Executive Summary / Key Takeaways

• Xenia Hotels & Resorts is executing a focused strategy to enhance portfolio quality and drive earnings growth through targeted capital investments and disciplined asset recycling, positioning the company to outperform in the luxury and upper upscale lodging segments.
• The transformative renovation and up-branding of the Grand Hyatt Scottsdale is nearing completion, expected to be a significant catalyst for future RevPAR and EBITDA growth, particularly by attracting higher-rated group business with expanded meeting facilities.
• Recent strategic transactions, including the acquisition of the Hyatt Regency Santa Clara land and the sale of the Fairmont Dallas, demonstrate prudent capital allocation aimed at reducing risk, improving optionality, and avoiding costly, disruptive renovations while enhancing overall portfolio quality.
• Despite macroeconomic uncertainty and moderating leisure demand, the company's Q1 2025 results exceeded expectations, driven by strong group business, recovering corporate transient demand, and the initial ramp-up at Scottsdale, supporting management's positive outlook for the balance of the year.
• A strong balance sheet, ample liquidity including a $500 million undrawn credit facility, and a favorable debt maturity profile provide financial flexibility to pursue strategic opportunities, manage capital expenditures, and return capital to shareholders through dividends and share repurchases.

A Foundation Built on Strategic Asset Management

Xenia Hotels & Resorts, Inc. operates as a self-advised and self-administered real estate investment trust, specializing in the ownership of uniquely positioned luxury and upper upscale hotels and resorts. The company strategically focuses its investments within the top 25 lodging markets and key leisure destinations across the United States. This targeted approach, refined over its history since its formation as a REIT in 2015, underpins a core strategy centered on maximizing revenue and profits from its properties, enhancing portfolio value, and generating predictable cash flow for shareholders.

The company's business model leverages a REIT structure where properties are leased to a taxable REIT subsidiary (TRS), which in turn engages independent third-party managers to handle day-to-day hotel operations. This structure allows Xenia to maintain operational oversight while adhering to REIT requirements. As of March 31, 2025, Xenia owned 31 hotels and resorts comprising 9,413 rooms across 14 states, managed or licensed by leading industry brands such as Marriott, Hyatt, Fairmont, Kimpton, Loews, Hilton, and The Kessler Collection.

Within the competitive landscape, Xenia operates alongside other lodging REITs like Sunstone Hotel Investors (SHO) and major global hotel operators such as Marriott International (MAR), Hilton Worldwide (HLT), and Hyatt Hotels (H). While larger operators like Marriott and Hilton possess vast global scale and extensive brand portfolios, Xenia carves out its niche through a focused portfolio of high-quality assets in prime U.S. locations. Xenia's self-advised REIT structure offers potential advantages in operational control and cost efficiency compared to purely franchised models, allowing for potentially streamlined property management decisions. However, larger competitors are often noted for faster technology adoption and broader digital initiatives, a dynamic Xenia navigates by leveraging the technology platforms provided by its major brand partners and focusing its own capital expenditures on asset-level enhancements that improve the guest experience and operational capabilities. Against fellow REITs like Sunstone, Xenia's larger portfolio size can provide certain economies of scale. The industry also faces indirect competition from alternative lodging options like short-term rentals, which can impact leisure segments, and is influenced by broader macroeconomic trends, supply chain dynamics, and labor costs. High capital requirements and regulatory hurdles act as significant barriers to entry, supporting the positioning of established players like Xenia.

While Xenia does not highlight proprietary, differentiated technology as a core moat in the same vein as a tech company, its strategic capital allocation includes significant investment in property improvements and infrastructure. These investments enhance the physical product and operational efficiency, indirectly leveraging the technological capabilities embedded within the major hotel brands' systems (e.g., reservation systems, loyalty programs, on-property technology). The company's focus is on optimizing the performance of its physical assets, supported by the technological frameworks of its brand partners, rather than developing its own distinct technological solutions.

Performance Reflecting Strategic Execution and Market Dynamics

Xenia's recent financial performance underscores the impact of its strategic initiatives and the evolving lodging market. The first quarter of 2025 marked a strong start to the year, with results exceeding management's expectations. The company reported net income of $15.6 million, Adjusted EBITDAre of $72.9 million, and Adjusted FFO per share of $0.51.

