EUR 850.00 For Business Accounts Only

Morningstar | Park Hotels Can Drive Internal and External Growth Despite Challenging Hotel Environment

Park Hotels & Resorts is the second largest U.S. lodging REIT, focusing on the upper-upscale hotel segment. The company was spun out of narrow-moat Hilton Worldwide Holdings at the start of 2017. Since the spin-off, the company has sold 11 international hotels and five lower-quality U.S. hotels to focus on high-quality assets in domestic, gateway markets. Park announced the acquisition of Chesapeake Lodging Trust in May 2019, a complimentary portfolio of 18 high-quality, upper upscale hotels that should help to diversify Park's hotel brands to include Marriott, Hyatt, and IHG hotels. The deal is expected to close in the third or fourth quarter of 2019.Numerous issues will make it difficult for Park to drive outsized growth over the next few years. While occupancies are at all-time highs, rate growth is limited due to the increased price discoverability provided to consumers by online travel agencies and review websites. Supply levels in many key markets keep revenue growth down even as demand growth remains healthy. While the impact of alternative lodging options like Airbnb on Park's urban, high-quality and business-focused hotels is limited most nights, it does limit Park's ability to push rates on nights where it would have typically generated its highest profits. With the economic cycle stretching out, expense growth has picked up and made it harder for Park to drive net operating income growth.Still, we think Park does have some opportunities to create value. Management has only had control of the portfolio for two years, and we think there is some additional growth that can be squeezed out of applying the best practices learned from decades of experience to drive revenue higher and implement cost-saving efficiencies. The Chesapeake acquisition should provide an additional source of growth as the company drives higher operating efficiencies across this new portfolio. While the company may need to wait until the next recession to find more buying opportunities, the cash Park currently has on hand should eventually be deployed in a way that creates value for shareholders.