Park Hotels & Resorts Inc

Greetings and welcome to Park Hotels and Resorts Inc. Third Quarter 2021 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. I would now like to turn this conference over to your host, Mr. Ian Wiseman, Senior Vice President, Corporate Strategy. Thank you, sir. You may begin your presentation.

Thank you, operator, and welcome, everyone, to the Park Hotels and Resorts Third 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 will discuss certain non-GAAP financial information, such as adjusted EBITDA and adjusted FFO. You can find this information together with reconciliations to the most directly comparable GAAP financial measure in yesterday's earnings release, as well as in our 8K 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 provide an overview of the industry, as well as a review of PARCC's third quarter performance and thoughts on demand trends. Sean Dilorto, our Chief Financial Officer, will provide additional color on third 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'm pleased to report another quarter of strong improvement to operating fundamentals. We are pleased to report that we have achieved corporate level break even for the first quarter since the start of the pandemic. Based on the strength we witnessed at our resort properties, the Leisure Traveler had significant pent up demand as evidenced by incredibly strong rates and out of room spend. Additionally, we are seeing promising signs of sequential growth in business transient and group demand in pockets across our portfolio. And while still early, we believe this is a positive indicator that we are on the path toward recovery. On the macro front, there continues to be encouraging indicators of growth and momentum, including a nearly 8% annual increase in non-residential fixed investment projected for 2021, and an ongoing momentum on vaccine distribution, which should contribute to increased mobility and confidence. Additionally, the unemployment rate improved to 4.8% in September, more than 100 basis point improvement from the start of the third quarter, while the U.S. personal savings stand at an impressive $1.3 trillion as of September, highlighting the ongoing strength of the U.S. consumer, which we expect to continue fueling the strong recovery and overall demand. Against this backdrop, I'd like to remind listeners of PARCC's unique and compelling value proposition and how the execution of our strategic priorities is positioning us well for the recovery. First, we have seamlessly executed on our non-core disposition program which has greatly enhanced the overall quality of our portfolio and positioned the company for attractive long-term earnings growth. In total, we have sold or disposed of 31 hotels, accounting for over $1.7 billion of total proceeds since spinning out of Hilton five years ago, including all 14 of our international assets. Second, our portfolio combines the right mix of demand drivers, which we believe should help drive outsized earnings growth over the next few years as business travel accelerates. We believe that there will be a return to traveling for work and a return to meeting in person. It's human nature to want to meet and connect, and I firmly expect both business transient and group demand to return to pre-COVID levels. While it is possible that the mix of demand will shift over time to accommodate more flexible work schedules, I want to emphasize that we do not believe there are secular headwinds in lodging, and the earnings power of our company remains as strong as ever. Third, our iconic portfolio of core hotels contains untapped embedded ROI opportunities, including expansions, brand conversions, and potential alternative uses that we believe will create meaningful value for shareholders and we plan to capitalize on these opportunities over the next several years. These efforts began with the successful conversions of our Hilton Santa Barbara and our REACH resort in Key West and continue today with our Signia Hilton conversion and expansion of our meeting space platform at our Bonnet Creek complex in Orlando, and will continue further as we accelerate planning to reposition and expand a number of our core hotels. And finally, we have continued to improve our balance sheet through opportunistic asset sales and debt repayments, surpassing our capital recycling targets and providing us with liquidity and optionality for the future. With over $1.8 billion of liquidity, including the entire $1.1 billion available on our revolver, we are well positioned to capitalize on accretive opportunities as they arise. Turning to our third quarter, our results came in well ahead of our expectations, driven by ongoing strength across our leisure properties, coupled with better than expected expense savings. Consolidated pro forma rev par of $105 was above expectations, and 38 of our 45 open consolidated hotels generated positive EBITDA for the quarter. Particular leisure strength in Hawaii, Southern California, and South Florida helped the portfolio generate an average leisure transient ADR that was 3.4% ahead of the third quarter of 2019. While leisure led the quarter, we did see a sequential increase in both group and business transient revenues. Group revenues increased nearly 130% from the second quarter growing from 8% of mix to 13% of mix, while business transient demand increased nearly 100% to account for nearly 20% of