• Reits churn as market stays strong

Park Hotels & Resorts announced a number of disposals, as shareholder HNA Group revealed plans to attempt to sell down its 25% stake.

Fellow owner Host Hotels & Resorts said that it was continuing to work on transactions as the global economy remained strong, despite a lack of hotels coming to the market.

At Park Hotels & Resorts, in a filing to the SEC, HNA Group said that it was “determined to pursue a sale” of “some or all” of the 25% stake it acquired in the group when it bought its stake in Hilton Worldwide in 2016. The deal was prior to the creation of the Park Hotels & Resorts Reit. HNA has made a number of disposals from its overseas investments in recent weeks as it works to cut debt.

The Reit itself has made a number of sales in recent weeks, in line with its previously-announced asset disposal programme. The group raised USD317m through the sale of 11 assets, including a portfolio of three Embassy Suites hotels, a group of seven UK hotels and one in South Africa.

Thomas Baltimore, chairman & CEO, said: “I am thrilled with our team’s success in executing our stated strategy of recycling capital out of non-core assets with significant expected capex, while dramatically reducing our exposure to international markets.

“Since the start of the year, we have closed on 12 asset sales totalling nearly USD379m with an average revpar of just USD106, or 36% lower than Park’s pro-forma revpar on a trailing 12-month basis, while saving an estimated USD132m of anticipated capex over the next few years.”

Commenting on HNA’s filing, Baltimore said that, while there were limitations, Park was able to buy back stock.

For the 2018, the CEO said: “There are a number of positive indicators, which should help support better operating fundamentals in 2018 including tax reform, infrastructure spend and an improved macro backdrop and a weaker US dollar, all of which could extend the cycle through 2019, if not longer.

“That said, while the evidence supporting stronger fundamentals are more tangible than just 12 months ago, the bottom line is that we have yet to witness a material pickup in corporate demand, a key variable in driving revpar growth materially higher from where we are today.”

Revpar was up 0.7% for the full year, but 1.7% in the fourth quarter. Looking to 2018, the group said that it expected revpar to be flat to an increase of 2%.

At Host Hotels & Resorts, Jim Risoleo, president & CEO, said the company’s strategy remained to own “the most geographically-diverse portfolio of iconic and irreplaceable hotels in the US”. With the cost of borrowing remaining low and performance strong, the CEO said that there was limited product coming onto the market.

The group is currently in the process of acquiring a USD1bn from Hyatt, with two resort hotels and  the 668-room Grand Hyatt San Francisco. Risoleo said: “You’ll see owners of hotels become sellers of hotels if they have unique reasons to do so. And one of the unique reasons that Hyatt had was that they’re going to asset-light. There has to be a particular reason why someone today would decide that it’s time to sell when financing markets are still relatively attractive.”

Risoleo said that the group was looking at resort and large city centre properties, “segments where the supply outlook for the next several years is anaemic”.

He added that overall supply and supply in the Reit’s markets “continues to tick higher, although not much greater than the long-term historical average. Looking out further, we expect to see supply moderating in 2019”.

Risoleo said that he expected the second half of this year to be stronger than the first, with the midpoint of comparable revpar growth guidance improving 20 basis points from 2017 to 1.5% on a range of 50 basis points to 2.5%. He said: “This slight acceleration is based on what we are seeing in the macroeconomic environment, as the global economy continues to exhibit strength and appears supportive to industry growth.”

Riseleo added that, following the recent tax cuts in the US: “People are feeling much better about the economy. They’re feeling better about spending money and investing. And when they feel better about investing, that means that they’re going to travel, and they’re going to come back to our hotels”.

HA Perspective [by Katherine Doggrell]: While stock coming to the market – of the type which appeals to Host – may be limited, the deals keep on rolling. Driving the group’s latest purchase was Hyatt’s move to asset light and there are plenty of operators which still have stock to sell – Marriott International leaps to mind. Whether it is at an agreeable price for both parties is the current issue.

But while portfolios churn, the so-recently-deal-hungry investors from China are looking to make their exits. Their arrival was expected to herald a new era, changing the face of the hotel sector, but that change was tripped up when China’s government reminded them that their version of capitalism differed slightly. The effort was half done and now the clean-up begins. Carlson and Rezidor only half united (although unified in brand – as we report elsewhere this week), the anticipated folding in of NH Hotel Group and Rezidor – a Spanish supergroup now looks the most likely outcome.

And Hilton. With HNA pulling out of Park, will it also look to make its exit from Hilton, a deal which many observers were doubtful at the time, the jitters heralding the current normal for deals involving China’s investors. If HNA continues its retreat, who will swoop it at Hilton and what else might they seek to bolt on?

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