Park to sell hotels on road to brand diversity

2018 is shaping up to be the year that Park Hotels & Resorts purchases its first non-Hilton hotel.

That was the message from President and CEO Tom Baltimore during Park’s first-quarter earnings call. He stated that the company has done a good job executing on a first wave of dispositions for non-core assets, but will identify a group of hotels for a second wave of sales and then will recycle that capital to purchase new properties to “enhance brand and operator diversity.”

“Both Marriott and Hyatt come to mind, among others,” he said. “We certainly want to grow and expand our relationship with (those companies), and we think that's important. Really over time, we want to diversify. You'll see a lot of effort towards that in the coming months with the hope and expectation that we can add another flag to the portfolio during calendar year 2018.”

Dispositions
Baltimore talked about various asset sales Park has engaged in during the nearly year and a half following its spinoff from Hilton. He said the company sold a total of 12 hotels during the quarter in a series of four transactions totaling $379 million.

The most recent announced deal, which was not included in that total, is Park’s sale of its 40% stake in the Hilton Berlin, which will net the real estate investment trust roughly $140 million. Between $80 million and $90 million of those proceeds will be used to fund a special dividend, pending approval by Park’s Board of Directors. That deal is expected to close before the end of May.

Baltimore promised a second wave of dispositions this year that will help the company refine its focus on its top-performing assets and markets and will ultimately fund a corresponding wave of acquisitions that helps realize the company’s desire for brand diversity.

“We are currently initiating a second phase of potential sales, which could include another five to eight non-core assets accounting for $30 million to $40 million of (earnings before interest, taxes, depreciation and amortization),” he said. “Our plan would be to recycle proceeds utilizing a 1031 exchange to acquire properties with a focus on improving overall portfolio quality.”

Q1 performance
For the quarter, the REIT saw revenue per available room increase 1.1% to $165.57, fueled almost exclusively by rate increases across the portfolio as occupancy remained flat.

Baltimore said ultimately Park is poised for success through the balance of 2018 as various high-profile renovations wrap up and recently lagging markets like San Francisco and Chicago turn the page.

“We anticipate stronger performance stemming from a strong group quarter with group pace up in the high teens across our portfolio driven by Honolulu, San Francisco, Chicago, New York and Key West,” he said.

Baltimore said the reasons for optimism extend beyond internal factors.

“We remain encouraged by the improved sentiment since the passage of tax reform late last year,” Baltimore said. “With consumer confidence at a near 18-year high and economic indicators for non-residential fixed investment and corporate profits estimated in the mid-single digits for 2018 and 2019, we feel optimistic that fundamentals will continue to fuel hotel demand across key segments.”

That optimism has spurred the company to revise its guidance upward, and Park officials are now projecting full-year 2018 RevPAR growth between 0.5% and 2.5%, up 0.5% at the midpoint.

As of press time, Park’s stock was trading at $29.31 a share, up 1.9% year to date. The Baird/STR Hotel Stock Index was down 1.8% for the same period.