Park Hotels & Resorts Inc

Greetings. Welcome to the Park Hotels and Resorts Inc. Fourth 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. You may begin.

Thank you, operator, and welcome, everyone, to the Park Hotels and Resorts fourth quarter and full year 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. Note also that comparisons to prior year periods are on a comparable basis as defined in our earnings release. 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 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 a review of PARCC's fourth quarter performance and outlook for 2023. Shawn Dilorto, our Chief Financial Officer, will provide additional color on fourth quarter results, an update on our balance sheet and liquidity, and further details on guidance. 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. 2022 was an incredibly productive year for Park as we witnessed widespread improvements in demand throughout the portfolio while continuing to strengthen the overall quality and flexibility of our balance sheet. For the travel industry as a whole, 2022 was an important year as businesses returned to the office, conferences resumed, and the majority of travel restrictions were lifted around the globe. allowing the industry to benefit from a broad-based recovery across all demand segments. For the park portfolio, we saw improving group and business transient demand throughout the year, which combined with ongoing strength and leisure demand to deliver healthy results for the full year. Looking ahead, the continued increase in group demand and recovery in urban markets provides a favorable backdrop for park to outperform. In 2022, we remain focused on our strategic priorities, including operational excellence in terms of realizing operational efficiencies, prudent balance sheet management, and investing in value-enhancing projects. We continue to reap the benefits from the reimagined operational model developed during the pandemic, which translated into labor costs that were 16% lower in 2022 versus 2019 and are expected to remain above our target of approximately 1,200 positions or a 9% headcount reduction throughout 2023. We also made substantial progress improving the overall quality of our balance sheet in 2022, raising our total liquidity to $1.9 billion, an increase of approximately $300 million over the last 12 months due to both our capital recycling efforts, and our debt modification initiatives. On the capital recycling front, we sold interest in eight non-core hotels for $435 million at a 12.7 times 2019 EBITDA since the start of 2022, including the recently announced sale of the Hilton Miami Airport for $118 million in early February. Additionally, we exited our covenant waivers and pushed out debt maturities with the recast and upsize of our $950 million revolver in December. Thanks to these incredible efforts by the team, PARC remains well positioned to execute on our internal and external growth initiatives with the flexibility to pivot between offense and defense, certainly depending on market conditions. In terms of our strategic priority to invest in our assets, we spent $168 million across our portfolio in 2022, and we expect to increase to over $300 million this year, nearly half for ROI projects as we continue to unlock embedded value opportunities throughout our portfolio. Excellent progress continues on our meeting platform expansion at Bonnet Creek. With the opening of the new Waldorf Ballroom this past December, along with the completion of lobby renovations at the Signia Hotel, with a full rooms, public space, and existing meeting space renovation at the Waldorf expected to be completed by the fourth quarter of 2023. We expect to finish the Signia meeting platform expansion along with the renovation of the Reese Jones Championship Golf Course by Q1 2024, completing a five-year, $220 million full-scale renovation of this world-class resort. We are also finalizing plans to complete our Curio conversion at our iconic Casa Marina Resort in Key West later this year, a $70 million investment which will include a full rooms renovation and a reimagination of the public space, including its food and beverage outlets. We also plan to implement climate change mitigation upgrades during our renovation, making the asset more resilient in the event of weather-related issues. Finally, we also completed phase two of the Tapa Tower Rooms renovation at Hilton Hawaiian Village during the fourth quarter and expect to execute the third and final phase of the renovation at the Thousand Room Tower in the fourth quarter of this year. culminating in $85 million of total CapEx spend for the project. Finally, in 2022, we returned over $290 million of capital to shareholders in the form of common stock dividends and share buybacks. Beginning in Q1, we reinstated our quarterly dividend, generating a full-year payout of $0.28 per share. In