Park Hotels & Resorts – PK Stock Analysis
This article provides in-depth fundamental stock analysis of Park Hotels & Resorts, ticker symbol – PK. We will discuss its business model, Property breakdown by location and brands, risks associated with the business and take a close look at their top 10 properties, competitors, financial statements and current situation.
Welcome to Mr. Virk Media. I Navjot Virk an investing enthusiast & retail investor will be your host today. My purpose is to present information in a meaningful way that could help investors understand this company better and in detail.
Understanding the Business Model
Park is a publicly-traded lodging REIT that owns and leases hotels and resorts in luxury and upper upscale segment to hotel brands like Hilton, Marriott and Hyatt.
Park also owns and operates three commercial laundry facilities serving around 50 hotels, though this segment is small and only accounted for less than 0.5% of total revenue of the company in 2019 so somewhere around 10-14 million whereas total revenue for 2019 was 2.83 billion, so the bread and butter is the leasing business.
At the moment Park operates and owns significant ownership in 60 premium-branded hotels and resorts located in prime locations (moat of the company, since competitors have high barrier to entry due to cost) in United States with over 33 thousand rooms.
Around 85% of Park’s portfolio is in luxury or upper upscale segment and almost all of it is located in the U.S. including locations in 14 of the top 25 markets. They have been divesting from international properties which can be seen as a weakness but the company plans to focus on its core market which is the US.
Nearly 80% of Park’s portfolio is located in central business districts in major cities, resorts and conference destinations.
Property Ownership Model
- 88.33% of Park’s properties are self owned and rest in joint ventures.
- 71.67% in Fee simple and rest in ground lease.
Property Breakdown by Location and Brands
Property Breakdown by Location
Park owns 60 properties this map list’s number of properties in each state and highlight’s their top 10 properties.
Property Breakdown by Brand
Hilton and Hilton Brands represent majority of Park’s property this comes to no surprise given Park was spun out of Hilton.
Source: Companies Second Quarter 2020 – Form 10-Q and our take on risks.
- Pandemic has impacted the business adversely and the company is facing a storm of challenges due to suspension of operations at large and is currently in survival mode.
- Increased indebtedness and decreased operating revenues, which could increase companies risk of default on loans.
- Company may be required to dispose off properties to meet liquidity needs.
- Government Regulation around pandemic like travel restrictions and lockdowns can further hinder companies ability to reopen hotels for business.
- Volatility in stock price may affect companies ability to secure debt at favourable rates.
- Companies inability to attract customers at sustainable rates when hotels reopen.
- Increase in maintenance costs due to increased sanitation and hygiene requirements.
- Social Distancing guidelines may hinder companies ability to operate their properties and resources at full capacity.
- Cash burn rate can fluctuate due to unpredictable risks and uncertainties, including uncertainties related to hotel working capital needs as well as the terms of any financing available.
- Industry disruption as a result of corporate employees working remotely.
- and others that you can check in 1O-Q link listed above.
Next let’s take a look at their properties. We will be focusing on the property location and quality to identify Moat around core properties.
Park’s Top 10 Properties
Property: Hilton Hawaiian Village Waikiki Beach Resort
One of Park’s Top Property is this popular Resort in Hawaiian on Waikiki Beach. Resort offers beautiful beach view, a 22 acre tropical landscape around it. Resort has 2860 Rooms and 150000 square feet of Meeting Space.
Resort offers around restaurants-bars & lounges, Pools and Waterslides, Kids Clubs, Lagoon, Spa, Cultural activities, Tall Rainbow Tower and other stuff. Below I have shared a beautiful picture of property surrounding’s.
Here is a video from Hilton covering some aspects of the property.
Overall seems like a quality property from investment perspective and a fun place to be at as customer (which is great).
I also looked up the per night room pricing on their Rainbow Tower. Its on the high end ranging from $220 to $507 on average (off-course this can vary based on view from the room, availability and other reasons but the idea for discussing average prices is to get a rough sense on the pricing power of the business).
Property: Hilton San Francisco Union Square
Located in San Francisco Downtown City Center. A central location good for folks looking to stay for business or vacation as the hotel provides 130000 square feet meeting space, 1921 Rooms and close proximity to everything the city has to offer.
Overall, the property is quality and on a prime location. Think of how high barrier to entry would be to own & operate such a property ?
Property: Hilton Chicago
A 4 Star Hotel, Located in Chicago, Illinois. Chicago is among largest US cities, known for its architecture, skyscrapers and museums etc. This property is again located in a prime city center location overlooking Lake Michigan and close to local attractions.
