Good day, and welcome to Xenia Hotels & Resorts Third Quarter Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. Now I'd like to turn the conference over to Ms. Lisa Ramey, Vice President of Finance. Please go ahead.

Thank you, Nick. Good afternoon, everyone, and welcome to the third quarter 2020 earnings call and webcast for Xenia Hotels & Resorts. I'm here with Marcel Verbaas, our Chairman and Chief Executive Officer; Barry Bloom, our President and Chief Operating Officer; and Atish Shah, our Chief Financial Officer. Marcel will begin with a discussion of our quarterly performance as well as recent transactions and capital markets activities. Barry will follow with operating details and an update on our major capital projects, and Atish will finish the call with a discussion of our balance sheet and various liquidity metrics. Following today's prepared remarks, we will 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 earlier this morning, along with the comments on this call, are made only as of today, October 30, 2020, 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 income and definitions of certain items referred to in our remarks in this morning's earnings release. An archive of this call will be available on our website for 90 days. And with that, I'll turn it over to Marcel to get started.

Thanks, Lisa, and thank you all for joining our third quarter 2020 earnings call. The lodging industry continues to be impacted severely by the COVID-19 pandemic and the resulting restrictions imposed by governmental authorities and consumers' attitude towards travel. While the industry has seen encouraging levels of leisure demand since the relaxation of lockdowns and other restrictions over the past several months, demand from the corporate trends in the group segments continues to be limited, particularly in the upper upscale and luxury segments. While these segments continue to be impacted most severely when comparing year-over-year results, we remain steadfast in our belief that the luxury and upper upscale segments will experience a robust rebound, particularly as COVID-19 treatments and therapeutics improve, and effective vaccines are widely available. Looking back on the previous 2 downturns in our industry, luxury and upper upscale rebounded very strongly. We see no reason to believe this time will be any different, especially as new supply additions should be very limited in the next few years, particularly after properties that are currently under construction are completed. We also continue to believe that the quality of our uniquely positioned portfolio and our market strategy will benefit us greatly as the lodging industry will experience its inevitable recovery in the years ahead. Our operating results for the quarter were reflective of the weak industry fundamentals. Net loss for the third quarter was $52.3 million. Adjusted EBITDAre was negative $21.1 million, and adjusted FFO per share was negative $0.27, with both numbers representing sequential improvements over the second quarter, when the majority of our properties were closed for a significant portion of the quarter. Like the second quarter, the third quarter continued to provide an extremely challenging operating environment. And we were pleased with the gradual improvement of our…

Thank you, Marcel. As you mentioned, I will be discussing our property performance for the third quarter, our continued success in reopening and operating our hotels in this difficult environment, and an update on our recent capital expenditures. On a same-property basis for the quarter, occupancy was 24.7% at an average daily rate of $169.77, resulting in RevPAR of $41.95. This same-property basis includes 38 of the 39 hotels owned as of quarter end, which excludes Hyatt Regency Portland, and is calculated as if all rooms were available for the entire quarter regardless of operational status. This reflects a decline in RevPAR of 74.8% as a result of a 67.9% decrease in occupancy and a 21.5% decrease in rate. RevPAR was down 80.3% in July, 72.5% in August and 71.5% in September. For all our operating metrics for the quarter, I will now be referring to the 37 properties that were open and operating for at least some portion of the quarter, and these metrics include the 2 hotels we sold in October. These metrics are based on the number of days individual properties were open and operating. In the third quarter, our hotels achieved 28.5% occupancy at an average daily rate of $169.60 for a RevPAR of $48.41. While the absolute amounts here remain unprecedented, we continue to be pleased with the cadence and continual improvement of results during the quarter, particularly as many projected a significant decline in performance following the Labor Day holiday, which has historically marked the end of the summer season. July's occupancy was 23.9% and an ADR of $170.04. August saw significant improvement in occupancy of over 580 basis points to 29.7% and an ADR of $169.45. September occupancy further improved over August to 31.6%, and rate was identical at $169.45, with the strong…

