Park Hotels & Resorts Inc

Greetings and welcome to Park Hotels & Resorts Inc. First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ian Weissman, Senior Vice President, Corporate Strategy. Thank you. You may begin.

Thank you, operator, and welcome, everyone, to the Park, Hotels & Resorts first quarter 2020 earnings call. Before we begin, I would like to remind everyone that many of the comments made today are considered forward-looking statements under federal securities laws. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed and we are not obligated to publicly update or revise these forward-looking statements. In addition, on today's call we will discuss certain non-GAAP financial information such as adjusted EBITDA. You will find this information together with reconciliations to the most directly comparable GAAP financial measure in this morning's earnings release as well as in our 8-K filed with the SEC and the supplemental financial information available on our website at pkhotelsandresorts.com. This morning, Tom Baltimore, our chairman and chief executive officer, will discuss the state of Park as a company, including the proactive steps the company has taken to weather the pandemic and the team's deep experience during these difficult times. We will also provide an update on Park's current operations and the various contingency plans in place, as well as a brief review of our first quarter 2020 operating results and thoughts on the industry moving forward. Sean Dell'Orto, our Chief Financial Officer, will provide detail on corporate-level measures that have been taken to ensure liquidity and viability for an extended period of time, in addition to providing more details on our cash analysis. Following our prepared remarks, we will open the call for questions. With that, I would like to turn the call over to Tom.

