Park Hotels & Resorts Inc

Greetings and welcome to Park Hotels and Resorts Inc. Second Quarter 2021 Earnings Conference Call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during a 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, and Resorts Second Quarter 2021 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 may discuss certain non-GAAP financial information, such as adjusted EBITDA. You can find this information together with reconciliations to the most directly comparable GAAP financial measure in last night's earnings release, as well as in our 8 file with the SEC, and the supplemental information available on our website at pkhotelsandresorts.com. This morning, Tom Baltimore, our Chairman and Chief Executive Officer, will provide an overview of the industry, as well as a review of PARCC's second quarter performance and thoughts on the balance of this year. Sean DiLorto, our Chief Financial Officer, will provide additional color on second quarter results, as well as more detail on our balance sheet and liquidity. 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 am pleased to report that widespread leisure demand accelerated during the second quarter, leading to stronger than expected operating performance, which ultimately drove breakeven results at the corporate level during the month of June, well ahead of expectations. We continue to make progress on strengthening our balance sheet, raising an additional $750 million of attractively priced senior secured notes, and announcing nearly $480 million of asset sales, with net proceeds being used to repay debt. Given the meaningful improvements to both operations and the balance sheet, we are in a great position to once again prioritize growth opportunities including ROI projects and selective acquisitions. On the macro front, the combination of strong economic growth and stimulus, high personal savings, widespread availability of vaccines, and the corresponding easing of COVID-related restrictions has fueled a resurgence in leisure travel. The pace of economic growth has accelerated meaningfully since our last call. GDP reached an all-time high during the second quarter and is now forecast to increase 6.6% for 2021. Non-residential fixed investment, which is highly correlated with lodging demand, is estimated to grow by 8.4% this year, 60 basis points higher than our last call, and by an additional 6% in 2022. U.S. savings sat at $1.7 trillion as of June, and with roughly two-thirds of the U.S. population over 12 years old now vaccinated, all signs still point to a return to in-person schooling and work for many people post-Labor Day, assuming for now that the Delta variant does not alter this progression. The ongoing return of normalcy is an important catalyst for our industry's recovery. While we have all benefited from strong leisure demand in recent months, this next step should allow for the resumption of business travel, corporate group, and convention business. None of us can be certain of the shape or the pace of the recovery, but I strongly believe that the fundamental desire to be with people face-to-face will again prevail. We continue to work closely with our brand partners to ensure we are offering our customers what they need. enhanced safety and cleanliness, more automated and digital amenities, and flexible workspaces to blend between business and leisure. I am thrilled with Hilton's recent announcement for opt-in housekeeping at the majority of its hotels. We believe that measures like these will push the industry in the right direction, not only from a profitability standpoint, but also from an environmental standpoint. The park We have five key priorities that I would like to highlight. First, we are focused on reopening our three remaining suspended properties located in the New York and San Francisco metro areas. Second, we are seeking to maximize REVPAR by pushing average rates in the strong leisure demand markets while positioning ourselves for select business and smaller SMRF and corporate group opportunities to build occupancies in urban, suburban, and airport locations. Third, we remain laser-focused on implementing operational efficiencies to increase profitability and realize the $85 million in cost savings, or nearly 300 basis points of margin improvement we've mentioned on previous calls. Fourth, we continue to make progress with deleveraging our balance sheet through asset sales. And finally, pivoting now to offense to drive earnings growth through accretive investments, including value enhancing ROI projects like our Bonnet Creek Signia conversion and meeting space expansion, while eyeing several other potential brand conversions and repositionings within the portfolio. With respect to future acquisitions, we anticipate being very active as we head into 2022 with a continued focus on upper upscale and luxury hotels in top 25 markets and premium resort destinations. Turning to our second quarter results. Consolidated Rev Park came in 25% higher than expected, driven by incremental growth in both occupancy and ADR and select markets. Performance at our hotels and leisure-oriented markets helped us generate $33 million of adjusted EBITDA, or more than $60 million ahead of the forecast we set at the beginning of the quarter. Results at our leisure-focused properties continue to surprise to the upside, with five of our hotels meeting or surpassing 2019 occupancy levels, while 10 of our hotels surpassed 2019 ADRs by an average of 25% during the quarter. The phenomenon of revenge spending is very real and has led to price insensitivity fueled by higher than average savings and cabin fever. Our Royal Palm Hotel in Miami, for