Park Hotels & Resorts executives expect selling assets in a high price environment and inward reinvestment to remain their company’s focus for the foreseeable future, with plans to sell up to $400 million worth of hotels.
Speaking on the company’s second quarter earnings call, Thomas Baltimore Jr., president and CEO of the hospitality-focused real estate investment trust, said the smarter use of the sale proceeds would be to reinvest that money in the company or pay down the debt.
“The highest and best use for us from a capital allocation perspective would be to reinvest in this portfolio, either through return on investment projects or through stock buybacks,” he said. he declared. “We have a current [share repurchase] authorization up to $300 million.
Asked about hotels likely to be sold, Baltimore told analysts Park would consider selling anything in the portfolio if the right opportunity presents itself, but larger assets present more difficulty.
“Getting into debt for one of these big assets is a little more complicated than some of the asset sales that we’re trying to do,” Baltimore said. “But rest assured, we are open to all options.”
The company’s most recent transactions were the sale of its 25% stake in the Hilton San Diego Bayfront to Sunstone Hotel Investors, which already had a 75% stake in the property, for $157 million, and the Homewood Suites by Hilton Seattle Convention Center Pike Street. for $80 million.
So far in 2022, Park has sold about $270 million in assets, largely using the funds to fund $218 million in stock buybacks, which Baltimore said were appraised at a significantly lower value. at the net asset value calculated internally by the company. The company’s new target of $300-400 million does not include assets already sold during the year.
“Overall, hotel sales were executed at or near 2019 valuations with transaction multiples just over 13x on average compared to the implied multiple of 10x on the $218 million in share buybacks we executed since the beginning of the year,” he said.
Baltimore said it remains optimistic about potential sales going forward, even as it becomes more expensive to borrow as interest rates rise, as there is “no doubt there is has a huge amount of equity on the sidelines and interested in hotel real estate”, although he has hedged somewhat. saying he expects cap rates to “come up a bit.”
“We are not a panic seller,” he said. “We will continue to be thoughtful as we have demonstrated.”
Baltimore said the company would also continue to consider repaying its debt with future sales. The company has also pledged to spend between $200 million and $225 million on capital improvements in 2022.
Park hit a major milestone in the second quarter with the reopening of Parc 55 San Francisco, which was the REIT’s last property in its portfolio still closed during the pandemic. Baltimore said early operating results from this property were promising.
“We certainly believe and have seen evidence that San Francisco is — although lagging behind — is definitely coming back,” he said.
When asked if the REIT is looking to sell or refinance Park 55 due to upcoming maturities and significant capital requirements, Baltimore reiterated that all options are on the table, but park executives ” don’t panic”.
“All options are on the table, whether it’s selling larger assets or creating a joint venture,” he said.
For the second quarter, Park reported pro forma revenue per available room of $173.03, up 119.7% from 2021, driven by better performance from Park’s urban properties, albeit down by 10.2% from 2019. Adjusted earnings before interest, taxes, amortization for the quarter was $207 million, a year-over-year increase of $174 million.
At press time, Park was trading at $15.05 per share, down 21.2% year-to-date. The NYSE Composite fell 11.6% for the same period.
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