Park Hotels Earnings: Modest Occupancy and Rate Growth Lead to Solid Fourth-Quarter Results

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.