‘Hard to ignore headwinds’ at Park

New York
The Reit is looking to opportunities in New York

Park Hotels & Resorts said that it had taken “a more conservative approach” to guidance as a result of supply in the US and the spread of COVID-19.

The Reit had yet to see an impact on the transactions market and was “cautiously optimistic” in talks with potential buyers.

Commenting on the impact of the coronavirus, Tom Baltimore, chairman & CEO, told analysts: “With assets in global gateway cities, Park is not immune to the impact it is having on travel and group meetings. While it is still too early to quantify the ultimate impact on our business based on what we know today, we have assumed approximately 25 basis points of drag on revpar or $5m of Ebitda in our 2020 guidance. We will continue to closely monitor the situation and reevaluate our approach, if necessary.”

Looking to the full year, the company forecast comparable revpar guidance of negative 1% to  positive 1%, with adjusted Ebitda in the range of $800m to $830, up from $769m.  

Baltimore said: “It's hard to ignore the ongoing headwinds our industry faces in the wake of slower global growth, a stronger US dollar, increased wage pressure, and the uncertainty around the US election. Additionally, heightened concern over the impact of the coronavirus, not only on the global economy, but also in US lodging fundamentals in particular, has us taking a more conservative approach for 2020 guidance.”

Last year saw the Reit report total revpar growth of 2.1% for the quarter, and 3.2% for the year, driven, it said: “by our solid group base and our aggressive push on out of room spend”.

The company said that it would continue to churn assets, completing the sale of eight non-core hotels for total proceeds of $497m during the year, before closing on two non-core sales last month, taking its total non-core dispositions over the last two years to 24 assets and over $1.2bn in proceeds. In 2019, the company returned over $420m to shareholders, taking its three-year total to nearly $2.3bn.

Baltimore said: “We expect to remain active sellers with another $250m to $350m of potential future sales by year end 2020. There’s an active market out there. Whether that is temporarily disrupted or different, or a little more cautious, we'll see.

“We're not hearing that as we’ve talked with prospective buyers, about assets that we are marketing or are considering the market. So we remain cautiously optimistic.”

During the year the company completed its $2.5bn acquisition of Chesapeake Lodging Trust, with Baltimore telling analysts: “Our first priority is a realisation of the 24 million of synergies underwritten in the Chesapeake portfolio, with roughly $20m already achieved between corporate G&A savings and management contract negotiations”.

The group announced the deal to buy Chesapeake early last year, with the transaction valued at approximately $2.7bn, or approximately 13.9 multiple on 2019 Ebitda. Park said that the cash and shares deal would solidify its position as the second-largest lodging Reit with an enterprise value of nearly $12bn and ownership in 66 hotels throughout the US “while also advancing the company’s strategic goals of portfolio enhancement and diversification”.

Baltimore said: “Chesapeake’s high-quality portfolio of hotels will accelerate our strategic goals of upgrading the quality of our portfolio and achieving brand, operator and geographic diversity. This merger provides Park and its stockholders with identifiable synergies and opportunities to drive incremental growth through Park’s proven asset management capabilities.

“Over 80% of their footprint is located in high-growth coastal markets and the addition of their portfolio expands our exposure to several of our target markets including Boston, Los Angeles San Diego, Miami and Denver.”

Post-closing, Park’s brand mix by room count was 84% Hilton, 11% Marriott and just under 5% Hyatt, with InterContinental Hotels Group also included. The deal also diversified the Reit’s operator mix, adding eight new operators, including Marriott, Hyatt and third party groups.

 

Insight: Park is a prime example of an owner which has sought to broaden its holding across the operators, rather than having all its eggs in what was one Hilton - somewhat inevitably given its history. With the spread of COVID-19, having hotels in a variety of locations is also likely to prove a wise move.

But away from the performance issues around the coronavirus, Park was the first investor to comment on the impact on transactions which was, as yet, not very much at all. Reassuring and proof that the sector is still seeing this as a short-term issue from which speedy bounce back is assured.

Baltimore commented on the potential pickings in New York, a market which was faltering before the outbreak and now seems set to see a spike in deals. The Reit has pulled back from its international holdings and is looking more to its domestic market - expect an east coast focus as the year progresses.