Executive Summary / Key Takeaways

• Xenia Hotels is executing a strategic portfolio transformation that improves asset quality while reducing capital drag, highlighted by the $111 million sale of Fairmont Dallas (avoiding $80 million in near-term capex) and the $25 million land purchase at Hyatt Regency Santa Clara that eliminates ground lease escalation risk.
• The company's group business is demonstrating remarkable resilience, with 2026 group room revenue pace up 15% as of October 2025 and food & beverage revenues growing 10.9% year-to-date, driving margin expansion despite broader leisure demand softness.
• The Grand Hyatt Scottsdale transformation is performing to underwriting, delivering approximately 60% RevPAR growth in Q1 2025 and on track for low $20 million EBITDA in 2025, providing visible earnings growth that offsets macro headwinds.
• Xenia's self-advised structure and strong balance sheet (4.5x leverage, $673 million liquidity) create optionality to pursue counter-cyclical investments while peers face more constrained capital allocation decisions.
• Key risks include continued leisure demand normalization, execution risk on the W Nashville F&B reconcepting, wage pressure in Northern California markets, and the company's smaller scale relative to major lodging REIT peers, which limits bargaining power and diversification.

Setting the Scene: A Self-Advised REIT Redefining Portfolio Quality

Xenia Hotels & Resorts, a Maryland corporation established in 2015, operates as a self-advised and self-administered real estate investment trust that invests in uniquely positioned luxury and upper upscale hotels and resorts. The company focuses primarily on the top 25 lodging markets and key leisure destinations across the United States, owning 30 properties as of September 30, 2025. Unlike many lodging REITs that rely on external management, Xenia's self-advised structure aligns management directly with shareholders, enabling nimble capital allocation and faster decision-making on asset acquisitions and dispositions.

The business model is straightforward yet distinct: Xenia owns hotel properties and leases them to its taxable REIT subsidiaries, which then engage third-party operators—industry leaders including Marriott (MAR), Hyatt (H), Hilton (HLT), and Fairmont—to manage day-to-day operations. This structure allows Xenia to focus on asset-level strategy, capital investment, and portfolio composition while leveraging operator expertise for property management. The company aggregates its hotels into one reportable segment: Investment in Hotel Properties, deriving revenue from rooms (56% of year-to-date revenue), food & beverage (35%), and other ancillary services (9%).

The lodging industry in 2025 faces a challenging operating environment characterized by macroeconomic uncertainty, inflationary pressures, and fluctuating interest rates. Industry demand decreased 0.6% in Q3 2025 while new supply increased 0.9%, creating a supply-demand imbalance that pressured RevPAR down 1.4% industry-wide. However, structural tailwinds exist for higher-end hotels: annual U.S. lodging supply growth for luxury and upper-upscale properties is projected to fall from 1.5% to just 0.2% by 2028, creating the most favorable supply backdrop for top-tier assets in two decades. This supply constraint benefits Xenia's portfolio positioning, as 100% of its hotels are classified as luxury or upper-upscale by STR.

Strategic Differentiation: Asset Management as Competitive Advantage

Xenia's core competitive advantage lies in its active portfolio management strategy, which treats hotels as tradable assets rather than permanent holdings. This approach enables the company to continuously upgrade portfolio quality, recycle capital from mature properties, and redeploy into higher-growth opportunities. The self-advised structure is critical here—without external advisor fees or bureaucratic delays, Xenia can execute transactions quickly when opportunities arise.

The Grand Hyatt Scottsdale transformation exemplifies this strategy's power. The $150 million renovation and upbranding of the former Hyatt Regency Scottsdale Resort and Spa, completed in phases through early 2025, repositioned the asset from a transient-focused resort to a group-oriented luxury destination. The expanded Arizona ballroom, completed in January 2025, allows the property to capture larger group events, fundamentally shifting its revenue mix toward higher-margin banquet and catering revenues. In Q2 2025, the resort achieved its highest banquet and catering revenues on record for June, with group market share exceeding fair share for the first time post-renovation. This performance validates the capital allocation decision: Scottsdale's RevPAR grew approximately 60% in Q1 2025 compared to Q1 2024, and the property is on track to deliver low $20 million EBITDA in 2025, low $30 million in 2026, and ultimately stabilize at a target that management previously indicated would exceed $40 million.

