Park Hotels & Resorts delivered a strong first quarter, exceeding expectations and demonstrating a resurgence in both urban and resort markets. While the market might be fixated on the short-term dip in April, a closer look reveals something more intriguing: Park's pursuit of a fifth tower at the Hilton Hawaiian Village, a project that could propel the company toward a $3 billion valuation.

Park's Hawaiian assets, Hilton Hawaiian Village and Hilton Waikoloa Village, are generating significant cash, surpassing even pre-pandemic levels. Hilton Hawaiian Village, a sprawling 22-acre complex with five towers, generated an impressive $188 million in adjusted EBITDA in 2023, a 15% increase compared to 2019. Even with half the rooms it had before the spinoff, Hilton Waikoloa Village delivered $56 million in adjusted EBITDA, a 12% jump from pre-pandemic levels.

Record-Breaking Performance Despite Missing Japanese Tourist Market

These record-breaking performances are occurring even without the full return of the Japanese tourist market, a key driver of Hawaiian tourism. Imagine the potential when Japanese travelers, who once accounted for 18-20% of revenue, fully return to the islands.

Strategic Investments Yielding Results

Park's strategic focus on internal growth, specifically targeting high-ROI projects, is paying off. The $85 million investment in the complete room renovation of the Tapa Tower at Hilton Hawaiian Village is already generating a $60 average daily rate premium compared to other room types. This success is driving the planned phased room renovations for both Hilton Hawaiian Village and Hilton Waikoloa Village in 2024.

The Fifth Tower: A Catalyst for Revaluation?

Park is pursuing the entitlement process for a fifth tower at Hilton Hawaiian Village, with approximately 515 rooms. Given the profitability of existing towers, a conservative estimate suggests the fifth tower could add an additional $80-$100 million in annual EBITDA.

The Math: Unlocking a $3 Billion Valuation

Park's current market capitalization, combined with the potential EBITDA from the fifth tower, suggests a path to a valuation exceeding $4 billion.

EBITDA Performance: Pre-Pandemic vs. Now

This chart compares the adjusted EBITDA of Hilton Hawaiian Village and Hilton Waikoloa Village in 2019 with their performance in 2023, highlighting their remarkable growth despite challenges.

Challenges and Opportunities

The entitlement process for the fifth tower is complex and market conditions can change. However, Park's strategic investments, focus on maximizing returns, the appeal of Hilton Hawaiian Village, and the expected resurgence in Japanese tourism suggest that the fifth tower could significantly revalue Park Hotels & Resorts.

Addressing the NAV Discount

Park is currently trading at a discount to its net asset value (NAV). The company's management recognizes this discrepancy and is addressing it by pursuing non-core asset sales and share buybacks.

Conclusion

The fifth tower in Hawaii represents Park's ambition and vision for the future. It's a bet on Hawaii's enduring appeal, the continued growth of the travel industry, and the demand for world-class experiences. This strategic move could unlock a valuation that reflects the true potential of this lodging REIT.

"Fun Fact: Park Hotels & Resorts owns the largest hotel in Hawaii, the Hilton Hawaiian Village Waikiki Beach Resort, with over 2,860 rooms. It's a popular destination for tourists and conferences."