019. By March, leisure demand related to spring breaks, short-term corporate bookings, and resurgence of corporate demand more than covered any Omicron group cancellations, as we achieved 69.2 percent occupancy at an average rate of $273.52, or 11 percent higher than the average rate in March 2019. On a red-far basis, January was 36.7 percent lower than January 2019. February was 19.1 percent lower than February 2019. And as I previously mentioned, by March, the gap to March 2019 had been reduced to just 5.9 percent, the smallest gap since the start of pandemic. During the quarter, we had five hotels to keep occupancies above 75 percent, primarily at hotels in our leisure focus and drive-to markets, including Key West, Savannah, Orlando, Birmingham, and Charleston, all of which continue to show remarkable strength. We also had 22 hotels, representing nearly 70 percent of the portfolio, that achieved higher ADRs in the first quarter of 2022 than they did in the first quarter of 2019. We continue to work with our hotels to identify opportunities to drive ADR and ensure that our properties are providing on-site amenities and services that satisfy our guests. Group cancellations in the first quarter amounted to approximately $10.2 million of room revenue, which had been on the books for the first quarter of 2022, with these cancellations primarily related to the Omicron variant. We recognized approximately $4.6 million in cancellation and nutrition fees during the first quarter. Atish will discuss 2022 group pace in more detail shortly. In terms of profit, 28 of our same property hotels achieved positive hotel EBITDA for the quarter, with nine properties exceeding results compared to the first quarter of 2019. 11 hotels achieved EBITDA margins greater than 30 percent for the first quarter, and 14 hotels generated EBITDA margins greater than in the first quarter of 2019. Our properties and their respective management companies continue to do a very good job in controlling margins. For the first quarter, Hotel Ipetal was 57 million dollars, a decline of 27.9 percent, on a total revenue decline of 20.8 percent compared to the first quarter of 2019, resulting in Hotel Ipetal margin decline of 275 basis points to 27.8 percent, due primarily to the impact of the very soft January and larger than typical food and beverage mix throughout the quarter. Hotel Ipetal margin grew significantly during the quarter, from 10 percent in in January, impacted by significantly lower than expected occupancy levels, to 29.6% in February and 36.2% in March, which exceeded March 2019 by approximately 220 basis points. Our hotels, thanks to the efforts of our operators, continue to work very hard at controlling the expenses while ensuring a high quality of guest experience. In the quarter, those expenses declined by over 18% compared to 2019, while undistributed expenses declined by 14.1%. Within the undistributed expenses, the greatest decline to Q1 of 2019 were seen in AMG and sales and marketing, which declined 15.5 percent and 19.5 percent respectively. Our operators report that the recruiting efforts have improved and there seems to be increasing availability of labor in the large majority of the markets where we own hotels. Our operators continue to focus on optimizing productivity and operating models as business levels and guest expectations increase. For the month of March, total hotel employee compensation, as reported by our operators, was approximately 5 percent higher on a preoccupied room basis compared to 2019. We continue to estimate that wage rates across the portfolio will increase in the mid-single digits in 2022 versus 2021. The leisure business continues to be strong throughout the portfolio, with increased booking windows for our most popular drive-to destinations and resorts throughout the first and second quarter. Higher Regency Scottsdale and Higher Regency Grand Cypress achieved their highest ever levels of both revenue and profit during March. We continue to be impressed with the performance ramp up at Park Hyatt Aviara, but the hotel's ADR in March was over 50 percent higher than in March 2019, as the hotel continues to attract significant leisure and group business that understands its dramatic transformation at this property. Hyatt Regency Portland achieved nearly 56 percent occupancy in March as in-house group business, Portland Convention Center business, and events at the adjacent Motor Center were significant occupancy contributors and moved forward to a strong summer of this property. Beginning in mid-February, we began to see significant pickup in corporate volume accounts and room net production, and our largest volume of corporate accounts approximately doubled from January through March. Business travel has continued to pick up, as evidenced by increases in occupancy levels on Monday, Tuesday, and Wednesday nights, and transient business for the remainder of the second quarter continues to increase week over week. Although still down in the 18 to 21 occupancy point range in March compared to 2019, the Monday, Tuesday, and Wednesday night occupancies we achieved in March represent an improvement of 7 to 12 points from the levels we saw in February and are clearly indicative of the acceleration in business travel. According to CapEx, during the quarter, we invested $7.5 million in portfolio improvements. We are pleased to have completed the renovation of the guest rooms, lobby, and restaurant at the Waldorf Astoria Atlanta Buckhead, and also the renovation of meeting space at Marriott Dallas Downtown. We began a comprehensive renovation of the Kimpton Canary Hotel Santa Barbara, including the commencement of renovations to the restaurant and bar, rooftop, lobby, and meeting space. Renovation of the public spaces is expected to be completed in the second quarter, and guest room renovation is targeted to begin in the fourth quarter and be completed in the first quarter of 2023. We have continued planning work on the comprehensive renovation of Grand Bohemian Hotel Orlando, including guest rooms with substantial tub-to-shower conversions, restaurant and bar, lobby, rooftop pool area, and meeting space, which is scheduled to commence in this quarter and is expected to be completed in phases, including in the second quarter of 2023. During the quarter, we continued planning work on a number of additional projects that take place during 2022, including the renovation of the meeting space and conversion of the existing lobby bar to a Starbucks outlet in Fairmont Pittsburgh, renovation of the meeting space at Royal Ponds Resort, completion of bathroom renovations at Marriott Woodlands, renovation of the premium suites at the Ritz-Carlton Denver, including the addition of three new guest room keys, and renovation of the meeting space and restaurant at the Hotel Monica Denver. At Park Eye at Abiyara, the comprehensive renovation of the existing golf course began the second quarter, and we continued planning work on a significant upgrade to the resort's spa and wellness components. We continue to focus our CapEx efforts on numerous building infrastructure projects with a particular emphasis on environmentally sustainable projects to enhance the life and resiliency of our physical structures, including six chiller replacements or upgrades,

