Good afternoon. Thank you for attending today’s Xenia Hotels & Resorts Q1 Earnings Conference Call. My name is Stephanie , and I'll be your moderator for today’s call. I would now like to transfer the conference over to our host, Amanda Bryant, VP of Finance, with Xenia Hotels & Resorts. Please go ahead..

Thank you, Stephanie. Good afternoon, and welcome to Xenia Hotels & Resorts first quarter 2022 earnings call and webcast. I'm here with Marcel Verbaas, our Chairman 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 industry fundamentals, our quarterly and annual 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 outlook. We will then open the call for Q&A. Before we get started, let me remind everyone that certain statements made on this call are not historical facts and are considered forward-looking statements.

These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K and other SEC filings, which could cause our actual results to differ materially from those expressed in or implied by our comments.

Forward-looking statements in the earnings release that we issued this morning, along with comments on this call, are made only as of today, May 3, 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 our non-GAAP financial measures to net loss and definitions of certain items referred to in our remarks in this morning's earnings release.

The property level portfolio information we will be speaking about today is on a 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 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 transient 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 EBITDAre 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% of our properties generated positive hotel EBITDA during the quarter.

RevPAR for the quarter was $149.60, or about 20% 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 the information on both January and February.

As we outlined that 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 RevPAR about $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 11% higher than March of 2019 and hotel EBITDA margin was approximately 220 basis 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 demands continue to show significant improvements and accelerated into April.

Our estimated April occupancy of approximately 72% marked 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 an estimated April RevPAR that exceeded 2019 April RevPAR by 4%, 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 for our long-term portfolio strategy, allowing us to recover at a faster pace than many of our peers.

We continue the 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 to have 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 transient 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 towards the corporate and group travel, we believe we remained 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 casted leisure demand the growth at 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 reach significant benefits from the recovery in the business transient and group demand that historically constitute a significant portion of overall demands at these hotels and resorts.

Adding to 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 San Mateo, San Francisco and Portland are now experiencing encouraging the demand growth from all segments, providing further opportunities for meaningful revenue growth within our portfolio.

I have spoken many times over the years of our desire to continuously grow to quality and 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 U.S. lodging markets and key leisure 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 RevPAR and EBITDA/key, but also in the way, we have been able to recover from the impact of COVID and our favorable positioning as recovery continues. Our recent investment activity and continuation of the execution of our long-term strategy.

As we discussed last quarter, we completed the opportunistic sale for Hotel Monaco Chicago in January at attractive pricing, allowing us to exit challenging markets and divest the hotel that we believe could struggle to return to prior key performance.

And in March, we completed the acquisition of W Nashville, 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 W Nashville to deliver over the next several years. The property is ramping up well.

And the results during our first two months of ownership were highly encouraging as RevPAR of approximately $270 during the month of April as it was excited, pretty 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 full 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 earning growth that we expect to achieve at W Nashville, we are encouraged by recent results at some far more recent portfolio addition, such as Park Hyatt Aviara 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 acquisition to 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 and higher growth in top 25 markets and key leisure destinations. We remain focused on allocating capital to drive strong returns.

As we have shown consistently over 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 a 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..

Thank you, Marcel. And good afternoon, everyone. For the first quarter, our same-property portfolio occupancy was 58% at 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% higher in ADR and 19.5% lower in RevPAR, compared to the first quarter of 2019. The sequential improvement each month during the quarter March RevPAR was just 5.9% below March of 2019.

The experience significantly weaker than expected corporate group business related to the Omicron variant in January, with occupancy coming in at 44.1%, albeit at an average rate of $233.45, which exceed into the average rate in January, 2019, by 1.2%.

By mid-February, we saw lessening impact from omicron and very strong leisure business over Valentine's Day and Presidents' Day, with overall February occupancy of 60.8% at an average rate of $258.53, which was 6% higher than the average rate achieved in February 2019.

By March leisure demand releases to spring breaks, short-term corporate bookings and researches of corporate demand more than covered any omicron group cancellations as we achieved 69.2% occupancy at an average rate of $273.52 or 11% higher than the average rate in March 2019. On a RevPAR basis January was 36.7% lower than January 2019.

