Xenia Hotels & Resorts: A Defensive Growth Play in the Russell 2000

Institutional Momentum and Resilient REIT Profile Position XHR for Volatile Markets

The addition of Xenia Hotels & Resorts (XHR) to the Russell 2000 Growth-Defensive Index on March 24, 2025, marks a strategic inflection point for the luxury hospitality REIT. As a constituent of this subset of the Russell 2000 Index—which emphasizes companies with both growth potential and defensive traits—XHR is now squarely in the crosshairs of institutional investors seeking quality small-cap exposure. This move underscores the company's transition into a prime candidate for passive fund inflows, while its focus on premium hospitality assets positions it as a defensive play in an uncertain economic environment.

The Institutional Accumulation Catalyst

The Russell 2000 Growth-Defensive Index addition is a powerful tailwind for XHR. With $2 trillion benchmarked to Russell indexes, the reconstitution process triggers automatic buying from passive funds tracking the index. This dynamic, combined with the stock's inclusion in the broader Russell 2000 reconstitution on June 27, 2025, has already driven notable interest.

The chart above highlights XHR's outperformance of the Russell 2000 since its index inclusion. This is no accident: defensive growth stocks with strong balance sheets are precisely what institutional investors seek in volatile markets. XHR's $613 million liquidity, disciplined capital allocation, and 17% dividend hike in Q1 2025 (to $0.14/share) align with the defensive growth mandate, making it a natural fit for the index.

Financial Fortitude Amid Macroeconomic Uncertainty

XHR's Q1 2025 results reveal a company thriving in a challenging environment:
- Net income rose 83% to $15.6 million, while Adjusted EBITDAre increased 12% to $72.9 million.
- Same-property occupancy hit 69.3%, with RevPAR up 6.3% to $188.73, signaling robust demand for its luxury and upper-upscale properties.
- Strategic asset moves, including the $25 million acquisition of land underlying Hyatt Regency Santa Clara and the $111 million sale of Fairmont Dallas, demonstrate capital discipline.

Despite these positives, XHR reduced its 2025 guidance due to macroeconomic risks. Full-year RevPAR growth is now projected at 2.5%–6.5% (down from prior expectations), and capital expenditures have been cut by $25 million to $75–85 million. However, the $180 million remaining under its share repurchase program and a strong dividend yield of 4.2% (well above the REIT average of ~3.5%) provide a buffer against volatility.

Valuation: A Discounted Growth REIT with Defensive Traits

XHR trades at a P/FFO multiple of 12.8x, below its five-year average of 14.5x and significantly cheaper than the S&P 500 REIT Index (15.2x). This discount reflects near-term macro concerns but overlooks XHR's long-term advantages:
- Premium brand exposure: 30 hotels in 14 states, including Marriott's Ritz-Carlton and Hyatt's Andaz, which command pricing power.
- Debt management: Net debt/EBITDA improved to 5.8x in Q1, down from 6.2x in 2024, signaling improved financial flexibility.

The dividend yield comparison (above) shows XHR's appeal as a high-yield defensive REIT, a rare combination in an asset class often seen as growth-oriented.

Investment Thesis: Buy the Dip, Hold for Dividends and Liquidity

The Russell 2000 Growth-Defensive inclusion positions XHR as a “best-in-class” small-cap REIT with defensive traits. Institutional flows post-reconstitution should support the stock, while its dividend and liquidity provide downside protection.

Risks:
- Economic slowdown: Luxury demand could weaken if recession fears materialize.
- Supply chain costs: Tariffs and labor shortages may pressure margins.

Recommendation:
- Buy: For investors seeking yield and capital appreciation, XHR's valuation and defensive profile make it a compelling addition to a diversified portfolio.
- Hold: For those focused on macro risks, wait for further clarity on occupancy trends post-Q3.

In a market grappling with uncertainty, XHR's blend of premium hospitality exposure, disciplined capital strategy, and Russell-driven institutional momentum makes it a standout play in the small-cap defensive space.

Final Note: Monitor Russell reconstitution-related inflows and Q3 RevPAR trends to gauge near-term momentum.

Data as of June 19, 2025. Always consult a financial advisor before making investment decisions.