Thanks, Barry. I will discuss our balance sheet and provide a reminder on our breakeven levels of occupancy and cash burn. Through our actions since July, we have strengthened the balance sheet, giving the company additional flexibility and runway. The 3 outcomes that are most notable are as follows: number one, increased liquidity; number two, no financial maintenance covenants through the end of 2021; and number three, no debt maturities until 2023. We achieved these outcomes through productive dialogue and negotiations with our lender group as well as strong execution in the high-yield bond market and the dispositions completed this month. Our liquidity at the end of the third quarter was $515 million, and our liquidity position today is approximately $600 million. Today's liquidity reflects unrestricted cash of approximately $330 million and current undrawn revolver capacity of approximately $270 million. As to our high-yield offering, most of the details have been announced before. Our debut offering in August was substantially oversubscribed, resulting in an attractive coupon. We also had strong demand for the add-on that we completed a few weeks ago. We welcome these new fixed income investors to the company and look forward to growing our relations with them over time. As to our corporate credit facilities, our bank lenders continue to be supportive of the company and are pleased with our actions. As mentioned, we extended the duration of our covenant waivers by 3 quarters. After year-end 2021, certain of our financial maintenance covenants are relaxed and gradually returned to pre-COVID levels over the following 5 quarters or by early 2023. There are 2 more minor changes we recently made to our corporate credit facilities. First, we can acquire hotels using equity during the covenant waiver period; and second, assuming no more than $350 million is outstanding on…

[Operator Instructions] First question comes from David Katz of Jefferies.

I wanted to ask about the Commonwealth, in particular, because it happens to be an urban hotel. And I just wonder what your kind of broad thoughts are about urban hotels and the degree to which the fact that it's in an urban location played into the decision to sell it at this point?

This is Marcel. I'll take that question. Obviously, it's a transaction that hasn't been completed yet. So as I'm sure you can appreciate, puts me at a little bit less liberty to go into too much detail on these transactions that haven't closed yet versus ones that have closed. In general, obviously, what I will say is that something that Barry obviously highlighted, too, is that we feel very good about having a portfolio that is pretty heavily focused on Sunbelt locations that has the opportunity to generally attract some more meetings, hopefully, as meetings are starting to come back, that are a little bit more focused on having lot of outdoor space available and those type of things. So in general, we obviously see a little bit more recovery earlier on in some of those assets that have more of those type of characteristics as opposed to potentially some of the assets that are in kind of urban [indiscernible]. I'm saying that as a general comment, and I don't want to get too specific as it relates to anything related to Commonwealth at this point.

Totally fair. And Atish, I want to ask this in just the right way to make it clear that I am not predicting such. But is it fair to assume that you have sets of contingencies and strategies should things either stall or even reverse a little bit from some of the progress that's been made?

Yes. I mean, I think that is a fair assessment. Look, I mean, over the last 6 months, we've learned a lot, and the operating teams have certainly learned a tremendous amount. And so they have the ability to flex, and we're certainly mindful of trends as they take shape. So I think when it comes to hotel operations and expense structure there as well as how we think about the company's positioning overall, those comments that I made were meant to indicate that, yes, there are a range of scenarios or outcomes over the next several months. And we prepared both the balance sheet and our thinking about those variety of potential outcomes and how we think about the strategy going forward.

Got it. And Barry, I know you gave a fair amount of detail, and I'm going to apologize because I got knocked off for a moment while you were speaking and dialed back in. But with respect to providing solutions that may include rapid testing or other forms of therapeutic input, what kind of plans and provisions have you started to work on that may assist in that regard?

What I can tell you and really try not to get ahead of anything that may have been said publicly is certainly, the brands are all looking at and thinking about and learning how to adapt to what the needs of clients are. I can tell you that having done a little more than a handful now of kind of complete hotel buyouts, every group has taken a little different -- had a different thought process on what kind of testing or regulations they put on their attendees, requests they've made for on hotel employees and things like that. So I think that's probably all that's safe to say on that at this point is we're going to do what the customers want and expect us to do with the brands taking the lead on how we're going to effectuate that.

