Park Hotels Earnings: Return of Group Business Drives Strong Revenue per Available Room

First-quarter results for no-moat Park Hotels and Resorts PK were slightly better than we anticipated, leading us to reaffirm our $26.50 fair value estimate. Occupancy improved to 65.0% in the first quarter from 50.8% in the first quarter of 2022. Average daily rate was up 6.6% year over year. As a result, revenue per available room improved by 36.5% in the first quarter, in line with our estimate of 37.6% growth. EBITDA margins improved 550 basis points to 24.2%, which was better than our estimate of 21.7% EBITDA margins. Therefore, Park Hotels reported hotel EBITDA growth of 81.2% that was slightly better than our estimate of 76.2% hotel EBITDA growth. Adjusted funds from operations came in at $0.42 per share, which was 9 cents better than our $0.33 estimate and significantly above the $0.08 figure reported in the first quarter of 2022.

Revenue from the group business segment continues to show steady improvement. During the pandemic, group business saw a dramatic decline with many organizations unwilling to commit to book hotel rooms because of the uncertainty surrounding COVID-19. As a result, group business fell to just 7.2% of Park’s revenue mix in the first quarter of 2021, significantly down from the 35.0% level Park reported in the first quarter of 2019. Since then, group business has rebounded, representing 32.7% of Park’s revenue in the first quarter of 2023. As of the end of March, group bookings for the rest of the year equaled 79% of the group booking Park saw at the end of March 2019 for the rest of that year. Additionally, planned group revenue is 82% of the 2019 level. We expect that the number of bookings will continue to improve over the next few quarters and that Park should return to 2019 levels by 2025.