Grand Hyatt Scottsdale Rebranding Will Elevate Future Portfolio Competitiveness

Key Takeaways

• The Grand Hyatt Scottsdale's rebranding and expansion are key strategies expected to drive higher RevPAR and bolster Xenia's earnings and margins.
  
• Strong group bookings and strategic capital investments enhance portfolio competitiveness, supporting revenue growth and financial flexibility for future acquisitions.
  
• External disruptions and internal challenges, including hurricanes and renovations, are pressuring Xenia Hotels & Resorts' revenue growth, profitability, and future earnings outlook.

Catalysts

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.

• The completion and rebranding of the Grand Hyatt Scottsdale Resort is expected to significantly enhance the guest experience and drive substantial year-over-year RevPAR gains, positioning it as a driver for the company's earnings growth in the coming years. This could lead to increased revenue and EBITDA contributions from the property.
  
• The expansion of the new ballroom and pre-function space at the Grand Hyatt Scottsdale is anticipated to attract more group bookings at higher rates, with 2025 group bookings already at rates over 35% higher than 2019 levels, potentially boosting occupancy and ADR leading to improved revenue and margins.
  
• Group and corporate transient demand continue to be strong across the portfolio, with future group business bookings for 2025 up nearly 20%, which is expected to mitigate leisure demand normalization and support overall RevPAR growth and earnings stability.
  
• Continued investment in strategic capital expenditure projects, including renovations at several hotels and significant infrastructure upgrades, is expected to enhance the quality and competitiveness of the portfolio, potentially driving higher occupancy and ADR, which will support revenue and profitability growth.
  
• The extended and upsized corporate credit facility increases financial flexibility, allowing Xenia to pursue strategic acquisitions and capital recycling opportunities, potentially leading to portfolio growth and increased earnings.

Xenia Hotels & Resorts Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Xenia Hotels & Resorts's revenue will grow by 3.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.3% today to 2.5% in 3 years time.
• Analysts expect earnings to reach $29.0 million (and earnings per share of $0.26) by about December 2027, up from $24.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $21.1 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 79.3x on those 2027 earnings, up from 67.6x today. This future PE is greater than the current PE for the US Hotel and Resort REITs industry at 19.0x.
• Analysts expect the number of shares outstanding to grow by 3.07% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.58%, as per the Simply Wall St company report.

Xenia Hotels & Resorts Future Earnings Per Share Growth

Risks

• The impact of Hurricanes Debby, Francine, Helene, and Milton negatively affected demand at many of the company's properties, leading to a decline in revenue and expected EBITDA, which could impact future earnings.
  
• The company's third-quarter results came in below expectations due to softer leisure demand, renovation disruptions, and hurricane impacts, which could affect revenue growth and profitability.
  
• Renovation disruptions, particularly at Grand Hyatt Scottsdale, have been greater than projected, impacting guest experiences and delaying potential revenue recovery and margin improvement.
  
• The company has lowered its guidance for full-year adjusted EBITDAre and RevPAR growth, reflecting hurricane impacts, renovation-related revenue disruptions, and ongoing challenges in managing costs versus revenue, which could continue to pressure earnings.
  
• Leisure demand normalization and significant expense pressures, despite moderating, have contributed to a margin decline and could further erode net margins if these trends persist.

Valuation

• The analysts have a consensus price target of $16.21 for Xenia Hotels & Resorts based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $18.0, and the most bearish reporting a price target of just $12.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $1.1 billion, earnings will come to $29.0 million, and it would be trading on a PE ratio of 79.3x, assuming you use a discount rate of 8.6%.
• Given the current share price of $15.95, the analyst's price target of $16.21 is 1.6% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.