Atish Shah, CFO

in 2022. With that, I will turn the call over to Atisha. Thank you, Barry. I will provide an update on our balance sheet, an update on group pace, and a bridge to pro forma 2019 earnings. As to our balance sheet, it continues to be a strength of the company. We have no debt maturities until 2024. Virtually all of our debt is at fixed rates at present, with the cost of borrowing at just over 5%. Relative to other lodging rates, our leverage ratio is modest, in part due to the decisive actions we took during 2020 and 2021. And we have no preferred equity in our capitalization, representing another tool that we could utilize in the future. We expect our balance sheet to continue to be a tool to support the company's overall long-term goals. Turning to our corporate credit facilities, which consist of an undrawn line of credit and one-term loan, we expect to exit the covenant waiver period around the time that we report second quarter results, so in about late summer. We expect that we will meet the amended and relaxed covenants that will be in place then. As such, the remaining restriction that is currently in place, namely a prohibition on share buybacks and dividends is expected to end. As to past dividend practice by way of reminder, pre-COVID we had an annual payout ratio in the mid 60 percent of FAD range, and we had been paying an annual dividend of $1.10 per share pre-COVID. Moving ahead to thoughts on 2022, we continue to be optimistic about the trends we are seeing. Group Revenue Pace is strengthening with 2022 Pace about 23 percent below 2019 levels. This reflects Ruminized Pace down 27 percent and rates up 6 percent. The second half of 2022 continues to look better with the gap to 2019 shrinking and rate strength evident. For the second half of 2022, PACE is down about 20% versus 2019. This reflects Ruinite PACE down 28% and RATES up 10%. The group revenue PACE numbers I just provided were as of the end of March, and we expect PACE to have continued to improve in April based on commentary from our operators. Finally, I'd like to remind everyone about various puts and takes as you think about what 2019 earnings would have been on our current 34 hotel asset base if it had been stabilized at that time. On a same property basis for 32 hotels, we earned approximately 250 million dollars in adjusted EBITDA RE in 2019. While 2019 does not reflect peak earnings for every property in our portfolio, it is a good target to use. To bridge to a pro forma 2019 earnings, there are a few additions as follows. First, Hyatt Regency Portland, which opened in late 2019, it's expected to earn $15 million of hotel EBITDA upon stabilization. Second would be W Nashville, which opened last fall, it's expected to earn $25 to $30 million of hotel EBITDA upon stabilization. And finally, third, earnings for ROI-driven CapEx projects should also be included. Between 2018 and year-end 2022, we will have completed about $250 million of these projects. That includes projects at Park Hyatt Aviara, Hyatt Regency Grand Cypress, Marriott Woodlands, Waldorf Astoria Buckhead, Chris Carlton, Pentagon City, and at several other properties. Based upon our underwriting, we expect this spend to earn at least $25 million of hotel EBITDA upon stabilization. So reflecting these three items, we believe pro forma 2019 adjusted EBITDA RE, if all 34 of our current properties had been stabilized would have been 315 to 320 million dollars. Xenia continues to be positioned well to take advantage of the demand upcycle that we are beginning to see. With limited levels of new supply growth on the horizon, increasing demand will result in pricing power and we have just begun to see that dynamic. Our portfolio has some built-in growth drivers and we expect to utilize our balance sheet to drive incremental growth over the next few years. Before we turn to Q&A, I want to welcome Amanda Bryant to our team. Many of you know Amanda from her time in New York and Chicago. We're delighted that she's joined us here in Orlando as of last week. She will be helping lead our interactions with the investment community going forward. And with that, we will move to our Q&A session. May we please have the