Top-line performance was robust, with total portfolio RevPAR increasing by 6.7% to $188.73 compared to the first quarter of 2024. This growth was fueled by increases in both occupancy (up 180 basis points to 69.3%) and average daily rate (up 3.6% to $272.41). The initial ramp-up of the Grand Hyatt Scottsdale following its substantial renovation completion was a significant contributor to this performance, alongside meaningful RevPAR growth across a third of the portfolio's assets, many achieving double-digit increases.

Revenue trends in Q1 2025 showed broad strength, with Rooms revenues up 4.4% to $159.9 million, Food and beverage revenues up 12.9% to $104.7 million, and Other revenues up 12.8% to $24.4 million, compared to Q1 2024. This top-line growth translated into strong profitability metrics at the property level, with same-property Hotel EBITDA increasing 10.5% to $79.2 million and the Hotel EBITDA margin expanding by 42 basis points to 27.4%.

Operating expenses, while still facing pressures from wage growth and inflation, showed signs of effective management by the company's operators. Total hotel operating expenses increased 6.8% to $195.5 million, largely correlated with increased occupancy and prior period renovation disruption. General and administrative expenses saw a notable decrease of 13.1% to $8.9 million, primarily due to timing of stock compensation expense recognition. Interest expense increased 3.4% to $21.1 million, reflecting higher average outstanding term loan debt and rising variable rates, partially offset by lower Senior Notes balances.

Looking back at the full year 2024, the portfolio achieved a RevPAR increase of 1.6%, significantly impacted by the disruption from the Scottsdale renovation. Excluding Scottsdale, 2024 RevPAR increased a more robust 3.4%, driven by occupancy gains. Full year 2024 Adjusted EBITDAre was $237.1 million and Adjusted FFO per share was $1.59. The Q1 2025 performance, particularly the strong RevPAR growth and initial Scottsdale ramp, indicates a positive trajectory building on the prior year's results, where Scottsdale was a headwind and is now becoming a tailwind.

Strategic Initiatives Driving Future Value

Xenia's strategic focus on enhancing its portfolio quality and driving earnings growth is evident in its recent capital allocation decisions and ongoing initiatives.

The most significant undertaking has been the transformative renovation and up-branding of the former Hyatt Regency Scottsdale Resort and Spa at Gainey Ranch. This approximately $150 million project, substantially completed by Q1 2025, involved comprehensive upgrades to guest rooms, public spaces, dining venues (including new restaurants in collaboration with Chef Richard Blais), and a crucial expansion of the Arizona Ballroom, which became available for groups in January 2025. This investment is expected to be a primary driver of future performance, enabling the resort to attract higher-rated group business and achieve significantly higher cash flow than its prior peak. Management notes encouraging signs, with group ADR for 2025 bookings pacing nearly 30% ahead of 2019 levels and production for the balance of 2025 increasing significantly.

Beyond Scottsdale, Xenia is actively managing its portfolio through disciplined transactions. In March 2025, the company acquired the fee simple interest in the land underlying the Hyatt Regency Santa Clara for $25.4 million. This strategic purchase eliminates the risk of potentially significant future ground lease escalations and fair market value adjustments, improving the long-term optionality and flexibility for this asset. This transaction means Xenia now owns the fee simple interest in all but one of its hotels, significantly limiting future ground lease exposure.

Following this, in April 2025, Xenia sold the 545-room Fairmont Dallas for $111 million. This decision was driven by the need to avoid an estimated $80 million in costly and disruptive near-term capital expenditures required at the 56-year-old property and the expected negative impact from the upcoming renovation of the Dallas Convention Center on this group-focused hotel. The sale, executed at an 8.6x EBITDA multiple and 10.0% cap rate (exclusive of the avoided CapEx), is viewed as a superior capital allocation decision that enhances portfolio quality by divesting an asset that trailed portfolio averages in RevPAR and EBITDA/key. The investment in Fairmont Dallas generated an unlevered IRR of 11.3% over the ownership period, highlighting the success of the initial acquisition and subsequent management. Net proceeds of $101.4 million from the sale provide additional flexibility for general corporate purposes, including debt repayment, potential acquisitions, or share repurchases.

Planned capital expenditures for 2025 reflect a more cautious stance, with guidance reduced by $25 million to a range of $75 million to $85 million. This reduction is partly due to avoiding planned CapEx at Fairmont Dallas and deferring projects like guestroom renovations at Andaz Napa and Ritz-Carlton Denver, allowing for reevaluation of scope, costs (potentially impacted by tariffs), and ROI in the current macroeconomic environment. Remaining projects focus on select guestroom/public area upgrades and essential infrastructure/facade work across multiple properties, designed to minimize disruption.

