Company Reports

First-quarter results for no-moat Park Hotels and Resorts were better than our expectations, giving us confidence in our $26 fair value estimate. Occupancy improved 350 basis points to 70.9%, though that is still below the 76.2% level reported in the first quarter of 2019. Average daily rate grew 2.5% year over year, leading to revenue per available room growth of 7.8% that was ahead of our 4.4% estimate for the quarter. Meanwhile, hotel operating expenses only grew 5.1%, leading to hotel EBITDA margins expanding 190 basis points and hotel EBITDA growing 16.0%. As a result, Park reported adjusted funds from operations, or FFO, of $0.52 per share in the first quarter, which was eight cents better than our $0.44 estimate and 10 cents better than the $0.42 figure reported in the first quarter of 2023.

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 spinoff, the company has sold all its international hotels and 23 lower-quality U.S. hotels to focus on high-quality assets in domestic, gateway markets. Park completed the acquisition of Chesapeake Lodging Trust in September 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.

We believe that there are several attractive opportunities across the US REIT sector for investors to consider. Following the recovery of many REIT sector fundamentals from the pandemic by mid-2021, we viewed the REIT sector as fairly valued through early 2022. However, the past two years have seen the rapid rise in interest rates and a slowing economy, which has led to major valuation declines across the sector. Our analysis of the REIT sector over the past 25 years suggests that the relative stock performance of REITs is negatively correlated with interest rate movements. The second and third quarters of 2023 saw large interest rate increases with the 10-year Treasury approaching 5%, which led to the sector underperforming. This occurred even as many REITs reported same-store net operating income, or NOI, growth at historical highs in 2022 due to high inflation. Higher interest rates, lower liquidity, tighter capital market conditions, and decelerating same-store NOI growth all led to a significant correction in the stock price for many REITs.

Park Hotels and Resorts reported fourth-quarter earnings that were better than we anticipated, leading us to reaffirm our $26.50 fair value estimate for the no-moat company. Occupancy increased 150 basis points year over year to 71.0% in the fourth quarter, though that is still below the 79.6% figure reported in the fourth quarter of 2019. Average daily rate only grew 1.9%, but that is an improvement over the decline reported in the past two quarters. Combined, revenue per available room, or revPAR, grew 4.1%, relatively in line with our estimate of 3.8% growth, and is now 2.5% higher than the fourth quarter of 2019. However, hotel operating expenses increased an even higher 5.9%, leading to hotel EBITDA margins falling 80 basis points to 27.5% and hotel EBITDA only growing 2.1% in the fourth quarter. While funds from operations, or FFO, came in at just $0.28 per share in the fourth quarter, adjusted FFO was $0.52 when the company accounts for the one-time interest expense penalty and tax expense associated with the company’s exit from the Hilton San Francisco hotels, which was higher than our $0.44 estimate.

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 spinoff, the company has sold all its international hotels and 23 lower-quality U.S. hotels to focus on high-quality assets in domestic, gateway markets. Park completed the acquisition of Chesapeake Lodging Trust in September 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.

Third-quarter results for Park Hotels and Resorts were relatively in line with our expectations, leading us to reaffirm our $26.50 fair value estimate for the no-moat company. Occupancy increased 250 basis points year over year to 73.9% in the third quarter, though that is below the 84.5% occupancy figure the company reported for the same portfolio of hotels in the third quarter of 2019. Average daily rate fell 0.5% year over year, though is up 6.9% over the third quarter of 2019. As a result, revenue per available room increased 3.0% year-over-year, which is slightly below our estimate of 6.1% growth and is now just 6.4% below the figure reported in the third quarter of 2019. The company reported same-store revenue growth of 3.9%, hotel EBITDA margin growth of 30 basis points to 26.3%, and hotel EBITDA growth of 5.0% for the quarter. This led to Park reporting adjusted funds from operations of $0.51 per share in the third quarter, a penny better than our $0.50 estimate and nine cents better than the $0.42 figure the company reported in the third quarter of 2022.

