With the Parc 55 San Francisco and the Hilton San Francisco Union Square now officially in receivership, Park Hotels & Resorts Chairman, President and CEO Thomas J. Baltimore Jr. said his company is ready to move on from those hotels — and the financial obligations they represent.
On the hotel-focused real estate investment trust's third-quarter earnings call, Baltimore said his company "no longer has any economic interest, benefit or burden" related to the hotels, and the company announced a special dividend of $0.77 per share related to savings from walking away from the $725 million non-recourse CMBS loan on the two properties.
"We've eliminated the noise around San Francisco," he said. "We could not be prouder. ... We are glad to be moving forward. There is a clear path forward and really positive tailwinds for Park as we look forward."
Baltimore said he's feeling better about the financial position of the company today than earlier in the year.
"We continue to trade at a significant discount to both [net-asset value] as well as replacement cost," he said. "Transformative renovations will continue to provide a tailwind for us. There's a strong growth profile as you think about Hawaii, New York City, Chicago having a record year next year in citywide [events], New Orleans having a record year, [Washington D.C.] being strong, the Japanese traveler returning as we pointed out in Hawaii. Hawaii had a record year last year, and we're cautiously optimistic we'll have another record year this year, but with a tailwind as we look out."
Baltimore expects to continue reshaping Park's now 43-hotel portfolio, albeit in more traditional ways.
"We will continue to focus on selling non-core assets, as well," he said. "Our top 25 assets account for about 90% of value in the portfolio, and we'll use those proceeds for share buybacks, ROI projects and reducing leverage."
Baltimore said he's looking forward to not being intrinsically tied to those hotels and San Francisco as a market.
"We're in a much better position today ... And we are hopeful that the narrative around Park changes and we don't have to answer question after question every day about San Francisco," he said. "That problem has been solved. We have no economic benefit or burden of San Francisco or the two subject assets moving forward. It's over, finished; we're moving forward."
Park officials announced in June that they had ceased making payments on the two loans.
“After much thought and consideration, we believe it is in the best interest for Park’s stockholders to materially reduce our current exposure to the San Francisco market," Baltimore said at the time. "Now more than ever, we believe San Francisco’s path to recovery remains clouded and elongated by major challenges — both old and new: record-high office vacancy; concerns over street conditions; lower return to office than peer cities; and a weaker-than-expected citywide convention calendar through 2027 that will negatively impact business and leisure demand and will likely significantly reduce compression in the city for the foreseeable future. Unfortunately, the continued burden on our operating results and balance sheet is too significant to warrant continuing to subsidize and own these assets."
A week before the call, Wilmington Trust, the trustee for the CMBS debt, sued to put the loan in receivership. A court-appointed receiver will have until late 2024 to arrange a sale of the property. If those efforts are unsuccessful, the properties will be subject to nonjudicial foreclosure.
Third-Quarter Performance
Higher demand for hotels in Park's portfolio boosted revenue per available room despite a slight drop in rates, according to its earnings release. For the quarter, RevPAR increased 3% to $178.13, while occupancy was up by 2.5 percentage points and average daily rate dropped 0.5%.
Net income for the quarter was $31 million with total revenue of $679 million.
As of publication time, Park's stock was trading at $12.78 a share, up 8.4% year to date. The NYSE Composite was up 0.9% for the same period.