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Pick Up Park For Peanuts


  • The value investor’s purpose is to capitalize upon “a favorable difference between price on the one hand and indicated or appraised value on the other.”.
  • While Park lacks diversified brand affiliations, the company mitigates the risk by owning such a diversified portfolio.
  • Park is trading at almost the same multiple as Chatham (8.6x), suggesting that Park is getting absolutely no credit for its diversified platform and premium brand flags.
  • I am upgrading Park from a Buy to Strong Buy.

Last week, Chinese conglomerate HNA Group, a 25% shareholder of Park Hotels & Resorts (NYSE:PK), announced that it was seeking to sell all or part of its ownership (more than 53 million shares). As Floris van Dijkum, equity analyst with Boenning & Scattergood, wrote in a research report,

The HNA situation should continue to depress PK’s stock performance until the overhang is lifted. New of the pending sale helped to send PK’s share price down 5.8% on Friday.”

HNA was founded in 2000 and is involved in a variety of industries such as aviation, real estate, financial services, tourism, logistics, and more. In addition to PK, HNA also has substantial stakes in Grand China Air and Hilton Worldwide (HLT). In July 2017, HNA was ranked #170 in Fortune Global 500 companies with more than $53.335 billion. (Source: Wikipedia)

According to Bloomberg, HNA is selling assets because of a “liquidity squeeze” in which more than $9 billion in HNA asset sales have emerged:

A screenshot of a cell phone Description generated with very high confidence

Reuters cites “HNA’s leverage” and “aggressive financing policy” for the aggressive actions and said that “in recent weeks (HNA has) also has raised additional financing by selling expensive short-term debt and pledging more of its shares for loans.”

Since the HNA news on Friday (March 2nd), PK shares have declined ~5%:

A close up of a map Description generated with very high confidence

In my last PK article (on Seeking Alpha) I wrote that “when you invest in Park you are essentially investing in the premium Hilton brand. Conrad Hilton knew a thing or two about branding and the value proposition for owning shares in Park today is that you are essentially getting a slice of one of the best hotel brands in the world, at a discount.”

Conrad Hilton said,

The buyer is entitled to a bargain. The seller is entitled to a profit. So there is a fine margin in

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Brad Thomas profile picture

Brad Thomas has over 30 years of real estate investing experience and has acquired, developed, or brokered over $1B in commercial real estate transactions. He has been featured in Barron's, Bloomberg, Fox Business, and many other media outlets. He's the author of four books, including the latest, REITs For Dummies.

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Comments (66)

Thx for your screaming buy Brad. Got in for 400 @ $26. Currently trying to sell an Oct $30 call for $2.50. That would allow me 2 more divs plus the special one they announced. Tidy profit especially that I'm Canadian and your dollar is 1.28 times ours... Keep writing
Brad Thomas profile picture
Been traveling....please message me...also, who can beat me in BRACKETOLOGY?

Sill waiting for a response to my March 8 post.
douglass.list.31moorgate profile picture
Yes, see comments about mid-way through the discussion board above. Management said nothing at the time about the dividend increase in December being special. But then they decided to go back to the old dividend rate in March, retroactively declaring that the December increase was a one-off deal.

As best as I can tell, all of the dividend tracking community viewed the December increase as just that, an increase. And published that conclusion. And the company never issued a press release to state that the dividend increase had been misinterpreted.

In my view, calls into question the integrity of management communications.
hafen profile picture
Uh, I just received notice from Simply Safe that the PK dividend was reduced by 22%. What’s that about?
Please explain why in the March 2018 Forbes Real Estate Investor you list PK as a HOLD (which implies sell) in the Durable Income Portfolio, a HOLD in the KISS Reit Portfolio, and a SALSA and TRIM in your lab, and today you say you are upgrading it from a

Something smells rotten in Denmark. I am very disappointed in your Opinion Quality Control. People are looking to you for sound investment advice.
What is the current quarterly dividend for PK? SA shows it to be $.55 per quarter, but according to PK's website, the last dividend declared on 2/23 was $.43 to be paid on 4/16/18. SA has no mention of the dividend declared on 2/23.

What gives?
Vandooman profile picture
Brad, I think PK just was run up too far last year and has come back down. I am still above water with a slight gain since I bought it last year. Good performance considering the rest of the REIT sector. I like the capex numbers but would like to see what portion was maintenance and renovations. A good hotel group should be spending 4% of revenues to maintain the brand.

In terms of quality of assets we shouldn't confuse luxury with quality for an investor. The 30 hotels at the lower end are probably less sensitive to recession than the top end. In recession business travel gets cut back substantially. In a recession 85% of the population are as well off as they ever were and still need to travel. Sales personnel still need to travel and many receive fixed hotel allowances rather than just having the costs covered. They are motivated to not stay in luxury hotels.
wildpitcher profile picture
Long PK and PEB in sort of a barbell hotel REIT investment.

Guy at Work reading SA profile picture
Been following the sector and this stock in particular for awhile now but I don't know if the bottom is in
Don’t buy a5 bottom it unpredictable buy a5 good value
NecessityMadeMeDividendInvestor profile picture
Thank you Brad for great article. But as I own CLDT already I will stick with that. They are almost same in DY and FFO, I do not monitor price to much.
IMO, the hospitality sector is a big AVOID.
HT has promise, perhaps.
ckarabin profile picture
Why is hospitality an "avoid.?"
Vandooman profile picture
Opinions are great but would like to know the logic behind it. Otherwise meaningless.
Dividend history too short. I see they raised then lowered. Wondering why.
Kenny_G profile picture
@AlieGee Check out the other prior comments, the "apparent" dividend issue you speak of is well explained by other commenters.
Yes, thanks Kenny.

