Executive Summary / Key Takeaways

• Park Hotels & Resorts is undergoing a significant transformation, strategically divesting non-core assets to concentrate on a high-quality portfolio of 20 iconic hotels that represent approximately 90% of the company's value.
• The company is aggressively reinvesting in its core assets, with major ROI projects like the Royal Palm South Beach Miami renovation targeting substantial EBITDA growth and high unlevered internal rates of return (IRRs) of 15% to 20%.
• Despite macroeconomic headwinds, including a government shutdown and slower international travel recovery, Park has demonstrated strong cost discipline, achieving flat or declining expense growth for three consecutive quarters in 2025.
• Park maintains robust liquidity, with $2.1 billion available after successfully recasting its credit facilities, positioning it to address 2026 debt maturities and fund ongoing strategic initiatives.
• The company's outlook for 2026 and beyond is optimistic, driven by anticipated lower interest rates, a favorable regulatory environment, and major events like the World Cup, alongside historically low industry supply growth.

The Strategic Evolution of a Lodging REIT Powerhouse

Park Hotels & Resorts Inc. ($PK) stands as a prominent lodging real estate investment trust (REIT), forged from its spin-off from Hilton Worldwide Holdings Inc. on January 3, 2017. From its inception, Park embarked on a clear mission: to cultivate a portfolio of premium-branded hotels and resorts situated in prime city center and resort locations, operating as a REIT for U.S. federal income tax purposes. This foundational strategy has guided its journey, including the significant acquisition of Chesapeake Lodging Trust in September 2019, and has since evolved into a relentless pursuit of portfolio refinement and value creation.

The company's overarching strategy is to transform into an owner of high-quality, iconic hotels with compelling growth profiles. This involves a dual approach: aggressive capital recycling through the disposition of non-core assets and substantial, high-return reinvestments in its most strategic properties. This disciplined execution is designed to unlock significant embedded value within its portfolio, positioning Park for stronger performance in the years ahead.

Park's competitive edge is not rooted in proprietary physical technology, but rather in its sophisticated approach to asset management, operational efficiency, and strategic capital deployment. The company leverages deep-dive analyses into revenue and cost opportunities, optimizing staffing, procurement, and even challenging brand standards to drive operational excellence. This aggressive asset management strategy has yielded tangible benefits, such as a sector-leading 25% reduction in property insurance premiums and successful tax appeals. Management also anticipates future productivity gains from the advancement of AI, which is expected to enhance efficiency in areas like sales, marketing, and the overall guest experience over the intermediate and long term. This focus on data-driven operational improvements and strategic resource allocation serves as a critical differentiator in a competitive industry.

In the broader lodging landscape, Park operates within an environment characterized by historically low industry supply growth, which management views as a "clear path for RevPAR acceleration and sustainable long-term growth." Economic disruptions, including elevated interest rates, inflation, and geopolitical uncertainties, continue to influence consumer sentiment and travel demand. However, a more accommodative Federal Reserve, easing financial conditions, and sustained public and private sector spending (particularly in AI infrastructure) are expected to support a rebound in business investment and strengthen lodging fundamentals. Major events like the World Cup, Super Bowl, and 250th-anniversary celebrations in key markets are also anticipated to provide a significant boost to travel demand in 2026 and beyond.

Competitive Dynamics and Market Positioning

Park Hotels & Resorts holds a strong position as the second-largest publicly traded lodging REIT, competing directly with peers like Host Hotels & Resorts (HST), and indirectly with major hotel brands such as Marriott International (MAR), Hilton Worldwide (HLT), and Hyatt Hotels Corporation (H). While HST, like Park, is a lodging REIT focused on upscale properties, Park emphasizes its diverse portfolio of prime locations and fee-simple ownership in key markets like Hawaii, Orlando, and Key West, which it believes cannot be easily replicated. This direct control over high-value real estate offers Park greater efficiency in asset utilization and potentially stronger pricing power.

