Why PK Stock Has Big Potential
It’s taken some time, but things are looking up for hotel and motel real estate investment trusts (REITs) like Park Hotels & Resorts Inc (NYSE:PK).
The U.S. hospitality industry was devastated by the 2020 COVID-19 pandemic, with more than four million hospitality jobs lost. In 2021, the American Hotel & Lodging Association said the broader travel and hotel industry wasn’t expected to make a full recovery until 2024. (Source: “AHLA’s State of the Hotel Industry 2021,” American Hotel & Lodging Association, January 21, 2021.)
How has that prediction held up?
The U.S. hotel industry’s revenue per available room (RevPAR) rose by 4.8% year-over-year in 2023. Another important metric, average daily rate (ADR), increased by 4.2% year-over-year in 2023, far exceeding the projected growth of 1.4%. (Source: “2024 State of the Industry Report,” American Hotel & Lodging Association, last accessed June 3, 2024.)
That growth is expected to continue in 2024, with the industry’s ADR projected to climb by three percent to $160.16 and RevPAR projected to increase by 4.1% to a nominal high of $101.82. Meanwhile, the occupancy rate is forecast to hit 63.6% in 2024, just 3.4% shy of the 2019 level.
As a result, U.S. hotels are expected to report a record-high $758.0 billion in guest spending for 2024, setting new records for tax revenues at the federal, state, and local levels. This is a big jump from 2023’s record-high guest spending of $723.4 billion.
Park Hotels & Resorts is one of the largest publicly traded lodging REITs, with a geographically diverse portfolio of 43 branded hotels and resorts with more than 26,000 rooms. Its properties are in major U.S. markets with high barriers to entry, including 13 of the top 25 markets. (Source: “About Park,” Park Hotels & Resorts Inc, last accessed June 3, 2024.)
More than 86% of the company’s portfolio is in the luxury or “upper-upscale” markets, and 100% of its portfolio is located in the U.S.
Park Hotels & Resorts is affiliated with leading brands such as “Hilton,” “Marriott,” and “Hyatt.” It also partners with brand and third-party operators.
The REIT’s portfolio includes DoubleTree Hotel Sonoma Wine Country, Hilton Orlando Lake Buena Vista, Hilton Waikoloa Village, Hyatt Regency Mission Bay Spa and Marina, and New York Hilton Midtown. (Source: “Portfolio,” Park Hotels & Resorts Inc, last accessed June 3, 2024.)
Park Hotels & Resorts Inc Reports Sector-Leading RevPAR
For the first quarter ended March 31, Park Hotels & Resorts announced total revenues of $639.0 million, down slightly from $648.0 million in the first quarter of 2023. (Source: “Park Hotels & Resorts Inc. Reports First Quarter 2024 Results,” Park Hotels & Resorts Inc, April 30, 2024.)
The company’s comparable RevPAR increased by 7.8% year-over-year to $175.65, with its comparable total RevPAR climbing by 6.6% to $289.68. Its comparable occupancy rose from 67.4% to 70.9% and its comparable ADR went up by 2.5% year-over-year to $247.91.
Park Hotels & Resorts reported first-quarter net income attributable to stockholders of $28.0 million, or $0.13 per diluted share, down from $33.0 million, or $0.15 per diluted share, in the same prior-year period.
The company’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) went up by 11.0% year-over-year to $162.0 million. Its adjusted funds from operations (AFFO) attributable to stockholders advanced 20.7% to $111.0 million, or $0.52 per diluted share.
Commenting on the results, Thomas J. Baltimore, Jr., Park Hotels & Resorts Inc’s chairman and CEO, said, “I am incredibly pleased with our first quarter results as demand trends accelerated across all segments, fueled by the strategic investments we have made in Hawaii, Key West and Orlando that we believe will continue to drive performance in 2024 and beyond.” (Source: Ibid.)
Management Raised Dividend to $0.25 Per Share
As a REIT, Park Hotels & Resorts is legally obligated to return at least 90% of its taxable earnings to its shareholders in the form of dividends. This helps explain why it has a high dividend yield.
On April 19, the REIT declared a dividend of $0.25 per share—to be paid on July 15—up from $0.15 per share in July 2023. (Source: “Dividends & Tax Information,” Park Hotels & Resorts Inc, last accessed June 3, 3024.)
As of this writing, the new dividend works out to a forward yield of 6.31%.
While the company has to pay out at least 90% of its taxable income to investors, it targets a payout ratio in the range of 65% to 70% of its AFFO per share for the full year. Based on the company’s current guidance, that translates to an incremental top-off dividend to be declared during the fourth quarter of this year.
What would this look like? In the fourth quarter of 2023, Park Hotels & Resorts Inc declared a dividend of $0.93 per share, which it paid on January 16, 2024.
It hasn’t been all sunshine and big fourth-quarter distributions, though. Park Hotels & Resorts failed to pay dividends for most of 2020 and all of 2021 before reinstating them in the first quarter of 2022.
That was hardly an anomaly. Many companies suspended or cut their distributions during the 2020 COVID-19 crisis. This simply means investors need to pay close attention to their investments and consider how they could be affected by economic downturns and black swan events.
Park Hotels & Resorts Stock Has 50% Upside Potential
PK stock took a massive hit during the pandemic, but it has bounced back since then.
Trading at $15.94 as of this writing, Park Hotels & Resorts stock is up by six percent year-to-date and 34% year-over-year. There’s plenty of room for growth. PK stock needs to climb by approximately 20% to get to where it was in January 2020 and needs to rise by 55% to reach its record high of $24.75 in May 2019. (Source: “Park Hotels & Resorts Inc. (PK),” StockCharts, last accessed June 3, 2024.)
Investors might not have to wait long for the stock to get there. Of the Wall Street analysts providing a 12-month share-price target for Park Hotels & Resorts Inc, their average estimate is $18.31 and their high estimate is $24.00. This points to potential gains in the range of roughly 15% to 50%.
Chart courtesy of StockCharts.com
The Lowdown on Park Hotels & Resorts Inc
Park Hotels & Resorts is a hotel REIT that has seen its fortunes improve drastically since the 2020 pandemic. It continues to see increased demand from tourists, business travelers, and groups at its urban and resort hotels.
Moreover, the company’s solid first-quarter results were juiced by strategic investments in Hawaii and Florida. These destinations are expected to help drive the REIT’s financial performance throughout 2024 and beyond.
With current liquidity of more than $1.3 billion, Park Hotels & Resorts Inc said it will continue to focus on its strategic objective of creating long-term shareholder value. This includes reshaping its portfolio by investing in value-enhancing return-on-investment (ROI) projects, disposing of non-core assets, and strengthening its balance sheet by extending maturities.
That bodes well for Park Hotels & Resorts stockholders.