Park Hotels & Resorts executives expect selling assets in a strong pricing environment and reinvesting inwardly will remain their company's focus for the foreseeable future, with plans to sell off as much as $400 million in hotels.
Speaking during the company's second-quarter earnings call, Thomas Baltimore Jr., president and CEO of the hotel-focused real estate investment trust, said the smartest use of sale proceeds will be to invest that money back into the company or paying down debt.
"The highest and best use for us from a capital-allocation standpoint would be investing back into this portfolio, either through ROI projects or buying back stock," he said. "We have a current [share repurchase] authorization up to $300 million."
Asked what hotels might be on the table to sell, Baltimore told analysts Park would consider selling anything in the portfolio if the right opportunity came along, but larger assets present more difficulty.
"Getting debt for one of those big assets is a little bit more complicated than some of the asset sales that we're trying to do," Baltimore said. "But rest assured, we are open to all options."
The company's most recent transactions were the sale of its 25% interest in the Hilton San Diego Bayfront to Sunstone Hotel Investors, which already held a 75% stake in the property, for $157 million, and the Homewood Suites by Hilton Seattle Convention Center Pike Street for $80 million.
So far in 2022, Park has sold roughly $270 million in assets, largely using the funds to finance $218 million in stock repurchases, which Baltimore said came in at a valuation significantly lower than the company's internally calculated net asset value. The company's new target of $300 million to $400 million does not include those assets already sold in the year.
"Overall, hotel sales were executed at or near 2019 valuations with transaction multiples slightly above 13-times on average versus the 10-times implied multiple on the $218 million of stock buybacks we've executed year to date," he said.
Baltimore said he remains optimistic about potential sales going forward even with it becoming more pricey to borrow with increasing interest rates because there is "no doubt there is a tremendous amount of equity on the sidelines and interested in hotel real estate," although he hedged somewhat saying he expects cap rates to "come in a little bit."
"We're not a panic seller," he said. "We'll continue to be thoughtful as we've demonstrated."
Baltimore said the company will also continue to look at paying down debt with future sales. The company also has committed to spending between $200 million and $225 million on capital improvements in 2022.
Park hit a milestone in the second quarter with the reopening of the Parc 55 San Francisco, which was the REIT's last property in its portfolio still closed during the pandemic. Baltimore said early operating results at that property have been promising.
"We certainly believe and have seen evidence that San Francisco is — albeit lagging — certainly is coming back," he said.
Asked whether the REIT was looking to sell or refinance the Parc 55 due to upcoming debt maturities and significant capital needs, Baltimore reiterated that all options are on the table but Park executives are "not panicked."
"All options are on the table, whether that means sell larger assets or joint venture," he said.
For the second quarter, Park recorded pro-forma revenue per available room of $173.03, which was up 119.7% from 2021, driven by stronger performance for Park's urban properties, although still down 10.2% compared to 2019. Adjusted earnings before interest, taxes, depreciation and amortization for the quarter was $207 million, a year-over-year increase of $174 million.
As of press time, Park was trading at $15.05 a share, down 21.2% year to date. The NYSE Composite was down 11.6% for the same period.