Park strategy focuses on profit, not growing portfolio
 
Park strategy focuses on profit, not growing portfolio
03 MARCH 2017 9:22 AM

Officials with Park Hotels & Resorts said the initial focus for at least the company’s first year will be to drive more group business and contain costs instead of expanding its portfolio.

McLEAN, Virginia—Officials with Park Hotels & Resorts outlined their overall strategy for the first few years following the real estate investment trust’s recent spinoff from Hilton, and while CEO Tom Baltimore sees his company being an aggressive buyer in the intermediate and long term, he doesn’t expect to make a splash in the acquisitions market in the first year.

“Over the next six to nine months, we’re focused on … operational excellence and the embedded (return-on-investment) opportunities we believe can yield value,” he said. “But make no mistake about it, I would not have taken this assignment—this is a dream opportunity for me—if I didn’t think there was a huge opportunity for growth over time.”

Baltimore said part of the issue is that the industry is approaching the end of the cycle, and he said some of his company’s competitors might be overestimating how aggressive they can be.

“We are in the eighth year of this cycle,” he said. “We’re all optimistic, including us, but we’re yet to see (any positive change) materialize in the operating fundamentals. So, some might say they’re net buyers, but we’ll see how active they’ll be. We have the capacity. We have the team. We continue to look and underwrite, but I think the likelihood of us executing on … an acquisition (in the near term) is probably not high.”

Park currently owns 67 properties, all of which were owned by Hilton prior to the completed spinoff.

Baltimore said future acquisitions will focus on giving the company a more diverse portfolio in terms of brand and operators. He also noted the company could look to sell off roughly 15% of its portfolio, focusing on its worst-performing assets and international properties that draw less interest from shareholders.

Despite the company’s current dependency on Hilton for branding and operations, Baltimore said he’s optimistic about Park’s current assets because many are in highly desirable locations within top markets.

He noted one of the biggest growth opportunities will be pushing for more group business, which would help reduce the REIT’s dependence on discounted rates and improve profit margins.

“We’re laser-focused on this,” he said. “It won’t happen overnight, but I think we’ve laid a foundation, and we can chip away at it this year to see improvement in 2018 and 2019.”

Baltimore said his company will also focus on cost containment measures, but noted that can’t be the sole focus because the company “can’t cost cut (its) way to growth forever.”

Giving a market-by-market outlook for his company, Baltimore noted Park has seen particular strength in Hawaii, and he believes there is reason for optimism for Park in down markets like San Francisco and New York.

Many investors have expressed concerns about performance in San Francisco in light of renovation work at the Moscone Center, but Baltimore said Park’s hotels could be poised to pick up some meetings demand in that city, where it has a combined 160,000 square feet of meetings space.

The Park-owned Hilton New York Midtown is also expected to see a boost as the brand is funneling business there from the city’s temporarily closed Waldorf Astoria. The Waldorf is expected to be closed for the next two years.

Full-year/fourth-quarter performance
In the company’s first earnings report, Park executives said their portfolio saw a 0.8% revenue-per-available-room decrease in the fourth quarter to $155.20 and a 0.5% increase for the full year to $161.15.

Full-year, pro-forma adjusted earnings before interest, taxes, depreciation and amortization was $756 million for 2016, down 3% from 2015.

The executives also noted the company had reduced its debt by more than $1 billion.

As of press time, the company’s stocks were trading at $26.80, down 10.4% since the launch at the start of the year.

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