Bear of the Day: Park Hotels (PK)

Ella Castle

Park Hotels and Resorts (PK) is at the epicenter of the coronavirus pandemic as travelers stay home. This Zacks Rank #5 (Strong Sell) still doesn’t have all of its hotels reopened. Park is the second largest publicly traded lodging REIT with 60 premium-branded hotels and resorts with over 33,000 rooms. […]

Park Hotels and Resorts (PK) is at the epicenter of the coronavirus pandemic as travelers stay home. This Zacks Rank #5 (Strong Sell) still doesn’t have all of its hotels reopened.

Park is the second largest publicly traded lodging REIT with 60 premium-branded hotels and resorts with over 33,000 rooms.

It’s premium properties include the Hilton Hawaiian Village Waikiki Beach Resort, Hyatt Regency Boston, Royal Palm South Beach Miami, a Tribute Portfolio Resort and the Hilton Checkers Los Angeles, among others.

A Business Update in September

On Sep 14, Park provided an operational and liquidity update as it navigates the coronavirus pandemic in one of the industries most impacted.

The Company has reopened 14 hotels since June, increasing the total number of hotels open to 46 out of its 60 hotels, or 77%.

That is 59% of total room count.

In the month of July, occupancy improved to 32.3% for the 33 consolidated hotels open during the entire month.

In the month of August, occupancy also improved to 38.8% for the 37 consolidated hotels open for that entire month.

Given the continuing impact on the business, Park did permanent property-level full-time layoffs which represented future annual savings of $50 million to $70 million throughout the portfolio based on 2019 operations.

It also extended its revolving credit facility with its lenders by 2 years, as it continues to navigate the pandemic.

Status on Hotel Reopenings

Park reopened 10 hotels in July, 2 in August and 2 in September, as of September 14.

During the fourth quarter, it hopes to open an additional 12 hotels which will bring the total of open hotels to 58, or 97% of the portfolio room count.

The remaining 2 closed hotels are expected to reopen in the first quarter of 2021.

Park’s estimated hotel level break-even occupancy is 35% to 40%, assuming a 15% to 20% decrease in ADR compared to the comparable period in 2019.

In July, the Company had 11 hotels reach operational break-even levels (inclusive of one unconsolidated joint venture hotel).

What About the Cash Burn?

As of July 31, 2020, Park had cash and cash equivalents of $1.248 million, including $35 million of restricted cash.

It’s actual monthly average burn rate during the second quarter of 2020 was $59 million.

That rate was reduced to $51 million during July 2020.

As of Sep 14, it had current total liquidity of $1.5 billion and an approximate burn rate of $50 million per month.

Park estimated it had approximately two and a half years of liquidity available to meet its financial obligations.

Analysts Cut 2020 and 2021 Estimates

Analysts have gotten bearish on Park over the last 2 months.

7 estimates have been lowered for 2020 and 2021 over the last 60 days. That has pushed the 2020 Zacks Consensus down to a loss of $1.44 from a loss of just $0.79 two months ago.

That’s an earnings decline of 150% from 2019, where the company made $2.88.

2021 has also seen the Zacks Consensus slide over the last 60 days.

Analysts no longer expect the travel industry to rebound as quickly as they once thought. They now expect 2021 earnings of a loss of $0.24, down from $0.64 two months ago.

Shares Remain Depressed

Not surprisingly, with travel still struggling, Park hasn’t seen much of a rally in its shares this year, which remain down 54.9% year-to-date.

Over the last 3 months, they’ve mostly been treading water, however, down just 1.4%.

The Company suspended its dividend in the spring so investors have to simply wait it out and hope that travel starts to return heading into 2021.

This is a tough time for all of the hotel REITs.

Xenia Hotels & Resort (XHR) is also a Zacks Rank #5 (Strong Sell) while Apple Hospitality REIT (APLE) is a Zacks Rank #4 (Sell).

Investors may want to wait on the sidelines until there are signs of further recovery.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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