Lisa Ramey - Vice President of Finance Marcel Verbaas - President and Chief Executive Officer Andrew Welch - Executive Vice President and Chief Financial Officer Barry Bloom - Executive Vice President and Chief Operating Officer.

Thomas Allen - Morgan Stanley.

Good morning and welcome to the Xenia Hotels & Resorts’ Third Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Lisa Ramey, Vice President of Finance. Please go ahead..

[Audio Dip] I am here with Marcel Verbaas, our President and Chief Executive Officer; Andy Welch, our Chief Financial Officer; and Barry Bloom, our Chief Operating Officer. Marcel will provide you with an update on the industry, a discussion of our third quarter results, some recent activities and an update on our near-term outlook.

Andy will provide additional details on our third quarter performance and our balance sheet. We will then open up 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 and/or implied by our comments.

Forward-looking statements in the earnings release that we issued earlier this morning along with the comments on this call are made only as of today November 12, 2015 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 refer to in our remarks on this morning’s earnings release. An archive of this call will be available on our website for 90 days. With that, I will turn it over to Marcel to get started..

Thanks, Lisa. Good morning, everyone. As always we appreciate you taking the time to participate in our earnings call this morning. As you are all aware at this point the third quarter represented the challenges for the Lodging Industry.

Do in part to a late Labor Day holiday which negatively impacted late August and early September lodging demand and the shift in the Jewish holidays. However, despite the calendar disruption we are pleased with our portfolios third quarter results.

During the third quarter, our hotels delivered strong bottom line results which increased our adjusted EBITDA to $74.9 million, a 25.5% growth year-over-year and resulted in adjusted FFO per share of $0.57 up 46.2% over last year.

These results were positively impacted by a substantial reduction in G&A compared to last year and we are a subsidiary of InvenTrust. Andy will provide further detail on this later on. Same property RevPAR for the portfolio increased 4.6% do almost entirely to an increase in average rates as occupancy remained virtually flat year-over-year.

Keep in mind that this RevPAR growth is based on adjusting 2014 results for the adoption of the Eleventh Edition of the Uniform System of Accounts for the Lodging Industry or USALI as we have previously discussed. We are also pleased with our same property hotel EBITDA margin of 31.8% in the quarter, a 60 basis point increase over the last year.

Despite the fact that real estate taxes for the quarter increased 18% on a portfolio wide basis. While the third quarter was not impacted by large-scale renovations such as the ones we completed in the first and second quarter of this year.

Our portfolio results continue to feel the impact of lower demand in the Houston market resulting from the persistently lower oil prices. Excluding our Houston area hotels, our portfolio RevPAR would have increased by 5.9% and indication of the continued strength of the portfolio overall.

I should point out here that we did benefit from very strong year-over-year performance at our two hotels in Napa California since the earthquake impacted last years results.

Although Andy will provide additional color on market specific performance later during this call, I would like to focus on the performance of our Houston area hotels in a bit more detail now. Overall Houston market RevPAR for the quarter was down 3.7% due entirely to a decline in occupancy as ADR was up slightly for the quarter.

When discussing our portfolio this remains a tail of two submarkets the Galleria and Woodlands. As was the case last quarter, the Galleria struggled with RevPAR down 10% in the third quarter. Thus far the Marriott Woodlands continues to hold up as evidenced by its RevPAR growth of 6% for the quarter.

The main difference between the hotels in our portfolio has been the fact that transient demand as remained stronger in the Woodlands, while the Galleria hotels have suffered from significant declines in project consulting business.

Unfortunately, the resulting shift and demand mix of Marriott Woodlands creates challenges on the food and beverage side of the hotel as cancellations from larger groups with higher catering contributions of impacted the hotel this year.

Going into 2016, we maintain a strong focus on Houston on both cost controls and group sales efforts as we expect to yield positive results in a very competitive landscape. Now I would like to discuss some of our recent activities including several changes to our portfolio both during and subsequent third quarter.

As we discussed on our second quarter call, in July we completed the acquisition of three Kimpton managed hotels, The RiverPlace Hotel in Portlands, The Canary Hotel in Santa Barbara and the Hotel Palomar in Philadelphia.

We are well underway with the integration of these three hotels into our asset management platform and we are pleased with the progress we and the hotels are making and implementing a number of senior best practices, particularly in the areas of guest room pricing, ancillary revenue pricing and cost efficiencies.

In August, we announced our agreement to purchase the Hotel Commonwealth in Boston upon completion of the property's current expansion project. The expansion is on schedule and we anticipate closing the transaction in early 2016. We look forward to adding this outstanding hotel to our portfolio.

Finally, during the quarter, we completed the development of the 50 room Grand Bohemian Hotel Charleston, a Marriott Autograph Collection hotel in Charleston, South Carolina, which opened to guest in late August.

