Xenia Hotels & Resorts Reports Fourth Quarter And Full Year 2017 Results, And Provides 2018 Guidance

ORLANDO, Fla., Feb. 27, 2018 /PRNewswire/ -- Xenia Hotels & Resorts, Inc. (NYSE: XHR) ("Xenia" or the "Company") today announced results for the quarter and full year ended December 31, 2017. 

Fourth Quarter 2017 Highlights

• Net Income: Net income attributable to common stockholders was $9.7 million and net income per diluted share was $0.09.
• Same-Property RevPAR: Same-Property RevPAR increased 4.4% compared to the fourth quarter of 2016 to $152.18, driven entirely by occupancy which increased 320 basis points, as ADR remained flat.
• Same-Property Hotel EBITDA Margin: Same-Property Hotel EBITDA Margin was 29.8%, an increase of 111 basis points compared to the fourth quarter of 2016.
• Total Portfolio RevPAR: Total Portfolio RevPAR was 9.2% higher than in the fourth quarter of 2016.
• Adjusted EBITDA: Adjusted EBITDA increased $3.9 million to $68.0 million, an increase of 6.1% compared to the fourth quarter of 2016.
• Adjusted FFO per Diluted Share: Adjusted FFO per diluted share was $0.52, a decrease of 5.5% compared to the fourth quarter of 2016 due to increased income tax expense and interest expense.
• Impact from Natural Disasters: The wildfires in California, as well as the continued softness in demand in Key West following Hurricane Irma, negatively impacted Adjusted EBITDA by an estimated $3 million. The Company carries business interruption insurance at each of the four impacted hotels and is currently evaluating its ability to recover proceeds for lost business as a result of these natural disasters.
• Transaction Activity: As previously announced, the Company completed the acquisition of three hotels for total consideration of $410 million. Additionally during the quarter, the Company entered into an agreement to sell the leasehold interest in Aston Waikiki Beach Hotel for $200 million. The buyer has a $10 million deposit at risk and the sale is expected to close in the first quarter 2018, subject to customary closing conditions.
• Financing Activity: The Company fixed LIBOR through September 2022 on its $125 million term loan maturing in September 2024.
• Dividends: The Company declared its fourth quarter dividend of $0.275 per share to common stockholders of record on December 29, 2017.

"Overall, we are pleased with our fourth quarter performance, which came in better than anticipated due primarily to strong performance in Houston, Dallas, San Francisco, and Orlando," stated Marcel Verbaas, Chairman and Chief Executive Officer of Xenia.  "Our Houston-area hotels experienced strong demand following Hurricane Harvey due to market compression, which resulted in RevPAR growth of 16.8% for those hotels in the fourth quarter.  Additionally, we were pleased with the performance of our recent acquisitions, which collectively exceeded our expectations in the fourth quarter. We are proud of our portfolio enhancements in 2017 and we will continue to look for opportunities to upgrade the overall quality and growth profile of our portfolio in 2018, beginning with the expected sale of the Aston Waikiki before the end of the first quarter."

Full Year 2017 Highlights

• Net Income: Net income attributable to common stockholders was $98.9 million and net income per diluted share was $0.92.
• Same-Property RevPAR: Same-Property RevPAR increased 1.4% to $159.90 compared to the year ended December 31, 2016, as occupancy increased 100 basis points and ADR increased 0.1%.
• Same-Property Hotel EBITDA Margin: Same-Property Hotel EBITDA Margin was 30.8%, an increase of 52 basis points compared to the year ended December 31, 2016.
• Total Portfolio RevPAR: Total Portfolio RevPAR increased 3.9% year over year, reflecting portfolio performance and change in composition.
• Adjusted EBITDA: Adjusted EBITDA was $270.3 million, a decrease of 5.9% from 2016, primarily as a result of the timing of transactions during the year.
• Adjusted FFO per Diluted Share: The Company generated Adjusted FFO per diluted share of $2.06, a 6.4% decline from 2016.
• Transaction Activity: The Company made significant improvements in its portfolio composition during 2017. The Company completed the acquisition of four hotels comprising 1,792 rooms for total consideration of $615.5 million. The acquisitions included Hyatt Regency Grand Cypress in Orlando, Florida, Hyatt Regency Scottsdale Resort & Spa at Gainey Ranch in Scottsdale, Arizona, Royal Palms Resort & Spa in Phoenix, Arizona, and The Ritz-Carlton, Pentagon City in Arlington, Virginia. The Company sold seven hotels comprising 1,153 rooms for total consideration of $212 million.
• Financing Activity: The Company completed $340 million of new debt financings including two mortgage loans and one unsecured term loan, paid off $128 million of mortgage loans, amended its existing $125 million unsecured term loan maturing in October 2022 to reduce the pricing grid, and fixed LIBOR on $266 million of variable rate debt.

