Instead of creating value, Park Hotels & Resorts has destroyed it. That's due in part to the company's activity since its formation as it has bought and sold several hotels. For example, in 2018, the REIT unloaded 13 non-core properties, including 10 of its 14 international hotels, for $519 million. Meanwhile, it acquired rival hotel REIT Chesapeake Lodging Trust and its 18 properties in 2019 for $2.5 billion to diversify its hotel brands by adding Marriott (NASDAQ: MAR) and Hyatt (NYSE: H) to its portfolio. The REIT has since sold 10 more hotels, including its remaining international properties, for $688 million in cash. All this wheeling and dealing has seen the REIT shrink its hotel portfolio from 67 at its spinoff to 60 at last count.
Despite that overall shrinkage, both its debt and outstanding share count have risen. Meanwhile, its diluted AFFO per share had only improved from $2.78 in 2017 to $2.88 by 2019.
Making matters worse was the COVID-19 outbreak of 2020, which wreaked havoc on the hotel sector. The REIT had to close several hotels -- only 48 of 60 were open at the end of the third quarter -- suspend its dividend, and make other moves to preserve cash and shore up its balance sheet.
Getting back on mission
Park Hotels & Resorts has an ambitious vision. It wants "to be the preeminent lodging REIT, focused on consistently delivering superior, risk-adjusted returns for stockholders." While it hasn't delivered on that mission in the past, that doesn't mean it can't succeed in the future.
It has already taken some steps toward enhancing shareholder value by improving its portfolio's quality and profitability since its spinoff. That's evident in three key metrics from their pre-spin levels in 2016 to last year. Comparable RevPAR is up 16% to $196. Meanwhile, comparable hotel adjusted EBITDA margins have improved from 27.7% to 29.5%, while that metric has increased 22% per key to $30,600.
The company aims to continue improving its portfolio and financial performance in the future. In the near term, the REIT's primary objective will be to navigate the pandemic by reopening hotels, improving occupancy, reducing its cash burn rate, and deleveraging its balance sheet. That will allow it to take advantage of opportunities to go on offense as market conditions improve by acquiring distressed or discounted assets that align with its investment strategy. Those future additions could enable the REIT to grow its FFO and shareholder value in a post-pandemic world.
However, the hotel industry faces some potential long-term headwinds. The pandemic has accelerated the adoption of video conferencing solutions like Zoom (NASDAQ: ZM), which might cause business travel to remain below its pre-COVID-19 level. On top of that, the industry faces increasing competition from short-term rental rivals like Airbnb (NASDAQ: ABNB). These issues could impact hotel demand, weighing on RevPAR and EBITDA for hotel operators like Park.
The probability seems low
While Park Hotels & Resorts aims to generate best-in-class shareholder returns, the REIT hasn't delivered since its creation a few years ago. It faces a tough uphill battle to achieve that goal in the future, given the hotel industry's headwinds. Because of that, it doesn't look like this REIT has millionaire-making potential.