February was 19.1% lower than February 2019. And as I previously mentioned by March the gap to March 2019 had been reduced to just 5.9%, the smallest gap since the start of the pandemic.

During the quarter, we had five hotels achieve occupancy above 75%, primarily in hotels that are leisure-focused and drive-to markets including Key West, Savannah, Orlando, Birmingham and Charleston, all of which continue to show remarkable.

We also had 22 hotels representing nearly 70% of the portfolio and 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, ensure there are properties that are providing on-site amenities and services to satisfy or guests.

Group cancelations in the first quarter amounted to approximately $10.2 million of room’s revenue, which have 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 cancelation and attrition 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% for the first quarter, and 14 hotels generated EBITDA margins greater than in the first quarter of 2019. Our properties under respective management companies continue to do an excellent job in controlling margins.

For the first quarter, hotel EBITDA was $57 million, a decline of 27.9% on a total revenue decline of 20.8% compared to the fourth quarter of 2019, resulting in hotel EBITDA margin decline of 275 basis points to 27.8% due primarily to the impact of the very soft January and larger than typical food and beverage mix throughout the quarter.

Hotel EBITDA margin grew significantly during the quarter from 10% 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 expenses while ensuring a high-quality guest experience. In the quarter, room’s expenses declined by over 18% compared to 2019, while undistributed expenses declined by 14.1%.

Within the undistributed expenses, the greatest declines in Q1 2019 were seen in A&G and sales and marketing, which declined 15.5% and 19.5% 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 employee compensation, as reported by our operators was approximately 5% higher on a per occupied room basis compared to 2019.

We continue to estimate the wage rates across the portfolio were increase in mid-single digits in 2022 versus 2021. 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.

Hyatt Regency Scottsdale and Hyatt Regency Grand Cypress achieved the highest ever levels of both revenue and profit during March.

We continue to be impressed with the performance ramp-up at Park Hyatt Aviara for the hotel’s ADR in mark was over 50% higher than in March 2019 as the hotel continues to attract significant leisure and group business and understand dramatic transformation at this property.

Hyatt Regency Portland achieved nearly 56% occupancy in March as in-house group business, Portland Convention Center business and events of the adjacent center were significant occupancy contributors to support to a strong summer of this property.

Beginning in mid-February, we began to see significant pickup in corporate volume accounts and room net productions and our largest volume corporate accounts approximately doubled from January through March.

Business travel has continued to pick up as evidence 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 it's still down in the 18 to 21 occupancy point range in March compared to 2019, on Monday, Tuesday and Wednesday night occupancies we achieved in March represented an improvement of 7 to 12 points from the levels we saw in February, and are clearly indicative of the acceleration in business travel.

Turning to CapEx, during the quarter we invested $7.5 million in portfolio improvements. We are pleased with 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 rooms 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, concluding in the second quarter of 2023.

During the quarter, we continue to planning work on the number of additional projects that will take place during 2022; including the renovation of the meeting space and convert of the existing lobby bar to a Starbucks outlet at Fairmont Pittsburgh, renovation of the meeting space at Royal Palms Resort, completion of bathroom renovations at Marriott Woodlands, renovation of the premium suites at The Ritz-Carlton Denver, including the addition of three new guestroom keys, and renovation of meeting space and restaurant at the Hotel Monaco Denver.

And Park Hyatt Aviara, the comprehensive renovation of the existing golf course began in the second quarter and we continue 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, the particular emphasis on environmentally sustainable projects to enhance the life and resiliency of our physical structures, including six chiller replacements or upgrades in 2022. With that, I will turn the call over to Atish..

Thank you, Barry. I will provide an update on our balance sheet, an update on group pace and a bridge to pro forma 2019 earning. As to our balance sheet, it continues to be a strength of the company. We had 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 REITs, our leverage ratio is modest in part due to the decisive actions we took during 2020 in 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'll meet the amended and relaxed covenants that will be in place at.