mix for the third quarter. Looking more closely at group demand, we witnessed pockets of group strength during the third quarter in markets like New Orleans, Chicago, Orlando, and Honolulu, although fourth quarter performance is expected to moderate somewhat as the uncertainty surrounding the Delta variant cost nearly $8 million in cancellations. Many of these groups have rescheduled for later in 2022, and we currently expect to see meaningful pickup in group demand in the second half of 2022. We are currently trending around 65% to 70% of the group pace for 2019, at the same time in 2018 with rates exceeding 2019 levels. Our top group hotels for 2022 include The Hilton Chicago and our four assets in Key West in Miami for 2022 group bookings are exceeding 2019 levels. On the business transient side, we have seen a consistent increase in midweek demand among our hotels that cater to business transient demand, with midweek occupancy at these hotels increasing roughly 1,200 basis points since the start of the third quarter through October. There has been a noticeable improvement in midweek demand in October, which aligns with the increased confidence we have been seeing among travelers following the late summer Delta surge. We expect this trend to continue in the fourth quarter and pick up in the new year as more corporations return to the office. In terms of hotel reopenings, we are pleased to report that our third largest hotel, the 1,878-room New York Hilton Midtown, reopened on October the 4th and has already surpassed our performance expectations. The hotel ran 44% occupancy the first Saturday after reopening and has already hosted a 1,300-person event, highlighting the pent-up demand in the market as well as the recovery of the New York market as a whole. The hotel ended the month of October roughly a million dollars ahead of revenue forecast, and we expect the remainder of the fourth quarter to continue to post strong results, with the hotel projected to sell out over the upcoming New York City Marathon weekend in just a few days. Transient rates are trending at roughly 95% of 2019 levels, and group rates have also remained in line, with domestic transient travel already surpassing 2019 levels in the market, along with the reopening of international borders for travelers, who have historically averaged over 60 million annual visitors to the city. We are expecting healthy transit demand in the fourth quarter. Overall, our portfolio now has 96% of its total rooms opened, with operations at just two hotels currently suspended. Diving into other core markets. Our two Hawaii resorts continue to capitalize on strong summer leisure demand trends, with third quarter occupancy averaging over 75%. and impressive REVPAR indexes of 124% for the Hilton Hawaiian Village and 113 for Waikoloa Village. Hilton Hawaiian Village recorded 91% occupancy for the month of July across its 2,860 rooms with an average rate of $303, well ahead of expectations. On the Big Island, the Hilton Waikoloa Village achieved its highest quarterly average rate ever with an ADR of $320, which was nearly 25% above the third quarter of 2019. While our hotels benefited from strong demand and increased airlift, demand was temporarily disrupted by the governor's August 23rd plea for travelers not to visit the state due to a rise in COVID cases. Following this announcement, our property saw a material drop in demand, with widespread cancellations in both transient and group business for the third and fourth quarters. Under our hotel team's exceptional leadership, our hotels quickly pivoted and enacted contingency plans to modify staffing and operational outlets, leading to impressive EBITDA margins for the quarter of 39.4%. Looking forward, We are pleased that the governor recently announced that Hawaii would once again welcome vaccinated travelers starting November the 1st, although we note that the typical lead time for bookings to Hawaii averages several weeks. We are expecting some upside throughout the holiday season at this point, and we are turning our focus predominantly to 2022 when we expect to see increasing levels of international visitation by mid-year. We are particularly encouraged by the pace of vaccinations in Japan, which has accelerated dramatically over the past few months. Japan typically accounts for approximately 20% of all visitors to our two Hawaiian resorts. South Florida continues its incredible run, with some softness in September attributable to both the Delta variant pause and normal seasonality. Our hotels in Key West continue to achieve record milestones. including an average ADR of $474 at the Casa Marina and $433 at the Reach for the quarter, up 63% and 58%, respectively, over the third quarter of 2019. Looking ahead to the fourth quarter, we are expecting a very strong holiday season, with ADRs of $1,200 to $1,400 across our two resorts for the week of Christmas. In addition, we expect the momentum to continue into future periods as our resorts booked 2,700 more group room nights during the third quarter for all future periods than ever before. Orlando finished the quarter with decent momentum following a tough August and early September where leisure travel slowed due to the Delta variant. This momentum continued into October with strong group production at our up-branded Signia at Bonnet Creek, as well as continued leisure strength associated with Walt Disney World's 