In its second-quarter earnings call, hotel real estate investment trust Xenia Hotels & Resorts reported better-than-expected numbers, leading to a modified outlook for the remaining half of the year.
"We are pleased with our second-quarter performance as our portfolio delivered the results that meaningfully surpassed our expectations," Marcel Verbaas, chair and CEO of Orlando, Florida-based Xenia, said on the Friday earnings call.
Both revenue and hotel earnings before interest, taxes, depreciation and amortization increased significantly year over year, he said. The results were "especially encouraging" during a time when hospitality industry performance continues to be choppy in an uncertain macroeconomic climate.
Verbaas pointed to outsize catering revenue at Xenia's group-focused portfolio hotels and "lower-than-expected expense growth" across the portfolio, which includes 30 hotels with nearly 9,000 rooms in 14 states. Group demand also drove revenue gains, and corporate transient demand continues to recover slowly. Meanwhile, leisure demand continues to stabilize over the past several months and into the summer.
"Additionally, our EBITDA margin benefited from the timing of approximately $1.5 million in property tax refunds that were received during the second quarter," Verbaas said.
He added that this was originally predicted for the third quarter, so Xenia executives adjusted the company's outlook to factor that in.
The quarter in review
In the second quarter of this year, Xenia completed one transaction, selling the 545-room Fairmont Dallas in April for $111 million, or $203,670 per key.
Year to date, Xenia has repurchased about 5.7 million shares of common stock at a weighted-average price of $12.58 per share. In the second quarter, Xenia repurchased nearly 3 million shares for about $12.10 per share.
"We continue to think buybacks are a good tool to drive shareholder value," said Barry Bloom, president and chief operating officer, adding that Xenia has been very active — perhaps more active than its peers, on this front. "I would say we continue to utilize it as a tool to drive value for our ownership base."
During the second quarter, Xenia invested $18.5 million in portfolio improvements. Year to date, it has invested $50.8 million. These expenses include the transformational renovation of the Grand Hyatt Scottsdale Resort — an investment that seems to be paying off, Verbaas said.
"Performance at the newly up-branded Grand Hyatt Scottsdale resort has been encouraging, and revenues and bottom-line performance are tracking in line with our underwriting expectations thus far," Verbaas said. "Although leisure demand in the Phoenix/Scottsdale market has been a bit softer this year, the trajectory of group demand continues to improve, both in the quarter and for the future."
The hotel saw group market share improvements each month last quarter, "which culminated in the resort exceeding 2019 group room nights and revenue during the quarter, and achieving above fair share in its competitive set for the first time post-renovation in June," Verbaas said.
Xenia also reported progress in upgrades to guest rooms in multiple hotels across its portfolio, including: Renaissance Atlanta Waverly Hotel & Convention Center, Marriott San Francisco Airport Waterfront, Hyatt Centric Key West Resort & Spa, Hyatt Regency Santa Clara, Grand Bohemian Hotel Mountain Brook, Grand Bohemian Hotel Charleston and Kimpton RiverPlace Hotel.
Adjusted outlook
Despite the strong performance of the second quarter, Xenia executives are expecting some challenges in the third quarter.
"We estimate that July [revenue per available room] growth for our 30-hotel portfolio [is] slightly negative compared to the same period last year," Verbaas said. "While this is a slowdown from the RevPAR growth we experienced in the second quarter, we had anticipated this, as the summer months are more dependent on leisure demand that — as we expected — is a bit weaker than last year."
He also pointed to a strong demand in July 2024 in the Houston market, where Xenia has three hotels, due to Hurricane Beryl. Additionally, the tax return that delivered in the second quarter was originally slated for the third quarter, so that alters Xenia's outlook for the second half of the year, too.
"Looking ahead, the second half of the year is shaping up in line with our prior expectations. Group business continues to be a bright spot and is expected to be particularly strong in the fourth quarter. Meanwhile, corporate transient demand is continuing to recover slowly, while leisure demand continues to normalize consistent with our expectations," he said.
In light of recent trends, Verbaas said he's increased the full-year outlook for adjusted EBITDAre and adjusted funds from operations "to reflect our outperformance in the second quarter and an unchanged outlook for the second half of the year."
"While we expect revenue growth to be muted in the third quarter, we are anticipating a stronger fourth quarter as our group revenue pays for the quarter continues to be highly encouraging," he added.
By the numbers
Xenia reported total revenue of $287.6 million for the second quarter, up slightly from its $272.9 million second quarter in 2024. Its net income was up significantly year over year, from $16 million last year to $58.6 million this year in the second quarter, according to the company's earnings release.
Xenia also reported a 22% year-over-year increase for same-property hotel EBITDA to $84 million in the second quarter.
As of press time, Xenia stock was trading at $12.52 a share, down 15.1% year to date. The NYSE Composite Index was up 6% for the same period.