The W Nashville F&B reconcepting represents another strategic capital deployment. Xenia is investing $9 million to partner with Jose Andres Group, transforming the hotel's food and beverage outlets into concepts including Zaytinya (Eastern Mediterranean), Bar Mar (coastal seafood), and Butterfly (high-energy rooftop bar). This investment is projected to add $3-5 million in hotel EBITDA upon stabilization, potentially pushing the property above $20 million in annual EBITDA from previous mid-teen levels. The staggered rollout beginning Q4 2025 minimizes operational disruption while capturing Nashville's robust leisure and group demand.

These investments contrast sharply with the company's strategic dispositions. The April 2025 sale of Fairmont Dallas for $111 million generated an 11.3% unlevered IRR over a 14-year hold period while avoiding an estimated $80 million in near-term capital expenditures and significant operational disruption. This decision reflects disciplined capital recycling: the property's age and capital needs made it a drag on portfolio growth, while the proceeds can be redeployed into higher-return opportunities or returned to shareholders. Similarly, the March 2025 acquisition of the fee simple interest in the land underlying Hyatt Regency Santa Clara for $25 million eliminated the risk of significant future ground lease escalations, enhancing long-term asset value and providing operational flexibility.

Financial Performance: Group Strength Offsetting Leisure Softness

Xenia's financial results in 2025 demonstrate the resilience of its group-focused strategy amid leisure demand normalization. For the nine months ended September 30, 2025, total revenues increased 4.6% to $812.9 million, driven by a 10.9% increase in food & beverage revenues and 12.9% growth in other revenues, while rooms revenues declined 0.2%. This revenue mix shift is intentional and beneficial: group business generates higher-margin F&B spend, and the company's investments in meeting space and catering capabilities are paying dividends.

Same-property RevPAR performance reveals the portfolio's underlying strength. While Q3 2025 RevPAR was essentially flat year-over-year due to a 100 basis point occupancy decline offset by 1.6% ADR growth, this headline masks significant variation. Excluding Houston assets—which faced tough comparisons from hurricane-related demand in Q3 2024—same-property RevPAR increased 0.9%, driven by Grand Hyatt Scottsdale's outsized growth. For the first nine months of 2025, same-property RevPAR increased 3.7%, with total RevPAR up 8.5%, reflecting strong non-rooms revenue growth.

Hotel EBITDA margins tell a more complete story. Year-to-date same-property Hotel EBITDA of $205.4 million increased 12.6% above 2024 levels, with margins expanding 101 basis points to 25.9%. This expansion is entirely attributable to Scottsdale's performance: excluding the resort, year-to-date EBITDA increased 3.9% and margins were essentially flat. Q3 margins compressed 60 basis points to 19.9% as Scottsdale's ramp-up was offset by broader leisure softness and wage pressures, particularly in Northern California markets where operators struggle to stay ahead of cost inflation.

The group business trajectory remains the most compelling financial narrative. Same-property group room revenues increased 3.7% year-to-date, driven by 80 basis points higher occupancy and 2.4% ADR growth. Q2 performance was particularly strong, with group room revenues up 15.6% and banquet revenue growing nearly 20%, contributing to a 269 basis point margin expansion. As of October 31, 2025, group room revenue pace for 2026 was up approximately 15% compared to the same time last year, with 35% of group room nights already on the books. Management believes the group segment can ultimately reach the high-30% range of rooms revenue, up from current levels, providing a durable growth driver.

Balance Sheet and Capital Allocation: Optionality in Uncertain Times

Xenia's balance sheet strength provides a critical competitive advantage in the current environment. As of September 30, 2025, the company had $1.4 billion of debt outstanding at a weighted-average interest rate of 4.2%, with 25% variable rate exposure that is largely hedged.

Leverage stands at 4.5x net debt to EBITDA, below the company's long-term target of low-3x to low-4x, providing capacity for opportunistic investments. Debt maturities are well-laddered with a 3.5-year weighted average duration, and the company intends to pay off a mortgage loan maturing in March 2026 with cash on hand.

Liquidity is robust at $673 million, comprising $188.2 million of unrestricted cash and a fully available $500 million revolving credit facility. This financial flexibility enabled the company to repurchase 6.66 million shares year-to-date through September 30, 2025, at an average price of $12.59, reducing share count by approximately 6.5%. The self-advised structure allows management to act decisively on repurchases when shares trade at a significant discount to asset value, as they believe is currently the case.

Capital expenditure discipline is evident in the revised 2025 guidance. Management now expects to spend $75-85 million on property improvements, a $25 million reduction from previous guidance, reflecting both the Fairmont Dallas sale and a proactive response to potential tariff impacts on internationally sourced goods. This demonstrates the agility of Xenia's capital allocation framework—when macro uncertainty rises, the company can defer non-essential projects without compromising core growth drivers like Scottsdale and W Nashville.

