Park Hotels & Resorts officials are confident that a stronger-than-projected second quarter is a sign that the company’s work to refine its portfolio and shift to more profitable types of business is bearing fruit.
TYSONS, Virginia—Park Hotels & Resorts President and CEO Tom Baltimore is confident that the strong operating performance of his company’s overall portfolio wasn’t just a sign of improving fundamentals for the hotel industry, but an indicator that the real estate investment trust’s “laser focus” on internal improvement is proving effective.
Baltimore said the company, which saw revenue per available room grow 4.3% year over year during the quarter, benefited from a “return of corporate spending” and a “resurgence of group pace,” particularly among its top-performing hotels.
“2018 group pace is up 110 basis points to 4.7%, and 2019 group improved 240 basis points to 9.2%,” he said.
Much of Park’s improvement in group can be attributed to the reopening of the Moscone Convention Center in San Francisco, but Baltimore said the 2019 pace of group business is up 6.8% even excluding the impact of that market.
The Hilton Chicago, for example, saw a 10.5% increase in RevPAR for the quarter and is up 4.7% year to date, driven largely by a 20% year-over-year increase in Q2.
Baltimore told analysts that the growth in group isn’t just a matter of group business broadly returning, but his company is capturing a bigger piece of the pie through investments in things like a sales team focused on Park’s portfolio and greater focus on profitable business that can drive things like food-and-beverage revenue.
“There’s no doubt we’re taking share in our comp sets,” he said.
Baltimore said that focus on more profitable business will allow the company to not just grow top-line revenue but also its flow through. Baltimore said he hopes the investment community has taken notice of his company’s many successes throughout its relatively short existence.
“If you think back over the last 20 months, we’ve exceeded every key metric,” he said, “from recycling capital to the HNA trade to Blackstone’s departure to reshaping our portfolio and moving off of Hilton’s back office. … The team here is working hard, and every goal we’ve set has been exceeded in a shorter time frame.”
Baltimore said overall trends related to weekday performance show a strong rebound in business travel, which he connected to corporate tax reform and deregulation.
Park’s asset-management and revenue-management strategies have favored shifting business to more group and contract business, which Baltimore noted resulted in a 4.2% decline in transient revenue. But he said that revenue decline was mostly associated with fewer transient roomnights, as average daily rate for transient grew 2.9% for the quarter.
He expects continued strength through the remainder of 2018, although the fourth quarter is expected to see better performance than the third quarter.
Park officials have raised their full-year outlook, with RevPAR growth now expected to range between 2% and 3%, compared to earlier projections of 0.5% to 2.5%. The company projects adjusted earnings before interest, taxes, depreciation and amortization between $465 million and $493 million, compared to previous guidance of $336 million and $369 million.
Acquisitions and dispositions
Baltimore reiterated his desire for greater operators and brand diversity for the REIT—which has featured solely Hilton brands and Hilton-managed properties since its spinoff from that company in 2017—but noted another wave of dispositions will come before any purchases.
He said Park is currently marketing four non-core assets for sale, with the expectation that three or four more could also soon be up for sale. The proceeds of those sales are expected to fund the purchase of higher-RevPAR assets in high-growth urban markets, preferably with Marriott International or Hyatt Hotels Corporation brands, Baltimore said.
But for the time being, dispositions and internal improvements in areas like revenue and asset management remain the primary focus. The company completed the $140-million sale of its joint-venture interest in the Hilton Berlin during the quarter.
“We’re constantly monitoring the transactions market,” he said. “But as we continue on our executive plan and focus on multiples to get (Park’s net asset value) up, that will give us more optionality.”
He said target markets for the REIT, which are currently “under-represented,” include Washington D.C., Boston, Miami, Los Angeles and San Diego.
On Thursday afternoon, Park’s shares were trading at $32.58, an increase of 13.3% year to date. The Baird/STR Hotel Stock Index was down 0.9% for the same period.