Next question is from Bill Crow of Raymond James.

Marcel, as you sell out of Boston and reduce your exposure in Napa, sell Austin, it obviously has the other impact of increasing your exposure to the remaining markets, and that includes Dallas and Houston. And I think I had read where some Dallas assets were maybe on the market. Just thinking about how you're thinking about the portfolio overall and the perception of quality of the portfolio when you sell out of some of these big coastal markets?

Yes. Great question, Bill. As we look at this and as we look at which hotels we're willing to sell in this environment, and I mentioned this a couple times in my prepared remarks, we are very focused on maintaining the quality of the portfolio and the growth prospects of the portfolio. As we're looking at selling these assets, and in some ways, you can look at these 4 and say that they represent a little bit of a cross-section of the portfolio. But as you can imagine, had we believed very strongly that these 4 properties would be outperforming the remainder of our portfolio over the next several years, we probably wouldn't be too anxious to sell. So clearly, we have a view of that these assets aren't hampering us from a strategic standpoint to not have them in our portfolio anymore. And we clearly have expectations of some other assets that will hopefully outperform these. And I think Atish kind of alluded to this a little bit in his remarks, too, which is the fact that we are preparing for a number of different outcomes and prospects going forward. We significantly strengthened the balance sheet to deal with any kind of short-term challenges that could be out there. We've also really bolstered our liquidity and strength of the balance sheet. We'll hopefully be opportunistic coming out of this. So clearly, our longer-term view is that assets that we would be selling today would be hopefully providing us less growth than assets that we could be finding out there when presumably there will be a good amount of opportunities out there over the next few years. One of the additional things I'll say there, and you referred to it, obviously selling an asset like Austin, one of the considerations there is the fact that we -- that helps us reduce our Texas concentration a little bit because we do still have exposure in Houston and in Dallas, obviously. And you mentioned this, so I'll respond to it. We currently don't have any other properties on the market. We are not looking to sell assets additionally as we sit here today. But that doesn't mean that going forward, we wouldn't look at some potential additional dispositions. I just wanted to make that clear in response to your question.

Yes. That's helpful. And one other question for me. It was discussed on this morning's -- a peer's call this morning that I think seasonally we're going into a slower demand period as we transition from the third quarter to the fourth quarter, get into the winter months. And I think that kind of extends through January, et cetera. Is there anything in your portfolio from a seasonality perspective, a locational perspective that might change that? In other words, the fourth quarter could be similar to the third quarter? Are we just kind of due for a pullback here?

Well, in general, and I'll let Barry speak a little bit more specifically to it as well, but in general, obviously, as you know, November and December are generally slower months in the industry. And the primary reason for that is because your corporate demand generally tails off in November and December. Clearly, at this point, a lot of the demand is being driven by leisure demand. So there is some hope that, that holds up through November and December. But I would think that, in general, your thesis is appropriate to say that you're generally seeing a little bit more of a slowdown towards the end of the fourth quarter, whereas obviously the beginning of the fourth quarter is kind of your high watermark because October is generally your strong month from a -- particularly from a corporate perspective. So nothing too specific in our portfolio, although I would say that we obviously do have a portfolio with a lot of these drive-to leisure locations, a lot of assets that are appealing for people doing trips around Thanksgiving and Christmas potentially on the leisure side. But I wouldn't say there is any particular big drivers that would make it any different than you'd think.

Yes. I mean, I think the only other point is if you look at our portfolio for -- and seasonality in 2019, obviously we're in a very different environment than that, first and second quarter are a little bit stronger than a quarter each. And they're close -- a little closer to 30% just in terms of weighting of hotel EBITDA. So we sort of had, because of where our hotels are located, traditionally a little bit more business in those quarters. Third quarter has typically been a little bit lighter in terms of seasonality or the mix. But again, obviously, this year is very different. The drivers around the recovery are very different. So that's just a historical view.