50th anniversary celebration. Turning to the West Coast. In San Francisco, we are seeing leisure strength at our JW Marriott Union Square and our Hyatt Centric Fisherman's Wharf, partially offset by the lack of group and transient business at the Hilton Union Square. As we look ahead, We are encouraged by the return of international travel to the market, which typically accounts for 18 to 20% of demand to our San Francisco hotels. We expect the JP Morgan Conference in January will occur as scheduled in early January, with average daily rates in line with pre-pandemic levels at our Hilton Union Square and JW Marriott hotels. As companies begin to return to the office in 2022, we expect to see more business transient and corporate group demand return to the market. Finally, to touch on some of our other key markets, we saw stronger than expected demand at the Hilton Chicago for the quarter with incredible rate performance, down just 1% to 2019. We've also seen strong performance from our hotels in Southern California, with a combined rep part down only 1.6%, 2019, and in Boston, where we have seen promising growth in the business transient and group segments. Finally, in New Orleans, we are pleased to report that the Hilton New Orleans Riverside sustained minimal damage from Hurricane Ida in late August. Power was restored to the hotel within five days and our property secured a significant amount of disaster response and recovery group business that offset any business interruption that resulted from the storm. Turning to capital allocation. During the third quarter, we completed the sale of our La Merida in San Francisco, which helped us exceed our goal of completing $300 to $400 million of non-core asset sales in 2021, with total sales topping $477 million. On the investment side, Mike SanClements, Significant work is underway on our bonnet creek meeting space expansion project, but the Waldorf ballroom foundation port and site preparation work started on the signature side. Mike SanClements, They also recommence to approximately $20 million renovation work to update meeting space at the signal bonnet creek and the Hilton San Francisco Union Square and another phase of rooms in the tap a tower at the Hilton wine village. All projects were accelerated to occur during low occupancy periods to minimize disruption ahead of the recovery. Turning to acquisitions, we remain laser focused on maximizing shareholder value and plan to selectively pursue attractive acquisitions in target markets that are both accretive to earnings and net asset value with a continued focus on upper upscale and luxury hotels in top 25 markets and premium resort destinations. Looking ahead, our outlook looks better than it did a few months ago. For the fourth quarter, we expect to see healthy transient booking trends with the resumption of international travel, which should benefit our hotels in markets like New York, Miami, and San Francisco. We believe international demand from Asia, particularly to Hawaii, will not see a material increase until the middle of next year, although this could certainly accelerate with increased vaccinations. We also expect our hotels and markets that have historically hosted group events with large international attendees, such as New York, Chicago, and San Francisco, will see healthy improvement in demand in 2022. As noted, while we are forecasting a sequential improvement in business transit for the fourth quarter, We are expecting a more material increase beginning in the first half of 2022. And with the presumed return to office for many workers and for group, we're expecting momentum to build as we head into 2022 with 2022 group pace currently at approximately 66% of the 2018 pace for 2019. Finally, despite ongoing improvements in lodging demand and the expectations for strong business recovery in 2022, the gap between public and private market valuations remains incredibly wide, a disconnect which has become increasingly more apparent as the volume of private market transactions builds, while providing greater transparency on hotel real estate values. While most other asset classes within the broader REIT universe trade at a premium to consensus net asset values, Mattel REITs continue to trade at historically wide discounts, and Park is no exception. Based on the latest range of analysts' estimates, Park trades at nearly a 30% discount to consensus midpoint, or $27 a share. a very conservative view on valuation, in our opinion. In our view, however, that as the path to recovery becomes increasingly more apparent with the return to business travel, the valuation gap should eventually narrow. Before I hand the call over to Sean, I want to emphasize the strength of PARCC's current position as we look ahead to a more broad-based recovery. Our diversified portfolio is positioned to reap the benefits of incremental growth in the business transient and group segments while simultaneously continuing to capitalize on leisure demand. On the capital side, we are poised for growth and optionality, and we plan to continue to focus on value-added transactions and projects that create meaningful shareholder value. We continue to work tirelessly to unlock value and shape our portfolio for long-term growth. And with that, I would like to turn the call over to Sean, who will provide some more color on our results and updates on our balance sheet, liquidity, and ESG efforts.