Executive Summary / Key Takeaways

• Strategic Portfolio Surgery: Park Hotels is executing a deliberate transformation from a 60-asset lodging REIT to a concentrated portfolio of 20 high-quality core assets representing 90% of value, using $300-400 million in annual non-core dispositions to fund high-ROI renovations and deleveraging—a strategy that sacrifices near-term earnings for long-term multiple re-rating.

• Operational Resilience Amid Headwinds: Despite a 6.5% Q3 revenue decline from renovation disruptions and lingering Hawaii labor strike impacts, PK has achieved three consecutive quarters of flat expense growth through aggressive asset management, procurement savings, and a sector-leading 25% reduction in property insurance premiums, demonstrating best-in-class cost discipline that preserves margins while repositioning the portfolio.

• The Hawaii Overhang Creates Asymmetric Risk/Reward: The Hilton Hawaiian Village's slower-than-expected recovery post-strike (still 540 bps RevPAR drag in Q4 2024) and ongoing renovation disruption represent the single largest earnings headwind, but also the biggest potential catalyst—management expects combined properties to return to $177-185 million EBITDA by 2027, implying 20%+ upside if recovery materializes.

• Valuation Disconnect Meets Leverage Reality: Trading at 0.62x book value with a 9.5% dividend yield far exceeding peers, PK appears cheap, but Debt/EBITDA above the 3-5x target range and S&P downgrade concerns create a tension between capital return priorities and balance sheet repair that will define the next 18 months.

Setting the Scene: From Spin-Off to Portfolio Surgeon

Park Hotels & Resorts began as an independent, publicly traded company on January 3, 2017, following its spin-off from Hilton Worldwide Holdings Inc. (HLT), structured as a traditional umbrella partnership REIT (UPREIT ) from inception. This origin matters because it inherited a legacy portfolio of 60+ hotels that required immediate triage rather than a curated collection of trophy assets. The company's initial strategy—to be a preeminent lodging REIT through active asset management—was quickly tested by the pandemic and subsequent market dislocations, forcing a more radical approach.

The current strategy represents a fundamental pivot: divesting the remaining 15 non-core consolidated hotels to concentrate ownership across 20 high-quality assets in markets with strong growth fundamentals and limited new supply, which will account for 90% of portfolio value. This isn't mere pruning—it's open-heart surgery. Since 2017, PK has sold or disposed of 45 hotels for over $3 billion, including the strategic default on a $725 million non-recourse CMBS loan secured by two San Francisco hotels in June 2023, which were placed into receivership and sold in November 2025. This bold move—walking away from underperforming assets—signals management's willingness to destroy value to create value.

The REIT structure creates unique constraints and opportunities. As a UPREIT, PK must distribute at least 90% of taxable income, explaining the 9.5% dividend yield that exceeds peers. Yet the company has consciously eliminated its top-off dividend for 2025, preserving over $50 million in capital for reinvestment and deleveraging. This trade-off—sacrificing immediate yield for long-term NAV accretion—defines the investment tension.

Financial Performance: Revenue Decline as Strategic Choice

Park's Q3 2025 results appear weak on the surface: total segment revenues of $587 million declined 6.5% year-over-year, while Hotel Adjusted EBITDA fell 16.1% to $141 million, compressing margins to 24.1%. But the "why" reveals strategic intent rather than operational failure. The revenue decline stems from three deliberate actions: (1) disposition of three hotels in 2024 and two in 2025, (2) suspension of Royal Palm South Beach operations for a $103 million transformational renovation, and (3) ongoing Hawaii renovation disruption.

The expense story is more compelling. Total segment expenses decreased 3.0% in Q3, marking the third consecutive quarter of flat-to-negative expense growth. CFO Sean Dell'Orto attributes this to "aggressive asset management" including deep dives into over a dozen properties focusing on productivity, staffing, and procurement. The company achieved a 25% reduction in property insurance premiums—"there isn't any of our peers even remotely close to that"—and is capturing incremental savings from tax appeals in markets with lower real estate valuations. Excluding Royal Palm and Hawaiian Village anomalies, expense growth declined each quarter in 2025, from 2.7% in Q1 to an expected 50 basis points down in Q4.

This cost discipline is crucial because it demonstrates PK can maintain margins while undergoing portfolio transformation. In an environment of 4-5% wage inflation, holding expense growth flat requires structural efficiency gains, not just temporary cuts. The implication is that when renovation disruptions cease and Hawaii recovers, operating leverage should drive margin expansion beyond historical levels.

Segment Dynamics: A Tale of Two Portfolios

The Consolidated Hotels segment—PK's only reportable segment—reveals a bifurcated performance that underscores the core vs. non-core strategy. The portfolio of 38 hotels with over 24,000 rooms (87% luxury/upper-upscale) is splitting into two distinct groups: the "core 20" driving value and the "exit 15" dragging metrics.

Winners: Orlando, Key West, New York, San Francisco

The Bonnet Creek complex in Orlando delivered nearly 3% RevPAR growth in Q3, with both Signia and Waldorf Astoria achieving their highest third-quarter RevPAR and GOP in the complex's history. For Q4, group revenue pace is up 28%, with management expecting mid- to upper single-digit RevPAR growth. This performance is no accident—it follows comprehensive renovation and expansion projects completed in early 2024, demonstrating the ROI thesis: invest capital, capture market share, expand margins.