The hotel has been well received in the community and we are excited to own the premier hotel and one of the most desirable leisure destinations in the country.

Subsequent to quarter end, we successfully opened the Grand Bohemian Hotel Mountain Brook, a 100-room Autograph Collection hotel located in an affluent suburb of Birmingham, Alabama and we sold the Hyatt Regency Orange County in Garden Grove, California, for a price of $137 million.

As I stated on our second quarter earnings call we are continuing to evaluate potential acquisition opportunities, our expectation was for us to be net sellers for the balance of the year.

The sale of the Hyatt Regency Orange County was a strategic disposition that we are considered for some time and we felt that the timing is right to take advantage of the private market valuation for our legacy hotel in our portfolio. The asset performed well after the significant renovation we undertook after acquiring the property in 2008.

However, we projected below average growth over the next several years due to additional supply coming into the greater A&I market at this submarket in particular.

This coupled with near-term capital requirements and the fact that a number of international investors expressed strong interest in the hotel resulted in our decision to dispose of the property. In addition to the net sale proceeds, we were also able to retain the $5.9 million balance in the capital expenditure reserve account.

The hotels RevPAR during the first half of the year was approximately 19% below the company's overall portfolio RevPAR indicative of its position in our portfolio. We were pleased to be able to transact smoothly and achieve attractive pricing at 11.8 times our 2015 EBITDA forecast.

In addition to this disposition, we are considering the sale of certain other hotels on the lower end of our portfolio and we will provide an update when more definitive stripes are made in this regard.

In October, we transitioned to management a four of our urban upscale hotels to Sage Hospitality, including the Courtyard Pittsburgh Downtown, the Hilton Garden Inn Evanston, the Courtyard Kansas City Country Club Plaza and Homewood Suites Houston Galleria.

We initiated this change as we want to take advantage of an opportunity to achieve additional skill with one of our strong management relationships, while reducing the number of third-party operators in our portfolio.

We are excited to grow our relationship with Sage, who already manages the Marriott Napa Valley Hotel & Spa and the Residence Inn Denver City Center for us and we will continue to manage the Hotel Commonwealth upon completion of that acquisition.

Turning briefly to renovation activity in the third quarter, we spent $9.7 million in mostly routine capital expenditures at our hotels since we completed our major renovation projects for the year in the second quarter. With the completion of our Marriott San Francisco Airport Waterfront, a guest room renovation and bathroom conversion.

In the second half of 2015, we will have completed or made significant progress on a number of additional renovation projects including public space upgrades at the Loews New Orleans Hotel, the Renaissance Austin Hotel, the Fairmont Dallas and Marriott Griffin Gate Resort & Spa and food and beverage enhancements at the Renaissance Austin, Hotel Monaco Denver, Hotel Monaco Chicago and Hyatt Key West Resort & Spa.

Through the third quarter we have spent approximately $38 million on capital expenditures this year and we now expect to spend between $45 million and $50 million in 2015.

As it relates to fourth quarter and early 2016 capital projects, we have embarked on a guest room renovation at our Marriott Napa Valley Hotel & Spa which we anticipate completing early next year.

We anticipate spending approximately $6.8 million on the hotels guest rooms and corridors including the conversion of bathtub to showers in 82 of the guest bathrooms.

In addition to the guest room renovation, we are transforming the hotels historically underutilized pool and courtyard area through $3.5 million investments that will create a sophisticated pool environments as well as highly desirable outdoor function space.

While the overall property renovation is a significant one, we expect relatively a little displacement as we have scheduled the work during the time of relatively soft demand in the Napa market. Turning to our dividend payout, in September we announced our third quarter dividends of $0.23 per share.

While we are pleased with the current level and yield, our board will continue to review our dividend policy on an ongoing basis as we evaluate our portfolio evolution and ongoing cash flows. Now before I turn the call over to Andy, I would like to walk you through our revised full-year guidance.

As you know, we updated our guidance on October 5, based on our preliminary third quarter results and outlook for the fourth quarter at that time.

We revised our full-year RevPAR projection to 4.5% to 5.25% and indicated that we believe our 2015 adjusted EBITDA would fall between the low and midpoints of our previous guidance of $288 million to $297 million.

As a result of our third quarter performance, our current fourth quarter outlook and the sale of the Hyatt Regency Orange County, we are now providing the following updated guidance.

We continue to expect that our same property 2015 RevPAR growth will fall between 4.5% on the low-end and 5.25% on the high-end which is supported by the 6.7% RevPAR growth that we achieved in October. Our new adjusted EBITDA range is $288 million to $293 million and our adjusted FFO range is now $236 million to $241 million.

