While company officials are still finalizing the spinoff of new REIT Park Hotels & Resorts from Hilton Worldwide Holdings, Park CEO Tom Baltimore said he expects the size of his new company’s portfolio to be a significant advantage in the world of hotel REITs.
MCLEAN, Virginia—Tom Baltimore believes Park Hotels & Resorts is poised to be especially successful. If he didn’t feel that way, he never would’ve left another successful real estate investment trust, RLJ Lodging Trust.
The spinoff of Park Hotels—a planned REIT with a portfolio comprising 67 hotels and roughly 35,000 rooms of current Hilton Worldwide Holdings’ owned assets—is expected to be completed in late 2016 or early 2017. Baltimore, the new company’s president and CEO, said there are several reasons to feel good about the new company, including the newly formed leadership team and the collection of assets in place. He said Park will enter the marketplace as the second largest lodging REIT.
“We’ll have a lot of heft and scale,” he said. “The goal is to be the preeminent lodging REIT, and drive superior long-term returns for our shareholders.”
Baltimore, who previously worked with Hilton but has spent the last 16 years working at RLJ in its different iterations since 2000, said he is confident in his new company’s immediate success, despite concerns that the hotel industry is nearing the end of the current cycle.
“This cycle is already 78 months, but we still think demand will continue to run close to if not slightly exceed supply,” he said. “Things have certainly softened, but we’re cautiously optimistic.”
He said he is confident in his company’s ability to succeed regardless of timing.
“You can’t control when you launch; I can’t control that,” Baltimore said. “But we’ll launch with a strong team and work hard to execute.”
In an emailed statement, Hilton CEO Chris Nassetta said he expects big things from the company’s planned spinoffs.
“We continue to make great progress on the spinoffs of our real estate and timeshare businesses, and are on track to complete them around the end of this year,” he said. “These transactions will create three pure-play companies, enabling dedicated management teams of Park Hotels & Resorts and Hilton Grand Vacations to fully activate their respective businesses. They will be able to take advantage of both organic and inorganic growth opportunities as well as capital market and tax efficiencies.
“Park Hotels & Resorts will be one of the largest and most geographically diversified publicly-traded lodging REITs, and will be positioned very well for success. They will have an exceptional leadership team and a highly experienced board of directors, as well as an outstanding portfolio of luxury and upper-upscale assets across a number of important markets, destinations and locations.”
The advantage of size
Baltimore ranked scale—along with having a strong team, healthy balance sheet and operational excellence—as one of the most important determiners of success for a REIT.
Host Hotels & Resorts, which bills itself as the largest hotel REIT, finished the third quarter of 2016 with 96 properties and more than 54,000 rooms, but Park’s size compares favorably against most competitors in terms of room count at more than 35,000.
Baltimore’s former company, RLJ, for example, had 20,800 rooms in its portfolio across 122 properties.
Baltimore said that, because of Park’s initial scale, the company has to be judicious about expansion plans.
“Any time you’re launching a company of this size, you want to be thoughtful on the growth side,” he said. “I think it’s important to (start off) by building an impressive track record operationally.”
A need to diversify
Baltimore said that the Park Hotels portfolio is built around “irreplaceable” assets, but he added that the company is entering the market in a unique position, since each of its properties will be affiliated with Hilton brands.
He said that will change over time as they seek to build a diverse portfolio in terms of brand, geography and management.
“I certainly think in the long term that brand diversification and operator diversification will be something we explore,” he said.
But he said the relationship with Hilton can also be advantageous—and powerful when coupled with the company’s size.
Park Hotels has made a series of recent announcements, filling out the REIT’s senior leadership team and board.
The company’s executives include several veterans both with Hilton and within the hotel industry, including CFO Sean Dell’Orto from Hilton; EVP of asset management Robert Tanenbaum from DiamondRock Hospitality; and SVP of design and construction W. Guy Lindsey from Sunstone Hotel Investors. Park’s executive team also includes hires from outside the hotel industry, such as SVP and general counsel Thomas Morey from Washington Real Estate Investment Trust; and SVP of human resources Jill Olander from Allied Capital. He said that variety of experience will be a big advantage for Park, especially when coupled with his knowledge of the sector.
The company also recently announced Matthew Sparks, Hilton’s SVP of luxury and corporate development, has joined Park as chief investment officer.
“I think having that diversity in a team gives us a solid foundation,” Baltimore said. “And obviously I have a lot of experience in REITs and as a CEO, along with serving on a number of public company boards.”