Compared to brand-centric companies like MAR, HLT, and H, which focus on franchising and management, Park's REIT structure and ownership model provide a different value proposition. While these brands excel in global reach and digital innovation, Park's strategy prioritizes long-term asset value and operational stability through direct investment. Park's cost leadership in real estate management, driven by its aggressive asset management team, aims to achieve notably lower operating costs, allowing it to maintain competitive pricing and potentially enhance gross margins. This contrasts with the flexible capital structures of franchisors, which may allow for faster expansion but potentially less control over individual property performance.

However, Park shares vulnerabilities with its peers, particularly economic sensitivity due to its reliance on travel demand. Downturns can impact occupancy and profitability, making it challenging to compete if innovation-driven rivals adapt more quickly. Additionally, as a REIT, Park's debt levels can be a vulnerability, potentially leading to higher interest expenses. Despite these challenges, Park strategically positions itself by focusing on its core portfolio of 20 assets, which account for approximately 90% of its value and are considered "as strong as any portfolio in the sector." The company's ongoing capital recycling efforts and reinvestments are designed to further enhance this core, ensuring a competitive edge through superior asset quality and operational efficiency.

Financial Performance and Operational Excellence

Park Hotels & Resorts has demonstrated a commitment to operational excellence and financial discipline, even amidst a challenging macroeconomic backdrop. For the nine months ended September 30, 2025, the company reported total segment revenues of $1,844 million, a decrease from $1,910 million in the same period of 2024. Hotel Adjusted EBITDA for the nine months ended September 30, 2025, stood at $483 million, down from $536 million in the prior year. Despite these top-line pressures, Park's aggressive asset management strategy has yielded significant results in cost control. The company achieved relatively flat expense growth in Q3 2025, marking the third consecutive quarter with expense growth of 1% or less. This was driven by deep-dive analyses into cost structures, productivity enhancements, and a 25% reduction in property insurance premiums.

The company's capital allocation strategy is evident in its cash flow activities. Net cash provided by operating activities for the nine months ended September 30, 2025, was $293 million, a decrease of $56 million compared to the same period in 2024, primarily due to lower occupancy at certain hotels, including the Royal Palm South Beach Miami due to its renovation. Investing activities for the nine months ended September 30, 2025, utilized $113 million, largely due to $188 million in capital expenditures, partially offset by $75 million from the sale of the Hyatt Centric Fisherman's Wharf. Financing activities used $311 million, including $230 million in dividends paid and $45 million for share repurchases.

Key operational highlights underscore the success of strategic reinvestments. The Bonnet Creek complex in Orlando, following its comprehensive renovation, delivered nearly 3% RevPAR growth in Q3 2025, with both the Signia and Waldorf Astoria achieving their highest third-quarter RevPAR and GOP in the complex's history. This complex is now forecasted to exceed $90 million in EBITDA for 2025, nearly 40% above its prior peak. Similarly, the Casa Marina Resort in Key West saw RevPAR growth of 1% in Q3 2025, with its RevPAR index reaching 110, an increase of nearly 800 basis points year-over-year, driven by strong group demand. The New York Hilton Midtown and JW Marriott Union Square in San Francisco also reported solid RevPAR gains of nearly 4% and 14%, respectively, in Q3 2025, benefiting from strong group and transient demand.

Strategic Initiatives and Forward Outlook

Park Hotels & Resorts is executing a clear strategic roadmap focused on portfolio enhancement, balance sheet strength, and shareholder returns. The company's commitment to high-ROI reinvestments is exemplified by the $103 million transformative renovation of the Royal Palm South Beach Miami. This project, which began in May 2025 and is expected to reopen in Q2 2026 ahead of the World Cup, is projected to generate a 15% to 20% unlevered IRR and more than double the hotel's EBITDA from $14 million to nearly $28 million upon stabilization. Other significant renovation projects, totaling approximately $220 million in 2025, include the final phases of guestroom tower renovations at both Hawaii hotels (Hilton Hawaiian Village and Hilton Waikoloa Village) and the second phase of guestroom renovations at the Hilton New Orleans Riverside.

The company's disposition strategy remains a core pillar, aiming to divest its remaining 15 non-core consolidated hotels to focus on its 20 high-quality core assets. This effort is expected to increase nominal RevPAR by nearly $6 and expand margins by approximately 70 basis points. Recent actions include the sale of the Hyatt Centric Fisherman's Wharf for $80 million and the closure of the Embassy Suites Kansas City Plaza, with two more non-core hotels slated for exit by year-end 2025. Proceeds from these sales are prioritized for debt reduction and further reinvestment in the core portfolio.

