Hello, and welcome to the Xenia Hotels & Resorts Fourth Quarter and Full Year 2021 Earnings Conference Call. My name is Alex, and I'll be coordinating the call today. I would now hand over to your host, , Senior Financial Analyst. Over to you, Aldo.

Thank you, Alex. Good afternoon, and welcome to Xenia Hotels & Resorts Fourth Quarter and Full Year 2021 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. 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 that we issued this morning, along with comments on this call, are made only as of today, March 1, 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 income and definitions of certain items referred to in our remarks in this morning's earnings release. The property-level portfolio information we'll be speaking about today is on a same-property basis for 33 hotels. Subsequent to the sale of Hotel Monaco Chicago in January, certain information is for current same-property servicing 32 hotels. An archive of this call will be available on our website for 90 days. I will now turn it over to Marcel to get started.

Thanks, Aldo, and good afternoon to all of you joining our call today. We are pleased to be sharing our fourth quarter and full year 2021 results with you today as well as some recent developments that we believe to be very positive for our growth outlook over the next several years. After a slow start to 2021, industry fundamentals gradually improved as the year progressed, particularly after our vaccine rollout accelerated in the second quarter, leisure demand increased significantly, while corporate and group demand started recovering in a more moderate pace. Despite the emergence of the Delta variant over the summer, and the Omicron variant post-Thanksgiving, we experienced an upward trend in occupancy throughout the year, and the gap to 2019 RevPAR diminished substantially as we finished out 2021. Importantly, we were able to return to positive adjusted EBITDAre in March, and we are able to maintained and grow this positive cash flow through the remainder of the year. During the fourth quarter, we reported a net loss of $22.9 million. Adjusted EBITDAre and adjusted FFO per share each remained positive at $48.9 million and $0.25, respectively. We are pleased that 31 of our hotels and resorts achieved positive wholesale EBITDA for the year, which translated to adjusted EBITDAre of $108.1 million and adjusted FFO per share of $0.28. Our same-property portfolio generated a hotel EBITDA margin of 27.2% for the quarter as a result of a continued focus on cost controls by our operators and benefits from real estate tax reductions and cancellation fees. Our same-property RevPAR for the fourth quarter was only 17.5% below the same period in 2019, representing another sequential improvement over the first 3 quarters of the year when we experienced RevPAR declines of 63.3%, 38.6% and 22.9% in the first, second and third…

Thank you, Marcel, and good afternoon, everyone. In the fourth quarter, our same-property portfolio occupancy was 56.4% and an average daily rate of $241.11, resulting in RevPAR of $136.01. The fourth quarter marked the best-performing quarter in 2021, coming in at 7.1% higher in ADR and 17.5% below in RevPAR compared to the fourth quarter in 2019, and beating every other quarter in 2021 in terms of occupancy, ADR and RevPAR achieved. Despite some weaker-than-expected corporate and group business related to the Delta variant, October and November were both strong months, with occupancy coming in at 58.6% for each month, each second only to the July peak of 59.2% for the year. October achieved the highest ADR and RevPAR of any month in 2021 at $248.69 and $145.71, respectively, bolstered by 5 weekends, which allowed our hotels to capture additional leisure demand. ADR in November was $238.05, resulting in RevPAR of $139.45. In December, we began to see some expected moderation in occupancies during the month, driven primarily by seasonal declines. However, despite these slowdowns, December achieved an ADR of $235.92, or 15.2% higher than 2019, and RevPAR of $122.99, or just 7.8% below the same month in 2019. During the quarter, we had 6 hotels achieve occupancy above 75%, primarily in hotels that are leisure-focused and drive-to markets such as Key West, Charleston, South Carolina, Savannah, Birmingham and Napa, all of which continue to show substantial strength. We also had 25 hotels representing 74% of the portfolio and achieved higher ADRs in the fourth quarter of 2021 than they did in the fourth quarter of 2019. We commend our hotels and asset management team on identifying and pursuing opportunities to drive ADR and take advantage of the consumer who's willing to pay a premium for quality properties like ours…

