Xenia Hotels & Resorts: A Valuable REIT Riding Macro and Sector Trends

Xenia Hotels & Resorts (NYSE:XHR) is poised to benefit from macroeconomic trends, sector recovery, and company-specific strengths. The ceasefire agreement between Israel and Iran, a general improvement in business conditions, and the company's acquisition of LaSalle Hotel Properties in 2019 are all expected to positively impact the company. Additionally, Xenia's focus on urban markets and its diverse portfolio of upscale and upper-upscale hotels position it well for recovery in the hospitality sector.

Xenia Hotels & Resorts (NYSE:XHR), a real estate investment trust (REIT) specializing in luxury and upper-scale hotels, is well-positioned to benefit from favorable macroeconomic trends, sector recovery, and company-specific strengths. The recent ceasefire agreement between Israel and Iran, coupled with improving business conditions and the company's strategic acquisitions, are expected to positively impact Xenia's performance. Additionally, the company's focus on urban markets and its diverse portfolio of upscale and upper-upscale hotels position it well for recovery in the hospitality sector.

At the macro level, the ceasefire agreement between Israel and Iran has reduced geopolitical risks, contributing to a more favorable market sentiment. The general expectation of interest rate cuts and a rebound in consumer sentiment have further bolstered market confidence. At the sector level, occupancy rates are trending higher, nearing pre-pandemic levels. Xenia's occupancy rates have rebounded significantly, from 47.7% in 2021 to 69.3% in Q1 2025, indicating the sector's strength and continued recovery despite weaker economic conditions and lower consumer sentiment [1].

The company's strategic acquisition of LaSalle Hotel Properties in 2019 has also contributed to its growth. Xenia's portfolio has been diversified to include more luxury properties, increasing its appeal to leisure-oriented guests and boosting food and beverage revenue relevance. Successful renovations have further enhanced the company's performance, with significant investments in portfolio improvements bringing better-than-expected results. For instance, Adjusted EBITDA and Adjusted FFO per share grew by nearly 12% and 16%, respectively, in Q1 2025 compared to the same period in 2024 [1].

Looking ahead, the company is expected to benefit from the FIFA World Cup 2026, which will be hosted by the U.S., Canada, and Mexico. Xenia has direct exposure to 38 games, representing 40% of its EBITDA, and indirect exposure to other cities that are not on the World Cup calendar. This one-month tournament is expected to significantly increase hotel occupancy, average daily rate, and RevPAR, further boosting the company's performance [1].

Despite these positive developments, investors should be mindful of potential risks. The Israel-Iran conflict could escalate again, and other conflicts may start, impacting business travel and tourism. Additionally, Xenia is highly leveraged, with a net debt to EBITDA ratio of 5.4, and interest payments eat up 86% of its operating income. However, the company has a secure debt structure with maturities pushed further into the future and an undrawn $500 million line of credit available [1].

Xenia's financial projections for 2025 are cautious but optimistic. The company's midpoint FFO guidance is $148 million, with a full-year net income guidance of $56 million. However, Q1 2025 alone delivered $16.5 million in net income, and historical trends suggest that the company could reach around $40 million in full-year net income from operations, adding the expected gain on the sale of investment property would bring the total net income to about $79 million for FY 2025 [1].

In conclusion, Xenia Hotels & Resorts is poised to benefit from macroeconomic trends, sector recovery, and company-specific strengths. With a strong portfolio of luxury and upper-scale hotels, successful renovations, and strategic acquisitions, the company is well-positioned for growth in the coming years.

References:
[1] https://seekingalpha.com/article/4800056-xenia-hotels-resorts-undervalued-reit-with-macro-and-sector-tailwinds