The share prices of U.S. real estate investment trusts have fallen by approximately 30% from their 2021 highs because of higher interest rates and stress in some commercial real estate sectors. We think that the correction is overdone and the current valuations offer an attractive entry point for patient investors. Our core REIT coverage is trading at a discount of approximately 25% to our fair value estimate. We estimate that the average REIT within our U.S. coverage is currently trading at a dividend yield that is 126 basis points higher than the historical average. We see marked differences in valuation across different REIT sectors in the United States. For instance, the industrial sector is fairly valued, with stock valuations already accounting for future growth, but other sectors like offices, hotels, and malls are trading at attractive discounts.

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 spinoff, the company has sold all the international hotels and 23 lower-quality U.S. hotels to focus on high-quality assets in domestic, gateway markets. Park completed the acquisition of Chesapeake Lodging Trust in September 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.

Park Hotels and Resorts reported second-quarter results that were relatively in line with our expectations, leading us to reaffirm our $26.50 fair value estimate for the no-moat company. Occupancy increased to 74.4% in the second quarter, up 390 basis points from 70.5% in the second quarter of 2022. However, the average daily rate slightly declined in the quarter, down 0.2% year over year. As a result, revenue per available room was up 5.3%, relatively in line with our estimate of 4.5% growth. Hotel EBITDA margins fell 310 basis points to 27.7% in the second quarter, though that was slightly better than our estimate of 27.2% hotel EBITDA margins, leading to a hotel EBITDA decline of 5.7% that was better than our estimate of a 9.5% decline. Park reported adjusted funds from operations of $0.60 per share in the second quarter, and while that is a penny below the $0.61 figure the company reported in the second quarter of 2022 it was 2 cents better than our $0.58 estimate.

First-quarter results for no-moat Park Hotels and Resorts were slightly better than we anticipated, leading us to reaffirm our $26.50 fair value estimate. Occupancy improved to 65.0% in the first quarter from 50.8% in the first quarter of 2022. Average daily rate was up 6.6% year over year. As a result, revenue per available room improved by 36.5% in the first quarter, in line with our estimate of 37.6% growth. EBITDA margins improved 550 basis points to 24.2%, which was better than our estimate of 21.7% EBITDA margins. Therefore, Park Hotels reported hotel EBITDA growth of 81.2% that was slightly better than our estimate of 76.2% hotel EBITDA growth. Adjusted funds from operations came in at $0.42 per share, which was 9 cents better than our $0.33 estimate and significantly above the $0.08 figure reported in the first quarter of 2022.

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 spinoff, the company has sold all the international hotels and 15 lower-quality U.S. hotels to focus on high-quality assets in domestic, gateway markets. Park completed the acquisition of Chesapeake Lodging Trust in September 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.

Park Hotels and Resorts reported results that were slightly ahead of our expectations, leading us to reaffirm our $26.50 fair value estimate for the no-moat company. Occupancy improved to 67.7% from 52.1% in the fourth quarter of 2021, though that is still below the 80.6% level reported in the fourth quarter of 2019. Average daily rate increased 12.7% year over year and 8.4% over the fourth quarter of 2019. As a result, revenue per available room, or RevPAR, increased 46.7% year over year, which is slightly better than our estimate of 41.7% growth and is just 8.9% below the 2019 level. EBITDA margins improved 620 basis points year over year to 25.8%, also slightly better than our estimate of EBITDA margins of 24.6%. Park reported adjusted funds from operations, or FFO, of $0.45 per share in the fourth quarter that came in 4 cents above our $0.41 estimate and 40 cents ahead of the $0.05 figure the company reported in the fourth quarter of 2021.

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 spinoff, the company has sold all the international hotels and 15 lower-quality U.S. hotels to focus on high-quality assets in domestic, gateway markets. Park completed the acquisition of Chesapeake Lodging Trust in September 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.

Third-quarter results for Park Hotels and Resorts were relatively in line with our expectations, leading us to reaffirm our $28 fair value estimate for the no-moat company. Occupancy improved to 71.7%, better than the 50.8% figure reported in the third quarter of 2021 but still below the 84.2% level reported in 2019. Average daily rate was up 14.6% year over year and up 7.2% compared with the third quarter of 2019. As a result, revenue per available room, or revPAR, was up 61.7% in the third quarter, in line with our estimate of 63.4% growth, and is now only 8.8% below the figure reported in 2019. Hotel EBITDA margins also improved in the third quarter, up to 25.9% compared with 20.5% in the third quarter of 2021 and slightly better than our estimate of 25.4% hotel EBITDA margins, though that is still below the 28.5% level reported in the third quarter of 2019. Park reported adjusted funds from operations of $0.42 per share in the third quarter, 2 cents better than our $0.40 estimate, 40 cents better than the $0.02 number reported in 2021, but still below the $0.68 figure reported in 2019.

