Introduction
Park Hotels and Resorts refers to a REIT which stands for real estate investment trust, that focuses on hotel properties. The industry it is in, represents a major portion of the majority of the people’s wealth especially for homeowners in the U.S. The market size, as of 2022, is two hundred and two billion dollars. According to Sheel (2020), sixty-five percent of the families in the nation owned a primary residence as of 2019. For investors, the size and scale make it an attractive and lucrative sector. Some of the key factors that have resulted in the development include demographics, economy, and government policies.
Demographics refers to the information that defines a population’s composition such as gender, age, race, and migration patterns. The data is often overlooked but is a major factor that impacts the pricing in the real estate industry. It also affects the types of properties that are in demand. Significant shifts in such information concerning a country can lead to great effect on the trends for multiple years, as suggested by Zerby (2019). For instance, a baby boomer who was born between 1945 and 1964 is an example of a demographic drift with the prospective to considerably influence the market. The transition of such an individual to retirement is among the more interesting generational trends in the twentieth century.
There are various ways this shift can impact the market. However, for an investor, some questions to ask might include, how the data would affect second homes demand in popular vacation places as more individuals retire. Another issue for them to look at is how the phenomenon affects massive homes demand if the income is smaller while the children have moved out of their parents’ houses. Investors acquiring such knowledge helps them make better decisions thus the continuous and immense growth of the industry.
Another key factor is economy as it affects the real estate’s value. This is measured by economic indicators such as employment data, GDP, prices of items and manufacturing activity (Zerby, 2019). When information gathered shows that it is not at a good state, then real estate is not doing well. Nevertheless, its cyclicality can have different influences on various type of real estate. For instance, if a REIT has investments in hotels, it would be more impacted by a downturn than the one that invests in office building this is due to the types of leases.
Individuals have understood this about the market and prepared well. For instance, before the pandemic, investors opted for more office buildings and less hotels and increased the latter after economy found its footing again. Legislation is another issue that can have a considerable impact on the demand and prices of property (Sheel, 2020). Deductions, tax credits and subsidies are among the ways a government can boost demand temporarily for real estate. Understanding the existing incentives can aid in determining alterations in supply and recognize false trends. For instance, the United States government in 2009 introduced a first-time home purchaser’s tax credit to people with the intentions of jump-starting the sales in an inconsistent economy. Such measures have helped and boosted the growth of the sector.
Company Size and Growth
The Chief Executive Officer for Hilton Worldwide, Christopher Nassetta, claimed that the firm was assessing a corporate spin-off of a real estate investment trust to hold its thirteen-billion-dollar portfolio. The plan was part of the organization’s approach of moving to an asset-light business model to allow rapid global growth. It was also meant to capitalize on the lack of corporate income taxes on the REITs. Hilton declared definitive plans in 2016 to spin off Park Hotels and Resorts and its timeshare business as separate firms and ended in 2017 (Sheel, 2020). The latter became a top publicly traded hotel real estate investment trust, with holdings of sixty-seven hotels.
Park Hotels and Resorts sold thirteen properties that it perceived as non-core assets which include ten of its fourteen global properties, for a total of five hundred and nineteen million dollars. HNA Group which previously possessed twenty-five percent of the organization, sold every of its share in 2018 in a stock buyback and a secondary offering for one billion and four hundred million dollars (Sheel, 2020). The hotel in 2019, obtained Chesapeake Lodging Trust for one billion dollars in cash and nine hundred and seventy-eight million dollars in stock. The acquisition added eighteen properties to the firm’s portfolio and diversified it by adding brands franchised from Hyatt, Marriot, and others. It sold another ten in 2019 as well as 2020 which include its last remaining properties outside of the U.S. for six hundred and eighty-eight million dollars.
Company Profitability
The stock price of Park Hotels and Resorts is about eighteen dollars currently. This could change and improve to about twenty-four dollars in a year’s time (Sheel, 2020). The long-term earning potential of the company is +31.30% in one year (Sheel, 2020). This refers to the profit that it produces in that particular period, often described as a year or quarter. After the end of one, an analyst waits for the companies’ earnings to be released. The information is examined since they represent a direct link to performance.
The long-term earnings potential of Park Hotels and Resorts reveal that the company is in a good place and it would a great idea for an individual to invest in it. When a person desires to use money they have in an attempt to earn profits and grow, especially in the real estate sector, one needs to be wise. Understanding how a company is performing and how they are projected to do in the near future, is important since one knows whether or to what degree to use their funds in a business investment.
Company Analysis of Vision; Mission; Guiding Principles
All companies have guiding principles that help in everyday operations and how staff members portray themselves in the work environment. For Park Hotels and Resorts, the organization strives to be preeminent lodging real estate investment trust that focuses on consistently delivering risk-adjusted, superior returns to stockholders via an active examination and detailed external growth approach. This is aimed at while maintaining a strong and flexible balance sheet.
