Company Reports

Park Hotels & Resorts is the second-largest US lodging REIT, focusing on the upper-upscale hotel segment. The company was spun out of Hilton Worldwide Holdings at the start of 2017. Since then, it has sold all its international hotels and 29 lower-quality US hotels to focus on high-quality assets in domestic and gateway markets. Park completed the acquisition of Chesapeake Lodging Trust in September 2019; this complementary portfolio of 18 high-quality upper-upscale hotels has diversified Park's hotel brands to include Marriott, Hyatt, and IHG brands.

Park Hotels reported adjusted funds from operations of $0.70 per share and comparable hotel EBITDA increased 8.6% in the second quarter.

Park Hotels & Resorts is the second-largest US lodging REIT, focusing on the upper-upscale hotel segment. The company was spun out of Hilton Worldwide Holdings at the start of 2017. Since then, it has sold all its international hotels and 27 lower-quality US hotels to focus on high-quality assets in domestic and gateway markets. Park completed the acquisition of Chesapeake Lodging Trust in September 2019; this complementary portfolio of 18 high-quality upper-upscale hotels has diversified Park's hotel brands to include Marriott, Hyatt, and IHG brands.

Park Hotels reported adjusted funds from operations of $0.45 per share, while comparable hotel EBITDA fell 0.3% in the first quarter.

Park Hotels & Resorts is the second-largest US lodging REIT, focusing on the upper-upscale hotel segment. The company was spun out of Hilton Worldwide Holdings at the start of 2017. Since then, it has sold all its international hotels and 27 lower-quality US hotels to focus on high-quality assets in domestic and gateway markets. Park completed the acquisition of Chesapeake Lodging Trust in September 2019; this complementary portfolio of 18 high-quality upper-upscale hotels has diversified Park's hotel brands to include Marriott, Hyatt, and IHG brands.

Park Hotels reported adjusted funds from operations of $0.51 per share and comparable hotel EBITDA grew 9.3% in the fourth quarter.

Park Hotels reported adjusted funds from operations of $0.35 per share and comparable hotel EBITDA declined 15.9% in the third quarter.

Park Hotels & Resorts is the second-largest US lodging REIT, focusing on the upper-upscale hotel segment. The company was spun out of Hilton Worldwide Holdings at the start of 2017. Since then, it has sold all its international hotels and 25 lower-quality US hotels to focus on high-quality assets in domestic and gateway markets. Park completed the acquisition of Chesapeake Lodging Trust in September 2019; this complementary portfolio of 18 high-quality, upper-upscale hotels has diversified Park's hotel brands to include Marriott, Hyatt, and IHG brands.

Park Hotels & Resorts reported adjusted funds from operations of $0.64 per share in the second quarter, while comparable-hotel EBITDA declined 3.2%.

Park Hotels & Resorts is the second-largest US 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 25 lower-quality U.S. hotels to focus on high-quality assets in domestic and gateway markets. Park completed the acquisition of Chesapeake Lodging Trust in September 2019, a complementary 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 reported adjusted funds from operations of $0.46 per share, and comparable hotel EBITDA declined 10.4% in the first quarter.

Performance of the REIT sector remains negatively correlated with interest rate movements with performance over the past three years demonstrating strong statistical relationship with 10-year US Treasury movements.

Park Hotels & Resorts is the second-largest US 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 25 lower-quality US hotels to focus on high-quality assets in domestic, gateway markets. Park completed the acquisition of Chesapeake Lodging Trust in September 2019, a complementary 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 estimates, though we do not see anything from the quarter that would materially change our $23 per share fair value estimate for the no-moat company. Occupancy fell 150 basis points year over year to 69.9% while average daily rates were up only 0.7%, leading to a revenue per available room decline of 1.4% that came in below our estimate of a 1.1% revPAR gain. However, the 330-basis point decline in hotel EBITDA margins to 24.6% was smaller than the 380-basis point decline we had expected. As a result, Park reported adjusted funds from operations of $0.39 per share in the fourth quarter. While that is down from the $0.52 figure the company reported in the fourth quarter of 2023, it came in ahead of our $0.28 estimate for the quarter.