Next call -- question is from Michael Bellisario of Baird.

Marcel, I just want to go back to that last topic just on the transaction front and your comment about not marketing anything else for sale today. I mean, I suppose the question is, one, why is that, especially if you can get the pricing that you've gotten so far? What's the rationale there?

Well, as you know, we've obviously very significantly enhanced our liquidity on our balance sheet as we sit here today. And even before hopefully completing these 2 additional transactions here in the fourth quarter, we've got about $600 million of liquidity today. So from our perspective, there's not a particular need to further enhance that through transactions. Again, my comment about not having properties on the market today is exactly that. Not today. That doesn't mean that in the future, we won't continue to evaluate whether there's additional opportunities. And it will really be with an eye towards, what I also said in response to Bill's question which is, do we feel like a potential sale of some additional assets where there may not be quite as much growth potential versus potential acquisition opportunities. If those opportunities exist, we'll certainly look at it very closely. But there's obviously 2 sides to the coin. You have to be very confident that there are those kind of opportunities out there and you have to look at your existing portfolio and feel that maybe some of those growth opportunities aren't quite there and that you can -- that you're better off monetizing some of those assets. So as you know, I think if you compare us to most of our peers, we've been always pretty active throughout the years coming into this pandemic. We've obviously been very active this year and taken all the very decisive steps we've taken to be where we are today. So a transaction-oriented mindset is part of who we are. And we'll continue to look at some opportunities like that, but as I said, my statement is true and correct as we sit here today.

Got it. That's helpful. And then maybe taking a step back looking at the 2 deals that have closed and the 2 others that are pending. But can you maybe fill us in on what you've seen or what you've learned so far that was maybe surprising? And how that informs your view of your remaining portfolio and the value you see there in those assets?

Well, what's -- I'm not sure it was in any way surprising or not. We obviously felt that our portfolio is a desirable portfolio that can create a good amount of liquidity for a company like ours. And that's part of our strategy that we've had over the years as far as building the type of quality of portfolio that we have today. So we were fairly confident coming out with some of these properties that there would be a pretty competitive process for some of these assets. And I think we somewhat timed that correctly. And we obviously -- like I said, I mean, we have the type of assets that there is a good amount of demand for. So I wouldn't say that I've been particularly surprised by anything as it relates to that. We've gotten obviously a lot of questions, probably from you too, but certainly from others, about where our discount is post this pandemic versus where pricing was before the pandemic, which obviously is an enormously hard question to answer. We feel that the bulk of these dispositions we're doing that, that discount is relatively small. Obviously, a little bit larger on the one that you can actually point to, which was Austin that we had under contract before, and now we are selling it, hoping to close it later this quarter at a discount that's roughly 30% of where we had another contract before. But that is certainly not something you can apply kind of a broad brush to because, as I mentioned in my comments, Austin is obviously the type of property that you just have to acknowledge the fact that it's an asset that is a little bit more group dependent and that obviously has some CapEx needs where -- and it's probably really on the high end of where you would expect some of those discounts to come out. That being said, as I said in my comments, we still felt really strongly that, that was the appropriate thing for us to do, to sell that asset at this time.

Got it. And then just one last one from me, maybe for Atish. I know you mentioned the amendments and being able to use equity to fund acquisitions. But as you think about other sources of capital going forward, what are the options out there that you have that you're thinking about? And then do the senior bond that you've issued, do those preclude you from doing anything differently on the capital structure front going forward?

Yes, that's a great question. I mean, obviously, we have multiple tools at our disposal, whether it's secured financing, preferred, other types of capital-raising tools. I think we spent a lot of time evaluating kind of the different levers and reached the conclusion that the senior secured notes made the most sense for us. And I think they don't preclude us from doing other things. Obviously, there are some incurrence tests and things like that we have to be mindful of. But for the most part, we have the ability and flexibility to do other things post having done those -- that offering.

