Park CEO still sees value in big-box hotels
 
Park CEO still sees value in big-box hotels
07 AUGUST 2020 9:36 AM

No hotel asset has been hit harder than group-driven, big-box properties, but Park Hotels & Resorts President & CEO Thomas Baltimore Jr. said he still sees long-term strength in the segment.

TYSONS, Virginia—In a quarter of unprecedented and historic performance drops across the global hotel industry, few companies have seen drops greater than Parks Hotels & Resorts.

But despite a 95.9% year-over-year decline pushing revenue per available room below $8 for the quarter, President and CEO Thomas Baltimore Jr. said he is not questioning his company’s strategy of focusing on big-box group hotels.

Responding to a question during Park’s second-quarter earnings call about whether there will be long-term concerns about the business risks of those properties, Baltimore said it’s “probably easy given what we’ve all been through” to assume there will be long-term issues, but he still believes in the strength of group hotels.

“The real benefit of having these big group hotels anchored the way you do is the multiple sources of demand,” he said. “You’ve got leisure and business transient. You’ve got embedded group, in-house group and you have the ability to really take advantage of citywides and all those wonderful events that occur. … And there are huge barriers of entry to be able to replicate. Think of how few big-box hotels are getting constructors.”

All of that amounts to it being unwise to shift Park’s overall strategy significantly, he said.

“Park is going to be incredibly well-positioned with an improved business operating model,” he said. “I think there is tremendous pent-up demand, and I think there’s opportunity for us to have outsized years of growth.”

The timing of a true comeback will depend on factors outside the hotel industry, most notably the development of a vaccine or other treatments for COVID-19 that will make travelers and companies more willing to get back on the road, Baltimore said. He said he’s hopeful that any such treatment will be quickly adopted once it’s available in order to get back to a more typical way of life.

“You have to believe that the vast majority of Americans will get to the other side of this, so that we can resume our normal lives, go into work, restaurants, the movies, traveling and that human interaction that we’re all starved for that is really not being replaced by Zoom and WebEx,” he said. “So, it’s my personal belief that the adoption rate will be high.”

Asked about the possibility of turning to equity sales to raise capital in the downturn like many had seen during the Great Recession, Baltimore noted Park is sitting on two years’ or more worth of liquidity and hasn’t seen the need yet.

“We would think about equity offerings at a much later date as a potential growth vehicle, not because we think there’s a need for any kind of equity offering in the near term,” he said. “Equity would be the last thing we would want to do at this point given where we are and candidly where we trade. We trade at a significant discount to (net-asset value) and a significant discount to replacement cost.”

Q2 performance
RevPAR fell to $7.85 for the quarter, as the company saw occupancy for its 18 consolidated open hotels at just 20.8%. They recorded a net loss of $261 million with adjusted earnings before interest, taxes, depreciation and amortization in the red by $122 million, according to the second quarter earnings release.

One of the few bright spots in the quarter was a contract to sell out the Waldorf Astoria Orlando to house media covering to the NBA’s resumed season, Baltimore said.

“They’re effectively buying out the resort through early October, accounting for $5 million in incremental revenue,” he said. “This demonstrates the resilience, perseverance and creativity of our local sales teams as they try to find ways to identify and capture demand.”

Park’s stock was trading at $8.35 as of press time, a 69.2% year-to-date drop. The NYSE Composite was down 8.5% for the same period.

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