Liquidity and balance sheet management are paramount. In September 2025, Park successfully recast its credit facilities, increasing total liquidity to $2.1 billion. This includes a $1 billion senior unsecured revolver (maturing 2030) and a new $800 million senior unsecured delayed draw term loan (maturing 2031). This enhanced liquidity positions the company to address its approximately $1.4 billion in 2026 debt maturities, including the $1.275 billion mortgage on the Hilton Hawaiian Village, which is expected to be fully repaid by mid-2026. The company's dividend policy, currently yielding 9% to 10%, reflects a conscious decision to reallocate a potential top-off dividend for 2025 (preserving over $50 million) towards debt reduction and strategic investments, aligning with its long-term leverage target of 3 to 5 times.

For the fourth quarter of 2025, Park anticipates a significant rebound, with RevPAR growth projected to range between negative 1% and positive 2% (or positive 1% to positive 4% excluding Royal Palm). This is driven by a broad-based recovery in group demand, with group revenue pace up over 12% year-over-year, and easier comparisons in Hawaii following last year's labor strike. However, the extended government shutdown in October 2025 is estimated to have reduced room revenue by approximately $2.5 million, impacting Q4 results. For the full year 2025, management expects RevPAR growth to be down around 2% at the midpoint (or down 1% excluding Royal Palm), with Adjusted EBITDA forecast at $608 million (range of $595 million to $620 million) and Adjusted FFO per share at $1.91 (range of $1.85 to $1.97).

Looking ahead to 2026, group pace (excluding Hawaii and Royal Palm) is currently flat, with 2027 showing a 4.1% increase. Management is optimistic about 2026 and beyond, citing expectations for lower interest rates, a more favorable regulatory environment, a renewed investment cycle, and major events like the World Cup, Super Bowl, and New York/Boston's 250th-anniversary celebrations. The Hawaii market is expected to continue its ramp-up, with EBITDA potentially returning to prior peak levels by 2027.

Risks and Challenges

Despite a clear strategic vision, Park Hotels & Resorts faces several pertinent risks. Macroeconomic uncertainty, including elevated inflation and interest rates, continues to impact consumer sentiment and travel demand. Geopolitical conflicts, trade policy changes, and disruptions to government spending (such as the recent shutdown) can create volatility in key markets like Hawaii, Washington D.C., and San Diego. The recovery of the Hawaii market, while showing sequential improvement, has been slower than anticipated, partly due to reduced international visitation from Japan and Canada, and the upcoming closure of the Hawaii convention center in late 2025 for renovation will impact 2026 convention business.

The company's ongoing disposition strategy, while beneficial long-term, operates within a "challenging transaction market," which could affect the timing and pricing of asset sales. Furthermore, the default and receivership of the two San Francisco hotels, with a sale expected by November 21, 2025, or subsequent foreclosure, represents a significant financial event. While the company expects to be released from the associated $725 million SF Mortgage Loan obligation upon resolution, the process carries inherent uncertainties. Finally, while cost discipline has been a strength, managing labor expense growth, projected at 4% to 4.5% for 2026, will require continued vigilance.

Conclusion

Park Hotels & Resorts is strategically transforming its portfolio, shedding non-core assets to sharpen its focus on a concentrated collection of high-quality, iconic hotels. This disciplined approach, coupled with substantial, high-ROI reinvestments in its core properties, is designed to unlock significant embedded value and drive long-term shareholder returns. The company's robust liquidity and proactive balance sheet management provide a strong foundation to navigate near-term macroeconomic uncertainties and address upcoming debt maturities.

While challenges persist, including a slower recovery in certain markets and broader economic headwinds, Park's operational excellence and strategic positioning in resilient markets with limited new supply offer a compelling investment thesis. The anticipated tailwinds from a more accommodative economic environment and major events in 2026 and beyond further bolster its outlook. Investors should recognize Park's commitment to maximizing value through active asset management, strategic capital allocation, and a relentless pursuit of efficiency, positioning it for sustained growth in the evolving hospitality landscape.