Xenia Hotels: The Hottest Way To Play U.S. Lodging?

• Xenia Hotels & Resorts, Inc. XHR has seen a 16.73 percent decline in its share price over the last six months, hitting a low of $17.35 on September 29.
• Morgan Stanley’s Thomas Allen has upgraded the rating on the company to Overweight, with a price target of $22.
• Allen believes that the selloff in the stock was overdone and that robust RevPAR growth was sustained through 3Q, while mentioning that Xenia Hotels offers value that is “hard to ignore.”

Analyst Thomas Allen explained that Lodging stocks have declined about 14 percent year to date, despite robust RevPAR growth and unchanged consensus EBITDA expectations for 2015/2016.

According to the Morgan Stanley report, investors have expressed concern regarding the increasing risk due to Airbnb, the recession in the emerging markets and weakening fundamentals of the US Lodging industry.

However, Allen explained that analysis suggests that “Airbnb is not having a meaningful impact on the industry.” Also with a majority of the Lodging stocks generating over 5 percent of their earnings from North America and from Americans, any recession in the emerging market was unlikely to significantly impact this industry.

RevPAR growth, on a two year basis, has been sustained at about 15 percent over the last three quarters, with the potential for acceleration in 4Q15, due to the holiday season.
Allen also mentioned that while Xenia Hotels has high exposure to Houston, it has no exposure to NYC. In addition, the company has recently revised its guidance.

“Key catalyst in 4Q15 / 1H16 includes accelerating fundamentals from 1) lapping major renovations, 2) lapping earthquake disruption, and 3) benefiting from the Super Bowl in Santa Clara,” Allen added.