Operator

first question, Bethany. Certainly. Again, if you would like to ask a question, please press star 1 on your telephone keypad. If for any reason you would like to remove that question, please press star followed by 2. And as a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question our first question comes from the line of david

David Katz, Analyst — Jefferies

katz with jeffries please go ahead uh hi afternoon everyone thanks for taking my question well welcome amanda um look i wanted to just explore a little bit more nashville which has been such a strongly growing market, and if you could just shed a little more light on the segments within that market, you know, what specific opportunities. It obviously is a, you know, nice new asset, but, you know, how does it sort of fit within, as I said, a pretty dynamically growing market at this point? Sure, David, this is Barry. It really,

Barry A.N. Bloom, COO

one of the things that attracted us most about the asset is not just the growth that's been in the market and the physical quality asset both of which you mentioned but I think it has the kind of mixed profile that we've tried to seek across the portfolio meaning that it has it does substantive has the opportunity to substantive group business albeit in a relatively small group platform it's very appealing to the group market and we've already seen that as a strength of the property even in the time we've been there working with the property on how to identify additional group business particularly music related business and where the property located geographically also gives it a really significant opportunity to participate in corporate demand from both the music business as well as the financial services business and the other businesses that are relocated and are relocating to nashville and then finally and and i think people think of this as maybe it's primary demand driver but it's really in our mind kind of the icing on the cake is a substantive leisure business that the property does, particularly that weekend business where you have people coming in from all over the country to celebrate events, bachelor and bachelorette parties, reunions, group get-togethers, things like that. So, and we think over time we'll have the ability here to work with the property team to figure out how to best flex those three components of business to really drive performance based on whatever the market conditions kind of dictate. But it's set up extremely well

David Katz, Analyst — Jefferies

in all three things. Understood. And if I can just follow that up, I think you gave us some pretty clear detail on what you expected to earn, or at least a range normalized. What would have to happen, you know, for that number to say, go up? Is that just going to be a function of market growth, or are there additional levers you can pull within it?

Barry A.N. Bloom, COO

Just kind of piggybacking off of what Barry just said, I think we are in a way where we feel very comfortable with saying that it's a 25 to 30 million dollar range. If we get all these different segments kind of firing on all cylinders like Barry just talked about, I think there's certainly upside on them. If you think about this hotel in October, and I mentioned the results on the top line as a release of room revenue in April, thinking that it did $270 in RefBar in April, you know,

Marcel Verbaas, CEO

that's obviously very encouraging when you think about the fact that, I believe I said

Barry A.N. Bloom, COO

in the last quarter when we announced the transaction, that we expect this property to stabilize a little over $300 off RefBar. So, considering that we're at $270 here in April, with all of the amenities still kind of putting and opening up now, opening up the pool facility, rooftop deck going into the summer season, you know, we are highly encouraged by that, and I feel very, very good about our underwriting at this time. Obviously, early, you know, we're one month in, but nothing that we've seen so far is discouraged, and we're highly positive in what the potential is for this hotel.

Atish Shah, CFO

So, and David, I know you're going to be, you know, with us at the properties, but certainly the suites are an area, the property has 60 suites. So, you know, the premiums we can get there, the food and beverage spaces that Marcel talked about, and then on the margin side, you know, we, we, you know, the underwriting that we could, but, you know, there's, there's potential there as well, you know, as the property really gets humming. Understood.

David Katz, Analyst — Jefferies

And if I can just squeeze one more in, with respect to San Diego, are there some comp issues or something in there? Because I think we're observing that the 4Q RATPAR was up a lot versus 19, and today was a little bit different, right? It was down a little bit. Is there a comp issue we should be considering in there?

Barry A.N. Bloom, COO

um it's not it's not a comp issue david it's more when you the numbers you see and the numbers in the in the earnings release are consolidated for both aviara and beyond san diego downtown so there's a little bit of noise and trade-off in there it also the first quarter in particular the first two months in in Aviara and in that entire comps are quite weak primarily due to other and other issues it we're very pleased with the performance and it was certainly in line with at Aviara certainly in line with the hotel's comp set so it really just a it's really more reflective of the seasonality I think from from Q4 to Q1 got it okay thank you very much thank

Operator

Thank you. Our next question comes from the line of Bill Crowe with Raymond James. Please go ahead.