"As we reflect back on 2017, despite varying degrees of disruption from the various natural disasters that impacted the United States, and our portfolio in particular, we are proud of the overall performance of our portfolio," continued Mr. Verbaas.  "Our Same-Property RevPAR growth of 1.4% exceeded the high-end of our previously provided guidance range, as demand across the portfolio came in stronger than anticipated in the fourth quarter.  Our continued dedication towards cost containment and increasing efficiency led to overall expense growth of only 0.7% for the year, resulting in Same-Property Hotel EBITDA Margin growth of 52 basis points, an outstanding result in this low RevPAR growth environment."

Operating Results

The Company's results include the following:

Transactions

As previously disclosed, in the fourth quarter, the Company completed the acquisition of the 493-room Hyatt Regency Scottsdale Resort & Spa at Gainey Ranch and the 119-room Royal Palms Resort & Spa, part of The Unbound Collection by Hyatt, for a combined purchase price of $305 million. Also in October, the Company completed the acquisition of the 365-room The Ritz-Carlton, Pentagon City for $105 million.

During 2017, the Company acquired four hotels for approximately $615.5 million and sold seven hotels for approximately $212 million.

• In April, the Company sold the 122-room Courtyard Birmingham Downtown at UAB for a sale price of $30 million.
• In May, the Company completed the acquisition of the 815-room Hyatt Regency Grand Cypress in Orlando, Florida for a purchase price of $205.5 million.
• In June, the Company completed the sale of a five-hotel portfolio, including the 203-room Courtyard Fort Worth Downtown/Blackstone, the 123-room Courtyard Kansas City Country Club Plaza, the 182-room Courtyard Pittsburgh Downtown, the 116-room Hampton Inn & Suites Baltimore Inner Harbor, and the 188-room Residence Inn Baltimore Downtown/Inner Harbor, for total consideration of $163 million.
• In July, the Company sold the 219-room Marriott West Des Moines for $19 million.
• In October, the Company completed the acquisition of the 493-room Hyatt Regency Scottsdale Resort & Spa at Gainey Ranch and the 119-room Royal Palms Resort & Spa, part of The Unbound Collection by Hyatt, for a combined purchase price of $305 million.
• Also in October, the Company completed the acquisition of the 365-room The Ritz-Carlton, Pentagon City for $105 million.
• In December, the Company entered into an agreement to sell the leasehold interest in Aston Waikiki Beach Hotel for $200 million. The price represents a 12.6x multiple on the hotel's 2017 Hotel EBITDA. The buyer has a $10 million deposit at risk and the sale is expected to close in the first quarter 2018, subject to customary closing conditions.

"2017 was another year of significant improvements throughout our portfolio, with the completion of over $825 million of successful transactions," Mr. Verbaas continued.  "Pro forma for the sale of the Aston Waikiki Beach Hotel, our Pro Forma Portfolio RevPAR increased 5.7% versus our 2016 year-end portfolio, and we improved our Pro Forma Portfolio EBITDA per key by 7.0%.  Our dispositions allowed us to exit several non-core markets including Fort Worth, Kansas City, Pittsburgh, Baltimore, and Des Moines, while our acquisitions allowed us to increase our presence in the vibrant Orlando and Washington, DC markets, and to re-enter the Phoenix/Scottsdale market with two institutional-quality assets.  These transactions not only improved our portfolio quality and lowered the supply growth forecast for our portfolio, but also further diversified our geographic and brand mix.  We believe our pro forma portfolio provides an enhanced growth profile as we look ahead." 

Financings and Balance Sheet

In the fourth quarter, the Company executed a series of swaps to fix LIBOR through September 2022 on its $125 million unsecured term loan maturing in September 2024. Based on the Company's current leverage ratio, including the swaps, the effective interest rate is 3.62%.

During 2017, the Company originated two new mortgage loans, including a $115 million loan collateralized by the Marriott San Francisco Airport Waterfront and a $100 million loan collateralized by the Renaissance Atlanta Waverly Hotel & Convention Center.  Additionally, the Company completed a new $125 million unsecured term loan, paid off three mortgage loans totaling $128 million, repriced its $125 million unsecured term loan maturing in October 2022 to reduce the leverage-based pricing grid, and fixed LIBOR on $266 million of variable rate debt.

