Park Hotels stops payments on $725M CMBS loan, plans to cut San Francisco exposure
Update: Adds analyst comments, updates shares.
Park Hotels & Resorts (NYSE:PK) said Monday it stopped making payments toward the $725M non-recourse CMBS loan starting this month, sending its stock 2% higher in morning trade.
The loan, which is scheduled to mature in November, is secured by the Hilton San Francisco Union Square and Parc 55 San Francisco. Park Hotels (PK) expects these hotels will ultimately be removed from its portfolio.
CEO Thomas Baltimore said it is in the shareholders’ best interest that the REIT materially reduce its exposure to San Francisco. “We believe San Francisco’s path to recovery remains clouded by record high office vacancy; concerns over street conditions; lower return to office than peer cities; and a weaker than expected citywide convention calendar through 2027.”
Removing the loan and the hotels will improve Park Hotels’ (PK) balance sheet and operating metrics. Net leverage would be reduced by nearly a full turn, while 2022 comparable revPAR and comparable hotel adjusted EBITDA margin as compared to 2019 would improve ~800 bps and 230 bps, respectively.
The REIT expects the special dividend following the disposition of both hotels to range between $150M to $175M.
“The announcement that PK is returning two SF hotels to their CMBS lender is a positive for the shares, although expectations had been building toward this outcome over the past several weeks,” said Jefferies analyst David Katz. “Given the challenges specific to the SF market and to these specific properties in generating returns, we believe PK is selecting the appropriate alternative.”