Bill Crow, Analyst — Raymond James

Thanks. Good afternoon, folks. Question on Dallas, which now has, I think, the largest pipeline in the country. And just kind of what do you see in Dallas? How much of that is competitive to your downtown assets?

Marcel Verbaas, CEO

Yeah, as you know, Bill, I've been in this business for a long time, and it seems like every year you look at Dallas, there's a lot of supply coming in, so that's not something

Barry A.N. Bloom, COO

new. A lot of what happens in Dallas Metro is obviously properties are being developed in the suburban areas that aren't directly competitive with us and still want select service supply that's being added as well. So, there are certainly a few assets that are closer to us and that would have some impact on us. We do feel like clearly Dallas doesn't have the same kind of leisure appeal like some of the other markets have that we're able to pivot a lot more to the leisure demand. So, there is a market where we absolutely need to see some strengthening of corporate and group to kind of get back to those prior levels. And we are seeing some encouraging results there. And Barry spoke about this a little bit in his remarks. Certainly, the midweek demand is improving in both markets. April occupancy is pretty significantly over where March was.

Marcel Verbaas, CEO

So we are actually seeing some signs of light in that market that are pretty encouraged by these recent trends.

Bill Crow, Analyst — Raymond James

Marcel, is that a long-term hold market, do you think? Or is that one that is more of an opportunistic market?

Marcel Verbaas, CEO

Well, yeah, longer term, if we think about where we want to be.

Barry A.N. Bloom, COO

We clearly, we've talked a lot about wanting to be and having a sunbelt exposure and being located in certain markets in Texas is for us something that fits within our strategy So, it is not necessarily markets that we'd look to actively dispose out of. Now, could we potentially look at a market like that and say, hey, do we want to upgrade our presence even in the markets, you know, whether it's through the disposition of acquisition, whether it's through additional investments in the assets that we do own there? You know, we're in the assets in the market at an extremely attractive basis, and we bought both of those hotels kind of earlier on in the last cycle. So we feel really good about the basis that we have there, and frankly, the returns that we've earned on those hotels, and we think there's more to come for us there. So nothing that we're actively looking to divest out of. And like I said, you know, if you have a good diversified portfolio, the geographic diversification

Bill Crow, Analyst — Raymond James

that we aim for a market like dallas fits well into that yeah appreciate it one for uh atish uh anything on the cancellation attrition front uh for april or that you're aware of for the

Atish Shah, CFO

second quarter uh no not not certainly not to the same degree as the first quarter so um we don't expect um anything like we've seen in the last couple yeah okay all right thanks

Bill Crow, Analyst — Raymond James

Appreciate it. Thanks, Bill.

Operator

Thank you. Our next question comes from the line of Dory Keston with Wells Fargo. Please go ahead.

Dory Keston, Analyst — Wells Fargo

Thanks. Good afternoon and welcome, Amanda. How has your booking window changed of late for Leisure Business Transient and Group?

Barry A.N. Bloom, COO

Certainly, we saw through the first quarter and we are seeing into early second quarter that Leisure Transient is booking further out. The guests have really come to understand that if they want their first choice market and first choice hotel, they need to start thinking about vacations earlier. I mean, obviously, what we all hear in our personal lives is certainly replicated by the hotels, which are, you know, guests who haven't thought about planning a vacation are often left with a third or fourth or fifth choice destination. And in some cases, if there's a market they're sold on on a much lesser choice hotel than what than what they would have anticipated so i think the leisure guests clearly understands that the volume corporate traveler so it's very close in and on group it's very mixed we're seeing we still see a lot of in the month for the month group business even groups that companies that say we need to have this meeting and we really want to have it now and hotels are really reacting very quickly to that. At the same time we're seeing probably equal amounts of business that are saying we know we need to figure out a program by year end we're booking that and then yet another equal amount so kind of in thirds and it's roughly in those amounts the way that the properties describe it to us people looking to plan the programs for their preferred dates in 2023 and want to get on the calendar now before

Dory Keston, Analyst — Wells Fargo

their preferred hotels get booked up. Okay. Your rate growth has been relatively strong for the last three quarters in a row. Are there certain markets where you believe continued expansion

Barry A.N. Bloom, COO

may be less likely in the coming quarters? Only potentially because of seasonality. When you look at, we have some hotels that are seasonally strong in the first quarter. I think in particular, when you think about markets like Key West and Scottsdale, the strongest rate months of the year would have always been kind of behind us, although we saw substantial and higher than normal strength in April and through late April than we would have seen. Some of that may have been to a little bit later Easter this year. But what we're seeing in the markets that are ramping up are really good rate growth along with that occupancy growth. And we're seeing that the corporate traveler is a little bit more not resilient necessarily because there's nothing to be resilient from, but we see rate accelerating from that segment as well as properties and