As of December 31, 2017, the Company had total outstanding debt of $1.3 billion with a weighted average interest rate of 3.71%, with over 70% of its debt fixed or hedged.  In addition, the Company had $71.9 million of cash and cash equivalents, and $360 million of availability on its senior unsecured credit facility.  Total net debt to trailing twelve month Corporate EBITDA (as defined in Section 1.01 of the Company's unsecured credit facility) was 4.2x.

Pro forma for the pending sale of the Aston Waikiki Beach Hotel and recent financing activities, as detailed below, the Company's total net debt to trailing twelve month Corporate EBITDA is expected to be reduced to approximately 3.7x.

Subsequent to year-end, and as previously announced, the Company amended, restated, and upsized its Senior Unsecured Revolving Credit Facility ("Credit Facility").  The Credit Facility was upsized from $400 million to $500 million and the maturity was extended three years to February 2022, with two additional six-month extension options. The Credit Facility's interest rate is now based on a pricing grid with a range of 150 to 225 basis points over LIBOR as determined by the Company's leverage ratio, a reduction from the previous pricing grid which ranged from 150 to 245 basis points over LIBOR. As of February 27, 2018, the Company had full availability on its Credit Facility.

Additionally, the Company obtained a new $65 million mortgage loan collateralized by The Ritz-Carlton, Pentagon City. As previously announced, the loan bears an interest rate of LIBOR plus 210 basis points and matures in January 2025. 

Finally, the Company paid off the $18.3 million mortgage loan collateralized by Hotel Monaco Chicago.

Capital Expenditures

During the fourth quarter and full year 2017, the Company invested $34 million and $86 million in its portfolio, respectively.  For the full-year 2017, significant projects included:

• The completion of the guestroom renovation of Westin Galleria Houston, including the creation of 18 dedicated suites from 36 inferior guest rooms, and substantial progress on a major lobby renovation, including the addition of a lobby bar. The property also commenced the transformation of the 24^th floor meeting space, including an upgrade of the primary meeting space and the addition of a new fitness center and concierge lounge.
• Guestroom renovations at Andaz San Diego, Bohemian Hotel Celebration, and Bohemian Hotel Savannah.
• Meeting space renovations at Marriott San Francisco Airport Waterfront, Loews New Orleans, Renaissance Atlanta Waverly Hotel, and Hyatt Regency Santa Clara.
• The addition of one room to RiverPlace Hotel.
• The commencement of guestroom renovations at seven properties including Westin Oaks at the Galleria, Hilton Garden Inn Washington D.C., Lorien Hotel & Spa, Hotel Monaco Denver, Residence Inn Denver City Center, Andaz Savannah, and Marriott Chicago at Medical District/UIC.
• The commencement of a lobby and great room renovation at Marriott San Francisco Airport Waterfront.
• The commencement of significant enhancements to and reconcepting of the food and beverage outlets at Hotel Monaco Chicago and RiverPlace Hotel.

Share Repurchases

During the fourth quarter, the Company did not repurchase any shares under its share repurchase authorization.

During the year ended December 31, 2017, the Company repurchased a total of 240,352 shares of common stock at a weighted average price of $17.07 per share, for total consideration of $4.1 million. 

Since the authorization's inception in fourth quarter 2015, the Company has repurchased a total of 5.2 million shares of common stock at a weighted average price of $14.99 per share, for total consideration of $78.1 million. As of February 27, 2018, the Company had $96.9 million in capacity remaining under its repurchase authorization. 

2018 Outlook and Guidance

The Company's outlook for 2018 is based on the current economic environment, incorporates all expected renovation disruption, reflects ownership of Aston Waikiki Beach Hotel through the first quarter 2018, and assumes no additional acquisitions, dispositions, equity offerings, or share repurchases.  Same-Property RevPAR change includes 38 hotels, reflecting all hotels owned as of February 27, 2018 except Aston Waikiki Beach Hotel.