Next question comes from Thomas Allen of Morgan Stanley.

So just sticking on the transaction topic. You're obviously going to be sitting on a ton of cash after these dispositions. Can you just give us some more color on like what you're looking for to buy? Like is it bigger assets? Smaller assets? I understand you want to be in growthier, more assets with better growth trajectories than what you had. But where -- what specific market potentially, if you could give us some color there? And like where are there deals basically? Where do you think you can find the best return?

I think it's still early days to be honest with you, Thomas. I think that we're confident that there will be a lot of opportunities coming over the next few years. And as you know from us, we have been the type of buyer that's been relatively opportunistic and that doesn't get boxed in or pigeonholed into saying our next 3 buys need to be in these 3 particular markets. We've also never said we're going to be just concentrated in markets X,Y and Z, like some of our peers have, which just allows us to be opportunistic and to find assets that have the right kind of characteristics that we're looking for, which isn't different from what we've done in the last few years, which is looking for assets that have -- that can play into different types of demand segments, that have a component of leisure to it, that have a component of corporate transient. And obviously even though group is a 4-letter word right now, in the future that's going to be an important component again of anything you're looking at. So we're going to continue to look for the type of assets that you've seen us buy over the past few years. And we do think that there'll be -- there undoubtedly will be some fallout over the next couple of years where there will be interesting opportunities available.

I guess, Marcel, how willing are you to be like completely contrarian, right? Like are you willing to like go out and buy a big group box today and wait it out for a year because you assume that business is going to come back at some point? Or do you want like more safety and security and like we'll buy -- are interested in leisure assets that are doing decently well now but you think that there's opportunity on them?

I think the obvious answer to that is we're always going to be taking a longer-term view at assets. We're not just going to look at what makes sense for the next 6 months or 9 months. And it goes for both assets that we'd be looking to buy and for our existing portfolio. So again, we will look at the different characteristics. What I will tell you is don't expect us to buy any properties here in the next couple of months. I mean, your question is, would you be willing to do anything today? I think there is a good amount of uncertainty still out there. There's not enough products out there. There should be more products out there that you can actually kind of pick your way through a little bit to see if there are some things that could be appealing going forward. So we're perfectly fine sitting on the sidelines here for a little bit and then letting things play out a little bit and have a balance sheet that can withstand any kind of further downturns to the extent that anything to the negative side happens, but also be prepared to be opportunistic coming out of this. So it really is a little bit early days to say this. So I can certainly tell you that right now, a big group box, no, probably not. But we're going to wait a little bit, see how things stabilize. And things could change pretty quickly and rapidly if an effective vaccine is rolled out and we're seeing some recovery in the industry, which hopefully will happen. If we can believe the experts on this, if there really is a situation where we're more comfortable with treatments and a vaccine sometime in '21, then obviously the landscape could change pretty quickly and dramatically where there could be some very interesting opportunities. And we'll look at all the long-term characteristics that we like in the assets that we buy.

[Operator Instructions] Our next question comes from Tyler Batory of Janney Capital Markets.

Tyler, are you there? Nick, I don't think we have him. So you can go to the next question, if we have any.

[Operator Instructions] We have no further questions at this time. I'd like to turn the conference back over to Mr. Marcel Verbaas for closing remarks. Please go ahead.

Thank you, Nick. In closing, I'll just echo what Atish said earlier as he concluded his remarks, which is, obviously, we are certainly still in a very uncertain situation in the overall national and global environment. So we feel like we've put ourselves in a position to be able to deal with any uncertainty over the next few months. For sure, we're encouraged by what we've seen operationally over the last couple months in our portfolio. And I am extremely pleased with the efforts that we have undertaken over the past few quarters to strengthen our balance sheet, bolster our liquidity and really set ourselves up to get through this in the appropriate way and thrive coming out of this. So I thank everyone for joining us today on our call, and we look forward to speaking with you over the next few quarters.

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