With the United States experiencing historically high inflation growth, many investors are wondering if real estate provides a natural hedge against inflation and if the REIT sector should therefore outperform the broader equity market. Many REITs in our coverage have reported rent and revenue growth at or near historic peaks over the past several quarters, with inflation being one of the largest reasons for the high growth. Given this and some historical evidence that REITs outperformed in the 1970s and early 1980s when inflation was similarly high, some investors are questioning why REITs have not outperformed in 2022.

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 spinoff, the company has sold all the international hotels and 15 lower-quality U.S. hotels to focus on high-quality assets in domestic, gateway markets. Park completed the acquisition of Chesapeake Lodging Trust in September 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.

Park Hotels & Resorts' second-quarter results were better than anticipated, though we currently don’t anticipate any material changes to our $25.50 fair value estimate for the no-moat company. Occupancy improved to 71.0%, which was better than the 41.7% Park reported in the second quarter of 2021 but still below the prepandemic level of 85.6% in the second quarter of 2019. However, average daily rate was up 33.9% year over year and 8.3% compared with the second quarter of 2019. As a result, revenue per available room year was up 119.7% year over year, better than our estimate of 93.3% growth and only 10.2% below 2019 levels. What really surprised us this quarter is that hotel EBITDA margins climbed to 30.8%, up from just 13.9% this time last year, to be in line with the 31.1% that Park reported in the second quarter of 2019. Strong revenue and EBITDA growth led to reported adjusted funds from operations of $0.61 per share in the quarter, far higher than the $0.16 loss reported last year and much closer to the $0.81 reported in the second quarter of 2019.

Property fundamentals for no-moat Park Hotels & Resorts were slightly better than we had anticipated in the first quarter, giving us confidence in our $25.50 fair value estimate. Occupancy improved to 51.9% in the first quarter, up from the 26.6% figure reported in the first quarter of 2021. Average daily rate improved 44.2% year-over-year and is now back in line with the average rate reported in the first quarter of 2019. As a result, revenue per available room was up 181.7% year over year, which is relatively in line with our estimate of 174.9% growth. Hotel EBITDA margins also held up slightly better than we had anticipated at 19.3%, slightly beating our estimate of 17.4% margins. Park reported a seventh straight quarter of adjusted funds from operations showing sequential improvement with the company coming in at $0.08 per share. While that is still well below the $0.67 figure the company reported in the first quarter of 2019, it is slightly better than our estimate of a 2 cent loss and far better than the $0.48 loss reported in the first quarter of 2021.

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 spinoff, the company has sold all the international hotels and 15 lower-quality U.S. hotels to focus on high-quality assets in domestic, gateway markets. Park completed the acquisition of Chesapeake Lodging Trust in September 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.

Park Hotels & Resorts reported fourth-quarter results that were mixed compared with our expectations, though we don’t see anything from the quarter that would materially affect our $24.50 fair value estimate for the no-moat company. Occupancy improved to 52.5% in the fourth quarter from 20.6% in the fourth quarter of 2020, though it was still well below the 80.6% the company saw in the fourth quarter of 2019. Average daily rate was up 55.8% year over year but still 4.2% below the same period in 2019. As a result, same-store revenue per available room was up 297.9% year over year, slightly worse than our estimate of 388.6% growth and still 37.6% below the revPAR that Park reported in the fourth quarter of 2019. However, hotel EBITDA margins reached 19.7% in the quarter, beating our 14.5% estimate, leading to hotel EBITDA of $85 million in the fourth quarter, which beat our estimate of $73 million. The higher margins led to Park reporting positive adjusted funds from operations of $0.05 per share, which beat our estimate of a $0.04 loss for the quarter.