Owning large, group-focused hotels in major cities like New York and San Francisco isn't the popular thesis for real estate investors right now, but executives with Park Hotels & Resorts said they're keen on sticking with that strategy.
The Tysons, Virginia-based real estate investment trust holds a portfolio of 54 hotels, many of which are large resorts or convention properties.
Speaking on the company's fourth quarter and full-year 2021 earnings call, President and CEO Thomas Baltimore, Jr. said he expects to continue holding assets in city centers for markets such as New York, where the company owns the New York Hilton Midtown; and San Francisco, where the company owns four hotels in addition to several others around the Bay Area.
He said the company was quickly rewarded for its decision to reopen its New York hotel in October. Demand and rates in November were about 7% short of 2019 levels at that property. Then, by December, performance had surpassed pre-pandemic levels.
That market is already experiencing an uptick in international travel that is likely to gain even more steam in 2022, and he believes Park is poised to have an outsize benefit from gains in group pace in New York.
"You really only have three boxes that have really significant meeting platforms, and you can argue that Hilton has the best meeting platform," he said. "As we look out in the booking pace, what we're seeing just in group pace in 2022 is about 60% of 2019 levels, about 100,000 room nights."
San Francisco, in particular, has been victim to an overly negative narrative, Baltimore said.
"San Francisco is [a market] that many people are quite down on, but I'd say it's important to remove some of the emotional clutter and negative energy that's out there and just step back for a second to think about the city," he said. "It's one of the greatest cities of the world [with] innovation, creativity, the number of universities that are located there, the venture capital anchored there.
"So I think the demise of San Francisco is a bit premature. Obviously safety and security is an issue. I was personally out there in December with another REIT CEO meeting not only with the mayor but the chief of police, their chief of staff and really stressing the need for the safety and security issue."
He said the return of events in that market will be significant in 2022.
"With citywides, there are about 34 events for this year and about 525,000 room nights, plus or minus," he said, noting the high point in 2019 reached roughly 1 million room nights through event demand.
While Baltimore remains bullish on San Francisco in the long term, short-term market conditions kept the REIT from reopening Parc 55 San Francisco in December as planned. That property remains just one of two in Park's portfolio still closed, along with the Hilton Short Hills in suburban New Jersey, which is slated to reopen on March 1.
While leisure-driven hotels have had a decidedly quicker rebound from the depths of the pandemic in 2020, he said all the pieces are in place for the corporate and group segments to follow suit in 2022.
"COVID cases are really declining globally," he said. "We're all learning and coming to the conclusion that we've got to accept COVID and move from the pandemic phase to the endemic phase. Return to office is really accelerating. When you think about pent-up demand, it's really in all segments. It's not only leisure, but it's in business and even group. The need to be together is more important than ever."
Asset Strategy
Asked whether the company intends to move more quickly on selling off hotels it has identified as non-core in 2022, Baltimore promised to "continue to aggressively recycle." He said the company will continue to prioritize keeping and investing in its top 27 assets that make up roughly 90% of its asset value.
"We've identified another batch of non-core assets that we're going to aggressively move," he said. "Keep in mind we also had the built-in gain tax requirements that have now expired [related to the purchase of Chesapeake Lodging Trust], so that also gives us even more optionality with the portfolio."
He said while the company won't rule out buying the right assets, it can be difficult in this environment given the relatively high cost of capital, the fact the company trades at "a significant discount not only to [net asset value] but also to replacement cost" and the rarity of the large, group-driven assets Park favors hitting the market.
Instead, he said the company will focus on internal investments, either through buying back Park's stock or making improvements to owned properties. To that end, the company resumed work on the $110 million meetings and event expansion at the Waldorf Astoria Orlando and Signia by Hilton Orlando Bonnet Creek complex, which is slated to be done by the end of 2023.
Fourth Quarter Performance
In the fourth quarter, Park recorded revenue per available room across its portfolio of $110.22, up roughly 300% versus the same quarter in 2020 but down 37.6% compared to 2019. RevPAR for the full year was $84.11, similarly up 71.7% from 2020 but down 53.7% from 2019.
The company recorded a net loss of $65 million for the quarter and $452 million for the full year, with annual adjusted earnings before interest, taxes, depreciation and amortization of $142 million.
As of press time, Park's stock was trading at $19.43 a share, up 2.9% year to date. The NYSE composite index was down 3.9% for the same period.