PSPnomore60 profile picture
Anyone have thoughts of PK vs HT???
ckarabin profile picture
HT is much smaller but very profitable. They also seem to be willing to trade in hotels more too. Lately because book is so much higher than the stock, they have been selling off a few hotels at the higher market value and then buying back shares at well below book. That really increases shareholders equity per share as probably FFO/share too. It really is a no brainer of an investment.
My wife and I stay at Hilton Hotels a lot, including NY Hilton. They consistently are good in all respects. We have lots of Hilton points (because HGV timeshare salesman is smarter than me. :-)
PSPnomore60 profile picture
They almost got us too-- but we were able to get out before really getting stuck.
Unfortunately I held on to my Park after the spin-off from Hilton. It has been disappointing investment as though the company has repeatedly talked about acquisitions so far as pointed out in this article it has disposed of 12 properties. The stock price has underperformed. No acquisitions yet but hopefully they will move up to more luxury properties as management has promised.

I would take issue with PK being a purely luxury and high end properties holding company. PK certainly owns some amazing properties. Breaking down the properties that are not premium PK owns 21 airport properties which 9 are Double Tree, 2 Embassy Suites and 2 Hilton Garden Inn Hotels. PK owns a total of 11 Double Tree, two it calls resort properties, one resort property in Durango, Co and one resort property in California. 7 Embassy Suites and 2 Hilton Garden Inn Suites and 1 Hampton Inn in Memphis, Tn. certainly not high end luxury hotels.

This article does not really make it clear that PK only owns 55 properties not 67 though it does point out 12 were disposed. An uninformed reader might have thought PK previously owned 79 properties. The article would further lead you to believe that all hotels are high end when they own 30 properties that are certainly not leaving just 25 that are really high end properties. The article does not address the one property in Puerto Rico the Caribe was heavily damaged during the Hurricane and will be out of service for 2018.

The author states when you invest in Park you are essentially investing in the premium Hilton brand. Certainly PK does own some but the majority are not.

Just wanted to give some insight as a investor who has been following PK. I am close to selling PK as even the website of PK misleads investors to believe all properties are high end. Hampton Inn in Memphis definitely not. Double Trees are not either. I have stayed in many!! Further the disposal of 12 properties is going to lower the bottom line plus the Caribe is an added liability for 2018. After reading my article I will sell.
Orphan Brigade profile picture
Thanks for the information. I agree that not all their properties are "high end" however if they perform well then that is a plus and ok with me. Hampton Inns, Embassy Suites and Hilton Garden properties are focused on a particular customer base and business travelers who looking for a clean place to stay with quick access and maybe a decent breakfast. I have stayed in the Hampton Inn in Memphis, it was fine. I have also stayed in three of four of their high end properties and everything was spot on..

As long as PK remembers that the quality of service and value for a nights stay remain in their crosshairs they will do fine. JMHO..
Agreed on the luxury hyperbole, but SA writers in general and Brad in particular use a lot of language they pull right off the company website. IIRC, he said the same thing about CLDT's portfolio and they are all limited service hotels, not even close to "luxury" as far as I am concerned. I would go a step further on PK and say, none of their assets are luxury quality. Doesn't mean they are not good assets though. I like that they are selling off the lesser quality assets and those with limited service flags. They were saddled with the entire portfolio and need to cull the garbage and add some better assets with the proceeds. Long PK
I hope you are wrong about authors simply copying off the website. Certainly it is better to interpret the information. Disappointed how this article would have you believe the fluff of the companies website of being a only high end luxury hotel when it owns about 30 properties that are clearly not. The article also really does not make it clear that PK has 55 hotels now and only 32,000 rooms since the disposal of 12 properties. Pretty significant reduction bound to hit the bottom line. Also no mention of Caribe Puerto Rico property out for all of 2018 because of being virtually destroyed by the Hurricane. Really do not see how the author can see this a strong buy. Hope PK will start making acquisitions that more fit the billing from it website “Our portfolio consists of 55 premium-branded hotels and resorts with over 32,000 rooms located in prime U.S. and international markets with high barriers to entry” Certainly some are but many are not!!
troon55 profile picture
If HNA is selling their shares at $25.75, why is it a buy at $26.74 ?
Choosh profile picture
The commoners never get to buy any of the secondary offerings at the stated prices, that lovely discount is scooped up by the usual privileged suspects...board members, banks.

If you have an idea when the next recession is coming, plan to get out of PK safely before then as this it will be one of the worst types of stocks to hold and there is no room for timing errors.
Orphan Brigade profile picture
Hard to predict that one...
Vandooman profile picture
Not sure that makes sense. If dividend coverage has excess room you will still get a good dividend. Interest rates fall in a recession which makes the dividend more valuable. In any case the last recession was not normal so it means very little. We do not have a huge asset bubble with enormous housing projects in the desert. I made money out of the last recession, lots of it. When blood is in the streets you back up the truck.
2bears profile picture
Article is a day late and dollar short.

Not a cut. $0.55 was a special event, normal dividend has been $0.43 since the beginning.
Orphan Brigade profile picture
Thanks, much appreciated
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