Casa Marina Key West, a Curio Collection property, reported RevPAR growth of 1% in Q3, with its RevPAR index reaching 110 (up 800 basis points year-over-year) driven by strong group demand. The 2023 renovation is clearly paying dividends, with Q4 expected to see mid-single-digit RevPAR growth and a RevPAR index that hit 126 in December 2024—nearly a $120 ADR premium over the competitive set.

New York Hilton Midtown delivered nearly 4% RevPAR growth in Q3, with group revenue pace for Q4 up 14%. The property is gaining meaningful share across all segments, benefiting from Manhattan supply that has fallen 8-9% since 2019 and is forecast to be flat in 2027. San Francisco's JW Marriott Union Square achieved nearly 14% RevPAR growth, with Q4 group pace up an astonishing 160%, demonstrating that PK's decision to retain this asset while defaulting on the nearby Hilton properties was astute market selection.

Losers: Hawaii and the Royal Palm Disruption

The Hawaii properties represent PK's largest earnings headwind. Combined occupancy and ADR decreased 5.6 percentage points and 5.6%, respectively, in Q3, following an 8.6 percentage point occupancy decline in the first nine months. The causes are clear: renovation disruption at both Hilton Hawaiian Village and Hilton Waikoloa, plus ongoing recovery from the 45-day labor strike at Hawaiian Village in Q4 2024 that created a 540 basis point headwind to total portfolio RevPAR.

Management's guidance is cautious: they expect Hawaii to recover to pre-pandemic EBITDA levels by 2027, not 2026. The convention center closing at year-end 2025 for renovation will further impact 2026 group business. This timeline is slower than initially hoped, creating earnings risk but also potential upside if recovery accelerates. The $48 million Rainbow Tower and $36 million Palace Tower renovations, completing in early Q1 2026, should drive 25-30% rate premiums on renovated rooms, but the disruption has been more severe than modeled.

Royal Palm South Beach's $103 million renovation—expected to generate 15-20% IRR and double EBITDA from $14 million to $28 million—created a 130 basis point RevPAR drag in Q3 and will reduce 2025 EBITDA by approximately $17 million. The strategic rationale is sound: repositioning ahead of the 2026 World Cup in Miami captures a once-in-a-generation demand catalyst. But the short-term earnings sacrifice highlights the capital recycling tension.

Capital Allocation: The $2.1 Billion Liquidity War Chest

Park's September 2025 credit facility amendment was transformative, increasing total liquidity to $2.1 billion through a $1 billion senior unsecured revolver (extended to 2030) and a new $800 million delayed draw term loan facility (extended to 2031). This addresses the $1.4 billion in 2026 debt maturities: the $1.275 billion Hilton Hawaiian Village CMBS loan and the $122 million Hyatt Regency Boston mortgage.

Management plans to draw the term loan in 2026 to repay the Boston mortgage, then execute a subsequent financing transaction to fully repay the Hawaii CMBS by mid-2026. The goal is to have both Hawaii properties completely unencumbered, which would unlock significant balance sheet flexibility. This is aggressive but logical: secure liquidity first, then optimize structure.

The decision to eliminate the top-off dividend for 2025—preserving over $50 million—reflects capital allocation discipline. As CEO Thomas Baltimore stated, "there are no liquidity issues at Park," but the 9-10% dividend yield exceeds peers. The priority is now paying down debt and reinvesting in the portfolio, with opportunistic share buybacks considered when trading at a "significant discount to NAV." Since 2018, PK has repurchased 38.5 million shares (20% of float) for $1.3 billion, demonstrating conviction in NAV accretion.

The guiding principle of 3-5x leverage is currently breached, with Debt/EBITDA above target due to major renovations and Hawaii disruption. Management aims to use excess proceeds from asset sales to pay down debt and reinvest, targeting leverage inside of 5 times, with a 3-5 times range.

Valuation Context: Trading at a Discount, But to What End?

The company is executing a portfolio transformation while navigating macro headwinds, with 2025E RevPAR growth expected to be down 2% for 2025, with a 15% EBITDA margin, and a 9.5% dividend yield that exceeds peers. The valuation is compressed: EV/EBITDA of 12.0x vs. 10.7x for Host Hotels & Resorts (NYSE:HST) and 9.7x for Apple Hospitality REIT (NYSE:APLE), but the 9.5% dividend yield stands out among peers. The discount to NAV reflects the market's skepticism about the company's ability to execute its portfolio transformation while managing leverage.

Risks and Asymmetries: The 2026 Debt Wall

The most material risk is the $1.4 billion in 2026 debt maturities, which the company plans to address with its $2.1 billion liquidity position. Management's guidance for 2025 is cautious, with 2025E RevPAR growth down 2% and EBITDA margins compressed to 24.1% from 26.8% in 2024. The company's ability to execute its portfolio transformation while managing its debt burden will determine whether the stock can close the gap to NAV.

Conclusion: The 2026 Debt Wall is the Key Catalyst

Park Hotels is executing a portfolio transformation while navigating macro headwinds, with 2025E RevPAR growth expected to be down 2% for 2025, with a 15% EBITDA margin, and a 9.5% dividend yield that exceeds peers. The 2026 debt maturities represent the key catalyst, as the company's execution on its strategy will shape its path to NAV alignment.