As such the remaining restriction that is currently in place namely a prohibition on shared buybacks and dividends is expected to end. And it's a past dividend practice by way of reminder, pre-COVID we had an annual payout ratio in the mid-60% of FED 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% below 2019 levels. This reflects room nights pace down 27% and rates up 6%. The second half of 2022 continues to look better with the gap to 2019 shrinking and rates strengths evident.

For the second half of 2022 pace was down about 20% versus 2019. This reflects room night 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 days to have continued to improve in April based on the commentary from our operators.

Finally, I'd like to remind everyone about various puts and takes, as you think about what 2019 earnings would've 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 in adjusted EBITDAre 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 earning 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 on stabilization.

Second would be W Nashville, which opened last fall. It's expected to earn $25 million 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, Ritz-Carlton, Pentagon City and at several other properties. Based upon our underwriting we affect this spend to earn at least $25 million of hotel EBITDA upon stabilization.

So reflecting these three items, we believe pro forma 2019 adjusted EBITDAre if all 34 of our current properties had been stabilized, would've been $315 million to $320 million.

Xenia continues to be positioned well to take advantage of the demand up-cycle 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. But 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 first question, Stephanie?.

Our first question comes from the line of David Katz with Jefferies. Please go ahead..

Hi afternoon, everyone. Thanks for taking my question..

Thank you..

Welcome Amanda. 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, what specific opportunities – it obviously is a nice new asset.

But 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, one of the things that attracted most of the asset is not just the growth it'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 we will probably look at it 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 I think people think of this as maybe a 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, rave parties, reunions, group get-to-gather 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 business to really drive performance based on whatever the market conditions kind of dictate, but it's set up extremely well in all three segments..

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 arranged normalized, what would have to happen 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?.

Yes, David its Marcel. Just kind of piggybacking off of what Barry just said. I think we others are just going to lay, where we feel very comfortable with saying that it should run a $25 million to $30 million range.

If we get all these different segments kind of firing all cylinder like, Barry just talked about I think there's certainly upside on that.

If you think about this hotel booking then in October, that I mentioned the results on the top line as it release to room revenue in April thinking that it did $270 in RevPAR in April, that's obvious very encouraging when you think about the fact that, I believe I said on the last quarter when we announced the transaction that we expect this property to stabilize a little over $300 on RevPAR.

So considering that we're at $270 here in April with all of the amenities still kind of needs footing and opening up now, opening up the pool facility, rooftop deck owning to the summer season. We are highly encouraged by that, and I feel very, very good about our underwriting at this time.

Obviously early, we're one month in but nothing that we've seen so far has discouraged us and we're highly positive and what the potential is for his hotel..

And David, I know you're going to be with us at the properties, but certainly the suites are an area, the property has 60 suites. So the premiums we can get there, the food and beverage spaces that Marcel talked about.

And then on the margin side we have to get the underwriting that we could, but there's potential there as well as the property really gets humming..

Understood. And if I can just squeeze one more in, with respect to San Diego is there – what, are there some comp issues or something in there? Because I think we're observing that the 4Q RevPAR was up a lot versus 2019 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?.

It's not a comp issue, David; it's more when you – the numbers you see and the numbers in the earnings release are consolidated for both Aviara and the Andaz San Diego Downtown. So there's a little bit of noise and trade up in there.

It also the first quarter in particular, the first two months in Aviara and in that entire comp are quite weak primarily due to weather and other issues. We're very pleased with the performance and was certainly in line with at Aviara, certainly in line with the Hotels CompSet.

So it really just a – it's really more reflective of the seasonality, I think from Q4 to Q1..

Got it. Okay. Thank you very much..

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

Thanks. Good afternoon folks.

Question on Dallas, which now has, I think the largest pipeline in the country and just kind of, what are you seeing in Dallas? How much of that is competitive to your downtown assets?.

That you know Bill having been in this business for a long time there, it seems like every year you look at Dallas, there's a lot of supply coming in.

So that's not something new along what Dallas that’s really is obviously properties are being developed in the suburban areas that are indirectly competitive with us and still a lot of select service – select service supply that's being added as well.

There are certainly a few assets that that are closer to us and that that would have some impact on us. We do feel like clearly Dallas doesn't have the same kind of leisure, be it open like some of the other markets have that when we're able to pay little more to the leisure demand.

