Park Hotels & Resorts used its first-quarter results to announce a “second phase” of asset sales, having already cut its holdings outside the US.
The comments were made as Host Hotels & Resorts hailed the results of the global operators’ book direct policies, which were helping to drive improved results.
At Park Hotels & Resorts, the company said that, having sold 12 assets for USD379m, it was now looking to sell a further five to eight hotels, which were 33% to 35% below the portfolio’s average returns in addition to being capital intensive. The potential package accounted for USD30m to USD40m in Ebitda.
Following the sale of the Hilton Berlin, in which the group has a 40% stake, Park will have an ownership interest in just four hotels outside of the US, accounting for approximately 1% of Ebitda, down from 14 hotels and 5% respectively, at the beginning of the year. The Hilton Berlin was expected to generate gross proceeds of around USD367m or 19.8x 2017 Ebitda multiple equating to a 4.5% cap rate before adjusting for CapEx requirements.
Tom Baltimore, Park’s chairman & CEO, told analysts: “We could use the opportunity to diversify both brand and by operator. And we certainly like the families of brands – both Marriott and Hyatt come to mind among others. We want to grow and expand our relationships.
“We’re going to continue to improve our cost of equity that will allow us to go more aggressively on an offensive.”
The company reported a stronger quarter than expected, with a comparable portfolio revpar increase of 1.1% and relatively flat margins, down 10 basis points. The Reit took the opportunity to increase full-year earnings guidance, with Ebitda increasing by USD5m at the midpoint to a new range of USD710m to USD750m. The group increased its full-year revpar guidance range by 50 basis points at the midpoint to a new range of 0.5% to 2.5%.
At Host Hotels & Resorts, the company has also raised its full-year guidance, increasing the midpoint of comparable revpar by 50 basis points to 2%, and the midpoint of adjusted Ebitda by USD25m to USD1.525bn
The Reit, which announced that it was acquiring a USD1bn portfolio of three hotels from Hyatt in February, said that it had no additional purchases planned this year. It was due to close on the sale of the W New York this month for USD190m and included one additional asset sale in its revised guidance for 2018.
Jim Risoleo, president & CEO, said: “We’re very comfortable with the portfolio that we have today.
We would certainly be opportunistic sellers if we could achieve pricing on an asset or group of assets that exceeds our hold value.”
In terms of acquisitions, Risoleo said: “We’re not seeing a large amount of individual or portfolio acquisition opportunities that fit our profile. We have the only investment-grade balance sheet in the lodging Reit space, which we are committed to maintain as …provides flexibility to take advantage of value-creation opportunities throughout the cycle.”
Host supported the new cancellation policies being adopted by the operators, with Risoleo commenting: “We have seen a difference in booking patterns at the hotels. And most importantly, we’re delighted that our property managers are enforcing the policies. We saw an uptick in cancellation fees in quarter one. It wasn’t across the portfolio, it really dealt with the groups at five different hotels. But to be able to collect cancellation fees from groups, that is really something new.”
He added: “Travel agent commissions declined in the quarter, providing 10 basis points in the margin benefit. Notably, during the first quarter, we saw direct bookings grow more than OTAs since Marriott introduced its book direct initiative in early 2016. This is an encouraging trend at the end, demonstrates that customer habits are evolving, which is great as the customer acquisition costs are materially lower than what people book through marriott.com.”
Park’s CEO was also in favour of the cut in commissions, with Baltimore describing the move by Marriott International as “a prudent, necessary and a wise move and we wholeheartedly support it”.
HA Perspective [by Katherine Doggrell]: What the Reits are doing in terms of buying, selling or sitting on their hands tends to inform the rest of the market and, with Park confident that it can recycle its assets as it looks to upgrade and diversify, the current round of activity looks set to continue.
As previously advertised, Park has been looking to diversify away from its Hilton roots, in addition to moving upscale and, despite initial owner resistance, it looks as thought the book direct and various booking policy changes at the global operators are making for an attractive beauty parade.
These words of faith – and accompanying proof of cash coming their way – will catch the eyes of other owners. Host was also looking to Marriott’s renegotiation of a significant OTA contract later this year with some enthusiasm. The influence of the Reits may extend further than the transactions market, as they may prove to be the best PRs the operators have.