Executives with Park Hotels & Resorts laid out a timetable for their expected asset sales and talked about dealing with a wave of natural disasters and other headwinds during the third quarter.
MCLEAN, Virginia—Officials with Park Hotels & Resorts are now projecting a portfolio of “noncore” properties could be sold in a little more than a year as the company looks to zero in on upper-upscale and luxury hotels in top 25 markets and resort destinations.
Speaking Friday morning on the company’s third-quarter call with investors, CEO and President Tom Baltimore said he “fully expects to have the first phase of recycling capital done before the end of next year.”
Company officials had previously stated their plans to sell 10 to 15 assets in low-growth markets or international markets, which can be problematic due to tax and regulatory issues as well as being undervalued by shareholders.
Baltimore said he believes Park’s asset team is making progress with securing deals.
“We’ve been active, and I’m encouraged by the response. … I’d expect those assets to trade in 2018 and well before the end of the year,” he said.
The sale of those assets is expected to kick off a wave of acquisitions for the company. Baltimore has openly expressed since his appointment as Park CEO that he would like to see the real estate investment trust make some key purchases to diversify its brand portfolio following the spinoff from Hilton at the beginning of the year.
A tumultuous quarter
During the call, Baltimore touted his company’s ability to ride out a particularly difficult quarter that saw multiple major natural disasters. He said his company also had significant renovations going on during the quarter and had the headwind of dealing with the Jewish holidays moving to the fourth quarter.
Overall, the company saw a 0.1% decrease in revenue per available room for Q3, which Baltimore said he was “pleased with.”
“Excluding those items, on a normalized basis, comparable RevPAR would’ve increased 1.1%,” he said.
Baltimore focused on some properties in Florida and the Caribbean that were affected by hurricanes.
He said he was impressed with the quick reopening of the company’s two Waldorf Astoria resort properties on Key West—The Casa Marina and The Reach.
“The hotels avoided major structural damage,” he said. “The two properties were closed for nearly 40 days (following Hurricane Irma).”
But the company’s lone property in Puerto Rico, The Caribe Hilton in San Juan, suffered “significant damage” from Hurricane Maria, and has a much longer road to reopening.
“I’d expect it to remain closed through the year and through most of 2018,” Baltimore said. “But I’m most thankful that all guests and team members are safe and accounted for.”
He said he expects a full recovery for the island and the property, but there’s no doubt that the “damage is extensive.”
“The majority of the public spaces require significant work,” Baltimore said. “We’re working with design teams to come up with an estimate for total damage. We expect the business interruption to far exceed our insurance deductible.”
Asked by an analyst whether it might be best to collect the insurance payout on the property and sell it off to let someone else deal with the rebuild, Baltimore said the company does not consider that to be an option.
“It’s a fair question, but it’s not something we’re looking at as a team,” he said. “That’s an iconic hotel with a long history within the Hilton family.”
But the silver lining is the renovations could allow Park to “right-size” the hotel to its needs.
“There are three kitchens there—do we really need three kitchens?” Baltimore asked. “Can we reconfigure perhaps some of the meetings space? Can we make it more efficient? And, as you know, the byproduct of a major renovation like this is to effectively get close to a new hotel with insurance proceeds. So we think the better answer long-term for creating value for shareholders is not only to continue to own it, but to renovate it and improve it.”
For the third quarter, Park saw comparable RevPAR of $166.66, a 0.1% drop year over year. Average daily rate for the quarter was $199.65, an increase of 0.4%, and occupancy was 83.5%, a decrease of 0.5%.
The company had net income of $105 million and adjusted earnings before interest, taxes, depreciation and amortization of $183 million.
As of press time, Park’s stock was trading at $29.12 a share, a 2.6% drop since the start of the year. The Baird/STR Hotel Stock Index was up 31.7% for the same period.