Park Hotels & Resorts Inc. (PK) is a leading real estate investment trust (REIT) that owns a diverse portfolio of premium-branded hotels and resorts primarily located in prime city center and resort locations. The company has a strong track record of delivering superior, risk-adjusted returns to shareholders through active asset management and a thoughtful external growth strategy, while maintaining a strong and flexible balance sheet.
Financials
In the first quarter of 2023, Park Hotels & Resorts reported impressive financial results, with net income of $29 million, revenue of $639 million, operating cash flow of $92 million, and free cash flow of $22 million. These figures demonstrate the company's ability to generate consistent and robust financial performance, even in the face of macroeconomic challenges.
Business Overview
One of the key drivers of Park Hotels & Resorts' success has been its strategic focus on investing in its portfolio to unlock embedded value. During the first quarter, the company invested $70 million in capital expenditures, primarily focused on renovations and expansions at its Hilton Hawaiian Village and Hilton Waikoloa Village properties. These investments are expected to generate significant returns, with the company targeting mid-teens unlevered returns on its capital projects.
The company's first quarter results were also bolstered by strong performance across its portfolio, with RevPAR (revenue per available room) increasing 7.8% year-over-year, outpacing the industry's upper upscale segment by nearly 500 basis points. This broad-based strength was driven by robust group demand, particularly in key urban markets like New York, Chicago, and New Orleans, as well as continued resilience in the company's resort properties, such as the Hilton Hawaiian Village and the Casa Marina Resort in Key West.
In New York, the Hilton Midtown hotel reported an 11% increase in RevPAR, with group revenue exceeding 2019 levels by nearly 28%. This performance highlights the significant embedded upside potential in the company's urban portfolio, as transient room nights remain 16% below 2019 levels, and overall occupancy trails 2019 by 440 basis points.
The company's resort properties also delivered exceptional results, with the Hilton Hawaiian Village reporting nearly 8% RevPAR growth and the Casa Marina Resort in Key West achieving a remarkable 34% increase in RevPAR, driven by a 24% surge in average daily rate. These results underscore the strength of Park Hotels & Resorts' diversified portfolio and its ability to capitalize on the continued recovery in leisure travel.
Outlook
Looking ahead, Park Hotels & Resorts is well-positioned to deliver sustained growth throughout 2023. The company has increased its full-year 2023 guidance, with RevPAR expected to grow between 4% and 5.5% and adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) projected to range from $655 million to $695 million. This guidance reflects the company's confidence in its ability to execute on its strategic priorities and capitalize on the favorable macroeconomic backdrop, including a resilient U.S. consumer, improving inbound international travel, and a continued acceleration of group demand.
One of the key components of Park Hotels & Resorts' growth strategy is its focus on maximizing returns on invested capital. In addition to the ongoing renovations at its Hilton Hawaiian Village and Hilton Waikoloa Village properties, the company is also planning a comprehensive renovation of its Royal Palm, Oceanfront Hotel in South Miami Beach, which is expected to commence in 2024. Furthermore, the company is making significant progress on the entitlement process for a ground-up development project at the Hilton Hawaiian Village, which could add approximately 515 additional rooms to the resort.
Liquidity
Park Hotels & Resorts' strong balance sheet and ample liquidity also provide the company with the financial flexibility to execute on its strategic initiatives. As of March 31, 2023, the company had total cash and cash equivalents of $378 million and $32 million of restricted cash, as well as approximately $950 million of available capacity under its revolving credit facility. This liquidity, combined with the company's disciplined approach to capital allocation, positions Park Hotels & Resorts to continue delivering value to its shareholders.
Recent Developments
In addition to its internal growth initiatives, Park Hotels & Resorts remains focused on reshaping its portfolio through strategic asset sales. The company has sold or disposed of 42 assets since its spin-off from Hilton Worldwide Holdings Inc. in 2017, totaling nearly $3 billion in proceeds. This proactive portfolio management has allowed the company to concentrate its investments in its highest-performing and most strategic assets, further enhancing the overall quality and growth potential of its portfolio.
Risks and Challenges
Despite the challenges posed by macroeconomic factors, such as elevated inflation and interest rates, Park Hotels & Resorts has demonstrated its ability to navigate these headwinds through active asset management and a disciplined approach to capital allocation. The company's strong operational performance, coupled with its strategic investments and portfolio optimization efforts, position it well to continue delivering superior, risk-adjusted returns to its shareholders.
Conclusion
In conclusion, Park Hotels & Resorts is a well-positioned REIT with a diverse portfolio of premium-branded hotels and resorts, a strong balance sheet, and a proven track record of value creation. The company's strategic focus on unlocking embedded value through targeted investments, coupled with its disciplined approach to capital allocation, make it an attractive investment opportunity for investors seeking exposure to the lodging sector.