Park Hotels & Resorts Sells Two San Francisco Properties for $303M

Park Hotels & Resorts has sold two of its San Francisco hotel properties in two separate transactions. The company sold Le Meridien San Francisco and Hotel Adagio for a total of $303.5 million, representing a 6.1% cap rate on 2019 net operating income, including capital expenditures. The sales price equates to $572,000 per key for the 531-room portfolio.

As a result of these sales, Park Hotels & Resorts San Francisco exposure will shrink by 210 basis points to 14.6%. The 360-room Le Meridien San Francisco sold for $221.5 million, representing a 5.9% cap rate on 2019 net operating income, including capital expenditures. The 171-room Hotel Adagio, Autograph Collection sold for $82 million, representing a 6.6% cap rate on 2019 operating income when adjusted for capital expenditures.

Park Hotels will use the proceeds from the sales to repay debt on its remaining bank term loan. Following the repayment, the company should have $80 million in outstanding debt. Since spinning off from Hilton in 2017, the company has sold a total of 29 properties, including these two most recent transactions, for a total value of $1.7 billion.

Although the pandemic depressed the hotel market, Park Hotel & Resorts is encouraged by improving demand this year. In the hotels 50-property portfolio, occupancy has increased from a low of 32.6% in March to an estimated 49.8% in June. Isolating for hotels that are open, the occupancy rate increased to 59% in June. Key West, Hawaii and Southern California were the top performing markets with 91.8%, 85.5% and 75.3% occupancy rates, respectively.

There have been a handful of notable hotel transactions since the market started to awaken. In addition to these two deals from Park Hotels & Resorts, last month Braemar Hotels & Resorts entered into an agreement to acquire Mr. C Hotel, a 138-room luxury hotels in Beverly Hills. In addition to the hotel, the transaction also includes five condo residences adjacent to the property. The sale transaction is expected to close in July for $77.8 million. The hotel price tag was $65.4 million, while the condo properties cost $12.5 million.

The transaction is Braemar Hotels & Resorts’ first acquisition during the recovery cycle, and it is a complex one, involving OP units, warrants, and mortgage debt. The investor plans to execute a value-add strategy by maximizing operating performance of the hotel.