Park Hotels & Resorts has increased the pricing of an offering announced in May from $650m to $725m.
The news followed a trading update which saw the group announce that it had total liquidity of $1.5bn, giving it approximately two and a half years of liquidity available.
The group had a burn rate of approximately $50m per month, taking into account both open and suspended hotels. The Reit also increased its carve out for acquisitions funded with equity proceeds from $500m to $1bn.
The proceeds raised by the offering will be used to repay the company’s existing $631m term loan, which was due to mature in December 2021. Any remaining proceeds will repay amounts outstanding under the company’s revolving credit facility.
The Reit has reopened 14 hotels since June, increasing the total number of hotels open to 77% of the portfolio, or 59% of total room count. Occupancy improved to 32.3% for Park’s 33 hotels open during the whole of July and 38.8% for Park’s 37 hotels open during August.
The group said that staff cuts would mean future annual savings of $50m to $70m.
Thomas J. Baltimore, Jr., chairman & CEO, said: “I am extremely pleased with the progress we have made on many fronts as we continue to navigate this crisis. Over the past couple of months, we have opened additional hotels and experienced better than expected results through July and August, and we have begun to quantify and execute on cost-savings initiatives as we work with our operating and brand partners to reposition the operating model.
“Additionally, we have completed an amendment process with our lending partners to extend our revolving credit facility by two years, further improving our liquidity position and providing us additional flexibility as we look to turn the corner and pursue opportunities as they develop in the coming months. I would like to personally thank all of our partners and stakeholders for their efforts in support of Park as we weather this global pandemic.”
The group reopened 10 hotels in July, two hotels in August and two hotels to date in September. It expected to reopen an additional 12 hotels during the fourth quarter, increasing the total number of open hotels to 58, or 97% of the portfolio room count, with the remaining two suspended hotels expected to open in Q1 2021. The Reit’s share price rose by 9% on the announcement.
In August Park said that it did not expect to see a “meaningful increase in demand” for its portfolio until there were medical solutions in place, whether that was vaccines and/or therapeutics.
Baltimore said that the group would continue to sell non-core assets, commenting on a ‘Covid discount’ of around 20%, having improved from 30% to 40% “as we get closer and there's more evidence that there will be therapies and vaccines”.
Insight: Hotel Reits in the US outperformed their respective benchmarks by more than 10 percentage points during August, according to the Baird/STR index, fuelled by medical progress accommodative interest rate policies.
There was buoyancy within the Reits themselves, as seen at Park, where there were reopening and hopes for what it likes to call “opportunity” and others call “the chance to pick up distressed assets for an utter steal”.
One suspects that part of that outperformance was based less around the Reits’ appetite for deal and more about others’ appetite for them. In August Host Hotels & Resorts saw its share price rise after Blackstone Group disclosed a new stake, acquiring 34.5 million shares. Blackstone has a taste for Host - specifically its staff, having made off with Chris Nassetta back in 2007 to head up Hilton.
But it goes further than admiring the workforce. Investors have shown an enthusiasm during the downturn for hotel assets, if not the branded operators. It’s much less unnerving to know that you can sell a hotel if the government shuts it down than if you’re just left wondering whether you can pursue a strategy of home delivering club sandwiches. We watch the Park space with interest.