Sunbelt Risks And Subdued Travel Will Hinder Hotel Prospects

Published
11 May 25
Updated
23 Jul 25
AnalystLowTarget's Fair Value
US$12.00
9.5% overvalued intrinsic discount
23 Jul
US$13.14
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1Y
1.8%
7D
3.1%

Author's Valuation

US$12.0

9.5% overvalued intrinsic discount

AnalystLowTarget Fair Value

Key Takeaways

  • Shifts in travel behavior, alternative lodging growth, and economic volatility threaten demand, pricing, and earnings for Xenia’s urban and luxury hotel portfolio.
  • Rising climate risks, insurance, and renovation costs will reduce margins, elevate capital expenditure needs, and constrain long-term cash flow and returns.
  • Disciplined asset management, strong demand, targeted renovations, and robust financial flexibility position the company for sustained revenue growth, margin expansion, and enhanced shareholder returns.

Catalysts

About Xenia Hotels & Resorts
    A self-advised and self-administered REIT that invests in uniquely positioned luxury and upper upscale hotels and resorts with a focus on the top 25 lodging markets as well as key leisure destinations in the United States.
What are the underlying business or industry changes driving this perspective?
  • The ongoing shift in business travel patterns, including persistent reductions in corporate travel budgets and the normalization of remote work, is likely to structurally suppress demand for Xenia’s core urban and group-focused hotel assets, which will lead to stagnant or declining RevPAR and create pressure on long-term revenue growth.
  • Intensifying climate risks—such as extreme weather events that already impacted Q1 results in key Sunbelt markets—will lead to rising insurance costs and force larger capital expenditures for property repairs and upgrades, reducing operating margins and squeezing free cash flow over the long run.
  • The steady increase in alternative lodging options, such as Airbnb and Vrbo, will continue to erode pricing power and occupancy rates for Xenia’s upscale and luxury hotels, especially in leisure-focused destinations, which points to declining average daily rates and weaker earnings growth ahead.
  • Xenia’s heavy focus on premium urban markets subjects it to amplified vulnerability during economic downturns, with higher volatility and a greater risk of significant declines in net operating income and margins as seen in prior recessionary environments.
  • Maintaining luxury positioning will require above-average ongoing renovation and maintenance, but higher labor costs, supply chain uncertainty, and new tariffs on imported goods could escalate capital expenditures, resulting in declining return on investment and persistent downward pressure on free cash flow and long-term earnings.

Xenia Hotels & Resorts Earnings and Revenue Growth

Xenia Hotels & Resorts Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?
  • This narrative explores a more pessimistic perspective on Xenia Hotels & Resorts compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
  • The bearish analysts are assuming Xenia Hotels & Resorts's revenue will grow by 1.7% annually over the next 3 years.
  • The bearish analysts assume that profit margins will shrink from 2.1% today to 1.3% in 3 years time.
  • The bearish analysts expect earnings to reach $14.0 million (and earnings per share of $0.13) by about July 2028, down from $22.8 million today. The analysts are largely in agreement about this estimate.
  • In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 104.7x on those 2028 earnings, up from 57.8x today. This future PE is greater than the current PE for the US Hotel and Resort REITs industry at 28.3x.
  • Analysts expect the number of shares outstanding to decline by 3.2% per year for the next 3 years.
  • To value all of this in today's terms, we will use a discount rate of 9.11%, as per the Simply Wall St company report.

Xenia Hotels & Resorts Future Earnings Per Share Growth

Xenia Hotels & Resorts Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?
  • Robust group and corporate demand, including double-digit RevPAR growth at a third of the portfolio in Q1 2025 and a group room revenue pace for the remainder of the year exceeding 2019 levels, suggests strong long-term revenue momentum and resilience in high-margin guest segments.
  • The company’s disciplined capital allocation—demonstrated by the strategic sale of Fairmont Dallas to avoid disruptive renovations and the acquisition of fee simple interest in key assets—improves portfolio quality, reduces risk, and preserves net margins while enhancing long-term asset value.
  • Continued transformational renovations and upgrades at flagship properties, such as the Grand Hyatt Scottsdale, have resulted in outsized RevPAR and guest satisfaction gains, supporting elevated room rates and strengthening competitive positioning, which is likely to drive higher earnings and improved operating margins.
  • Strong expense management, low exposure to labor and utility cost inflation due to infrastructure investments, and effective control of operating expenses have resulted in Q1 EBITDA margin improvements, pointing to sustainable margin expansion and earnings growth potential.
  • A well-capitalized balance sheet with significant liquidity, a favorable debt maturity profile with limited near-term obligations, and active share repurchases and a recent dividend increase equip Xenia to pursue opportunistic acquisitions, weather downturns, and enhance shareholder returns through both free cash flow and NAV accretion.

Valuation

How have all the factors above been brought together to estimate a fair value?
  • The assumed bearish price target for Xenia Hotels & Resorts is $12.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Xenia Hotels & Resorts's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  • However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $16.0, and the most bearish reporting a price target of just $12.0.
  • In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $1.1 billion, earnings will come to $14.0 million, and it would be trading on a PE ratio of 104.7x, assuming you use a discount rate of 9.1%.
  • Given the current share price of $13.34, the bearish analyst price target of $12.0 is 11.2% lower.
  • We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

How well do narratives help inform your perspective?

Disclaimer

AnalystLowTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystLowTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystLowTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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