The owner of two of San Francisco’s biggest hotels threw in the towel and announced it was leaving the city and abandoning the hotels to the lender because it lost faith the city can recover.
Virginia-based REIT Park Hotels & Resorts has opted to cease payments on a $725 million loan surrendering over 2,900 hotel rooms and hospitality facilities to its lender.
They are walking away from the 1,921-room Hilton San Francisco Union Square, which is San Francisco’s largest hotel, and the 1,024-room Parc 55.
Park Hotels CEO Thomas J. Baltimore said: “Now more than ever, we believe San Francisco’s path to recovery remains clouded and elongated by major challenges.”
The company issue a release that said:
Park Hotels & Resorts Inc. (“Park” or the “Company”) (NYSE:PK) today announced that, starting in June, it ceased making payments toward the $725 million non-recourse CMBS loan which is scheduled to mature in November 2023, and is secured by two of its San Francisco hotels—the 1,921-room Hilton San Francisco Union Square and the 1,024-room Parc 55 San Francisco.
The Company intends to work in good faith with the loan’s servicers to determine the most effective path forward, which is expected to result in ultimate removal of these hotels from its portfolio.
“This past week we made the very difficult, but necessary decision to stop debt service payments on our San Francisco CMBS loan,” commented Thomas J. Baltimore, Jr., Chairman and Chief Executive Officer of Park.
“After much thought and consideration, we believe it is in the best interest for Park’s stockholders to materially reduce our current exposure to the San Francisco market.
“Now more than ever, we believe San Francisco’s path to recovery remains clouded and elongated by major challenges – both old and new: 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 that will negatively impact business and leisure demand and will likely significantly reduce compression in the city for the foreseeable future.
“Unfortunately, the continued burden on our operating results and balance sheet is too significant to warrant continuing to subsidize and own these assets.
“Ultimately removing the loan and the hotels will substantially improve our balance sheet and operating metrics, as net leverage is reduced by nearly a full turn, while 2022 Comparable RevPAR and Comparable Hotel Adjusted EBITDA Margin as compared to 2019 would improve approximately 800 basis points and 230 basis points, respectively.
“In addition, reducing the negative overhang from San Francisco will allow Park to continue to focus on our key priorities to reshape our portfolio by selling non-core assets, and recycling capital to reduce leverage, invest in strategic ROI projects, and opportunistically repurchase stock and/or acquire assets.”
For further information, please review Park’s most recent investor deck on our website, which includes the illustrative impact on certain operating metrics when both hotels are removed from its portfolio.
Also included in the deck is Park’s full-year 2023 guidance that was originally provided by the Company on May 1, 2023.
That guidance does not take into account financial impacts, if any, from the cessation of payment toward the San Francisco CMBS Loan as any such impacts are uncertain at this time. The Company expects to update full-year 2023 guidance as necessary once those impacts and the path forward are certain.
It’s going to get a lot worse. https://t.co/s04hT3CEtp
— Zach Coelius (@zachcoelius) June 5, 2023
San Francisco’s tourism board launched a $6M ad campaign to overcome the city’s global reputation as a drug and crime-ridden hell hole. Six days later, the owner of two of the city’s biggest hotels announced it was abandoning them because it lost faith that the city can recover. pic.twitter.com/uaZRXWpD3R
— Michael Shellenberger (@shellenberger) June 6, 2023
