Timothy Kidd is a vice president at GRS Group. He can be reached at 323.853.0488 or via email at [email protected]
Park Hotels & Resorts is buying one of its competitors, Chesapeake Lodging Trust, for $2.7 billion, at a time when commercial real estate’s hospitality sector is firing on all cylinders.
The deal gives Tysons, Va.-based Park 20 hotels and 6,288 rooms that Arlington, Va.-based Chesapeake currently owns, including the JW Marriott, in San Francisco’s Union Square; the Ace Hotel and Theater, in Downtown Los Angeles; and Hyatt Regency Boston. Chesapeake owns 51 hotels with more than 30,000 rooms, including New York Hilton Midtown; Hilton Hawaiian Village Waikiki Beach Resort; and Hilton Chicago.
After the deal closes, which is expected to happen in the third or fourth quarter, Park plans to sell Chesapeake’s two New York City properties, Hyatt Herald Square and Hyatt Place New York Midtown South. More dispositions are likely, Park Hotels’ management said during a conference call with investors and analysts. With Chesapeake’s four San Francisco hotels in addition to its current two, Park Hotels will have 4,200 rooms in the city’s CBD.
The combined portfolio comes when hotels are experiencing their best overall performance in years. A Cushman & Wakefield outlook on the sector for the year (download here) says that occupancy rates are expected to rise 30 basis points, hitting 66.5 percent, a 30-year high. Meanwhile, average REVPar (revenue per occupied room) rose in 2018 for the 10thconsecutive year in 2018.
On the investment front, it seemed as though Cushman’s forecast was correct, in saying that institutional capital “remains active, favoring upper upscale and luxury hotels in primary markets,” which is exactly what Park Hotels got in the Chesapeake deal.
In its first quarter, Chesapeake saw some slight ups and downs in its portfolio. ADR (average daily rate) rose 4.1 percent year over year, hitting $222.89, while REVPar inched up 1.3 percent, to $175.20. Meanwhile, occupancy dropped to 78.6 percent from 80.8 percent, as did overall revenue, from $135 million to $133.7 million. Its stock, for which Park Hotels is offering $31 per share, was trading around $30.60 a few days after the purchase announcement and has hit a 52-week high of $33.81 and a 52-week low of $23.68.
For its part, Park Hotels’ first quarter was similar to Chesapeake’s. REVPar rose 4.5 percent, to $176.44, while ADR increased 3.9 percent, to $221.86. Occupancy inched up 50 basis points, to 79.5 percent.
Both Chesapeake and Park Hotels have occupancy rates squarely above the 66.5 percent national average that Cushman expects for the remainder of the year.
About GRS Group
GRS Group is a leading provider of commercial real estate (“CRE”) services worldwide. With offices across the United States, Europe, and affiliates around the globe, GRS Group provides local market knowledge with a global perspective for institutional real estate investors, occupiers and lenders worldwide. The GRS Group team has evaluated and advised on over $1 trillion in CRE transactions.
Through the company’s proprietary management process, Global Services Connection, GRS Group delivers an integrated suite of services including Financial Advisory, Transaction Management, Assessment and Title Insurance. We provide a single point of contact, capable of leveraging the GRS Group portfolio of companies and delivering customized solutions to assist our clients in achieving their investment goals.