Dory Keston, Analyst — Wells Fargo

markets become more and more full. Okay. And lastly, what would you all need to see to um to reinstate a quarterly or annual uh outlook that's a good question dory we we expect to

Atish Shah, CFO

reinstate um some type of operating guidance um no later than when we report in august um so that's that's where we currently intend to do um you know obviously subject to you know trends and our confidence level but that's the current plan thank you thanks dory thank you

Operator

Our next question comes from the line of Michael Salisario with Baird. Please go ahead.

Michael Salisario, Analyst — Baird

Good afternoon, everyone. First question, Barry, if you kind of take March and April together, how would demand and ADR look on a like-for-like basis if you were just comparing group BT and leisure separately? Can you maybe give us how the three different segments are performing on an ADR demand basis?

Barry A.N. Bloom, COO

A little early for us to comment on that. We're obviously working from a lot of estimates on April. What I can tell you is that we saw continued occupancy strength in all of our drive-to-leisure markets. So I think that speaks to leisure, which we also saw in the resorts. we did see substantial demand pickup in most of what we would categorize. And again, we don't look at this as a specific category, but in the large, either urban or suburban markets, markets like D.C., Santa Clara, Dallas, where we saw significant occupancy growth,

Marcel Verbaas, CEO

primarily due to corporate business travel. Yeah, and then can you just remind us maybe today, at a point in time, what your kind of rough customer mix is?

Barry A.N. Bloom, COO

Honestly, it's moved month to month, so I'm a little reticent to put a number out there. And we haven't really talked about it through the pandemic in part because, as you know, also it's getting very hard to discern between that business and leisure traveler when they're on a combined stay.

Atish Shah, CFO

You know, we have historically been about a third group, just as a point of reference. And the rest is, you know, transient, whether BT or leisure. And, you know, long term, I think we're probably headed back in that same range.

Michael Salisario, Analyst — Baird

And then this last one for me, Atisha, do you have an initial view on what you might do with your bonds when they become callable this summer? and kind of just your latest take on the recent capital markets volatility and how it's impacted your options around refinancing those?

Atish Shah, CFO

Yeah, I mean, look, we obviously, you know, to some degree, it's a math exercise. You know, if it makes sense to call those, I guess that's something that we could do. But really, you know, the view hasn't changed that we've got, you know, a good source of debt capital financing in the way of high yield. And, you know, I think that's a good tool for the company to utilize over time, particularly as we continue to be opportunistic around transactions. So, you know, despite the more recent volatility, I think we continue to think of that as a good tool.

Operator

Moving on to Brian Mayer with B. Riley Security. Please go ahead.

Brian Mayer, Analyst — B. Riley Securities

Good afternoon. Maybe following up a little bit on Dory's question on rates. Are you seeing any pushback in any of the markets as you drive rate higher? And then maybe thinking a little bit longer term, as we continue to see inflation ramp and kind of suck up dollars from leisure travelers, what are your thoughts as we kind of get to the back half of this year and next year? Do you expect that that rate growth is going to start to slow down?

Barry A.N. Bloom, COO

Across the portfolio and across segments, we've seen very little, if any, great pushback, and that the rates where our hotels are asking for, they're typically getting, and that's been true really across all segments. We know how strong Leisure's been. Ateesh gave some commentary about our rate being up on the group side despite pacing down, and so even with a relative lack of demand we're able to the hotel's been able to drive a lot of rate you know as it relates to inflation impact on the consumer pocketbook certainly you know beyond what what we think about everything that we're seeing at least the next three months as it relates to transient booking pace is at continued high and in many cases, sequentially higher rates. So really hard to point to anything other than conversation and that that may be a factor down the road.

Atish Shah, CFO

I mean, the operators continue to be, you know, pretty bullish about leisure strength into the summer um you know as they look at not only forward bookings but also um you know the drivers of business um whether it's employment economic growth hustle savings um so you know we we um we obviously pay close attention to you know that feedback that we're getting from the operators um and you know that's our best indicator of how the summer may shape up

Barry A.N. Bloom, COO

The benefit of our portfolio, obviously, is that we talked about it a little bit in answer to one of the earlier questions, is that we've always had a really good balance between the different demand segments within our portfolio. So the way things are setting up for us now, it's very advantageous because we're building off of this continuing strong leisure demand that's out there. And in the short term, you know, the consumer is expecting to pay more for everything right They're seeing inflation everywhere, so it's not a surprise that they're paying more for hotel rooms, too. So, we're able to capture this here, certainly here in the short term, and we feel really good about where corporate transit and group demand is trending. So, that really gives us an opportunity to the extent that we need to pivot away from leisure a little bit, and we have the ability to really start accommodating more of that corporate transit and group again, which to various points is also coming at very attractive rates. So, so far, we're seeing nothing to suggest that, you know, we're going to get under a lot of pressure there.