The three main pillars of the company’s corporate strategy include operational excellence, prudent capital allocation, and strong and flexible balance sheet. The first one reveals that the organization continually improves property level operating performance. Additionally, it ensures they consistently implements revenue management programs to optimize market pricing and segment mix. The second pillar dictates that they effectively capital by leveraging liquidity, scale and M&A knowledge to create vale throughout every stage of the lodging cycle.
Apart from that, it guarantees that the firm employs an active capital recycling initiative, that is, expanding its presence in target markets while focusing on brand and operator diversification. This is done without forgetting to reduce the exposure in an attempt to slower growth assets and markets (Tansuchat & Maneejuk, 2018). It also ensures that it is responsible of the target value enhancement projects with strong unlevered Return On Interest yields. Lastly, the third pillar exists so that the organization preserves a strong as well as flexible balance sheet with a projected leverage ratio of thrive to five times.
Additionally, it helps to maintain a great liquidity across the lodging cycle and access to various types of funding. Guided by their mission, the company is devoted or committed to positively influence the lives of the people who visit as guests, team members and those in the communities around. It is an organization that understands its social responsibility while also aiming to make profits for the partners and investors.
Company Analysis of External Environment (PESTEL): Political Factors
All the influences that governments have on businesses could be categorized under this type of factors. For instance, policies, political stability or lack of it, foreign trade policy, corruption and trade restrictions are some of the issues that can impact the real estate business. Tax credits, deductions and subsidies are ways the sector can be affected as they could boost demand. This could help the investors and a business such as Park Hotels and Resorts to determine the changes in the supply and demand and consequently, as mentioned earlier, recognize false trends.
Economic Factors
The capacity of a local populace and businesses to be fiscally capable to buy real estate in their area is a great factor influencing the market. This type of economic factor that impacts real estate value including vacancy rates, material and labor costs, interest rate, availability of credit and earning level. Most of these issues affect individuals who are the investors in the organizations such as Park Hotels and Resorts. When the REIT chooses to sell some of their properties, it is difficult to attain profit if the buyers are limited money-wise.
Social Factors
There are numerous social factors as well that impact an appraiser’s determination of value, for instance, the ages and number of individuals moving into or out of the area and composition of households. For example, two people bought a home in 1980 when they still had children leaving with them (Zerby, 2019). Upon reaching adulthood, their kids moved out of the house and thus, the family’s big house does not make sense to retain. This is due to their desire to live in a smaller home.
Technological Factors
Not only does technology alter the way an agent sells properties but it also changes how the do it. Promoting is much easier and efficient when conducted digitally. When a website is created as mobile-friendly, it is effortless to get the browser in a client’s reach. Customers anticipate more access to the brokers and agents. The latter must be careful with how they communicate (Tansuchat & Maneejuk, 2018). Those that fail to respond on time to online leads may end up losing potential buyers.
Additionally, transaction management is made quicker when employing the mobile technology. The latter has as well been quite useful during appraisal procedures. This is a period that involves large quantities of paperwork which can consume much time (Zerby, 2019). With the use of electronic document signing applications in addition to automated emails, individuals in the sector immensely reduce the time consumed on this part of the sale.
Environmental Factors
Environmental issues are such that regularly emerge in every type of real estate transaction, either in the sale of a person or transfer of large commercial and industrial facilities. The most common is the land contamination (Tansuchat & Maneejuk, 2018). This may happen as a result of activities of the owner. For instance, for a hotel, individuals staying can create waste and dump it in the property. Additionally, people in the surroundings can contribute as well (Zerby, 2019). This may in turn lower the value of a property in the market especially if the pollution is one that requires much work to eliminate.
Legal Factors
Transactions regarding real estate can be complex and present a range of legal matters and possible hazards. From a buyer who feels that a property was misrepresented, to a seller who does not follow laws, there is much that a company has deal with when looking to purchase, sell or lease properties. Park Hotels and Resorts is performing well in the market since it has a legal team of experts with enough experience regarding the sector. They help the company in identifying whether it is lawful to involve themselves in a certain activity or not.
Company Analysis of Profit Potential (Porter’s Five Forces)
Porter’s five forces are based on the notion that they determine a market’s competitiveness as well as attractiveness. They aid in identifying where power lies in a business situation. This is helpful in both comprehending a company’s competition position intensity and the level the firm may desire to reach (Zerby, 2019). The first force is the supplier power which addresses how suppliers can quickly increase the input costs. It is impacted by the number of such individuals particularly those that provide key inputs, uniqueness of the inputs and how much it would cost an organization to switch to a different person.
