ORLANDO, FL—Xenia Hotels & Resorts Inc. reported a $36.1 million loss and a a 28.5% decrease in total portfolio RevPAR for the first quarter of 2020.
“When we spoke on our year-end earnings call in February, we discussed our expectation that 2020 would be a transitional year for the company as a few significant renovations and ramp-up from newly acquired assets were expected to negatively impact our cash flow while setting us up for enhanced growth in the years ahead,” said Marcel Verbaas, chairman/CEO, Xenia, on an earnings call. “While we expected this transitional year, clearly at that time, we could not have envisioned the impact COVID-19 was going to have on our industry. This impact has been enormous and unprecedented.”
In addition to the RevPAR loss, the company saw a nearly 20-point decline in occupancy percentage and a 3.3% decrease in ADR.
“The year started relatively strong for us with both January and February coming in slightly ahead of our expectations,” said Verbaas. “The COVID-19 pandemic began to unfold in January with the U.S. confirming its first case, but we did not begin to see a significant impact to our portfolio until halfway through the quarter. The group segment, which represented approximately a third of our revenues in 2019 and is the most significant leading indicator of demand in the lodging industry, began to see a severe uptick in cancellations of future bookings during the last week of February and into the month of March.”
The company’s operating partners have lowered hotel operating expenses, primarily by adjusting staffing and service levels in response to the significant reduction in demand. As a result, a substantial number of the properties’ employees have been furloughed, for which it has accrued approximately $6 million in future expenses in the first quarter. As of March 31, 2020, the company had temporarily suspended operations or had decided to temporarily suspend operations at 24 of its 39 properties. At present, operations at 31 of the company’s hotels and resorts remain temporarily suspended. The remainder of the company’s properties have adjusted operating expenses to reflect significantly lower levels of demand.
“As a result of our actions over the past several years, we believe that we’re well-positioned coming into this crisis with an outstanding portfolio, a strong balance sheet and manageable debt maturities,” said Verbaas. “While the social and governmental response to the pandemic has had a dramatic effect on demand throughout the travel industry, we believe that our liquidity position and strong relationships with our banks and our capital providers will assist us in these difficult times. We continue to engage in constructive dialogue with our lender group as we attempt to reach agreement on amendments to our unsecured credit facility and their unsecured term loans and are hopeful this will occur in the second quarter. We look forward to finding the best path forward with our lender group that allows the company to be well-positioned, pretty eventual ramp-up of business.”
As governmental authorities begin to ease stay-at-home orders, the company will work with its operating partners to evaluate the best strategy and approach for reopening each of its properties based on the hotel or resort’s ability to implement necessary safety precautions and cleanliness standards, anticipated demand, and other considerations. Upon recommencement of operations at the company’s hotels and resorts that have temporarily suspended operations, Xenia anticipates there will be startup expenses, as well as an increase in expenses related to enhanced safety and cleanliness measures. At this time, the company anticipates five of its smaller properties with a leisure demand focus will recommence operations during the month of May.
At the corporate level, the company remains focused on expense controls across the platform. As a result, Xenia expects to reduce its corporate full-year cash general and administrative expense by more than 20%, or approximately $5.5 million, excluding the impact of non-recurring restructuring costs.
During the first quarter, the company announced it had entered into an agreement to sell the 522-room Renaissance Atlanta Waverly Hotel & Convention Center for $155 million with an anticipated closing date of July 31, 2020. The buyer has a $7.75 million non-refundable deposit at risk should the transaction not proceed. Based on the current status of the financial markets, and overall economic uncertainty, the company can make no assurances that this transaction will close as agreed upon, or at all. If the transaction is not completed as a result of the buyer’s default, the company expects to receive the non-refundable deposit, which is currently being held in escrow.
As previously announced, subsequent to quarter end, the pending sale of the 492-room Renaissance Austin Hotel did not close, as contemplated in the amended agreement and, as a result, the agreement was terminated. The company retained the $2 million deposit that was previously released from escrow.
Additionally, subsequent to quarter end, the pending sale of the seven-hotel Kimpton-managed portfolio did not close. On April 30, 2020, the buyer parties provided a notice alleging sellers breached the agreement to sell the portfolio and purporting to terminate the agreement prior to the closing date. The company denied the buyers’ allegations and rejected the buyers’ purported termination. On the May 4, 2020 closing date, the buyer parties failed to close on the transaction. As a result of the buyer parties’ failure to close, the company terminated the agreement and is vigorously pursuing, over the buyer parties’ objection, the $20 million deposit currently held in escrow.