Below I have shared two images – one highlighting Chicago and second the property on the map. You will see the property is situated in the heart of Chicago City Center. So, the Real Estate in question is invaluable.
Property: Waldorf Astoria Orlando
Property is located near Walt Disney World Resort. Hotel is an official Walt Disney World® Hotel, offering guests special Disney benefits.
Looking at the property on the map, seems the area is highly attractive, competitive and full of luxury hotels around Disney Resort.
Property: Hilton New Orleans Riverside
The Property is Located in Central Business District near Mississippi River in New Orleans, Louisiana (aka haunted city – a touristy place with round the clock nightlife, live music and haunted tours of historical significance).
Again a quality property in prime location. Below I have shared a map image highlighting the area, if you look closely the area is packed with hotels and this convention/hotel seems to be in a good location comparatively by being close to the river.
Property: Parc 55 San Francisco
Property is situated in prime city center location in San Francisco, California.
Property is in close proximity to Financial District and Oakland Bay Bridge which leads to Treasure Island an artificial island and a World’s Fair Site.
Property: Casa Marina Resort Key West
Another Resort, property is located in Key West, Florida.
Key features of the resort are it offers a private beach and oceanfront accommodations, two tropical pools, exquisite dining and some water sports
Property: New York Hilton Midtown
Ahh. I am tired saying this again and again (it’s a good thing, not a bad thing). The property is prime city center convention in New York. And surrounded by NYC’s attractions like Museum of Modern Art, Times Square, Broadway, Central Park & others.
The property is top notch and proud’s itself to have hosted every president of United States since 35th president – John Kennedy.
Property: Hilton Waikoloa Village
A beautiful Resort located in Waikola, Hawaii.
I don’t think this one needs many words. Let me leave you with visuals – pictures and video of the property. Property is a great asset in the portfolio.
Property: Hilton Orlando Bonnet Creek
Property is located in Orlando, Florida. In Proximity to Walt Disney World Resort and offers 3-acre lazy river pool & shuttle to Disney Theme Parks.
At this point it’s clear How PK makes money and What are it’s top 10 properties among its large portfolio of 60 properties.
Now let’s look at their competition before moving on to financials where we will check their balance sheet, cash flow and Income statement.
Financials will help understand companies liquidity, debt and assets (both long and short term). We will also be looking at companies recent press releases to draw some conclusions and get a better idea on where PK is headed in future.
Park’s top competitor at the moment is –
Host Hotels & Resorts, Inc. (HST), which is currently the largest publically traded lodging REIT with 75 properties in the United States and 5 properties internationally totaling about 46,700 rooms. Going for about 8.3 Billion in Market Cap. at 11.94$ a share with 705.26 Million shares outstanding and a trailing average revenue of 5.5 Billion each year since 2016.
In comparison, Park (PK) is the second largest publicly traded lodging REIT with 60 properties in the United States and little to no exposure to internationally and about 33,000 rooms. Going for about 2.45 Billion in Market Cap. at 10.59$ a share with 235.6 Million shares outstanding and a trailing average revenue of 2.75 Billion each year since 2016.
Others peers/competitors are – Apple Hospitality REIT, Pebblebrook Hotel Trust, RLJ Lodging Trust, DiamondRock Hospitality Company (per companies proxy statement – DEF 14A – March 14th 2020)
Financial Analysis – Assets and Liabilities
Note: Snippets of Financial data is sourced from Seeking Alpha and Yahoo Finance for full details you should check the provided links, the analysis only covers summary of key results and doesn’t go into too much data in an attempt to keep things simple and not to overwhelm you, but you should look at full financial statement before making any investment decision for yourself.
Lets starts with Balance sheet –
Balance Sheet Analysis
|Current Total Assets 2020||11.05B|
- Total Assets exceed total liabilities by around 92.84%, with 5.32 billion in stakeholder equity.
- Company currently has access to 1.27 billion in liquidity (this is subject to change with time keep an eye on companies press releases) which includes both cash and secured financing that should allow the company to bear the storm but pandemic still remains a high risk factor as its hard to predict how long it would take before business starts normalising.
- Looks to be very undervalued based on fundamentals, trading around 2 billion in market cap during the pandemic, whereas shareholder equity exceeds market cap by roughly over 250%.