Brian Mayer, Analyst — B. Riley Securities

Okay. Just a second question for me. On the acquisition appetite going forward and kind of what you're looking at, is the W Nashville kind of representative of what might be the next property, or are you still looking at, you know, smaller, more niche type of hotels to buy as well?

Barry A.N. Bloom, COO

Well, when you think about, you know, you look at the W Nashville, and it's obviously, it's a new property. It's in a high-growth market, which probably drove some of the pricing for where an hotel like that goes when it's that high quality. But when you think about the transactions that we've done over the last five, six years, it's obviously very consistent with the type of quality level hotels that we've been doing. Where you will see us to, you know, look at potential acquisition opportunities, you know, it could be a mix of assets where there's more of a project management component to it. There's more of a capital component to it, like there was, for example, at AVIAR. There are also assets where we think we can, that are in good condition already, where we think we can really use our asset management expertise to drive revenue and profit growth. So, from our perspective, you know, W Nashville is very consistent with the deals you saw us do back in, you know, 18, 19, during that time frame. And, you know, that's kind of how you should think about what our portfolio looks like longer term. which is continuous move to have a high-quality portfolio, continually upgrade the quality of the portfolio, and continue to upgrade the potential profits

Marcel Verbaas, CEO

that we can drive from those assets.

Marcel Verbaas, CEO

Okay, thank you. Thank you.

Operator

Thank you. Our next question comes from the line of Eric Klein with BMO. Please go ahead.

Eric Klein, Analyst — BMO

Thanks. On the group side, it doesn't seem like pace changed all that much from the last update. Can you talk to some of the trends that you're seeing there and maybe some color on individual markets?

Atish Shah, CFO

Yeah, sure. I mean, we continue to see strength, particularly around the rate side. And you're right that the pace did not change incredibly from last time we reported, you know, in a couple months, sort of the numbers stand in January versus the end of March. we did, you know, the number of definites on the books did go up in the double-digit percentage range for the rest of 22 and 23 so that's a positive. And, you know, the production is broad-based. I mean, certainly some of the bigger group-oriented hotels in Texas and Arizona and Georgia saw a lot of production some of our properties in California. So, you know, the properties that you would expect it are seeing, you know, the highest levels

Barry A.N. Bloom, COO

of production. And, you know, where we have a lot of confidence is on the rate side, where,

Atish Shah, CFO

you know, the hotels and the operators are properly navigating between, you know, trying to get more group business on the books. Certainly, there's capacity, given that pace is still down relative to 2019. But also, you know, preserving for what we expect will be, you know, continued strength and leisure and much higher levels of business transient as we, you know, get into later parts this year. So, you know, that's kind of how we look at it overall and, you know, continue to feel good about how things are shaping up on the group side. Thanks. And then just maybe on the

Eric Klein, Analyst — BMO

transaction market, you know, clearly, you know, rates have moved quite a bit here. Has there been any change in investor appetite or, you know, are you seeing any signs of cap rate movement? Yeah. How do you think that evolves, I guess? Yeah. As you know, on the one hand, we have the recovery is playing out, but on the other hand, you know, rates moving higher.

Barry A.N. Bloom, COO

Yeah, you're absolutely correct. You've got a lot of different type of factors that play into this, and there's clearly more conflict around the recovery, and we're, you know, not just leisure-driven, but as we've talked about a lot here during this call, going from the different segments, too. So, that obviously counters some of that, and it is really early, frankly. We've just seen, you know, the more significant moves in interest rates fairly recently here, And in the short term here, we really haven't seen anything that makes us think that seller expectations and seller desires for pricing have changed. So, it's just early that they change over time. We haven't seen it yet. We certainly haven't seen a lot more product coming to market yet, which could happen down the road to the extent that people say, look, it's getting more expensive to refinance an asset. Maybe the appropriate time is to potentially sell the hotel. And that's why we obviously will remain somewhat patient, too, as it relates to additional acquisitions. And we've talked about that quite a bit, really, since the early parts of the recovery. We felt that the WNATCHO was a really unique and great opportunity for us to acquire an asset where we want to be longer term. We're continuing to look at the pipeline and seeing if there are additional transactions that could make sense for us in the short term to the extent that those aren't there. we have not comfortable with the pricing we're also happy to um to be patient that's the way