Additional guidance details:

• Disruption due to renovations is expected to negatively impact Same-Property RevPAR Change by approximately 75 basis points.
• In 2017, the seven hotels that were sold during the year contributed approximately $9 million to Adjusted EBITDA. Additionally, the Aston Waikiki Beach Hotel contributed approximately $12 million to Adjusted EBITDA, net of general excise tax, in 2017.
• General and administrative expense of $21 million to $23 million, excluding non-cash share-based compensation.
• Interest expense of $50 million to $52 million, excluding non-cash loan related costs.
• Income tax expense of $7 million to $9 million.
• Capital Expenditures include the completion of the seven guestroom renovation projects commenced during the fourth quarter of 2017 and guestroom renovation projects at Marriott Dallas City Center and Hotel Monaco Chicago beginning in 2018. Also included are substantial meeting space renovations at the Westin Galleria Houston and Marriott Woodlands Waterway Hotel & Convention Center.
• In addition, substantial capital expenditures are planned for Hyatt Regency Grand Cypress throughout 2018, consisting of the renovation of all guestrooms, including 36 newly-created suites which were recently converted from 72 guestrooms, and the planning and commencement of construction of a new 25,000 square foot ballroom.

"In 2018, we expect to grow both Adjusted EBITDA and Adjusted FFO per share, driven by the strong earnings of our recent acquisitions, higher performance at recently-renovated hotels, and continued smart capital allocation.  As we look farther ahead, we believe the momentum will continue as we see continued lift in performance of recently acquired hotels through our robust asset management program, post-renovation ramp-up at recently-renovated hotels, and continued outperformance of many of our markets relative to those of our peers.  Consistent with our strategy, the moves we have made to refine the quality of the portfolio are expected to lead to a better earnings profile in terms of growth and quality in the years ahead," commented Atish Shah, Chief Financial Officer of Xenia.

Fourth Quarter 2017 Earnings Call

The Company will conduct its quarterly conference call on Tuesday, February 27, 2018 at 11:00 AM eastern time. To participate in the conference call, please dial (855) 656-0921. Additionally, a live webcast of the conference call will be available through the Company's website, www.xeniareit.com. A replay of the conference call will be archived and available online through the Investor Relations section of the Company's website for 90 days.

About Xenia Hotels & Resorts, Inc.

Xenia Hotels & Resorts, Inc. is a self-advised and self-administered REIT that invests primarily in premium full service and lifestyle hotels, with a focus on the top 25 U.S. lodging markets as well as key leisure destinations in the United States. The Company owns 39 hotels, including 37 wholly owned hotels, comprising 11,497 rooms, across 18 states and the District of Columbia. Xenia's hotels are primarily in the luxury and upper upscale segments, and operated and/or licensed by industry leaders such as Marriott®, Hyatt®, Kimpton®, Aston®, Fairmont®, Hilton®, and Loews®, as well as leading independent management companies including Sage Hospitality, The Kessler Collection, Urgo Hotels & Resorts, and Davidson Hotels & Resorts. For more information on Xenia's business, refer to the Company website at www.xeniareit.com.

This press release, together with other statements and information publicly disseminated by the Company, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and includes this statement for purposes of complying with these safe harbor provisions. Forward-looking statements are not historical facts but are based on certain assumptions of management and describe the Company's future plans, strategies and expectations. Forward-looking statements are generally identifiable by use of words such as "may," "could," "expect," "intend," "plan," "seek," "anticipate," "believe," "estimate," "guidance," "predict," "potential," "continue," "likely," "will," "would," "illustrative," references to "outlook" and "guidance," and variations of these terms and similar expressions, or the negative of these terms or similar expressions. Forward-looking statements in this press release include, among others, statements about our plans, strategies, the outlook for RevPAR growth, Net Income, Adjusted EBITDA, Adjusted FFO, Adjusted FFO per share, capital expenditures and derivations thereof, financial performance, prospects or future events. Such forward-looking statements are necessarily based upon estimates and assumptions that, while considered reasonable by us and our management, are inherently uncertain. As a result, our actual results, performance or achievements may differ materially from those expressed or implied by these forward-looking statements, which are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond the Company's control and which could materially affect actual results, performances or achievements. Factors that may cause actual results to differ materially from current expectations include, but are not limited to, (i) the Company's dependence on third-party managers of its hotels, including its inability to implement strategic business decisions directly, (ii) risks associated with the hotel industry, including competition, increases in wages, energy costs and other operating costs, actual or threatened terrorist attacks, downturns in general and local economic conditions and cancellation of or delays in the completion of anticipated demand generators, (iii) the availability and terms of financing and capital and the general volatility of securities markets, (iv) risks associated with the real estate industry, including environmental contamination and costs of complying with the Americans with Disabilities Act and similar laws, (v) interest rate increases, (vi) the possible failure of the Company to qualify as a REIT and the risk of changes in laws affecting REITs, (vii) the possibility of uninsured or underinsured losses, including those relating to natural disasters or terrorism, (viii) risks associated with redevelopment and repositioning projects, including delays and cost overruns, (ix) levels of spending in business and leisure segments as well as consumer confidence (x) declines in occupancy and average daily rate, (xi) the seasonal and cyclical nature of the real estate and hospitality businesses, (xii) changes in distribution arrangements, such as through Internet travel intermediaries, (xiii) relationships with labor unions and changes in labor laws, (xiv) the impact of changes in the tax code as a result of recent U.S. federal income tax reform and uncertainty as to how some of those changes may be applied, and (xv) the risk factors discussed in the Company's Annual Report on Form 10-K as updated in its Quarterly Reports.  Accordingly, there is no assurance that the Company's expectations will be realized. We caution you not to place undue reliance on any forward-looking statements, which are made only as of the date of this press release. We do not undertake or assume any obligation to update publicly any of these forward-looking statements to reflect actual results, new information or future events, changes in assumptions or changes in other factors affecting forward-looking statements, except to the extent required by applicable law. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