Cash Flow and Income Statement Analysis
Current Year 2020 (Pandemic Stats)
- The year hasn’t been pretty and operations at large were suspended due to pandemic leading to loss in both quarters this year, but as pandemic matures business should start improving.
- Via a recent press release on 14th September 2020, company reported – reopening of additional 14 hotels since June, increasing the total number of hotels open to 46 of 60 hotels (77%), or 59% of total room count and with improved occupancy to 32.3% for 33 consolidated hotels open during July and 38.8% for 37 consolidated hotels open during August. More details available under Press Releases
|Current Year 2020||Q1||Q2||Q3||Q4|
Company had stable revenue and paid a dividend before the pandemic which implies once the health crises improves company should eventually start recovering and return to its former glory.
|Diluted Earnings per Share||$13.35||$13.45||$13.42|
|Net Income Available to Shareholders||306M||477M||2.63B|
|Revenue Per Share||$13.35||$13.45||$13.42|
Note: 2017 Earnings are bloated due to property and equipment sales
- Company is confident they currently have approximately 2.5 years of liquidity available to meet its financial obligations, which means company can survive rough conditions for a long period of time potentially until end of 2023 check the press releases section below for detailed info.
- Current Liquidity ranges between 1.075 to 1.5 Billion and with debts pushed out in future and revolving line of credit available to the company, current outlook looks good.
- Company continues to re-open hotels and occupancy has improved in near term that should further help with increasing liquidity from cash flow.
Let a quick look at their stock price over the years –
- Company has historically traded between $25 to $34 range.
- Before pandemic it was trading between $23 to $25 range.
- 52 Week Range is $3.99 – $26.58.
- Current price in October is fluctuating between $9 to $11 range.
- Company was a consistent dividend payer since 2017 when it was spun off Hilton with a mature business model and the dividend just got cut during the pandemic.
- Once situation improves company should reinstate the dividend and in the next 2-4 years potentially get back to where it was which at current stock price will be over 18% dividend yield, that makes a strong case for long term dividend investor.
Recent Press Releases
Since writing this article Park may have released more new information that can be found here or additionally you can check back later as I will keep the page updated in the near term.
Oct 06, 2020 Press Release – 3rd Quarter Earning’s call announced to take place on Nov 06, 2020, which will provide further clarity on the business
Sep 14, 2020 Press Release – Would suggest you going through the full release via the link, come key points are listed below –
Key Highlights and Reopening Update
- Initiated permanent property-level full-time staff reductions, representing expected future annual savings of $50 million to $70 million throughout the portfolio based on 2019 operations; continuing its efforts to remove costs from the hotel operating model;
- Agreed to an increase in aggregate commitments under the revolving credit facility (the “Revolver”) and near-term liquidity by $75 million to $1.075 billion and agreed to extend $901 million of the aggregate commitments for two years to December 2023; and
- Agreed to amend its bank credit facilities to obtain additional financial covenant relief and increase its carve out for acquisitions funded with equity proceeds from $500 million to $1 billion, among other amended provisions.
- Reopened 10 hotels in July, 2 hotels in August and 2 hotels to date in September;
- Expects to reopen an additional 12 hotels during the 4th quarter, increasing the total number of open hotels to 58, or 97% of the portfolio room count, with the remaining 2 suspended hotels expected to open in Q1 2021.
Park had cash and cash equivalents of $1,248 million, including $35 million of restricted cash as of July 31, 2020. Park’s actual monthly average burn rate during the second quarter of 2020 was $59 million based on operations during that period and was reduced to $51 million during July 2020. With current total liquidity of $1.5 billion, including the $0.3 billion of available capacity remaining under the Company’s revolving credit facility, and a burn rate of approximately $50 million per month, which takes into account current operations from both open and suspended hotels and uses an accrual-based methodology, Park estimates it currently has approximately two and a half years of liquidity available to meet its financial obligations.
This estimate does not take into account capital expenditures (which were reduced by 75% in 2020 to approximately $4 million per month) or any possible alternative sources of revenue that may arise, any hotel property dispositions for the remainder of the year or payment of cash dividends or other distributions not already declared and paid in 2020, if any. This estimate also does not take into account the impact of the amendments to the credit facility as discussed further below. The estimated burn rate has not been reduced by any amount available to Park under existing or future debt facilities, or proceeds from issuance of any additional debt, equity or equity-linked securities.
Park continues to take proactive measures to reduce the near-term burn rate, including deferral of payments, hiring freezes and other cost reduction measures.
