Why Park Hotels & Resorts Jumped 20% in April

5/7/20

By Reuben Gregg Brewer, MotleyFool

What happened

Shares of hotel-focused real estate investment trust (REIT) Park Hotels & Resorts (NYSE:PK) rose an impressive 20% in April according to data from S&P Global Market Intelligence. That number was materially higher than the 13% gain in the S&P 500 index and the 9% advance for the average REIT, as measured by Vanguard Real Estate ETF. Only one month isn't enough of a picture here, as the spreading impact of COVID-19 is far from over.

Now what

Park Hotels & Resorts owns high-end hotels, as its name suggests. That's normally a pretty good business, but not when there's a global pandemic and governments around the world are telling, if not requiring, residents to stay in their homes. These widespread efforts to slow the spread of the coronavirus have had a devastating impact on travel of all kinds. Businesses are increasingly using the internet for video meetings, industry conferences are being canceled, and leisure travelers are "vacationing" in place.

A hotel employee greeting a customer in a hotel lobby

IMAGE SOURCE: GETTY IMAGES.

Hotels basically provide leases that last one night, so they are among the first property types hit when things get tough. And that's exactly what's happened with Park Hotels & Resorts. In early March it withdrew its full-year 2020 outlook and took steps to shore up its finances. By the middle of the month it announced cost-cutting plans and further efforts to bolster its liquidity, including suspending its dividend following the first-quarter payment. And by the end of March many of its lessees had shut the hotels they occupy. That string of negative news helps explain why the REIT was off by 63% through the first four months of the year. For comparison, the S&P 500 was down 10% over that span with the average REIT lower by 18%. Park Hotels & Resorts' April uptick was really about a heavily sold stock bouncing back as Wall Street's mood shifted in a more positive direction. Based on the beating it had been taking earlier in the year, it's hardly a surprise that it had a slightly stronger rebound.

Now what

Investors shouldn't get too excited about the strong relative performance of Park Hotels & Resorts in April. The travel and hotel industries have a way to go before their businesses are back to anything like their pre-pandemic norms -- if they can ever get back to those levels. Today, Park Hotels & Resorts is really only appropriate for aggressive investors. And even then, you have to have a very positive view on the COVID-19 issue since Park Hotels & Resorts is directly in the path of the economic hit it has caused and will continue to cause for the foreseeable future.

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