So that 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 mid-week demand is improving in both markets.

April occupancy is pretty significantly over where Mar was. So we are actually seeing some times live in that market, they are pretty encouraged by these recent trends..

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

Well longer term if we think about where we want to be, 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 something that fits within our strategy overall. So it is not necessarily markets that we look to actively expose as of now.

Could we potentially look at market like that and say, hey, do we want to upgrade our presence even in the markets? Whether it's through disposition or acquisition, whether it's through additional investments and the assets that we do own there.

We're in the assets, in the market that are 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 bases that we have there, and frankly the returns that we've earned in those hotels, and we think there's more to come for us there.

So not like that we're actively looking to divest. And like I said we have a good diversified portfolio, the geographic diversification that we aim for, a market like Dallas fits well in to that..

Yes, appreciate it.

One for Atish, anything on the cancellation attrition front for April or that you're aware of for the second quarter?.

No, not, not certainly not to the same degree as the first quarter. So we don't expect anything like we've seen in the last couple quarters..

Yes. Okay. All right. Thanks. Appreciate it..

Great. Thanks Bill..

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

Thanks. Good afternoon and welcome Amanda.

How has your booking window changed of late for leisure business transient and group?.

Certainly we saw through the first quarter and we are seeing into early second quarter that leisure transient is booking further out.

The guests really come to understand that if they want their first choice market and first choice to hotel, they need to start thinking about vacations earlier, and obviously what, what we all hear in our person lives is certainly replicated by the hotels, which are guests who haven't thought about planning a vacation they're often left with a third or fourth or fifth choice destination.

And in some cases if there's a market they're sold on a much lesser choice hotel than what than – what they would've anticipated. So I think the leisure guests clearly understands that. The volume corporate traveler, so is very close in end and on group it's very mixed.

We're seeing – we still see a lot 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 third, and it's roughly in those amounts, the way that the properties describe it to us.

People are looking to plan the programs for their preferred dates in 2023, and want to get on the calendar now, before 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, maybe 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've always been kind of behind us, although we saw substantial and higher than normal strength you in April and through late April. And we would've seen some of that may have been to a little bit later use to 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 markets become more and more full..

Okay.

And lastly, what would you all need to see to reinstate a quarterly or annual outlook?.

That's a good question, Dori. We expect to reinstate some type of operating guidance no later than when we report in August. So that's where we currently tend to do, obviously subject to trends and our confidence level, but that's the correct plan..

Okay. Thank you..

Thanks Dori..

Thank you. Our next question comes from the line of Michael Bellisario with Baird. Please go ahead..

Thanks. Good afternoon, everyone. First question, Barry, if you kind of take March and April together, how would demand in 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 and demand basis?.

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, 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 DC, Santa Clara, Dallas where we saw significant occupancy growth primarily due to corporate business..

Got it.

And can you just remind us maybe today, the point in time what your kind of rough customer mix is?.

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 are on a combined stay..

Yes, we have historically been about a third group, just as a point of reference and the rest is transient, whether BT or leisure. And long-term, I think, we probably had it back in that same range..

Okay, fair enough. And then this last one, for me, you should have initial view on what you might do with your bonds when they become callable this summer. And then kind of just your latest take on the recent capital markets volatility, how that's impact your options around refinancing those..

Yes, I mean, look, we obviously, to some degree it's a math exercise. If it makes sense to call those, I guess that's something that we could do. But really, the view hasn't changed that we've got a good source of debt capital financing in the way of high yield.

And I think that's a good tool for the company to utilize over time, particularly as we continue to be opportunistic around transactions. So, despite the more recent volatility, I think, we continue to think of that as a good tool..

Thank you..

Thanks Mike..

Thank you. Your next question comes from the line of Bryan Maher with B. Riley Securities. Please go ahead..

Good afternoon, maybe following up a little bit on Dori'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?.

Across the portfolio and across segments we have seen very little if any great pushback and that the rates where our hotels are asking for, they are typically getting, and that's been true really across all segments. We know how strong leisure has been.