Operator

for the right opportunity thank you our next question comes from the one of austin

Austin W. Schmidt, Analyst — KeyBanc

where schmidt with key bank please go ahead thanks and good afternoon everybody um when you guys spoke about the stabilization in hotel ebitda including the bridge you provided um Has stabilized hotel EBITDA hotels like the Park Hyatt RVR, the Hyatt Regency Portland, and some of the CapEx, you know, other CapEx projects that you've completed since 19, have any of that changed from your initial underwriting given, you know, some of the moves in ADRs we've seen relative to 19 and maybe some efficiencies that's been achieved in the business? or do you think, and I guess, do you think there could be upside relative to that initial underwriting? I know we like to use, you know, 2019 as a milestone, but what's sort of the bull case, I guess, for exceeding, you know, exceeding those stabilized levels?

Atish Shah, CFO

Yeah, Austin, that's a great question. You know, I think we continue to feel confident on the Portland underwriting at $15 million at Potel EBITDA. Nashville is new to us, Obviously, we just acquired it, so the 25 to 30 million that we've provided, that's our best estimate at this point, and we spoke a little bit earlier about where there could be some upside. I think on the ROI projects, yeah, it's possible that there's more than the 25 million upon stabilization, just given some of the strength we've seen, particularly at Aviara and some of these other projects and how they've been received. So, I don't think it's necessarily, you know, all margin-driven. I think it's just more, you know, overall, you know, revenue growth as well as, you know, ancillary revenues and revenue growth. So, that's how I would describe maybe the upside. It's a little bit more on the ROI CapEx side projects.

Austin W. Schmidt, Analyst — KeyBanc

Got it. And then, you know, Tish, you know, maybe another one for you. You highlighted kind of the attractive leverage position relative to peers. and, you know, the potential use of PREFs you commented on and just overall plans use the balance sheet as the recovery persists. So, you know, absent kind of the move-in rates, how much dry powder do you have to pursue additional, you know, investments in the near to medium term before you'd need to tee up either dispositions or equity to fund those purchases?

Atish Shah, CFO

Well, I mean, I think some of it depends on kind of the cadence of the recovery, right, particularly after we get out of the covenant waiver period so i mean certainly hundreds of millions of dollars but exactly what don't know depends also on the timing of the of acquisitions or transactions i think you know the important point is um you know we we're coming out of this uh pandemic with um as healthy if not a healthier balance sheet um unlike some of the peers um you know so we we took the right decisions to kind of strengthen the balance sheet even during the course the pandemic. And the point on the preferred is just that, you know, many of our peers have preferred equity in their capitalization. It remains a tool that's available to us. So that's something else we could do to grow the company into the future. And frankly, it is something that potentially could be attractive to us. So, you know, I think there's a lot of optionality in the balance sheet. I think we designed it to support the strategic goals of the company. It continues to be intact and serve that purpose. And it has been a strength over the last many years, and it continues to be a strength. So, you know, that's how I look at it from a big-picture perspective. And, you know, as we get a little bit farther past the covenant waiver period, you know, we can probably get a little bit more into, you know, exactly how much capacity there is. I will also say long-term leverage target, we'd always want it to be sub-five times. We've been running the company kind of low three to low four times at that deep dot. So that continues to be our view going forward. We think that's the right level of leverage for the company. Hope that helps.

Austin W. Schmidt, Analyst — KeyBanc

Yeah, no, that's very helpful. And just one last one for me. You know, I know there was a question earlier about mix, and I'm just curious how we think or extrapolate the move in ADR we've seen relative to 19 as you see group business you know that segment really pick up as a percentage and maybe some of these these other segments like leisure that that I don't know maybe stabilizes a little bit more relative but but is there anything you can share I know you didn't give guidance at this point but anything you can share as we think about through the middle of the back half of the year in terms of

Barry A.N. Bloom, COO

how that could progress? I think Atish touched on group pace for the back half of this year where rates are up 10%. And I think that while not every group is going to book up 10%, I think it's very indicative of the pricing power that the hotels in general have right now as it relates to Group. What we see in Group certainly is not inconsistent with what the brands have told us. They're really, you know, trying to maintain the rates they put in place for 20 with their negotiated corporate accounts, and they seem to be in a good job of achieving that level of stickiness. So I would say we take that as a plus as well. And then I think, you know, as we've touched on a couple of questions today, that leisure customer seems to really be willing to spent. I think you take all of that kind of in conjunction with, as Marcel said, an environment where people are paying more for everything. And when you go and look at the other components of travel, airfare, car rental, things like that in particular, I mean, I think it's great to see the hotel business is able to hang in there with those other travel players who historically may have done a better job of driving rate than the hotel industry has for no reason other than that hotels didn't have the sophistication of systems and management to be able to really drive that. So I think that all, I think that bodes well for rate into the back, into and through the back

Austin W. Schmidt, Analyst — KeyBanc

half of this year and hopefully in the next year. Absolutely. But like maybe what's the disparity between what that leisure customer's paying versus what you're getting on a group, you know, on an average group rate across the portfolio.

