Renovations And Asset Sales Will Unlock Premium Hotel Experiences

Key Takeaways

• Strategic investments and portfolio reshaping are driving stronger revenue growth, improved margins, and reduced volatility by focusing on premium, high-growth properties.
  
• Supply constraints, rising demand for upscale travel, and operational efficiencies position the company for above-industry growth in room rates, revenue, and profitability.
  
• Weak travel demand, high debt, rising labor costs, asset sales, and alternative lodging trends threaten sustained revenue, margin, and earnings growth in key markets.

Catalysts

Park is one of the largest publicly-traded lodging real estate investment trusts ("REIT") with a diverse portfolio of iconic and market-leading hotels and resorts with significant underlying real estate value.

• Significant reinvestment and renovations in key resort and urban assets (e.g., Royal Palm South Beach, Hilton Hawaiian Village, Waldorf Astoria Orlando) are expected to drive outsized growth in RevPAR, occupancy, and EBITDA once projects stabilize, leveraging travelers' increasing desire for experiential and high-end accommodations-likely supporting above-market revenue and net margin expansion.
  
• Strategic asset sales and portfolio reshaping, particularly the disposal of 18 non-core or underperforming hotels, are set to improve portfolio quality, lift average RevPAR, and expand net margins, driving higher long-term earnings and reducing revenue volatility as focus shifts to premium, high-growth properties.
  
• Ongoing strength in business and group travel demand in urban markets like New York, San Francisco, Denver, and Boston-as new and expanded business hubs power rebound in corporate and conference bookings-should meaningfully lift weekday occupancy, supporting higher overall revenue and EBITDA despite some near-term volatility.
  
• Supply constraints in top resort markets (e.g., Hawaii, Key West) combined with demographic-driven increases in leisure and destination travel are likely to enable established portfolios like Park's to grow room rates and revenues well above the industry average, while also supporting strong food & beverage and ancillary revenue streams to boost net margins.
  
• Operating leverage from cost discipline, technology adoption, and property insurance savings is expected to partially offset labor cost inflation and provide sustainable improvements to operating margins and net income, particularly as company redeploys capital from asset sales and expense controls into higher-return core asset investments.

Park Hotels & Resorts Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Park Hotels & Resorts's revenue will grow by 3.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.2% today to 7.4% in 3 years time.
• Analysts expect earnings to reach $215.2 million (and earnings per share of $1.14) by about August 2028, up from $57.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $99.8 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.6x on those 2028 earnings, down from 39.2x today. This future PE is lower than the current PE for the US Hotel and Resort REITs industry at 27.7x.
• Analysts expect the number of shares outstanding to decline by 4.31% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.29%, as per the Simply Wall St company report.

Park Hotels & Resorts Future Earnings Per Share Growth

Risks

• Persistent weakness in international inbound travel (especially from Japan to Hawaii) and prolonged recovery after labor strikes are contributing to multi-quarter RevPAR declines in core markets like Hawaii, which could continue to suppress revenue growth and delay a full earnings rebound until at least 2026 or later.
  
• The company's continued exposure to significant leverage and upcoming large debt maturities (notably the $1.275 billion CMBS on Hilton Hawaiian Village and $123 million mortgage on Hyatt Regency Boston in 2026) heightens refinancing and interest expense risk, potentially impacting net earnings and cash flow if capital markets remain challenging.
  
• Ongoing elevated labor costs across unionized properties (forecasted 4%-4.5% growth in 2026) combined with industry-wide staffing shortages could compress operating margins, particularly if the company exhausts further avenues for cost reductions and technology-driven efficiency.
  
• The planned disposals of noncore, often underperforming or ground-leased assets, while improving headline portfolio metrics, reduce overall diversification and total revenue base in the near term, increasing potential volatility in earnings from an even more concentrated core asset pool.
  
• Shifts in consumer preferences (toward alternative accommodations or unique lodging experiences) and secular risks from technology-enabled competitors (e.g., Airbnb), as well as economic/geopolitical uncertainty and soft Q3 group booking trends, may threaten long-term demand and pricing power-particularly in large urban gateway markets-putting pressure on RevPAR and overall revenue growth.

Valuation

• The analysts have a consensus price target of $12.692 for Park Hotels & Resorts based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $21.0, and the most bearish reporting a price target of just $10.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.9 billion, earnings will come to $215.2 million, and it would be trading on a PE ratio of 14.6x, assuming you use a discount rate of 12.3%.
• Given the current share price of $11.18, the analyst price target of $12.69 is 11.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.