Okay. Thanks, Barry. I will provide an update on our balance sheet and a high-level outlook for 2022. Our balance sheet continues to be strong, with no debt maturities until 2024, significant liquidity, nearly all debt currently at swapped or fixed. Swap to fix were at fixed interest rates and strong banking relationships, we're in a good position to take advantage of opportunities such as the W Nashville. Our liquidity, inclusive of available cash and our line of credit, is currently approximately $950 million. In January, we paid off the $65 million mortgage loan on The Ritz-Carlton Pentagon City, thereby lowering our cost of debt to sub 5%. Looking ahead, we intend to acquire W Nashville with cash on hand. As we get further into the year, and depending on other opportunities, we could access the equity of our debt markets to raise additional capital or continue to evolve our balance sheet. Similarly, as business rebounds and after exiting the covenant waiver period, we could consider other tools to drive shareholder return, such as a quarterly dividend or share repurchase under our existing Board authorization. As to a high-level outlook for the year, we have a positive view based on the demand trends and booking activity that we're seeing, as the transient demand, Barry mentioned, strengthening corporate transient trends. Turning to group demand. Our pace information is as of the end of January for our current same-property set. At that time, room revenue pace for 2022 was down 27% versus where we were in January of 2019, and that's for the full year. For the first quarter, the decline is greater than 40%. For the second and third quarters, we are pacing down about 20%. And for the fourth quarter, we are pacing down about 10%. Focusing on just room…

Our first question for today comes from David Katz of Jefferies.

I apologize if I missed it, but with respect to this Nashville hotel, was this a marketed deal? And I'm curious what commentary you might have about what marketed deals are looking like these days? And what -- how you would sort of maybe 1 to 10 or qualitatively gauge the competition for marketed deals?

Yes. Thanks, David. This was actually not a broadly marketed deal. It was not listed with a broker. So when you would call it -- traditionally, you would call it an off market deal, which it certainly was. We do know that there were certain other potential buyers that were looking at the transaction. And from that standpoint, it's -- probably was a competitive process, but with a very limited group of potential buyers that were looking at it. And I talked in my prepared remarks a little bit about us being able to jump in with a lot of conviction around this particular opportunity. And we really believe that's the reason why we had to go with this transaction. It was really being very decisive, being able to move quickly and get a deal done with this -- what we believe is a phenomenal hotel.

All right. And when you look at it, it looks like -- sorry, go ahead.

Sorry, David. The question on kind of what the process for marketed properties. Listen, it's obviously still a very competitive process when you're looking at deals that are being brokered. And we felt very fortunate to actually find an opportunity like this where we could really separate ourselves from the pack by being -- as the size -- the room of this transaction.

All right. Understood. And so when we look at a hotel like this, is there -- what -- is there value that you can add to it over time from an operating perspective? Or is this just positioning in a terrific market with a brand-new asset and the tide sort of carries its value along?

Yes. Great question. We think it's a combination of both, certainly. We do think that -- we talked a lot in the comments about and in the release this morning about the positioning of Nashville as a market. And we really believe that there's a fundamental shift going on in the country as far as what are the most dynamic markets and where do you want to be for the long term. So from that perspective, we think this is kind of a bull's eye location for us where we want to be invested for the long term. But we certainly also are very excited about the fact that it's a property that's managed by a brand that we have a very, very long relationship with and a very deep relationship with, and where we can basically get in somewhat at the ground level and asset manage really coming from the start on this asset with Marriott. And we believe there's a lot that we can bring to the table through our expertise that will help this property be even more successful over time.

Our next question comes from Bill Crow of Raymond James.

Atish, let's start with you. The $5 million of cancellation fees received in the fourth quarter, what would the margins have been had that business actually shown up?

