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It's a soft coral bud to be sure but I doubt from the Xenia. Looks more like a leather species of some sort, could actually be from the toadstool not too far away.
Was this rock ever home to a large leather that had to be fragged?
I am not sure where the rock came from origonaly. This rock was give to me by a friend who happens to own a LFS and it was in a coral tank. The Xenia grew there while in my tank. I will probably have to wait a while to see exactly what the bud is. It seems to be doing very well so it will probably mature (hopefully) I am sure its a million dollar coral