For further information about the Company's business and financial results, please refer to the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" sections of the Company's SEC filings, including, but not limited to, its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, copies of which may be obtained at the Investor Relations section of the Company's website at www.xeniareit.com.

All information in this press release is as of the date of its release. The Company undertakes no duty to update the statements in this press release to conform the statements to actual results or changes in the Company's expectations.

Availability of Information on Xenia's Website

Investors and others should note that Xenia routinely announces material information to investors and the marketplace using U.S. Securities and Exchange Commission (SEC) filings, press releases, public conference calls, webcasts and the Xenia Investor Relations website. While not all of the information that the Company posts to the Xenia Investor Relations website is of a material nature, some information could be deemed to be material. Accordingly, the Company encourages investors, the media, and others interested in Xenia to review the information that it shares at the Investor Relations link located on www.xeniareit.com. Users may automatically receive email alerts and other information about the Company when enrolling an email address by visiting "Email Alerts / Investor Information" in the "Corporate Overview" section of Xenia's Investor Relations website at www.xeniareit.com.

For additional information or to receive press releases via email, please visit our website at www.xeniareit.com.

Non-GAAP Financial Measures

The Company considers the following non-GAAP financial measures to be useful to investors as key supplemental measures of operating performance: EBITDA, Adjusted EBITDA, Same Property Hotel EBITDA, Same-Property Hotel EBITDA Margin, FFO, Adjusted FFO, and Adjusted FFO per diluted share.  These non-GAAP financial measures should be considered along with, but not as alternatives to, net income or loss, operating profit, cash from operations, or any other operating performance measure as prescribed per GAAP.

EBITDA and Adjusted EBITDA

EBITDA is a commonly used measure of performance in many industries and is defined as net income or loss (calculated in accordance with GAAP) excluding interest expense, provision for income taxes (including income taxes applicable to sale of assets) and depreciation and amortization, as well as similar adjustments for unconsolidated partnership and joint ventures.  The Company considers EBITDA useful to an investor regarding results of operations, in evaluating and facilitating comparisons of operating performance between periods and between REITs by removing the impact of capital structure (primarily interest expense) and asset base (primarily depreciation and amortization) from operating results, even though EBITDA does not represent an amount that accrues directly to common stockholders.  In addition, EBITDA is used as one measure in determining the value of hotel acquisitions and dispositions and along with FFO and Adjusted FFO, it is used by management in the annual budget process for compensation programs. The Company presents EBITDA attributable to common stock and unit holders, which includes its Operating Partnership units because its Operating Partnership units may be redeemed for common stock.  The Company believes it is meaningful for the investor to understand EBITDA attributable to all common stock and Operating Partnership units.

The Company further adjusts EBITDA for certain additional items such as hotel property acquisitions and pursuit costs, amortization of share-based compensation, the cumulative effect of changes in accounting principles, impairment of real estate assets, and other costs it believes do not represent recurring operations and are not indicative of the performance of its underlying hotel property entities.  The Company believes Adjusted EBITDA provides investors with another financial measure in evaluating and facilitating comparison of operating performance between periods and between REITs that report similar measures.