Atish gave some commentary about our rate being up on the group side, despite pasting down and moved. So even with a relative lack of demand we're able to – the hotel has been able to drive a lot of rate.

As it relates to inflation impact on the consumer pocket book, certainly, beyond what, what we think about everything that we're seeing at least in 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 may be a factor down the road..

I mean, the operators continue to be pretty bullish about leisure strength into the summer. As they look at not only forward bookings, but also the drivers of business whether it's employment, economic growth, household savings. So, we obviously pay close attention to that feedback that we're getting from the operators.

And that's our best indicator of how this summer may shape up..

to the benefits. The benefit of our portfolio obviously has been as we talked about it a little bit and I answered 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 continuings from leisure demand that's out there. And in the short term, the consumer is expecting to pay more for everything right now. They are seeing inflation everywhere. So that's not that surprise that they are paying more for hotel rooms too.

So we're able to capture this certainly here in the short term, and we feel really good about where corporate transient and group demand is trending.

So that really gives us an opportunity that 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, transient and group again, which to Barry’s point is also coming at very attractive rate.

So, so far we're seeing nothing to suggest that we're going to get under a lot of pressure business..

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 smaller, more niche type of hotels to buy as well?.

Well, when you think about you look at W Nashville and it's obviously – it's a new property, it's in a high growth market which obviously drove some of the pricing for where hotel like that goes when it's at the 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 hotel that we've been doing. Where you will see us look at potential acquisition opportunities.

It could be a mix of our assets where there's more of a project management component to it, there is more of a capital component to it, like there was, for example, at Aviara.

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, W Nashville is very consistent with the dealers you saw us do back in, you know, 2018-2019 during that timeframe.

And 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 that we can drive from those assets..

Okay. Thank you..

Thank you..

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

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 are seeing there? And maybe some color on individual markets?.

Yes, sure. I mean, we continue to see strength particularly around the rate side. And you are right, that the pace did not change incredibly from last time we reported, it’s in a couple months sort of the numbers at the end of January versus the end of March.

We did the number of on the books; we would go up in the double digit percentage range for the rest of 2022 and 2023. So that's a positive. And the production is broad-based. I mean, certainly some of the bigger group oriented hotels in Texas, and Arizona, and Georgia, all out of production some of our proper reason in California.

So, the properties that you had expected are seeing the highest levels of production. And where we have a lot of confidence is on the rate side where the hotels and the operators are properly navigating between trying to get more group business on the books. Certainly there is capacity, given that pace is still down relative to 2019.

But also, preserving for what we expect will be continued strength in leisure, and much higher levels of business transient as we get into later parts of this year. So, that's kind of how we look at it overall and continue to feel good about how things are shaping up on the group side..

Thanks. And then just maybe on the transaction market, totally rates move quite a bit here.

Has there been any change in investor appetite or are you seeing any signs of cap rate movements? How do you think that evolves, I guess, as you know, on the one hand we have the recovery playing out, but on the other hand rates moving higher?.

Yes, you are absolutely correct. You've got a lot of different type of factors that play into this. And there is clearly more comfort around the recovery and we're not just leisure-driven, but as we've talked about a lot here during this call coming from the different segments too, so had obviously counter some of that.

And it is really early, frankly, that's we've just seen the more significant moves in interest rates apparently 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 that's just early, they change over time, we haven't seen it yet.

We certainly haven't seen a lot more product coming to market yet, which now 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 W Nashville 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 are not comfortable with the pricing. We're also happy to be patient and to wait for the right opportunity..

Thanks..

Thank you. Our next question comes from the line of Austin Wurschmidt with KeyBanc. Please go ahead..

Thanks. And good afternoon, everybody.

When you guys spoke about the stabilization in hotel EBITDA, including the bridge you provided has stabilized hotel EBITDA at hotels, like the Park Hyatt Aviara, the Hyatt Regency Portland, and some of the CapEx, other CapEx projects that you've completed since 2019, have any of that changed from your initial underwriting, given, some of the moves in ADRs we've seen relative to 2019 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 2019 as a milestone, but what sort of the bull case, I guess, for exceeding those stabilized level?.