Outlook and Guidance: Visible Growth Amid Macro Caution

Management's guidance for full-year 2025 reflects cautious optimism grounded in portfolio-specific drivers. The company expects same-property RevPAR to increase 4% at the midpoint, with adjusted EBITDAre of $254 million. This represents a modest reduction from prior guidance, with the bottom end lowered by 100 basis points to reflect increased macroeconomic uncertainty. The implied second-half RevPAR growth of approximately 3.6% at the midpoint reflects a flattish summer followed by better growth in the fall, again driven by Scottsdale.

The Grand Hyatt Scottsdale remains the primary earnings growth engine. Management expects the property to achieve low $20 million EBITDA in 2025, consistent with underwriting, and low $30 million in 2026 as it approaches stabilization. Group revenue on the books for the remainder of 2025 already exceeds actualized 2019 levels (the underwriting base year), with over 80% of expected group room revenue for the balance of the year definite as of Q1 2025. This visibility provides confidence in the ramp-up trajectory.

The W Nashville F&B reconcepting, scheduled for completion in the first half of 2026, represents another visible growth driver. The $9 million investment is projected to add $3-5 million in hotel EBITDA upon stabilization, with Jose Andres Group concepts expected to capture both local demand and group catering revenue. Modifications will proceed in a staggered approach to minimize disruption, demonstrating operational discipline.

Looking to 2026, management expects group demand to remain robust and drive outsized non-room revenue growth. Approximately 35% of group room nights are already on the books, with group revenue pace up in the mid-teens percentage range inclusive of Scottsdale. Strong citywide convention demand is anticipated in several markets, including Pittsburgh. The company also expects non-rooms revenue growth to outpace rooms revenue growth again in 2026, continuing the favorable mix shift that supports margin expansion.

Risks and Asymmetries: What Could Break the Thesis

The most material risk to Xenia's investment thesis is a sustained downturn in leisure demand, which represents a significant portion of portfolio revenues despite the group focus. Management has consistently noted that leisure demand softened in 2025 as anticipated, normalizing from post-2022 peaks. While higher-end segments have been less severely impacted, continued macroeconomic uncertainty could pressure occupancy and ADR, particularly in resort markets. The company's geographic diversification with a Sunbelt focus provides some insulation, but a broad consumer spending pullback would inevitably impact results.

Execution risk on the Grand Hyatt Scottsdale ramp-up remains a near-term concern. While performance has met underwriting expectations through Q3 2025, the property is still in its stabilization phase and faces tough comparisons as it laps renovation-related disruptions. Any slowdown in group bookings or F&B revenue growth at Scottsdale would materially impact portfolio-level results, given the property's outsized contribution to EBITDA growth. Management's guidance that the property will take three years to fully stabilize implies continued execution risk through 2026.

Wage inflation, particularly in Northern California markets, poses a persistent margin headwind. Barry Bloom noted on the Q2 2025 earnings call that wage pressures in San Francisco and Santa Clara have continued more so than in other markets, making it tough to stay ahead of cost pressures despite increasing EBITDA. With labor representing a significant portion of hotel operating expenses, sustained wage growth could compress margins even if revenue growth remains positive.

The company's smaller scale relative to peers like Host Hotels & Resorts (HST) (43,000 rooms) and Park Hotels & Resorts (PK) (25,000 rooms) limits bargaining power with operators and suppliers, resulting in higher per-room operating costs. This scale disadvantage becomes more pronounced during economic downturns when larger peers can leverage their size to capture market share and negotiate better terms. Xenia's focused strategy of owning 30 high-quality assets provides agility but sacrifices diversification benefits.

Finally, the dividend payout ratio of 96.43% based on TTM earnings leaves limited cushion for dividend growth if earnings disappoint. While management increased the quarterly dividend by 17% in Q1 2025, this aggressive payout ratio suggests the dividend is vulnerable to any sustained earnings pressure, which could impact total shareholder returns.

Competitive Context: Nimble Player in a Scale-Driven Industry

Xenia competes in a lodging REIT landscape dominated by larger, more diversified players. Host Hotels & Resorts, with over 80 properties and 43,000 rooms, leverages its scale to achieve higher RevPAR ($208 in Q3 2025) and more stable EBITDA performance. Host's Q3 2025 comparable hotel EBITDA of $309 million (down just 1.3% year-over-year) demonstrates superior resilience compared to Xenia's 4.6% adjusted EBITDAre decline, reflecting Host's greater diversification and negotiating power.