Shareholder returns remain a focus, with the company repurchasing 2.73 million shares for $35.8 million in Q1 2025, representing 2.7% of shares outstanding at year-end 2024. Approximately $82.1 million remains under the current authorization. The quarterly dividend was increased by 17% to $0.14 per share for Q1 2025, equating to an annualized yield of nearly 5% and a payout ratio over 50% of 2024 FAD, with an expectation to return to the mid-60% range over time.

Financial Strength and Outlook

Xenia maintains a strong balance sheet, providing a solid foundation for its strategic initiatives and resilience against potential headwinds. As of March 31, 2025, the company held $112.6 million in cash and cash equivalents and $69.5 million in restricted cash and escrows. Total liquidity, including the full $500 million availability under its Revolving Credit Facility (with no outstanding balance), stands at approximately $715 million, further bolstered by the net proceeds from the Fairmont Dallas sale in April 2025.

Total debt outstanding was $1.40 billion as of March 31, 2025, with a weighted-average interest rate of 5.67%. The debt structure is balanced, with roughly three-quarters fixed rate and one-quarter floating rate. The maturity profile is favorable, with no significant maturities until late 2028, and only about 10% of total debt maturing in 2026 and 2027. The corporate credit facility was successfully amended, restated, and upsized in November 2024, extending maturities to November 2028 and enhancing flexibility. The $100 million Delayed Draw Term Loan was funded in January 2025, providing additional working capital. Leverage, pro forma for the Fairmont Dallas sale, was 5.4 times trailing 12-month net debt to EBITDA, with a long-term target in the low 3 to low 4 times range, expected to decline as Scottsdale ramps up. The company successfully cured a debt covenant violation on one mortgage loan in Q1 2025 by depositing funds in escrow, demonstrating proactive management of its obligations.

Management's outlook for 2025 reflects a blend of optimism regarding asset-level performance and strategic benefits, tempered by increased macroeconomic uncertainty. The full year 2025 guidance, updated following Q1 results and the Fairmont Dallas sale, projects Adjusted FFO per diluted share of $1.62 at the midpoint and Adjusted EBITDAre of $248 million at the midpoint. Full year RevPAR growth is guided to 4.5% at the midpoint, with Grand Hyatt Scottsdale expected to contribute two-thirds of this growth (approximately 3%), while the rest of the portfolio is expected to moderate to 1.5% growth. The implied RevPAR growth for the balance of the year is a wider range of 1% to 7%, reflecting the uncertain environment. Management anticipates RevPAR growth will be driven more by occupancy than rate and expects strong non-rooms revenue growth. Hotel EBITDA margin is expected to increase by 50 basis points for the balance of 2025, driven by expense management and portfolio mix changes.

Key assumptions underpinning the outlook include continued strong group business (pace for balance of 2025 up 22%, 13% excluding Scottsdale), recovering business transient demand, and the successful ramp-up of Grand Hyatt Scottsdale (expected to reach low $20 million EBITDA range in 2025, low $30 million in 2026, and stabilized low $40 million range in 2027). However, management acknowledges potential headwinds from macroeconomic factors, including inflation, interest rates, and potential recession, which could impact demand and operating results. Risks also include geographical concentration in key markets, labor costs, supply chain issues, and the potential impact of tariffs on capital projects.

Conclusion

Xenia Hotels & Resorts is executing a clear and deliberate strategy focused on optimizing its high-quality portfolio through targeted investments and disciplined capital allocation. The successful transformative renovation of the Grand Hyatt Scottsdale is poised to be a significant earnings catalyst, while recent transactions like the Santa Clara land acquisition and Fairmont Dallas sale highlight a commitment to risk reduction and portfolio enhancement. Supported by a strong balance sheet, ample liquidity, and a favorable debt profile, Xenia is well-positioned to navigate the current uncertain macroeconomic environment. While challenges such as moderating leisure demand and expense pressures persist, the company's focus on resilient luxury and upper upscale segments, coupled with strong group business momentum and strategic asset management, provides a compelling investment thesis centered on embedded growth potential and value creation for shareholders. The updated 2025 guidance reflects a prudent outlook, balancing the expected benefits from strategic initiatives with potential market headwinds, suggesting a path towards continued earnings growth in the years ahead.