Although the sale of the Hyatt Regency Orange County resulted in a projected EBITDA reduction of approximately $1.9 million for the remainder of 2015, margin expansion and G&A savings essentially offset this reduction allowing us to maintain the adjusted EBITDA range indicated in early October.

Andy will provide additional detail regarding our projected income taxes, interest expense and G&A and how they are impacting our overtly revised adjusted FFO guidance. And with that, I will now hand the call over to Andy..

Thanks Marcel, and good morning. Before discussing our third quarter results in greater detail, let me remind you that there have been reclassifications of revenue and expense line items to other categories both due to changes in USALI as well as other internal reclassifications.

The combination of these items in addition to the carved out financial statements in the first quarter and 2014 means our line item operating results for this quarter and this year are difficult from a year-over-year comparison standpoint.

Our third quarter RevPAR and EBITDA margin data are presented on a same property pro forma basis and includes 49 hotels as if they were owned for all periods presented, but exclude the Grand Bohemian Hotel Charleston which opened in late August. We had solid performance in a number of markets with 10 of our hotels growing RevPAR by double-digits.

Our top performing markets included Napa due largely to an easy year-over-year comp, San Francisco up 13.5%, Orlando up 12.3%, Birmingham up 12 and Salt Lake City up 11.3%. In addition to Houston, our weakest market Fort Worth down 7.7%, Charleston West Virginia down 6.2% and Baltimore down 5.5%.

2015 group booking revenue pace is ahead of same time last year by over 6%. Our strongest performing markets in terms of 2015 group pace compared to 2014include Atlanta, Santa Clara, Orlando and Philadelphia. Group revenue pace for the fourth quarter is strong up 12% over this time last year.

We are pleased with our flow-through and margin expansion with same property hotel EBITDA margin expanding 60 basis points for the quarter and 90 basis points for the year. We had good expense control during the quarter with hotel level expenses increasing only 2.9% despite the anticipated increase in real estate taxes.

Our third quarter real estate taxes increased $1.6 million or 18% and for the year to date period have increased 15%. We continue to aggressively pursue valuation reassessments in multiple jurisdictions.

Our recurring cash corporate, general and administrative expenses for the quarter totaled $4 million representing a decline of $6.4 million or 61% compared to prior year. As we have discussed on prior calls our 2014 G&A expense was an allocation for InvenTrust and a part of our carved out financial statements.

Our total G&A expense for the quarter was $5.4 million including $1.3 million of non-cash amortization of share-based compensation. The recurring cash G&A expense for the nine months was $14.7 million based on actual results through October; we anticipate our annual recurring cash G&A expense to now be between $20 million and $21 million.

A quick update on the two Napa hotel earthquake insurance claims, we have finalized both the property damage and the business interruption claims for each hotel. The property damage claim has been paid in full and we expect to receive the remainder of the business interruption claim prior to the end of this year.

As a reminder, we are not including net BI proceeds related to 2014 lost income in either adjusted EBITDA or adjusted FFO. In addition to the positive G&A variance, the acquisition of the three Kimpton Hotels in July and continued margin expansion led to the significant year-over-year growth and adjusted EBITDA.

In addition, adjusted FFO was impacted by a $2 million positive variance in income taxes. Again our 2014 income taxes were based on carved out financial statements. In September, our board approved the 336(e) IRS tax election, which enables us to step up the tax basis in our hotels to the estimated fair market value on the spin-off date.

As a result, this election will increase our depreciation and lower our taxable net income. Now, let us turn to our balance sheet and our recent capital market activities. As of September 30, we had $99 million of cash as well as $83 million of restricted cash consisting primarily of FF&E reserves.

Our net debt to EBITDA ratio as defined in our line of credit agreement was four times.

As we discussed with you during our last earnings call, we have been focused on proactively extending our debt maturity profile, locking attractive long-term rights, further unencumbered our portfolio and providing financing for the acquisition of the Hotel Commonwealth. October was a very busy month for us on the corporate finance front.

On October 22, we completed two unsecured term loan facilities totaling $300 million. The first term loan for $175 million matures in February 2021 and the proceeds were used to repay the $117 balance on our line of credit and payoff the mortgage on our Marriott San Francisco Airport Waterfront Hotel.

In connection with this loan, we executed several swap agreements to fix LIBOR over the life of the loan at 1.29%. Based on our current leverage ratio, the annual interest rate on this term loan is 2.89%.

The second term loan for a $125 million matures in October 2022 and we have deferred funding this loan until early 2016 as we intend to use the proceeds for our acquisition of the Hotel Commonwealth. Upon funding we intend to execute swaps to fix LIBOR for the lack of this loan as well.

Also in October, we refinanced the $30 million mortgage on the Residence Inn Cambridge with a new 10-year $63 million loan at 4.48% which lowers the interest rate by more than 1% and puts leverage at a more appropriate 55% to 60% loan-to-value ratio.