Over the past few years, we have observed an inverse relationship between share prices in the REIT sector and interest-rate movements. We believe a major reason is that all commercial real estate valuations are connected to interest rates. Capitalization rates directly indicate the return expectations for a real estate investment and expectations for risk and growth. Historically, we have observed that commercial real trades at cap rates consistently spread above the 10-year US Treasury. If interest rates rise, investors will require a higher return, and thus a higher cap rate, to accept the risk associated with an investment in a real estate asset. Since return expectations have held relatively steady for most real estate sectors over the past few years, higher cap rates translate to falling prices for real estate.

Park Hotels & Resorts is the second-largest US 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 US hotels to focus on high-quality assets in domestic, gateway markets. Park completed the acquisition of Chesapeake Lodging Trust in September 2019, a complementary 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 below our expectations, though we don’t see anything in the quarter that would alter our long-term view or our $25 fair value estimate for the no-moat company. Occupancy increased 2.5% year over year to 78.1% in the third quarter, though a significant portion of that gain was driven by the Casa Marina Key West being fully open in 2024 after the hotel was closed for the entire third quarter of 2023 for significant renovations. Average daily rate remained flat in the quarter, so revenue per available room increased 3.3% year over year in the quarter, below our estimate of 5.6% growth. Meanwhile, operating expenses went up 6.1%, and while that is less than our estimate of expenses growing 7.1%, it did lead to hotel EBITDA falling 1.9% in the third quarter, which is worse than our estimate of hotel EBITDA growing 1.5%. As a result of falling hotel EBITDA, Park reported adjusted funds from operations of $0.49 per share that was 3.7% lower than the $0.51 figure reported in the third quarter of 2023 and five cents below our $0.54 estimate for the quarter.

The REIT sector in the US offers many companies that should see relatively stable cashflow growth over the next several years. While the pandemic hurt REIT valuations in 2020, the recovery of fundamentals across most sectors combined with low interest rates led to strong total returns in 2021 and early 2022. However, despite fundamentals continuing to perform well over the past three years with many reaching historical levels of net operating income growth, the REIT sector underperformed the broader equity markets in 2023 and into the first half of 2024. We believe that is due to the sector’s negative correlation with interest rates, as income-oriented investors rotate out of the sector, higher rates lower the value REITs can create with external growth, and property valuations fall in line with higher rates. However, interest rates have fallen since the end of July, leading to a rally for the REIT sector. Still, we still view many of companies in the US REIT sector as being undervalued as the companies should continue to produce solid long-term growth.

Despite a rally over the past two months, we still view the US REIT sector as being undervalued. While the pandemic hurt REIT valuations in 2020, the recovery of fundamentals across most sectors led combined with low interest rates led to strong total returns in 2021 and early 2022. However, despite fundamentals continuing to perform well over the past three years, with many reaching historical levels of net operating income growth, the REIT sector has underperformed the broader equity markets in 2023 and into the first half of 2024. We believe that the cause has been due to the sector's negative correlation with interest rates as income-oriented investors rotate out of the sector, higher rates lower the value REITs can create with external growth, and property valuations fall in line with higher rates. However, interest rates have fallen since the end of July, leading to a rally for the REIT sector. We believe that US REITs will continue to see share price movements that are inverse of interest rate movements.

Park Hotels & Resorts reported second-quarter results that were relatively in line with our expectations, leading us to reaffirm our $25 fair value estimate for the no-moat company. Occupancy was only up 0.1% to 77.1%, while the average daily rate increased 1.8% in the second quarter. Combined, revenue per available room increased 2.0%, which was in line with our estimate of 2.1% revPAR growth. However, total revenue growth, which includes food and beverage revenue and other hotel revenues, was up 3.2% in the second quarter. Hotel operating expenses were up 3.1%, so hotel EBITDA margins increased 10 basis points to 29.9% and hotel EBITDA increased 3.4% in the quarter. Park reported adjusted funds from operations of $0.65 per share in the second quarter, which was a penny better than our $0.64 estimate for the quarter and 8.3% higher than the $0.60 figure reported in the second quarter of 2023.