Xenia Hotels & Resorts [XHR], a name synonymous with luxury and upscale hospitality, recently unveiled its Q1 2024 earnings transcript, offering a glimpse into the state of its expansive portfolio. While the headlines focused on the ongoing transformation of the Hyatt Regency Scottsdale and the continued recovery of group and business transient demand, a closer look at the W Nashville narrative reveals a story that might be flying under the radar. Could Xenia be deliberately downplaying the performance of this prized asset, masking a potential multi-million dollar earnings surge?

Xenia's narrative around W Nashville is one of cautious optimism. They acknowledge "cooling leisure demand" in Nashville, attributing it to the influx of new luxury hotels in recent years. However, they quickly pivot, emphasizing their strategic shift towards corporate transient and group segments, segments where W Nashville is already demonstrating strength. Barry Bloom, Xenia's President and COO, even goes so far as to suggest that the hotel is exceeding expectations on EBITDA and margin, a statement somewhat at odds with the narrative of leisure softness.

This discrepancy begs the question: is Xenia deliberately downplaying W Nashville's performance? Why the emphasis on "normalization" and "refinement" when underlying performance seems robust? One hypothesis is that Xenia is managing expectations. After all, the initial stabilization targets for W Nashville proved overly optimistic, leading to a lengthening of the stabilization timeline. By tempering expectations now, Xenia might be creating a buffer for even greater future upside surprises.

Here's where the numbers get particularly interesting. Atish Shah, EVP and CFO, reveals that W Nashville's group revenue pace for 2024 is up nearly 20% as of the end of January. He further notes that the hotel is experiencing 33% growth in group revenue, a remarkable feat considering the overall portfolio saw group room revenues (excluding Scottsdale) increase by just 8% during the same period. These figures strongly suggest that W Nashville is not just recovering, but thriving, within the group segment.

Furthermore, while Xenia acknowledges the impact of new luxury supply in Nashville, they also point to a potential offsetting factor: robust summer leisure demand, fueled by international travelers and domestic tourists opting for staycations. If this anticipated surge in leisure demand materializes, coupled with the already impressive group bookings, W Nashville could be poised for a significant earnings jump.

Analyzing Xenia's Portfolio Performance

Let's delve deeper into Xenia's portfolio performance by examining data from the Q1 2024 earnings call:

Source: https://seekingalpha.com/symbol/XHR

Projected EBITDA Upside

Let's consider the potential financial impact. Xenia estimates a $25 million EBITDA upside potential from renovations across their portfolio (excluding Scottsdale). This figure presumably includes some anticipated ramp-up from W Nashville, but the exact amount remains undisclosed. However, given the outsized group booking pace and the potential for a summer leisure boom, it's not unreasonable to hypothesize that W Nashville's contribution to this $25 million figure could be substantial, potentially in the range of $5 million to $10 million.

Hypothetical EBITDA Growth

The following chart illustrates a potential scenario for W Nashville's EBITDA growth, assuming a contribution of $7.5 million towards Xenia's estimated $25 million EBITDA upside:

While Xenia refrains from quantifying W Nashville's specific EBITDA upside, the hints are certainly there. The continued strength in group bookings, the potential for a summer leisure surge, and the already impressive margin performance all point to a hotel that is exceeding expectations. By downplaying this success, Xenia might be setting the stage for a dramatic unveiling of W Nashville's true earnings power, a revelation that could propel the company's overall performance beyond current estimates.

Remember, Nashville is known for its music. And the whispers coming from W Nashville are starting to sound like a very profitable melody. The question is, how loud will Xenia allow this music to play in the quarters to come?

"Fun Fact: The W Nashville, opened in 2021, is renowned for its unique design, which blends contemporary elegance with a touch of Southern charm. The hotel boasts a rooftop bar with panoramic city views, a state-of-the-art recording studio, and a vibrant art collection showcasing local talent."