Yes. Well, the cancellation fee income was about $2.5 million more than the fourth quarter of '19, so it did benefit margin by over 100 basis points. I mean it's hard to give you the exact number of what it would have been had the business showed up. But that gives you a sense of what the impact was in the fourth quarter. Interestingly, for the full year, cancellation and attritions fees were not that much ahead of where they were in '19 of $1.5 million for the full year. So it was just sort of the timing of when we got those cancellation and attrition fees compared to '19.

And how much have you -- or do you anticipate collecting in the first quarter in cancellation fees? And I assume that's in your quarterly cadence that you talked about?

Yes. It wouldn't be nearly as much as that. I mean I don't have a good estimate for that at this point, but a lower number. I think what you saw in the fourth quarter is, frankly, cancellation fees that came in from Omicron, but probably some leftover cancellations, at least from Delta, in fact, as well. So that's what drove the number and the timing last year. I think that will moderate as we go into this year.

Yes. Okay. If I could just ask on the W acquisition, how you all get comfortable with the W brand? Because clearly, it has been -- we've -- a lot of us have had questions about it over the last 10-plus years. And so if you could answer that. And how you think about permanently financing that acquisition?

Yes, I'll take the first part of that question, Bill. From our perspective, first and foremost, we look at this typical asset location, right? When -- and if you look at what this hotel is, it could be really many things from kind of a luxury lifestyle perspective. And we think that even without W standing on its own, it's just a phenomenal asset that will drive a lot of demand. Now on top of it, we do think that W is really additive to this asset, particularly with some of the refreshing and evolving that Marriott is currently doing with the brand. If you look at -- and I think I've talked a little bit about it a little bit in my comments. If you look at the amount of money that's going into certain W assets right now that are being refreshed, there is very significant capital investment going into some of those assets. There certainly are still some assets that need to kind of be brought up to the next generation, but there also are some really phenomenal assets in the U.S. And this hotel only helps to elevate the W brand here in the U.S. It is a flagship hotel, really, when you think about what W is going to be going forward. And then you see some of the hotels that have opened up internationally as well and what Marriott is doing with the brand overall on a global perspective, I think that there's a lot of positive momentum there that we're going to be benefiting from.

On the finance question, Bill, as we've mentioned, our plan is to fund this with all cash. And while I think this would be an attractive candidate for secured financing at some point, I'm not sure that we're necessarily ready to commence with doing anything like that right now. I mean, as you look at our balance sheet, a few years ago, we had 8 hotels that have secured financing on them. Now we have 4. We've certainly been active participants on the public debt side in terms of high-yield money that we've raised and frankly, are pleased with that tool that we can continue to utilize. So I think my comments were about generally raising equity or debt capital in the future. I think that applies here as well. But we don't have any specific plans with regard to this asset or this transaction at this point.

Our next question comes from Austin Wurschmidt of KeyBanc.

Just going back and revisiting the acquisition, certainly makes sense from a lot of -- checks a lot of boxes. So I guess just how do you get comfortable with the price per key? And while I know it just recently opened, I suspect some portion of the construction costs might have been baked pre-pandemic. So curious about your thoughts how it stacks up the price tag versus your estimate of replacement cost today? And then can you also just speak to how conservatively you underwrote to get to that sort of mid-8% yield at the midpoint?

Sure. Thanks, Austin. From a price per key perspective, I mean, we certainly recognize that for the national market, it's a number that's higher than what you're seeing recently in the market. But as you also know, there is so much positive momentum going on in those markets. And there's so much economic growth in the market that I'm quite convinced that we will not be the highest price per key transaction for a very long time in this market. There are certain other things that are happening there that I think will be close to where we are on this price per key. One thing to really remember about this asset really is that you're not just buying 346 hotel rooms here. You're buying a very significant income stream coming off of the F&B facilities and very high margin type of revenue that's coming in for those facilities because of a lot of the beverage primarily coming in as well. So when you think about kind of all in what you're buying here, you're buying a very attractive cash flow stream that is going through all those different venues going forward. We obviously -- this is not something that's -- that where we just decided, hey, let's invest in Nashville right now. We've looked at the markets for a number of years. We've underwritten a good number of assets in the markets. So this is really kind of a culmination of looking at various assets here for a very long time. And we are extremely comfortable that we are, in our mind, buying the best hotel in this market that's going to have the best operational upside going forward. As it relates to kind of comparing it to development costs, this is also a project that has taken a…