The less suppliers are in a sector, the more a firm would rely on one. This shows that a supplier has power and can choose to increase the input costs and push for other benefits in trade. The other force is the power of the buyer which refers to the capability that a customer has to reduce the prices (Zerby, 2019). It is impacted by how many buyers an organization has, how important each one of them is, and how much it would cost to find new ones. A smaller and more prominent client base means that all the customers possess more power to negotiate for lower prices and better deals.
A firm, such as Park Hotels and Resorts, that has many, smaller while independent ones will get an easier time charging higher prices thus more profit. The third force is the competitive rivalry which refers to the level of competition in the sector and its ability to undercut an organization. The more the competitors, the less the power a firm can have in an industry. A supplier and buyer utilize the rivalry available to get better deals or lower the prices. When competition is low, an organization has greater power to charge more and set the terms of a deal. This leads to more sales and consequently profits (Tansuchat & Maneejuk, 2018). The real estate investment trust in discussion experiences low competition from the sector due to where it is situated which is why it continues to earn more profits.
The fourth force is the threat of substitution whereby substitute goods or services that can be utilized in place of an organization’s products pose a risk. Organizations that produce items that have no replacements, have more power regarding prices and negotiations. This is the same situation with Park Hotels and Resorts where other organizations in the industry are unable to provide what they are offering and therefore get better deals or hike the prices for their gain. The last one is the risk of new entry (Tansuchat & Maneejuk, 2018). A firm’s power is influenced as well by new individuals into the market. The less money and time it costs for one competitor to enter another’s market and become an effective rival, the more an established position of a company could be weakened.
Company Analysis of Internal Environment (SWOT): Strengths
Being among the top organizations in the real estate sector, Park Hotels and Resorts has various strengths that enable it to excel in the market. They not only aid in protecting the market share but also assist to penetrate new ones. One of the strengths include good returns on capital expenditure. The company is relatively successful at executing new projects and generates good returns on capital expenditure by establishing other streams of revenue.
Another strength is the high level of satisfaction on the part of customers. The company with its devoted relationship management department has been able to accomplish a great standard of satisfaction among present clients and good brand equity among possible buyers. Additionally, the organization has a string dealer community as it has established a culture among dealers and distributors where the former promote products belonging to the firm and invest in training the sales team. Lastly, the organization boasts a strong distribution network (Tansuchat & Maneejuk, 2018). Over the years, it has built a dependable scheme that can reach most of its prospective market.
Weaknesses
One of the weaknesses of the organization is that the profitability ratio and net contribution percentage are below the sector average. Another is that it needs more investment in latest technologies. Provided the scale of expansion and various geographies the firm is planning to move into, it is important to use more money in technology to incorporate all the procedures. Currently, the amount is not on the same level with the vision of the organization. Additionally, there are loopholes in the range of products sold by the firm. The lack of choice can result in a new rival gaining stability in the market. Lastly, there is a high attrition rate in the workforce (Tansuchat & Maneejuk, 2018). It has to spend more than competitors on training and development of the employees.
Opportunities
One of the opportunities is the economic uptick and increase in people spending, after long periods of recession and slow growth rate in the sector. This offers the organization a chance to capture new customers and its market share. Another opportunity is the latest trends in the customer behavior which can open other markets for the company. This also allows a great chance for them to build other streams of revenue and diversify into new product groups. Additionally, government agreements are helping to open up new markets. Adopting technology has offered the company an opportunity to enter a new arising market. New policies are also offering the firm other opportunities that will result in a fair playing field for everyone in the sector. It depicts a great chance for them to drive home its advantage in new technology as well as gain market share in new items category. The threat that the company is facing is the imitation of the unauthentic and low quality products particularly in the new and low income markets.
Executive Summary
The Park Hotels and Resorts is an organization that is performing well in the real estate sector. However, it also faces some issues that pose a challenge or hinder progress as envisioned by the company management, the COVID-19 pandemic. After emergence of the disease in China, many individuals feared interaction with others since it meant that they could get infected as a result of contact. To further worsen the situation, various governments including the United States started implementing restrictions on areas such as traveling and jobs (Sheel, 2020). In the process of fighting the disease, many individuals lost their jobs or had to work for less hours than they were used to before the pandemic. This led to them losing their sources of livelihood and hence they ended up struggling financially. It is difficult for someone in such a situation to choose to spend the little they have on hotels.
Additionally, banning traveling meant that tourism was disrupted. Most of the organization’s hotels are visited by tourists (Tansuchat & Maneejuk, 2018). Combining all these issues, it is easy to understand why the firm struggled during the pandemic. Nevertheless, data from previous studies, suggests that this could be avoided in the future (Tansuchat & Maneejuk, 2018). For instance, when the issue started in 2019, the company should have taken the initiative to deal more in office buildings than hotels. The reason for this is due to short-term leases for hotels and long-term ones for offices.