Park Hotels & Resorts, with approximately 40 hotels and 25,000 rooms, operates a similar upper-upscale/luxury strategy but with a heavier urban orientation. Park's Q3 2025 hotel adjusted EBITDA margin of 24.1% exceeds Xenia's 19.9%, highlighting the margin benefits of scale and geographic diversification. However, Xenia's leisure/resort focus provides better exposure to the post-pandemic travel recovery trends that have favored drive-to destinations and resort markets.

Pebblebrook Hotel Trust (PEB), with 46 lifestyle-oriented hotels, competes directly with Xenia in the boutique segment but faces higher capex needs and greater earnings volatility. Pebblebrook's Q3 2025 net loss of $32.4 million contrasts with Xenia's modest profitability, suggesting Xenia's branded portfolio strategy provides more stable cash flows than Pebblebrook's independent-heavy mix.

Sunstone Hotel Investors (SUI), with 18 urban-focused properties, demonstrates the benefits of concentration, achieving 140 basis points of margin expansion in Q3 2025 through cost controls. However, Sunstone's limited resort exposure (just 8,800 rooms total) means it cannot capture the leisure-driven revenue growth that Xenia's portfolio generates, as evidenced by Xenia's superior non-rooms revenue growth.

Xenia's key competitive advantage is its self-advised structure, which eliminates external management fees and aligns capital allocation with shareholder interests. This structure enabled the quick decision to sell Fairmont Dallas and acquire the Santa Clara land, transactions that might have taken quarters to execute under external management. The company's focused strategy of owning high-quality assets in top markets allows for nimbler renovations and faster responses to market shifts than larger peers can achieve.

Valuation Context: Discounted Quality with Visible Catalysts

At $13.46 per share, Xenia trades at an enterprise value to EBITDA multiple of 11.22x based on TTM results, a modest discount to Host (10.64x) and Park (11.99x) despite smaller scale. The price to operating cash flow ratio of 7.36x is attractive relative to peers, reflecting the market's caution around the company's leisure exposure and execution risk.

The dividend yield of 4.07% is competitive within the lodging REIT sector, though the 96.43% payout ratio raises questions about sustainability. Management's 17% dividend increase in Q1 2025 signals confidence in forward earnings, but any disappointment could force a dividend cut, impacting valuation. The company's debt-to-equity ratio of 1.17x is moderate, and the 4.5x leverage ratio provides flexibility for acquisitions or further share repurchases.

Trading at 1.08x book value, Xenia appears fairly valued on an asset basis, though management believes shares trade at a significant discount to private market value. The $83.8 million in share repurchases year-to-date through September 2025, at an average price of $12.59, suggests management views current levels as attractive. With $134.1 million remaining under the repurchase authorization, the company has capacity to continue buying back shares if disconnects persist.

The key valuation driver is the visibility of EBITDA growth from Scottsdale and W Nashville. If Scottsdale achieves its $30+ million EBITDA target in 2026 and W Nashville adds $3-5 million, the company's EBITDA could grow 15-20% even without portfolio expansion, making the current multiple appear conservative. However, this growth must be executed flawlessly to justify valuation, as any misstep would leave the company trading at a premium to peers without commensurate earnings power.

Conclusion: Execution at an Inflection Point

Xenia Hotels has positioned itself at a compelling inflection point where strategic portfolio transformation meets favorable industry dynamics. The company's active asset management—selling capital-intensive properties like Fairmont Dallas while investing in high-growth assets like Grand Hyatt Scottsdale and W Nashville—has created a higher-quality portfolio with visible earnings catalysts. The group business strength, evidenced by 15% pace growth for 2026 and robust F&B revenue increases, provides a durable growth driver that offsets leisure demand normalization.

The self-advised structure and strong balance sheet provide critical optionality, enabling Xenia to navigate macro uncertainty while maintaining capacity for opportunistic investments. Trading at a modest discount to peers with clear EBITDA growth visibility, the risk/reward profile appears attractive for investors willing to accept execution risk on key projects.

The thesis hinges on two variables: flawless execution of the Scottsdale ramp-up to underwriting projections, and successful stabilization of leisure demand in 2026. If Scottsdale delivers its $30+ million EBITDA target and group demand remains robust, Xenia's earnings growth should drive multiple expansion and dividend growth. However, any significant leisure demand deterioration or project execution missteps would expose the company's smaller scale and limited diversification, making the current valuation appear fully priced rather than discounted. For investors, monitoring quarterly Scottsdale performance and group booking trends will be critical to validating this portfolio transformation story.