Yes, that's very helpful. And then -- so when it comes to the underwritten yield in the mid-8s, I guess we're in this like transitional period of hotel demand with the backdrop of high inflation. It's been beneficial to ADR and margins. And these potential operating efficiencies coming out of the pandemic that get discussed by many in the industry, so can you just give us a sense of what you kind of underwrote towards from an ADR margin perspective? Is it kind of the new paradigm? Or were you a little bit more conservative, I guess, to get to the range of outcomes for hotel EBITDA?

Yes, that's a great question. And I'll answer your question specifically as it relates to some of the underwriting that we did on this. What I also want to point out is that you brought up -- the way you asked your question, you brought up the fact that we're kind of in this new environment and the new paradigm kind of post-COVID, and that is another of element that we just really like about this hotel. As much as everyone wants leisure demand, this is a hotel that's going to absolutely benefit very strongly from the leisure demand that exist in Nashville that is really very strong in the market. But it also will cater very well to both group and corporate demand that comes into that market. So in our mind, you get kind of the best of both worlds because you own a great urban hotel. But in some ways, you can kind of view it as an urban resort, particularly with the amenities that this hotel has. When you think about all the space that's in the hotel, all the outdoor space, from a dining perspective, from a meeting perspective, the pool area is something that is absolutely unrivaled in the national area. So we think it really plays very well to what the current consumer is looking for, especially when you think about the leisure traveler that is looking for this type of asset. So we think that it's -- from that standpoint, we view it as a safer and better bet than if we were going somewhere that was just 100% driven by leisure and where you're potentially buying at kind of peak of the market with some of those assets. As it relates to how we underwrote it specifically, I'll just start kind of where we are when we get to stabilization. We expect this to be over $300 in RevPAR upon stabilization. And we expect the mix between food and beverage revenue and rooms revenue to be fairly balanced. So we think that food and beverage revenue is going to be somewhere in the same ZIP code as what the rooms earnings will be. And on the margin side, we're underwriting it to about the low 30s margin, which compares to our portfolio that was at about 28% going into COVID. We think this will do a little bit better. And we also realize the EBITDA opportunities of this hotel. And our underwriting will be throwing off. It's essentially even more than double the EBITDA opportunities that we had in our portfolio going into COVID. So we think that it's very accretive from a lot of different standpoints.

Our next question comes from Michael Bellisario of Baird.

Just sort of one more follow-up on the transaction front. I know you haven't closed the Nashville deal yet, but maybe going forward, how are you thinking about capital allocation in terms of maybe an increased desire to sell another property, partially back fund what you're buying now? Just any updated thoughts on buy versus sale on a go-forward basis would be helpful.

Thanks, Michael. We talked about this, you hear me basically say the same thing every other quarter on this is that we're always going to be looking to upgrade the portfolio we find. And we're constantly kind of analyzing potential additional dispositions, especially when we're making -- having to make some decisions about additional capital investments that we might have to make into some assets. I wouldn't say that this acquisition is necessarily going to change the way we look at some of those potential dispositions, but you could certainly expect us to continue to be -- to look at those additional capital investments pretty critically and see if there are some opportunities to maybe harvest some value from some assets. But I think they're going to be more around the margin, probably some smaller assets in the portfolio to the extent that we're looking at that in the short term as opposed to any kind of meaningful seismic shifts that are happening because of dispositions.

