Park Hotels & Resorts President and CEO Thomas Baltimore Jr. remains bullish on his company's assets in Hawaii but noted they continue to see near-term headwinds.
Chief among those headwinds is the continued weakness in the Japanese economy and currency, which has kept Japanese traveler from visiting Hawaiian destinations.
"Inbound travel from Japan grew but at a slower rate than we had expected due in large part to continued weakness in the Japanese yen, which hit a 37-year low in early January," Baltimore said. "We are very encouraged, however, by the yen's recent rally and the Bank of Japan's expected plan to adopt a tighter monetary policy, which we expect will provide additional support to inbound travel over the next year."
For the quarter, Park's two Hawaiian properties — The Hilton Hawaiian Village Waikiki Beach Resort and the Hilton Waikoloa Village — saw a 5.6% year-over-year drop in revenue per available room, which was mostly attributable to a 6.2-percentage-point drop in occupancy.
Hilton Hawaiian Village specifically saw most of its demand declines come from the leisure segment, notching a 77% increase in group revenues year over year but a 14% decline in transient revenue. Hilton Waikoloa Village saw overall RevPAR fall 12% in the quarter, and group revenues were down 48% year over year as the property works through "comprehensive renovations."
Baltimore said arrivals to Hawaii from the mainland U.S. dropped 2% in the quarter.
Still, he believes high-quality assets in Hawaii remain a strong long-term bet, due to outsize demand and limited supply compared to other destinations. He said it won't be long until the Japanese inbound travel trends flip from a weakness to a strength for the market.
"Japan will continue to play an important role in Oahu's ongoing success, with inbound travel from Japan still pacing approximately 55% below 2019 levels, implying significant upside potential as the yen strengthens against the U.S. dollar," he said, adding the hotel-focused real estate investment trust plans to spend roughly $90 million on improvements at Hilton Hawaiian Village over the next two years.
For the short term, the growth story for the market will continue to be nonexistent. RevPAR is expected to be "slightly negative" for the balance of 2024 at Hilton Hawaiian Village.
Park does have a decision looming at that property specifically. Executive Vice President, Chief Financial Officer and Treasurer Sean Dell'Orto said the company is "evaluating options" for the $1.275 billion commercial mortgage-backed securities loan on the Hilton Hawaiian Village, which matures in November 2026. He added the company remains "committed to extending our near-term and pending maturities."
Dell'Orto told analysts Park executives are looking at various sources of debt capital for a potential refinancing, including going back to the CMBS markets, but that's not their first option.
"We don't necessarily want to just repeat and have another billion-plus outstanding on the assets, but that is certainly [an option] I wouldn't rule out, either," he said. "We still have a number of options available to us."
The company has shown a willingness in recent history to walk away from underperforming assets, handing back the keys to two large San Francisco hotels in 2023 and the new announcement of the permanent closing of the Hilton Oakland Airport. That hotel will close in the third quarter, with Park terminating the property's ground lease after incurring a $3 million loss in earnings before interest, taxes, depreciation and amortization for the trailing 12 months. Park officials gave no indication that could happen in Hawaii given their long-term optimism and investments in that market.
We're "very, very bullish on Hawaii," Baltimore said. "This is a short-term blip."
Baltimore described briefly why the Oakland property was not in the company's long-term plans.
"Losing money, short-term ground lease, undesirable market, safety and security concerns," he said. "We didn't waste time. We went into action on that, and you're going to see other situations like that. We're also going to continue to move quickly."
Second-Quarter Performance
For the second quarter, RevPAR was up 2% to $194.90, fueled almost completely by a 1.8% increase in average daily rate. Occupancy was up just 0.1 percentage points year over year.
The REIT recorded $67 million in net income for a quarter, a 146% improvement from the $146 million loss recorded in the second quarter of 2023. Total revenue for the quarter was $686 million, and adjusted hotel EBITDA was $199 million.
Park officials lowered their full-year guidance for 2024 by 75 basis points at the midpoint, now projecting a range of 3.5% to 4.5%. Baltimore said he was one of the first hotel REIT executives pointing out a weaker-than-expected demand environment in 2024.
"We sent the signal" in June, he said. "We could see then that demand had softened a bit, and I think we were certainly one of the few to point that out."
As of press time, Park's stock was trading at $14.82, down 3.1% year to date. The NYSE Composite was up 9.6% for the same period.