Asset sales are on the table for Park Hotels & Resorts as its executives now believe their core group business demand will return in 2022.
Speaking during the company’s fourth quarter and full-year 2020 earnings call, President and CEO Thomas Baltimore Jr. said his company has had success pushing groups on the books to avoid cancellations. He expects the bulk of that to be back to normal next year, and there are already signs of a return for this year.
“We are encouraged by the lead volume and group booking activity seen since November, shortly after news of the vaccines were announced,” he said. “Leads for 2021 doubled and definite bookings for the year have increased five-fold in January.”
He said group pace for 2022 is holding firm with rates that outpace those in 2019 by 3%.
Sean Dell’Orto, Park's chief financial officer, executive vice president and treasurer, said properties in San Francisco, in particular, have had success rolling over groups into 2022. Additionally, properties in New York are already recording a boost in group demand that would have previously gone to recently closed properties like The Roosevelt.
“Overall, we’re encouraged by the pickup in demand across several of our key markets,” he said.
Park executives said they expect to hit breakeven on a corporate level by the second half of 2021. They have also reduced Park's monthly cash burn rate to $42 million per month, with 50 of their 60 properties currently open after the real estate investment trust’s largest property — the Hilton Hawaiian Village Waikiki Beach Resort— reopened in December.
Baltimore said he expects the macroeconomic trends to support a robust rebound.
“We expect the lodging recovery will be further bolstered by a healthy U.S. economy as massive amounts of fiscal stimulus and an accommodative Fed continue to support the economy,” he said.
In what has become a quarterly tradition for the company, Baltimore defended his company’s stated strategy of focusing on group-driven large hotels in top 25 markets and “premium resort destinations” as analysts questioned whether it’d be prudent to shift to a more leisure-driven model.
He said Park is not prepared to look outside of the top 25 markets that are more suburban and lack multiple sources of demand.
“We believe in that three-legged stool of having strong leisure, strong business transient in addition to strong group, as well.”
He noted his company does have properties in leisure-heavy areas such as Hawaii, Southern California and Southern Florida.
“We will continue to alter and adjust, but we’re not going to make any rash decisions to sort of abandon those strong markets where you have huge barriers to entry and really high replacement costs,” he said. “Even today, we’re probably trading at 50% of replacement costs, and it would be near impossible to replicate most of this portfolio as you think about our geographic footprint.”
Baltimore also discussed what types of properties could be on the chopping block as the company looks to improve its balance sheet and pay off debt through $300 million in asset sales. He said in the past, the company has targeted lower revenue-per-available-room properties in slower-growth markets when disposing assets.
“They either were functionally obsolete or required excessive [capital expenditures],” he said. “And we’ll really go through that same sort of analysis here, as well. It could be smaller properties that don’t really fit our strategy over the intermediate to long term. It could be some markets where we just have a little bit more concentration than we want and we use this as an opportunity to rightsize and recalibrate. And, candidly, there are some assets that would be a better play for an owner-operator.”
The company has not announced any asset sales since February 2020, when it closed on the two separate sales of the Embassy Suites DC and the Hilton São Paulo Morumbi for combined proceeds of $208 million.
Financial Performance
For the quarter, RevPAR was down 84.5% year over year to $27.48, while full-year it was down 73.2% to $49.31.
The real estate investment trust posted a net loss for the year of $1.4 million with adjusted earnings before interest, taxes, depreciation and amortization of -$194 million. The loss reported for the fourth quarter alone was $218 million with adjusted earnings of -$65 million.
As of press time, Park’s stock was trading at $21.75 a share, up 26.8% year to date. The NYSE Composite Index was up 3.3% for the same period.