Got it. That's helpful. And then just switching gears, maybe one for Barry. Hyatt recently -- they announced category changes for a lot of their hotels. 2 of your 3 highest EBITDA-producing hotels last year are moving up 1 category. Can you help us understand what that means for demand, EBITDA trends and sort of loyalty redemptions and bookings at those hotels this year compared to if those changes hadn't occurred on the loyalty front?

Yes. Sure. I mean, as you know, the brands move these things around a lot year-to-year. I think we were pretty pleased with the few properties that actually got up category-ed, Grand Cypress and Key West, because each of those was kind of the leader in that market and were quite frankly, in our view, underpriced on a redemption basis. So along with those increased redemption levels, our base redemption level moves up as well. That's not -- although that's not really where in our mind, kind of the upside comes next year. Next year, the upside -- we got into Key West this year a lot given the high occupancy, but Grand Cypress still had a relatively low occupancy, and we redeemed a lot of rooms at the base rate. We're already seeing in February and March many, many nights where we're getting to the higher stairstep levels where we get redemptions based on a percentage of ADR. So there were certainly no negatives from our perspective from Hyatt's moves, and there were even some behind-the-scenes things related to just because of the significant rate increases in Aviara year-over-year, or year over 2019, given the renovation where we'll have a higher base reduction rate there as well. So all positive from our perspective.

And when you talk about the rates being higher, is that simply just a function of 1Q '22 so far being just much better than 1Q '21, given we were still ramping up then? Or do you expect that to be true throughout the year for the other 3 quarters?

If you look at Grand Cypress kind of running in the mid-50s last year, we did not have a lot of compression dates. We will have a lot more compression dates this year, and that's what I'm referring to that we've seen in February and March. And we continue to see that as we did last year at Hyatt Regency Scottsdale.

Our next question comes from Thomas Allen of Morgan Stanley.

Two more questions on Nashville. The first, when do you expect to get to the $25 million to $30 million of stabilized EBITDA? The second, do you own any other properties that are about half room revenue versus other revenue? And kind of how do you think about underwriting those kinds of assets versus others?

Yes, Thomas. I mean, obviously, stabilization is -- the way we look at it is strongly in the kind of 3 to 4 years out. It could happen a little bit quicker, but that's the way we underwrote it. So as it relates to other properties that had kind of similar mix, we -- Royal Palms, for example, obviously, a smaller resort, but that's a little bit less on the rooms side actually than it is on the food and beverage side. So that's one example. When you think about -- you can look at it from 2 sides. I mean, obviously, you want to make sure you stay relevant on the F&B side, and that's to make sure that it's a good, sustainable cash flow model. But that's not necessarily too different from the rooms side because as you all know, it's a capital-intensive business, maybe fall behind with the room product, you're going to ultimately have to make additional investment in that, too. As it relates to F&B, it's really about where are your locations? What are your facilities? How relevant are they in the marketplace? And we think that these particular venues are the most relevant they possibly could be in a location like Nashville. So part of when you think about the price per key, for example, I mean, it's obviously very different from looking at doing a select service deal that are getting down to $500,000 a key, and all you're getting is kind of the room product. I mean we have a better rooms product than virtually anything in that market, and we have the most relevant F&B venues there that we think really when you kind of add that all together, you're really not just buying rooms at $950 a key. I mean you're really buying a very substantial revenue stream from both sides that we think is very helpful and helps you actually fill your rooms. The fact that you have these really relevant F&B venues helps you fill those rooms. The fact that you have the best pool in the market helps you fill the rooms. The fact that you have the best pool or the best rooftop in that market, those are all elements why people are going to want to stay at this hotel, whether they're there for leisure or whether they're there for any kind of corporate reason.

And then just a follow-up. When we were at about a month ago, one of the key themes was the brands really wanted to start to enforce brand standards and like brand requirements and some of that stuff again. Where do you think we are in that trajectory? Where do you think we're going? How do you feel about that kind of the brand standard implementation right now?