Another problem that is posing a great challenge for the Park Hotels and resorts is the increasing level of competition in the industry. As a result of the pandemic, many businesses entered into losses and debts. This however made them realize that they need to diversify their revenue streams. Doing this means that one is not dependent only on a particular business to bring in money. For instance, Walmart which is in the retail industry that has physical stores was greatly impacted by the restrictions implemented by the government. The firm was also affected by the fear of the people to the level they opted for online goods as they were delivered to their door step. The company after matters came back to normal decided to venture into other opportunities.
It is known that the company is bigger and has a larger capital than the Park Hotels and Resorts which means their investment is greater. When a few more of such organizations penetrate into the real estate sector, it becomes harder than before for the company to sustain relevance. However, Parks Hotels and Resorts can maintain the level of expertise they have had over the period they have been in existence and trust that the customers are happy and loyal. Lastly, there is a problem of lack of enough social media presence.
In this era, it is important that a company has an online engagement with the public. This is beneficial in various ways, for instance, one gets a chance to recruit the best talents in the job market and advertises its products (Zerby, 2019). Individuals searching for employment opportunities are looking for organizations that have a good reputation. A good image can be promoted through the social media platforms such as Twitter and Facebook. Additionally, new clients can be captured by the various promotions one can conduct on the social pages. The solution to this problem is by employing a good social media team that will help in keeping the firm active in the online space.
Conclusion
Park Hotels and Resorts refers to a REIT which stands for real estate investment trust, that focuses on hotel properties. The industry it is in represents a major portion of the majority of the people’s wealth especially for homeowners in the U.S. The market size, as of 2022, is two hundred and two billion dollars. The paper reveals that demographics is one of the key factors that have resulted in the development of the company. The data is often overlooked but is a major factor that impacts the pricing in the real estate industry. It also affects the types of properties that are in demand. Significant shifts in such information concerning a country can lead to great effect on the trends for multiple years. For instance, a baby boomer who was born between 1945 and 1964 is an example of a demographic drift with the prospective to considerably influence the market. The transition of such an individual to retirement is among the more interesting generational trends in the twentieth century.
One of the strengths the company boasts is the high level of satisfaction on the part of customers. The firm with its devoted relationship management department has been able to accomplish a great standard of satisfaction among present clients and good brand equity among possible buyers. In addition to that, the organization has a string dealer community. It has established a culture among dealers and distributors where the former promote products belonging to the firm and invest in training the sales team.
Despite having a weakness such as the profitability ratio and net contribution percentage being below the sector average, Park Hotels and Resorts has opportunities that it should capitalize on to make profits. One of them is the economic uptick and increase in people spending, after long periods of recession and slow growth rate in the sector. This offers the organization a chance to capture new customers and its market share. Another opportunity is the latest trends in the customer behavior which can open up other markets for the company. This also allows a great chance for them to build other streams of revenue and diversify into new product groups.
References
Sheel, A. (2020). Hotel Industry Performance in 2019-2020, COVID-19 Impact, and the JHFM Index. Journal of Hospitality Financial Management, 28(2), 1. Web.
Tansuchat, R., & Maneejuk, P. (2018). Modeling Dependence with Copulas: Are Real Estates and Tourism Associated? In International Symposium on Integrated Uncertainty in Knowledge Modelling and Decision Making (pp. 302-311). Springer, Cham. Web.
Zerby, J. (2019). Analysis of Pebblebrook Hotel Trust’s acquisition of LaSalle Hotel Properties: Understanding the REIT market and whether or not PEB was late to the game. Web.
Appendices
Appendix I – Park Hotels and Resorts refers to a REIT which stands for real estate investment trust, that focuses on hotel properties.
Appendix II – Some of the key factors that have resulted in the development include demographics, economy, and government policies.
Appendix III – All the influences that governments have on businesses could be categorized under this type of factors. For instance, policies, political stability or lack of it, foreign trade policy, corruption and trade restrictions are some of the issues that can impact the real estate business.
Appendix IV – The capacity of a local populace and businesses to be fiscally capable to buy real estate in their area is a great factor influencing the market.
Appendix V – Transactions regarding real estate can be complex and present a range of legal matters and possible hazards.
Appendix VI – Porter’s five forces are based on the notion that they determine a market’s competitiveness and attractiveness.
Appendix VII – The first force is the supplier power which addresses how suppliers can quickly increase the input costs.
Appendix VIII – One of the strengths of Park Hotels and Resorts include good returns on capital expenditure.
Appendix IX – One of the weaknesses of the organization is that the profitability ratio and net contribution percentage are below the sector average.