With the excess proceeds from this refinancing, we paid off the $19 million mortgage encumbering the Hilton Garden Inn Evanston and a $13 million mortgage on the Hampton Inn & Suites Denver Downtown.

Additionally, we paid off the $73 million mortgage on our Marriott Woodlands property with the net proceeds from the sale of the Hyatt Regency Orange County. In November, we exercised our right for $7.5 million of additional proceeds on our on Andaz Napa.

Our earnings release this morning includes a debt summary as of September 30 and as of today to provide you with a clear picture of our recent debt financing activity and mortgage payoffs. We have substantial liquidity and financial flexibility with which to execute our business plan.

Pro forma for the completed financing transactions, we have mortgage debt of $954 million, the $175 million unsecured term loan and full access to our $400 million unsecured line of credit. The weighted average interest rate on our outstanding debt is now 3.57% and we have 27 unencumbered hotels representing nearly half of our EBITDA.

As of today approximately 50% of our debt is at a fixed rate. We are working on several other financings and look forward to sharing the details when appropriate. Finally, let me provide you details on three items that are positively impacting our adjusted FFO and adjusted EBITDA guidance.

First, as mentioned earlier, we now anticipate full-year recurring cash G&A expense to be $20 million to $21 million compared to our previous guidance of $20 million to $22 million.

Second, based on the various balance sheet activities we have undertaken including the refinancing the lower interest rates and the debt payoff is completed subsequent to the end of the quarter, we now anticipate an additional $2 million of interest expense savings. Third, year-to-date, we have taken a conservative approach on expected income taxes.

After an extensive review of all operating leases after our spin-off from InvenTrust, we now anticipate significantly lower taxable income at the TRS level and therefore lower income taxes. Thank you again for joining us on our third quarter earnings call. We have concluded our prepared remarks. Danielle, we would be happy to answer questions now..

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

Hi guys, how are you?.

Good morning Thomas or good night for you..

So two questions on RevPAR. In terms of the 6.7% growth you had in October, how is that compared to what your expectations for the month, when you announce on October, so I thought where it was.

And then second question is anyway to think about how gives-and-take in November and December in terms of whether accelerated, decelerate versus our October growth number. Thanks..

Sure. The expectations that we had on the RevPAR side for October were very similar to where we actually came in for the month. So as you saw when we look at our RevPAR projection that we had at the end of September basically when we talk about our guidance on October 5. It did come in very much in line with where we expect the things to shape up.

The remaining months of the quarter are still relatively in line to I think we’ve seen a little bit more strength in November and what we anticipated at the end of September and probably a little bit more down in December, but overall the expectations for the fourth quarter or in line on the RevPAR side..

Okay helpful, thank you.

And then in terms of – I noticed you switched I think those four hotels managers to Sage, my guess that’s because of why that they drove that was - in the sale of – then actually selling the Commonwealth to you, just want to understand or could you give a little bit more color on how do that contract close was put together and then we’ve heard from a couple of your peers recently about manager changes that have created a better disruption anything that you could give us – we can get some color on whether you expect that to happen here? Thanks..

Sure. Yes, happy to answer that as well. As we pointed out, it’s a change that we initiated at the end of the third quarter and frankly was really driven by two things.

As you know we have a fair number of third-party operators in our portfolio and in a long way as we like having a large number of different operators in our portfolio, because we think it creates a lot of opportunities for us to look at best practices and apply those throughout the portfolio and also frankly provide some opportunities when we are looking at making investment decisions on acquisition or even potentially dispositions.

That being said, we did like having the opportunity to reduce that stable by a few players that just weren't quite that's significant in our portfolio at this time.

So the opportunity to kind of consolidate particularly some of these urban upscale hotels under Sage’s management, we thought it was great opportunity particularly in light of obviously adding the Commonwealth to.

I would say that it wasn't necessarily a matter of tying things together between the Commonwealth acquisition and this change, this change really kind of stood on its own in lot of ways, but clearly Sage became a more attractive long-term partner for us as we added the Commonwealth going forward too.

The other part of your question as it relates to disruptions I think the thing to keep in mind here is that you're dealing with weather transition where the brand is staying in place, you are not changing anything on reservation systems or any of those type of things and many of the employees that exist at the properties actually transferred over as part of the switch to Sage at these properties.

So you clearly – this is not the type of situation where you should expect any kind of significant disruption or downside from that change in short term..

Okay, very helpful. Thank you. End of Q&A.

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

Thanks. As I said at the beginning of the call we appreciate everyone joining us on this call. As you'll know we spun-off from InvenTrust on February 3, we are about nine months into our life as an independent public company and we are very pleased with the progress that we've been able to make this year.

So I'll leave with that and I’d like to thank you again for joining us today..

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