Tom, this is Barry. I think that, obviously, from their perspective, they want to have a more unified product. It's certainly, from their perspective, one of the ways to -- for them to deal with some of the challenges that they add on the guest satisfaction side. So I think they are certainly all looking at how to best roll -- still determine what those standards are and how best to roll them out. But I think it's going to be longer than shorter, at least in terms of the way we think about the business. And I think as it relates to our portfolio, I think we're not terribly afraid or concerned about what those might be. As we've talked about for a long time, we've been very aggressive in getting our facilities and operations back as close as we can to pre-pandemic levels, even in cases where we're running low occupancies, that having restaurants open, where appropriate, I think it's certainly been the right thing to do. And I think that shows, in Q4, for example, in our significant food and beverage revenues. I think when you think about it from the brand perspective, I think they certainly are taking and will take, as they develop these standards, a much more reasonable and balanced approach perhaps than it had before. And I think they will end up with more flexible approaches in terms of not every full-service brand ex-hotel has to be open for lunch. I think owners are going to be able to continue the dialogue that they -- every brand is welcome that the owners have participated in over the last 2 years now in terms of helping guide them toward those decisions.

Our final question for today comes from Tyler Batory from Janney.

This is Jonathan on Tyler. First one for me, and I know it's maybe difficult to segment everything up, but the rate strength in the quarter, is that all coming from leisure? Or is there some corporate or group in there impacting positively or negatively? And can you provide any color on your expectation for rates as we move through '22?

Sure. Let's talk about Q4 2021. And obviously, leisure was still a significant piece for us, particularly in December. But I think part of the story that maybe has not been told as well for us, and we believe across the industry as well, was there was a lot of very good quality group business in October and November. While some of it got lost due to Delta, the business that we did have in our hotels was very high-quality group business, both in rate and in terms of banquet spend per occupied room. So that was definitely a trend. Again, volume corporate was where the weakness was, both in terms of kind of demand as well as in terms of rate. Talking about 2022, Atish touched on in his remarks kind of group rate and group booking pace and particularly strength in group rate looking at the latter half of 2022 compared to 2018 going into 2019. But again, where we sit today in terms of the near-term transient demand, we feel very good about March and now even into April in terms of what we're seeing in terms of both continued strength in leisure demand as well as some notable pickup in terms of volume corporate demand as well.

Okay. Very helpful. And then maybe for Marcel, I'm curious if the CapEx guide, which is essentially back to pre-pandemic levels. Is that a vote of confidence in the pace of recovery this year and wanting to position the portfolio for the recovery? Or is there just seeing catch-up CapEx in there that you feel comfortable addressing now that you're in a really solid liquidity position?

Yes. It's not so much cash out as it is more kind of the first part of your question, which is we obviously do have confidence in the recovery, where we are right now. We certainly scaled back our spend a lot in 2020 and 2021. And I think I mentioned it in my comments that we obviously were very focused on preserving cash, preserving liquidity, increasing liquidity. We certainly have more confidence around where things are going and how things are recovering now. So there certainly are a few things that Barry highlighted where we did push those back a little bit from prior years, but a lot of where spend really is, is on the type of renovations where we think we're going to drive some real ROI, and particularly the 2 bigger ones that Barry mentioned, being Orlando and Santa Barbara. Those are 2 projects that we have very high hopes for how we can spend that money on this now to be really well positioned as the recovery really takes hold.

We have no further questions for today, so I will hand back to Chairman and CEO, Marcel Verbaas, for any closing remarks.

Thank you. Thanks, everyone, for joining us today. I know it's been a long earnings season for many of you. We're excited clearly about where we are with the company, how we performed in the fourth quarter, and certainly extremely excited about the W Nashville acquisition. And we're excited about what this year is going to bring for us. So we look forward to continuing our dialogue and speaking to you as the year progresses.

Thank you for joining today's call. You may now disconnect.