Credit Facility Amendments
Park announced today that it has entered into further amendments (the “September Credit Amendments”) to its Revolver, its $631 million term loan due December 2021 (the “2016 Term Loan”) and its existing $670 million term loan (the “2019 Term Loan”). The effectiveness of the September Credit Amendments is subject to certain conditions, including the prepayment in full of the 2016 Term Loan using the proceeds of certain permitted capital markets transactions (such effective date, the “Amendments Effective Date”).
The September Credit Amendments will increase the commitments under the Revolver by $75 million to $1.075 billion, extend the waiver period for the testing of the financial covenants from the date the financial statements are delivered for the quarter ending June 30, 2021 to the date the financial statements are delivered for the quarter ended March 31, 2022, and extend the maturity of the Revolver to December 2023 with respect to 90.1% of the Revolver commitments as of the Amendments Effective Date.
Key terms of the September Credit Amendments include the following:
- Increase in the commitments under the Revolver by $75 million to $1.075 billion;
- Extension of the Revolver maturity date from December 2021 to December 2023 with respect to $901 million of the commitments under the Revolver as of the Amendments Effective Date, including all $75 million of the increased Revolver commitments;
- Extension of the existing waiver period for testing of the financial covenants, providing covenant relief until the date the financial statements are delivered for the first quarter of 2022, unless earlier terminated by Park at its discretion;
- Extension of the temporary periods for which certain financial covenants are adjusted once quarterly testing of financial covenants resumes;
- Increase of mandatory repayment carve out for equity issuances from $500 million to $1 billion, so long as proceeds from the issuances are used for capex and hotel acquisitions which become part of the unencumbered pool;
- Existing guarantees by certain Park-affiliated entities remain in place until repayment of the Revolver and 2019 Term Loan and existing pledges of equity interests in Park-affiliated entities owning certain unencumbered assets remain in place during the extended waiver period and until the ratio of net debt to EBITDA falls below 6.50x for two consecutive quarters;
- Extension of minimum liquidity covenant through December 2022 and adjustment to include, through December 24, 2021, 50% of the Revolver commitments that mature in December 2021;
- Addition of ability to pay a $0.01 per share per fiscal quarter dividend during the extended waiver period; and
- Modifications to certain restrictions and covenants for the duration of the extended waiver period, including certain mandatory prepayments.
Basic Details About the Company and the Industry
|Name||Park Hotels & Resorts Inc.|
|Industry||Hotel & Motel – Lodging REIT|
History is an important factor when looking at a business to understand its roots and be able to project its future.
Let’s see how Park came into existence ?
Park started trading on NYSE under the ticker symbol – PK and was established as an independent business in January 2017 when it was spinned off from Hitlon a well know brand in hotel industry operating since 1919.
Which shows that Park is part of a bigger story/business and proven business model.
Reference: Park’s Spin off Press Release from Hilton
What is a REIT ?
And for anyone who is new to REIT’s I have provided a quick description and resource to learn more, to ensure you get a good grasp on the business model as well as the industry.
REIT stands for Real Estate Investment Trust and is basically an income generating financial asset. REIT’s allow individual investors to easily invest in commercial properties and the company is obliged to pay at-least 90% of its earnings as dividend back to investors. If you would like to read more here is a good resource – Investopedia
How Hotel Industry Works ?
We have taken a look at Park’s Business Model, but it’s important to have an idea on how the overall hotel industry works and operates.
Hotel Brands (like Hilton, Hyatt, Marriott) usually operate there business using (one or more) of these models –
- Franchising – Brands allow independent hotel owners to use their brand name and charge a percentage of their profit or room sales earned by the hotel.
- Management – Addon for Franchises where the brand helps with professional oversight and comprehensive operations support to hotels basically help manage the hotel as well for a bit more fee if someone was to manage on their own but only needed brand name.
- Ownership – As name implies the brand owns (real estate) and operates its own hotels without a third party involved.
- Timeshare – also know as vacation property in which you can have divided form of ownership or use rights to the property for certain period of time. Timeshare properties usually (not limited to) Resorts, Villa’s or Vacation Homes. Hilton Grand Vacations is an example of timeshare business model.
References and Disclaimer
Property Images and Information: Park and Hilton Websites (which are linked within the article) and Google Maps.
Disclaimer: Not a Financial Advisor. The article is in no way an investment advice, please take it with huge grains of salt and do your own due diligence before investing in PK or the market in general. For transparency, I would like to disclose that I have both long and short positions in PK.
Queries this article covers ?
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