- We sold our Park Hotels (PK) a month ago, just before the deluge.
- Our timing was lucky or brilliant; I’m going with lucky.
- We use trailing stops for almost all equity positions in our model portfolio.
- That strategic imperative has saved our clients many times; this time we are flush with cash to buy back our favorite stocks even more cheaply.
- The Casa Marina (a Waldorf Astoria property) Key West
- Hilton Hawaiian Village Waikiki
- The Fess Parker Hotel Santa Barbara
- The Hilton Berlin
- The Embassy Suites in Old Town Alexandria VA
- The Doubletree, Durango CO
- Hilton Boston Logan Airport - The only hotel connected to terminals: Here’s one of their “airport hotels” derided by some as “not luxury.”
We sold our Park Hotels (NYSE:PK) the morning of February 5, as well as a very large chunk of the rest of our holdings. We sold at $27.83. As of Friday, March 2, PK sold as low as 24.23. Why?
A big Chinese conglomerate, the HNA Group (SZ:000616), was a 25% shareholder of Park Hotels. Good thing. HNA way over-extended itself and got in big trouble. It announced as part of getting out of the hole they had dug themselves into they were going to sell all 53 million of their PK shares.
HNA is a big company, one of the Fortune Global 200. But even big companies can stumble, no matter what Jonathan Hart said. (In one “Hart to Hart” episode he opined that “the first $5 million is difficult, after that it is inevitable.”) But according to Bloomberg, HNA has of late been conducting a fire sale of properties in order to keep some of its other businesses afloat. They have sold $9 billion worth of assets. That’s the entire value of Park Hotels!
My full discussion of why I like Park so much was contained in one of three articles I wrote about the global hotel and lodging industry. This one was titled “Can Hotel Companies Survive Airbnb? This One Will.” You can see it here.
That article gave me a chance to reminisce a bit about some of my stays at these premier properties (funded for the most part by the loyalty points I accrued by staying at Park’s less upscale Hamptons, Hilton Garden Inns, and Doubletrees).
You see, Park today is comprised of 55 former Hilton Worldwide (NYSE:HLT) properties that Hilton spun off when it decided that managing, branding and marketing hotels was their real forte and allowed them to leverage those skills without tying up capital in property ownership. That’s “today.” Park’s plan, however, is to buy new properties and let the best bidders win their management, branding and marketing loyalty, be they Hilton, Hyatt (NYSE:H), Marriott (NASDAQ:MAR), Accor (OTC:ACCYY) or any other big “flag.”
Some have disparaged the airport properties and what some consider the “lesser” brands, but that's not necessarily correct. They also manage no-question luxury properties as well as a couple “other” alternatives for those of us who don’t need to spend $300 a night every time they travel.
Among the luxury category:
Here are some of the “others” which the critics note are not luxury properties. But just because they don’t bear the name Hilton, Conrad or Waldorf Astoria does not make them declasse!
By the way, having made many a transcontinental flight in my business career or personal travels, there is nothing, simply nothing, so luxurious as waking up in what is for my body the middle of the night and walking, yes walking, usually under cover, to the Hilton Heathrow, the Hilton Fiumicino (Rome airport) or the Hilton Boston Logan. We each define luxury in our own way! (Neither of these two Hiltons are Park Hotels but the way property owners change managers, you never know…)
As I said in that first article, I consider the spun-off properties some of the crown jewels of the lodging business, with lots of irreplaceable land and significant conference and meeting space. These properties are all accessible to Hilton guests’ loyalty awards program HHonors, and are mostly in the USA.
Location, location, location. Park has at least one hotel in 14 of the top 25 U.S. travel markets, almost all in central business districts, key on-airport hotels or in highly desirable resort locations, such as The Reach, a second property in Key Wes. The total current value of these properties is somewhere in the $8 to $9 billion range.
As I mentioned, Park has no obligation to acquire additional Hilton properties or to keep any particular Hilton property. It is a company that stands on its own, beholden to no particular flag. The company has, I believe wisely, elected to hire Hilton to manage its current properties, assuring it of continued competitiveness in attracting Hilton’s 73 million HHonors loyalty members. I’m certain a flag’s loyalty member base will be a key consideration in Park’s strategic decisions going forward.
Why am I buying Park anew?
First, of course, it is cheaper now so I can own more shares by using the proceeds from our sell. Even so, I will buy in two or more tranches, buying a little now, then more if, as I suspect, the markets will back and fill over the next few weeks. If I’m wrong I have a good position of a great company that pays me 6.6% a year and is likely to grow its distribution. If I’m right I have an even better position.
Second, I am buying the second-biggest lodging REIT and the 25th biggest REIT of any category. This means Park, in light of its recent sale of 12 properties (they had 67 last year) has plenty of cash to buy from those companies, partnerships or individual owners who over-extended themselves. There is considerably less competition for the very expensive “dream” properties that mirror many of those Park already owns.
Third, Park has superb geographic distribution. Its remaining hotels are in key US cities and resort areas, with 12% international – a figure I believe will grow. Because of the size of many of their properties they are not merely dependent on “putting heads in beds” as purveyors of limited-service brands are. Renting rooms is just 2/3 of Park’s revenue; the rest comes from food and beverage, conferences, weddings, etc.
In short, I like to buy quality. But I’m cheap. I like to buy quality when it is on sale. Selling at less than 9 times Funds From Operations, Park Hotels qualifies.
Disclaimer: Do your due diligence! What's right for me may not be right for you; what's right for you may not be right for me. Past performance is no guarantee of future results. Rather an obvious statement, but too many people look only at past performance instead of seeking the alpha that comes from solid research and due diligence.