Summary
- We believe that suspension of operations is likely to last through year-end.
- Disruption in the airline industry is in some ways even more significant than the closure of hotels on its own.
- $30 MM in lost revenue for March-April is the tip of the iceberg.
When it comes to hotel companies, some investors believe that most negativity has already been absorbed and we have hit the bottom, particularly now, when most states are getting ready to reopen. For Park Hotels & Resorts, in our view, this verdict is simply not in. Below, we remind investors of the business and discuss key headwinds for the company, which overall translate into a tough road ahead. We end our article by discussing the valuation and core risks to our Bearish thesis.
About the Company
Park Hotels & Resorts Inc. (PK) owns a portfolio of 60+ hotels and resorts in both United States and Europe, mainly the United Kingdom, operating a total of some 34K rooms. Hotels are located in New York, Chicago, San Francisco, Washington, D.C., as well as London, to name a few locations (see slide below). In addition, the company positions hotels next to core airports in major cities, such as Chicago and Los Angeles. Among PK's affiliated brands are DoubleTree by Hilton, Embassy Suites by Hilton, Waldorf Astoria Hotels & Resorts, and many others.
Source: Company Documents
Core Headwinds Ahead:
Suspension of operations likely to last through year-end: While it is true that gradual reopening of various hotels is likely in the coming weeks and even days, nevertheless we need to remember that the opening of hotels does not translate into occupancy rates. As of late March, PK closed more than half of its available hotels, and this came after what was already a dismal six-week period. In other words, lost revenue was not an issue upon closure; it was actually all about the SG&A cost savings at the time.
Airline industry disrupted for at least 1 year, perhaps more: Unless there is a cure and/or a vaccine, we can assume that disruptions in the airline industry become a permanent reality. This in itself deals a severe below to all the hotels situated near the airports, such as O'Hare or Logan. We estimate as much as 6% hit to the annual revenue in 2020 and things may not get any better in 2021, even if there is no second coronavirus wave.