example, grew ADR by $47, or 25%, over the second quarter of 2019, while our two resorts in Key West, which have continued to see incredible demand, recorded quarterly occupancy of over 92% and an ADR of nearly $500, leading to nearly 50% REVPAR growth over the second quarter of 2019. In total, our open hotel saw ancillary out-of-room spend increase 65% to $26 on a per-occupied room basis during the second quarter compared to the same time in 2019, highlighting the pent-up demand for perceived extras, such as golf or spa treatments, as well as the appeal of drive-to destinations, which provided incremental parking revenue. Note that this figure excludes food and beverage, as many of our outlets were closed during the quarter. As our food and beverage outlets reopen, we expect to see incremental growth in our total REVPAR stats. As restrictions eased during the quarter, we reopened the W City Center in Chicago in mid-May, followed by the Hilton San Francisco Union Square just before Memorial Day, and the Hilton Chicago in mid-June. We were able to move up the full reopening of all five towers at the Hilton Hawaiian Village to the robust demand we've been seeing in Hawaii. We now have 90 percent of our total portfolio rooms open and hope to reopen our remaining three hotels over the coming months as we evaluate the near-term business demand trends in these markets. From a segmentation perspective, leisure demand doubled from the first quarter and accounted for roughly 70 percent of total demand, benefiting from strong performance in Hawaii in particular While we are still seeing very modest numbers overall, both business transient and group revenues also doubled from the first quarter, which support the trend we are seeing of increased mobility. Over one-third of our total group business for Q2 was picked up in the quarter for the quarter as people gained confidence and restrictions eased. We are seeing group pace picking up beginning in the fourth quarter with confirmed bookings pacing at roughly 50% of 2019 revenues. Looking ahead to 2022, we are trending at 72% of pace for 2019 at the same time in 2018. Our top group markets for 2022 include Hawaii, New Orleans, Key West, and Orlando. As we mentioned on our last call, we have been working tirelessly to reimagine the operating model to find incremental permanent savings across our portfolio. Adopting the adage of never waste a crisis, we've identified $85 million of savings. This translates into nearly 300 basis points of margin improvement on an annualized basis. All across our portfolio, our asset managers have challenged our operating partners to think creatively, cross-utilize staff, and reexamine contracts and procedures. In Hawaii, for example, we combined management of our two resorts under one executive leader and implemented several new operational synergies, which resulted in roughly $1.5 million in savings in the second quarter. We have modified operating hours or changed food and beverage outlet concepts to mitigate losses stemming from low occupancies, and we have reimagined how these outlets can operate more profitably moving forward. We remain confident that with the support of our brand partners, we can translate these modifications into permanent practice going forward. As another example of proactively sourcing operating efficiencies across our portfolio, we are very pleased to have transitioned our four self-managed select service hotels to third-party management arrangements in July. Combined with our exit from these three laundry facilities last year, we no longer directly manage any properties which is a significant savings to our operating model going forward. Diving into our markets, as we have forecasted on our last call, Hawaii has seen a huge acceleration in demand. Many travelers are opting to take advantage of the ability to work from anywhere before they return to work and school after the summer, and this is especially true for Hawaii. Increased domestic airlift to the state, particularly from Southwest, has provided U.S. air travelers with ready access to a tropical destination when many international destinations remain restricted. For our two resorts, REVPAR exceeded the first quarter by $104, or nearly 210%. At Hilton Hawaiian Village, occupancy at our nearly 3,000-room resort jumped from 44% in April to 84% in June, all from domestic leisure strip. We have reopened all five towers, and most of our food and beverage outlets have reopened, some with operational modifications to increase profitability. Operating margins of the property exceeded 34% for the second quarter, or just 570 basis points shy of the level achieved during the same period in 2019. At Waikoloa, Occupancy increased from 70% in April to nearly 90% in June. Even more impressive, we've been able to maximize rate over 2019, with June's ADR of close to $300 coming in, $81 higher than June 2019. In fact, Waikoloa generated more EBITDA this past June, with half the number of rooms available than it did in June 2019. clear proof that we made the right decision to transfer 600 rooms to HGV and right-size the hotel to maximize operating efficiencies, yield higher rates, and drive better margins. Furthermore, many guests are taking full advantage of all of our resorts have to offer. Ancillary spending, such as luau, parking, spa, and resort rentals, increased 33% over the second quarter of 2019, to $116 on a per occupied room basis for our two Hawaii properties during the quarter. While we expect these leisure-driven trends to moderate some after Labor Day, we remain very bullish on Hawaii going forward. We expect strong demand over the winter holidays, where we are already seeing rates in