Same-Property Hotel EBITDA and Same-Property Hotel EBITDA Margin

Same-Property hotel data includes the actual operating results for all hotels owned as of the end of the reporting period.  We then adjust the Same-Property hotel data for comparability purposes by including pre-acquisition operating results of asset(s) acquired during the period, which provides the investor a basis for understanding the acquisition(s) historical operating trends and seasonality. The pre-acquisition operating results for the comparable period are obtained from the seller and/or manager of the hotels during the acquisition due diligence process and have not been audited or reviewed by our independent auditors.  We further adjust the Same-Property hotel data to remove dispositions during the respective reporting periods, and, in certain cases, hotels that are not fully open due to renovation, re-positioning, or disruption or whose room counts have materially changed during either the current or prior year as these historical operating results are not indicative of or expected to be comparable to the operating performance of our hotel portfolio on a prospective basis.

Same-Property Hotel EBITDA represents net income excluding: (1) interest expense, (2) income taxes, (3) depreciation and amortization, (4) corporate-level costs and expenses, (5) hotel acquisition costs, and (6) certain state and local excise taxes resulting from our ownership structure. We believe that Same-Property Hotel EBITDA provides our investors a useful financial measure to evaluate our hotel operating performance, excluding the impact of our capital structure (primarily interest), our asset base (primarily depreciation and amortization), income taxes, and our corporate-level expenses (corporate expenses and hotel acquisition costs). We believe property-level results provide investors with supplemental information on the ongoing operational performance of our hotels and the effectiveness of our third-party management companies that operate our business on a property-level basis. Same-Property Hotel EBITDA Margin is calculated by dividing Same-Property Hotel EBITDA by Same-Property Total Revenues.

As a result of these adjustments the Same-Property hotel data we present does not represent our total revenues, expenses, operating profit or net income and should not be used to evaluate our performance as a whole. Management compensates for these limitations by separately considering the impact of these excluded items to the extent they are material to operating decisions or assessments of our operating performance. Our consolidated statements of operations include such amounts, all of which should be considered by investors when evaluating our performance.

We include Same-Property hotel data as supplemental information for investors.  Management believes that providing Same-Property hotel data is useful to investors because it represents comparable operations for our portfolio as it exists at the end of the respective reporting periods presented, which allows investors and management to evaluate the period-to-period performance of our hotels and facilitates comparisons with other hotel REITs and hotel owners. In particular, these measures assist management and investors in distinguishing whether increases or decreases in revenues and/or expenses are due to growth or decline of operations at Same-Property hotels or from other factors, such as the effect of acquisitions or dispositions.

FFO and Adjusted FFO

The Company calculates FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (NAREIT), which defines FFO as net income or loss (calculated in accordance with GAAP), excluding real estate-related depreciation, amortization and impairments, gains (losses) from sales of real estate, the cumulative effect of changes in accounting principles, similar adjustments for unconsolidated partnerships and joint ventures, and items classified by GAAP as extraordinary. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most industry investors consider presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. The Company believes that the presentation of FFO provides useful supplemental information to investors regarding operating performance by excluding the effect of real estate depreciation and amortization, gains (losses) from sales for real estate, impairments of real estate assets, extraordinary items and the portion of these items related to unconsolidated entities, all of which are based on historical cost accounting and which may be of lesser significance in evaluating current performance.  The Company believes that the presentation of FFO can facilitate comparisons of operating performance between periods and between REITs, even though FFO does not represent an amount that accrues directly to common stockholders.  The calculation of FFO may not be comparable to measures calculated by other companies who do not use the NAREIT definition of FFO or do not calculate FFO per diluted share in accordance with NAREIT guidance.  Additionally, FFO may not be helpful when comparing Xenia to non-REITs.  The Company presents FFO attributable to common stock and unit holders, which includes its Operating Partnership units because its Operating Partnership units may be redeemed for common stock.  The Company believes it is meaningful for the investor to understand FFO attributable to all common stock and Operating Partnership units.

The Company further adjusts FFO for certain additional items that are not in NAREIT's definition of FFO such as hotel property acquisition and pursuit costs, amortization of debt origination costs and share-based compensation, and other expenses it believes do not represent recurring operations.  The Company believes that Adjusted FFO provides investors with useful supplemental information that may facilitate comparisons of ongoing operating performance between periods and between REITs that make similar adjustments to FFO and is beneficial to investors' complete understanding of operating performance.

Adjusted FFO per diluted share

The Company calculates Adjusted FFO per diluted share by dividing the Adjusted FFO for the respective period by the diluted weighted average number of shares of common stock for the corresponding period.  The Company's diluted weighted average number of common shares outstanding is calculated by taking the weighted average of the common stock outstanding for the respective period plus the effect of any dilutive securities.  Any anti-dilutive securities are excluded from the diluted earnings per-share calculation.