Barry A.N. Bloom, COO

Again, keep in mind that breaking out business versus leisure is really, really difficult. So, but what I can tell you is that in the properties that are primarily leisure-focused, which we have a lot of, as you know, in those drive-to leisure markets we've talked about, you know, a lot over the last couple of years in particular, that they've been showing significant rate growth, but the resorts have also shown significant rate growth. And again, as we're seeing pickup in these kind of urban, suburban, larger hotels, that we're seeing good rate growth

Operator

out of those as well. Appreciate the time. Thank you. Our next question comes from the line of

Jonathan (for Tyler Brotman), Analyst — Oppenheimer

Tyler Brotori with Oppenheimer. Please go ahead. Good morning, guys. This is Jonathan on for Tyler. Thank you for fitting me in and taking my questions. Just one from me today. Barry, you touched on this in the prepared remarks, but can you provide some additional color on the labor market that's out there in terms of where you are on FTE, the hiring pool, and how much additional staffing you look to add as I can see continues to ramp into the summer?

Barry A.N. Bloom, COO

Yeah. You know, I think our operators have done a really good job of looking after labor in general. As I said in the remarks, and I'll repeat it only because it ties into the latter half of the question, is that, you know, we're certainly not seeing the same challenges in terms of either identifying new hires in the hotels, again, as reported by our managers, or the same kind of pressure on wage rates that we had seen in in q3 and q4 of last year so not that we've filled all of our open positions in the hotels the operators certainly have not and the biggest need areas continue to be in housekeeping and culinary and positions like that but there is a much more consistent and fluid applicant pool one of the reasons we talked about the stat of kind of total labor preoccupied room is we think it's very indicative of where we are in the cycle in terms of number of employees, which is that, you know, the fixed costs are really covered. I mean, when you think about a portfolio that for us, right, has run, you know, 69%, 72% the last couple months, the hotels are nearly fully staffed as it relates to kind of the fixed positions so we're really now under the kind of the variable cost model as the operators look at that which is you know adding enough housekeepers to be able to clean rooms as we hopefully go you know up from the from the low 70s and banquet staff and culinary staff as we are able to drive more banquet revenue into the hotel with more groups so i think in terms of overall staffing again, thinking through kind of each of our conversations at each of our hotels and with each of our operating companies, the labor situation is much more stable than it was three months ago or six months ago. And the large, large majority of the employees that the hotels need are on property and are working most every day. Okay. Thank you for all that color. Just one

Jonathan (for Tyler Brotman), Analyst — Oppenheimer

follow-up on that bigger picture on the expense side, obviously doing a tremendous job. But now that you're on that variable cost side, any expectations you have for longer term cost savings or potential margin expansion as we, as we, I can see fully returned? You know, I think we need

Barry A.N. Bloom, COO

to see how it shakes out. We're getting a little better direction of feedback from the operators in terms of what their plans are in terms of staffing models. And I think in general, we'll come through, at least in terms of management positions, the same way we've come through other downturns, which is with fewer management positions on the properties in general, which is going to be beneficial. I think, you know, in terms of margins, I think we really need to see kind of how the rate situation kind of compares to the wage situation as we move forward through this year and into next year before we can really kind of settle around what the overall margin improvement might be across the portfolio and across the industry.

Jonathan (for Tyler Brotman), Analyst — Oppenheimer

Very helpful.

Marcel Verbaas, CEO

Thank you for all the color, guys. That's all for me.

Operator

Thank you. there are no additional questions waiting at this time i would like to

Barry A.N. Bloom, COO

so robust for any closing remarks thanks bethany uh thanks everyone for joining us today um we're certainly encouraged by the trends we've seen over the last couple months and uh we're we're um looking forward to reporting next quarter on what we hopefully uh hopefully will be positive results over the next few months um look forward to seeing many of you over the next few months also at various industry events, and I know a few of you will also be joining us in Nashville in a few weeks. So we look forward to seeing all of you personally over the next couple of months.

Operator

That concludes the Xenia Hotels and Resorts Q1 earnings conference call. I hope you all enjoy the rest of your day. You may now disconnect your lines.