excess of $1,000 per night, with that momentum expected to continue well into 2022 and beyond, as we anticipate the resumption of Asian travel to Hawaii later next year. In terms of group demand, some headwinds persist from restrictions against gatherings that remain in place statewide. However, group pays for our Hawaii hotels is currently up over 20% for 2022. And at this time, we have every expectation that these groups will be able to meet, albeit with potential attrition from international attendees, in the early part of the year. Moving to Florida, our resorts across the state continue to have strong performance, fueled by leisure strength, as well as small groups. In Key West, RevPar at our two resorts was up nearly 50% in 2019 levels, as we continue to reap the benefits from our renovated assets and complementary branding strategy. We are seeing incredibly strong out-of-room spend in Key West, with total rev par for our two assets reaching $663 for Q2, which is 37% ahead of 2019. On the group side, our hotels hosted 5,200 group room nights during the quarter, and local catering was up 26% in 2019, driven by weddings. The resorts have more weddings on the books than they have had in any prior year, with 136 weddings on the books in 2021 versus 122 in 2018. In Miami, our teams have employed aggressive rate strategies to drive ADR 23% higher than the second quarter of 2019. Our rates this summer have been more in line with peak season rather than the typical post-spring break discounting we see. although we do expect that this to moderate post Labor Day and then re-accelerate as we move into the peak winter holiday season. In Orlando, we are starting to see the return of traditional group demand. Our newly rebranded hotel, Signia by Hilton Bonnet Creek, has over 50,000 group room nights on the books for the back half of the year, which is down just 5% to 2019 levels. In addition, The Orange County Convention Center lifted all capacity restrictions in June, and the convention calendar for the balance of the year sits at roughly 75% of 2019 levels in terms of room nights. Based on past trends, we expect Orlando and Florida to continue to remain accommodating of both transient and group visitors, which should continue to translate into increased bookings going forward. Moving to our capital allocation successes. We made significant progress at reshaping our balance sheet and reducing leverage during the quarter, issuing attractively priced corporate debt, and also executing strategic asset sales. I'm especially proud of the team's efforts on the capital recycling front. Given the strong appetite for institutional quality assets in major markets by private equity, we took advantage of market conditions and are on track to exceed our stated goal of $300 million to $400 million worth of asset sales this year, with our recently completed and pending transactions. We remained disciplined throughout the pandemic as the bid-ask spread narrowed significantly following the widespread distribution of the vaccine. Further supported by our most recent completed and pending San Francisco hotel sales, which went under contract at less than a 2% to 3% discount to pre-COVID levels. Despite increased price transparency in the private markets, the valuation gap between public and private pricing remains at among the widest gaps in recent memory. Similar to previous cycles, however, we expect the valuation gap to narrow as the lodging recovery continues to take shape and the pace of private market transactions accelerate over the coming months. With respect to additional asset sales over the balance of the year, While we do not have anything to report at this time, we are always seeking to maximize shareholder value and will entertain attractive offers as they arise. As we look ahead, we are encouraged by the healthy lead volumes we've seen since the start of the second quarter, which have held steady at roughly 80% of 2019 levels. We are seeing larger corporate and citywide meetings planned for 2022 and beyond. in our major group markets, while on average, our more near-term groups scheduled for the next couple of quarters are seeing smaller projected group sizes compared to historical levels, which is not surprising given the current uncertainty surrounding the Delta variant. However, we expect this trend to normalize over the next few months as we get past these next few weeks and as vaccination rates continue to increase. As we think about transient demand for the balance of the year, we expect domestic leisure to continue to lead the way, combined with an uptick in business transient post-Labor Day. Before I hand the call over to Sean, I want to emphasize the important milestones we have reached with regards to achieving break-even at the corporate level, coupled with our initiatives to sell assets and improve the overall quality of our balance sheet, all well ahead of expectations. This along with our operational improvements and expectation for continued improvements in overall travel demand positions Park for ongoing success for the coming quarters. We believe our diversified portfolio will allow us to benefit from all demand segments, group, business transient, and leisure throughout all phases of the lodging recovery. With over $1.8 billion in current liquidity, We are also poised to move to offense by unlocking embedded value through targeted ROI initiatives, as well as strategic acquisitions that fit our strategic profile. We look forward to updating you on future calls. And with that, I would like to turn the call over to Sean. We'll provide you with some more color on our results and an update on our balance sheet and liquidity.