Thank you, Ian, and welcome, everyone. I want to start by saying that I hope all of you that are listening are safe, healthy, and well. It goes without saying that this is an unprecedented time for all of us. Life as we know it has been disrupted in an unimaginable way. We are all adjusting and doing the best we can to navigate this crisis. Since our last call in early March, the impact of COVID-19 on the hotel industry has completely changed the operating landscape with stay-at-home orders issued across the nation, many of which are still in place. First and foremost, our top priority has been ensuring the safety of our employees and guests at our hotels as well as our corporate employees in the midst of the fluid state ordinances and changing regulations. This has involved constant communication with our operating partners reviewing local guidelines and restrictions and discussions with local union partners and the implementation of various proactive measures at our properties. Our hearts are with those at our hotels who either are facing health or financial risk or have temporarily lost their jobs as a result of this pandemic. Second, I want to remind listeners that PARCC has a very experienced management team. We have navigated several disruptive events throughout our careers, including natural disasters, 9-11, and the Great Recession. Nothing has been more challenging than our current operating environment. However, once the scope of the global pandemic began to unfold domestically, Park was among the first hotel REITs to pivot and respond accordingly by shoring up our balance sheet and aggressively cutting costs across the portfolio. A trademark of a seasoned and experienced team. John will provide specifics later about our actions to increase liquidity and minimize our cash burn rate, but I would like to personally thank our banking group for their ongoing support throughout this crisis, evidenced by the unanimous vote we received from the syndicate group approving the credit amendments we announced last week. Overall, I have great confidence in our talented team of men and women, as well as our essential operating and lending partners who have worked tirelessly to ensure the company's viability and ultimate success throughout this crisis. This is a moment in time and while admittedly it is a very challenging one, it is one that will pass and we will get through it together. We entered 2020 with three key priorities. First, our primary goal was to realize the synergies from the Chesapeake acquisition. Despite some of the broader industry challenges, we had already realized $20 million of the $24 million of expected year one synergies at the onset of 2020, and we're confident in our ability to complete this goal in a normal operating environment. Second, we remain focused on improving the overall quality of the portfolio through non-core asset sales. By February, we had completed two more asset sales totaling $208 million. While completely exiting out of international markets with the sale of our Hilton San Paolo Hotel, over the last two years, we have disposed of over 24 non-core assets for $1.2 billion, resulting in a significant improvement to the overall quality of our portfolio. And finally, we were focused on reducing debt. Following nearly $470 million of non-core asset sales, leverage was on track to be back to 4.2 times post the Chesapeake acquisition, or down nearly half a turn since announcing the deal. Overall, we had made significant progress on key improvements to our company, and we believe our core 30 hotels, which represents 87% of our pro forma EBITDA and 90% of our overall portfolio value, are as strong as any portfolio in the sector. We are confident that we have laid the foundation for long-term success. Next, I'd like to provide a brief update on PARCC's current operating environment. Currently, 22 of our 60 hotels remain open, yet many of our properties are operating at a significantly reduced capacity with consolidated towers and closed floors. In total, only about 15% of our 33,000 total rooms are available to guests. The majority of the hotels that remained open are either airport or suburban properties that are housing airline crews or special circumstance groups. A small number of our urban hotels are operating with extremely limited capacity to house medical related demand. We expect to resume operations at some hotels beginning in early June, subject to easing of restrictions and near-term demand. More specifically, We are looking to indicators such as the easing of stay-at-home orders and our drive-to leisure markets as well as the resumption of airline routes as we assess which hotels to reopen. While it is too early to quantify the pace of openings, medical solutions such as therapies and vaccines will undoubtedly accelerate the pace of the recovery. Turning briefly to our first quarter results, We ended the quarter with a 23% red bar decline fueled by a 64% decline in March. From a segmentation point of view, both group and business transient revenues were equally impacted, down 26% each, while leisure was a negative 22%. While contract demand was up 1% for the quarter, this is not a trend that has continued as the vast majority of international flights have been canceled and domestic air travel has slowed significantly. Our resort markets performed slightly better overall, with RevPar down 16% on average, as travel restrictions generally did not impact leisure travelers as early as they impacted business travelers or group attendees. Roughly 80% of our first quarter hotel adjusted EBITDA came from properties and resort locations, although this is no longer the case in the second quarter. Our airport and suburban assets also experienced less severe red bar declines, and this is a trend that has continued into the second quarter. However, as these hotels comprised only approximately 7% of hotel adjusted EBITDA during the quarter, their contribution is not significant. Looking ahead to the second quarter. We are expecting to see a continuation of the trends we saw in April for the remainder of the quarter. Our portfolio REVPAR was down well over 90% for the month of April, which mirrors the Smith Travel Data. We have been seeing for urban and resort hotels at the upper end of the chain scale. While the duration and extent of the impact of the pandemic remains unknown, we expect April and May to be the low point. with Red Park declines of 90% or more and the second quarter overall to be the most challenged. While it is too soon to forecast what hotel demand will look like once travel resumes, we do have some general themes. We look to signs of improving conditions. We expect leisure travel to be the first segment to generate the highest demand, particularly in our drive-to markets in Florida like Orlando, Key West, and Miami. We believe the leisure segment will help to gradually fuel confidence in travel followed by a return of travel by business transient and association and social groups and then finally corporate group. Overall, leisure related revenues account for approximately 40% of our total revenues when considering that nearly all travel to our Hawaiian properties has some leisure component Although demand in Hawaii is heavily dependent on the resumption of airlift, at this time we are not expecting normal airlift to return until the end of June at the earliest, and this of course is subject to change as things continue to unfold. In terms of group demand for the balance of the year, group revenues are down approximately 55% with the second quarter a virtual washout. Although at this point, the fourth quarter is holding up relatively well across several of our key markets. The situation obviously remains very fluid, so these numbers will most likely change as the path to recovery unfolds. In general, we are expecting a different operating model overall for our hotels when travel resumes. We have been in constant communication with our partners at Hilton, Marriott, and Hyatt, about how the operating profile may change as hotels slowly begin to open back up. Based on these discussions, we do expect the brands to be accommodating and flexible as we reopen hotels and think about the various components that need to be reimagined to accommodate social distancing, such as food and beverage outlets or meetings and banquet programs, and the changes that need to be made to emphasize a focus on guest and employee safety and Cleanliness. We are also expecting housekeeping to be altered in a way that provides guests with added assurance that their guest room is clean and sterilized. We could see a move away from daily housekeeping service and an increase in contactless check-in. For example, such as Hilton's Digital Key program. I have long been a vocal proponent of the need for a rebalancing between brands and owners. If there is a silver lining in this current crisis, I would speculate this will be one of them. The brands have not been immune to the value destruction of this pandemic. We have been very encouraged by the dialogue we have had with our brand partners. We welcome a more balanced approach to branded hotels. and are glad to be part of the discussions of what this may look like. I look forward to sharing more with you on future calls. And with that, I'd like to turn the call over to Sean.