Yes Austin that's a great question. I think we continue to feel confident on the Portland underwriting at $15 million of hotel EBITDA. Nashville is new to us. Obviously we just acquired it. So that $25 million 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, yes, it's possible that there is 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 have been received.

So I don't think it's necessarily all margin driven. I think it's just more overall revenue growth as well as ancillary revenues and room revenue growth. So that's how I would describe maybe the upside. It's a little bit more on the ROI CapEx type projects..

Got it. And then Atish maybe another one for you, you highlighted kind of the attractive leverage position relative to peers, and the potential use of press you commented on. And just overall plans use the balance sheet as the recovery persist.

So, absent kind of the move in rates, how much dry powder do you have to pursue additional investments in the near to medium term before you would need to tee up either dispositions or equity to fund to fund those purchases?.

Well, 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 acquisitions or transactions.

I think the important point is we're coming out of this pandemic with as healthy, if not a healthier balance sheet unlike some of the peers. So, we took the right decisions to kind of strengthen the balance sheet during the course of the pandemic.

And the point on the preferred is just that 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, I think there is 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, that's how I look at it from a big picture perspective.

And as we get a little bit farther past the covenant waiver period, we can probably get a little bit more into exactly how much capacity there is. I will also say long-term leverage target, we had always wanted to be sub five times.

We've been running the company kind of low three to low four times net debt-to-EBITDA so that continues to be our view going forward. We think that's the right level of leverage for the company. Hope that helps..

Yes. No, that's very helpful. And this one last one for me. 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 2019 as you see group business, that segment really pick up as a percentage.

And maybe some of these other segments like leisure that, I don't know, maybe stabilizes a little bit more relative? 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 sort the middle of the back half of the year in terms of 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 hotels in general have right now as it relates to group.

What we see in groups certainly is not inconsistent with what the brands have told us. They are really trying to maintain the rates they have put in place for 2020 with their negotiated corporate accounts. And they seem to be doing good job of achieving that level of stickiness. So I would say we take that as a plus as well.

And then I think as we've touched on a couple of questions today, that leisure customer seems to really be willing to spend.

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 rates 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 and through the back half of this year and hopefully into next year..

Absolutely.

But like, maybe what's the disparity between what that leisure customers are paying versus what you are getting on a group, on an average group rate across the portfolio?.

Again, keep in mind that that breaking out business versus leisure is really, really difficult.

But what I can tell you is that 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, a lot over the last couple years in particular that they they've been showing significant rate growth. But the resorts have also shown human rate growth.

And again, as we're seeing pickup in these kind of urban, suburban, larger hotels that we're seeing good rate growth out of those as well..

Thank you. Appreciate the time..

Thank you. Our next question, shin comes from the line of Tyler Batory 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 FTEs, the hiring pool and how much additional staffing you looked at as I can see continues to ramp into the summer?.

Yes. 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 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 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 total labor per occupied room, as we think it's very indicative of where we are in the cycle in terms of number of employees, which is the fixed costs are really covered.

I mean, when you think about a portfolio that for us, right, has run, 69%, 72%, less couple months the hotels are nearly fully staffed as it relates to kind of the fixed position.

So we're really now under the kind of the variable cost model as the operators look at that, which is adding enough housekeepers to be able to clean rooms as we hopefully go up 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 that 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 follow-up on that bigger picture on the expense side, obviously the doing a tremendous job.

But now that you are on that variable cost side, any expectations you have for longer term cost savings or potential margin expansion as the occupancy fully returns?.

I think we need to see how it shakes out. We're getting a little better direction and feedback from the operator in terms of what their plans are in terms of staffing models.

And I think in general will 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.

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..

Very helpful. Thanks for all the color guys. That's all from me..

Thank you. There are no additional questions waiting at this time. I would like to Marcel Verbaas for any closing remarks..

Thanks, Stephanie. Thanks everyone for joining us today. We're certainly encouraged by the trends we've seen over the last couple months and we're looking forward to reporting next quarter on what hopefully will be pause for results over the next few months. Look forward to seeing many 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, probably in the next couple of months..

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