Park Hotels & Resorts Inc

Greetings. Welcome to the Park Hotels and Resorts, Inc. Second Quarter 2022 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. Please note, this conference is being recorded. I will now turn the conference over to your host, Ian Weissman, Senior Vice President, Corporate Strategy. You may begin.

Thank you, operator, and welcome, everyone, to the Park Hotels and Resorts Second Quarter 2022 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. Actual future performance outcomes and results may differ materially from those expressed in forward-looking statements. Please refer to the documents filed by PARCC with the SEC, specifically the most recent reports on Form 10-K and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements. In addition, on today's call, we will discuss certain non-GAAP financial information, such as FFO and adjusted EBITDA. 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 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 a review of PARCC's second quarter performance, an outline of PARCC's strategic priorities, and an outlook for the balance of this year. Sean DeLorto, our Chief Financial Officer, will provide additional color on second quarter results, an update on our balance sheet and liquidity, while establishing guidance for the third quarter. 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 very pleased to report stronger than expected Q2 performance with results materially exceeding expectations. We witnessed exceptionally strong performance across our portfolio as the ongoing strength and leisure was augmented by increased business travel, which came in at 95% of 2019 levels, and accelerating group demand. On the capital allocation side, we sold approximately $270 million of assets year-to-date and repurchased $157 million in stock at a significant discount to our internal net asset value estimate during the quarter, further strengthening our balance sheet and creating value for our shareholders. And finally, based on our strong second quarter results, we exited the covenant waiver relief period for our credit facilities one quarter earlier than anticipated. Looking closer at our quarterly results, second quarter pro forma rev par recovered to 90% of 2019 levels, and pro forma hotel adjusted EBITDA came in roughly $30 million ahead of our internal expectations set forth at the beginning of the quarter. Highlighting the strong recovery in demand, following the COVID-related slowdown at the start of the year. Pro forma occupancy improved over 19 percentage points over the first quarter, while pro forma average rate finished 8% ahead of second quarter 2019. The strongest recovery in the quarter was in urban markets, where our hotels saw an encouraging increase in demand. Occupancy for our urban hotels averaged 64% for the quarter, or a 25% decrease point increase from the first quarter on a pro forma basis and ADR came in 24% ahead of Q1 and slightly ahead of the second quarter of 2019. Note that our last remaining suspended hotel, the Park 55 San Francisco, reopened on May 19th and quickly exceeded expectations. The June occupancy finishing at 67% with 1,000 plus room hotel. Resort hotel performance remained very strong, growing ADR nearly 27% over the same period in 2019, fueled by our assets in Hawaii, Florida, and Southern California. We were also pleased to see stronger than expected group demand for the quarter, with group revenues up 68% compared to the first quarter. Group demand remains very short-term, with pickup for the second quarter representing nearly 44% of the room nights picked up in the quarter for the remainder of 2022. Most of the short-term booking activity was seen in San Francisco and Seattle, while the Hilton Hawaiian Village benefited from positive pickup from better-than-expected citywide participation in May. In terms of business transient demand, we saw material improvement during the quarter, with business transient revenues totaling 95%, of second quarter 2019 revenues. Parts business-oriented hotels opened for the entirety of the quarter recorded midweek occupancies of approximately 73% for the second quarter, a roughly 30 percentage point sequential improvement from the first quarter. As the portfolio recovers, we continue to make progress on our four key strategic initiatives. First, we remain laser-focused on reaping the benefits from a reimagined operating model, capturing margin improvement from both incremental revenue opportunities and operating efficiencies. On the revenue side, we continue to benefit from the industry's remarkable rate discipline and our operators' rate optimization efforts to help offset inflationary cost pressures as occupancy rebounds. Additionally, our teams continue to focus on driving out-of-room spend posting impressive results for the second quarter in food and beverage, with revenues exceeding our expectations by over $11 million. At Hilton Hawaiian Village, for example, a reimagined bar concept and aggressive event in menu pricing helped to generate over $3 million of incremental revenue over the same period in 2019, a 24% increase, split evenly by 12% increases in both average check and covers. On the cost savings side, our operational modifications