Urban Hotels Will Suffer As Costs And Competition Mount

Key Takeaways

• Shifting travel trends, changing demographics, and rising competition from alternative accommodations threaten Park's ability to maintain pricing power, profitability, and sustained revenue growth.
  
• Persistent cost pressures from aging assets, union labor, and climate-related expenses will continue to erode margins and constrain free cash flow despite operational efficiencies.
  
• Strategic asset rotation, targeted renovations, operational discipline, and favorable demand in key markets are driving portfolio quality, margin expansion, and long-term shareholder value growth.

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.

• As the adoption of remote work and virtual meetings accelerates in the coming years, fundamental demand for traditional business travel and group events is likely to shrink, leading to softer occupancy rates and persistent revenue headwinds for Park's urban and conference-focused hotels, compressing both RevPAR and earnings growth well below historical levels.
  
• Park Hotels & Resorts faces long-term demographic and consumer preference shifts, with younger generations increasingly favoring alternative lodging options and experiential travel, eroding pricing power and limiting the company's ability to drive sustained rate growth, which will impair ADR and negatively impact net margins.
  
• Park's heavy concentration in high-cost, unionized urban markets with aging assets will necessitate substantial ongoing capital expenditures just to maintain competitiveness, leading to continued margin pressure and diminished free cash flow as capital intensity outweighs earnings improvement from limited renovations.
  
• The hospitality REIT sector is expected to face ongoing pressure from rising labor and regulatory costs, as well as increased property risk and insurance premiums associated with climate change and extreme weather events, further challenging Park's ability to maintain profitability even as recent cost controls unwind and one-off savings are exhausted.
  
• Intense and growing competition from short-term rental platforms and alternative accommodations is anticipated to curtail Park's market share gains and limit overall rate growth for traditional hotels, putting downward pressure on both revenue and long-term EBITDA as travel behaviors and industry economics structurally shift away from legacy operators.

Park Hotels & Resorts Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Park Hotels & Resorts compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Park Hotels & Resorts's revenue will grow by 1.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 2.2% today to 4.5% in 3 years time.
• The bearish analysts expect earnings to reach $121.1 million (and earnings per share of $0.72) by about August 2028, up from $57.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 20.5x on those 2028 earnings, down from 35.7x today. This future PE is lower than the current PE for the US Hotel and Resort REITs industry at 25.8x.
• 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 12.32%, as per the Simply Wall St company report.

Park Hotels & Resorts Future Earnings Per Share Growth

Risks

• Strategic divestment of noncore hotels and reinvestment into high-performing core assets is expected to significantly boost portfolio quality, RevPAR, and operating margins, leading to improved EBITDA and long-term earnings growth.
  
• Comprehensive renovations and upgrades at flagship properties in key markets such as Miami, Hawaii, and New Orleans are projected to generate double-digit returns on investment, higher ADR, and substantial increases in property-level EBITDA as renovated assets stabilize.
  
• Sustained operational discipline, particularly aggressive cost controls, deep-dive expense management, and technology-driven efficiency improvements, are yielding historically low expense growth and expanding EBITDA margins, supporting stronger free cash flow and profitability.
  
• Robust demand trends in core urban and resort markets, with record-setting group and transient revenues in Orlando, Key West, and Puerto Rico, as well as improving business travel and bleisure demand in cities like New York and San Francisco, are driving resilient RevPAR growth and supporting top-line revenue strength.
  
• The long-term outlook in supply-constrained markets like Hawaii is highly favorable, with very limited new hotel supply expected, rapid recovery from one-off labor disruptions, and strong projected RevPAR and EBITDA growth as international airlift returns, all underpinning above-average shareholder value creation.

Valuation

• The assumed bearish price target for Park Hotels & Resorts is $10.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Park Hotels & Resorts's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• 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 bearish analysts, you'd need to believe that by 2028, revenues will be $2.7 billion, earnings will come to $121.1 million, and it would be trading on a PE ratio of 20.5x, assuming you use a discount rate of 12.3%.
  
• Given the current share price of $10.17, the bearish analyst price target of $10.0 is 1.7% lower. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• 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.