help to drive pro forma hotel adjusted EBITDA margins of nearly 31% during the second quarter, or just 30 basis points below 2019 levels, despite portfolio rev par being down 10%. Most of the savings have come on the labor side, with headcount down 23% for managers and 29% for full-time hourly employees compared to 2019 for the quarter within our Hilton managed hotels. We firmly believe that the operational changes behind many of the staffing reductions are permanent, translating into $85 million in savings or 300 basis points of permanent margin improvement relative to pre-COVID margins on a stabilized basis. Our second key priority is to continue to reshape and improve the quality of the portfolio by remaining active on the capital recycling front. We have made tremendous progress year to date by selling $270 million of assets versus our goal of $200 to $300 million established at the beginning of the year. Overall, hotel sales were executed at or near 2019 valuations with transaction multiples slightly above 13 times on average versus the 10 times implied multiple on the $218 million of stock buybacks we executed year-to-date. And despite recent choppiness in the debt markets, interest in hotel real estate remains high. Accordingly, we expect to sell another $300 to $400 million of assets to reduce leverage and reinvest back in our portfolio. Our third priority is to fortify our balance sheet by continuing to push out maturities, reduce leverage, bolster liquidity, and maintain flexibility as we look to pivot between defense and offense, depending on what the markets dictate. Today, our liquidity position is approaching $1.8 billion, with no meaningful maturities over the next 12 months. We are also in active discussions with our debt capital partners to address our San Francisco CNBS and Revolver, both of which mature in late 2023 and expect to have those addressed by year-end. Finally, our fourth priority, we are focused on executing on our robust pipeline of value-enhancing ROI projects that will unlock the embedded value of our portfolio. Work is well underway on our Bonnet Creek meeting space expansion platform with the Waldorf space on schedule to open later this year and the Signia space expected to be ready by early 2024. And we plan to commence work on two major renovations and repositions within the next 6 to 12 months. Turning to our outlook, it's hard to ignore the headlines around increased macroeconomic uncertainty and possible recession. However, at this point, we have not seen evidence in a pullback in demand across our portfolio. Corporate balance sheets remain healthy. Consumers still have nearly $1 trillion in personal savings following the pandemic-related economic stimulus and pent-up business and international inbound demand, still exist following two and a half years of depressed activity, which bodes well for the lodging industry and our portfolio in particular. Lodging demand should also be supported by the trillion-dollar infrastructure bill Congress passed last year, a key driver of non-residential fixed investment, which is forecast to be 5% in 2022. While supply growth in major markets remained historically low within parks markets, under 1.5% combined, and significant barriers to entry from rising construction costs, limiting supply growth over the next three to four years, which we believe will continue to support solid fundamentals over the next several years. With that backdrop, we are very encouraged with the pace of improvement across our major markets, and we expect to see incremental improvement throughout the year and into 2023 as leisure markets remain strong, and the urban and corporate recovery accelerates. Group pace sits at 66% and 72% for the second half of 2022 and full year 2023, respectively, when comparing to 2019 bookings for similar periods as of June 2019 and June 2018, respectively. Urban market convention calendar for 2023 are pacing well when comparing to events booked for 2019 as of 2018, with Chicago, Boston, and Washington, D.C. each above 100%, and Denver and New Orleans above 80%. San Francisco is currently showing over 760,000 room nights on the 2023 calendar, which is 64% of the actual room nights achieved in 2019. Hawaii is expected to continue to outperform expectations, supported by healthy leisure trends and the eventual return of the Japanese traveler, especially in Honolulu, where historically Japan makes up nearly 20% of total demand, but has been absent over the last three years. Overall, we are bullish about the lodging recovery, and we remain laser-focused on creating shareholder value and closing the valuation gap. with our 2022 priorities squarely focused on operational excellence, recycling capital to unlock the significant embedded value in our portfolio, and continuing to improve the quality and optionality of our balance sheet to execute on our long-term growth plans. The park remains well-positioned for outsized performance, given our optimal mix of resort, urban, and group-focused hotels, and I'm incredibly excited about the future. And now, I'd like to turn the call over to Sean, who will provide some additional color on operations, along with an update on our balance sheet and guidance for the third quarter.