addition, given the ongoing dislocation between public and private valuations, We bought back a total of $227 million of stock last year, in addition to another $30 million of stock so far in 2023, for a total of over 15 million shares repurchased at a significant discount to net asset value. Looking at fourth quarter results, comparable REVPAR increased 47% year-over-year, having recovered to 91% of 2019 levels and fully recovered within 0.3% increase to 2019 for the fourth quarter if we exclude San Francisco. Results were led by strong leisure demand in our resort markets and healthy group trends in markets like New York, Hawaii, and New Orleans. In Hawaii, our Hilton Hawaiian Village Hotel reported fourth quarter rev par That was 2% ahead of 2019 results, with average daily rate 11% above 2019. L'Hotel reported its strongest group quarter since 2019 during the fourth quarter and finished 2022 with an annual EBITDA contribution of over $173 million, its highest amount in our company's history. While we have been very encouraged by the strong fundamentals in Hawaii, we believe tailwinds for continued growth remain, with international demand still pacing 70% below 2019 levels and Japan off by over 95%. As a reminder, Japan historically represented nearly 20% of our demand at the village. Turning to Florida, Key West was the only resort market within our portfolio that faced notable headwinds in the fourth quarter. The entire island has seen demand moderate as a result of reduced compression, while hurricanes Ian and Nicole also negatively impacted the island in the quarter, accounting for 420 basis points of RevPAR drag. Looking ahead to 2023, we expect RevPAR at our reach resort to likely be flat to down versus 2022, but still well in excess of prior peak levels, while the transformative $70 million renovation of Casa Marina during the second half of the year is expected to account for approximately 105 basis points of full-year REVPAR disruption and $14 million of EBITDA disruption overall. The recovery in urban markets was solid during the fourth quarter, as we expect that rebound to accelerate this year. We saw ongoing improvements in demand during the quarter in most of our urban markets, led by New Orleans, New York, Boston, and D.C. Performance at the New York Hilton was driven by better than expected group demand, which helped to drive both strong occupancy gains and subsequent rate compression, with ADR averaging nearly $365 for the quarter, or 13% above 2019 levels. As a result, hotel adjusted EBITDA increased sequentially over Q3 2022 by over $19 million to more than $22 million for the quarter, while hotel adjusted EBITDA margin was an impressive 27.5% during the fourth quarter. We expect that momentum to continue into 2023 with both REVPAR and hotel-adjusted EBITDA margin expected to exceed 2019 levels and 2023 group pace to be above 2019 for the same period. Turning to San Francisco, our Q4 performance was weaker than expected. We were very encouraged by January's preliminary results following a successful J.P. Morgan Healthcare Conference. And we see several encouraging green shoots that we believe will help support ongoing improvements in the city in 2023 and beyond. First, group is expected to continue to improve in 2023 with the Moscone Center expected to generate nearly 700,000 room nights of citywide demand this year, up from just 380,000 in 2022. Several airlines have announced plans to return or expand key international routes throughout the year, bringing welcome economic activity as international spend was nearly three times domestic spend in the city in 2019. Finally, both political and business leaders are now more focused than ever to reimagine and re-energize the city. Just two weeks ago, Mayor Breed announced an economic recovery plan with nearly 50 initiatives, including taxes, incentives, health and safety measures, and designs to diversify the city's employer base. While San Francisco's fortunes will not change overnight, we do expect to see continued recovery that will lead to more meaningful contributions to parks earnings growth over the next few years. In terms of revenue segments, the rebound in group demand is a strong tailwind for our portfolio. that we started to see in 2022 and expect to accelerate further in 2023. Q4 group revenues exceeded our forecast by 9%, or approximately $9 million, and showed a 12% incremental improvement over Q3. While we continue to see robust short-term group bookings, we are also encouraged to see the booking window elongate. In Q4, $55 million of new business was booked for 2023, with gains primarily concentrated in San Francisco, New York, and Orlando, and group revenue pace for 2023 increased by 300 basis points to 78% of pre-pandemic levels. Group revenue pace is up 28% to the same time last year, nearly doubling during the quarter, 15% at the end of Q3. If we look out to 2024, over 70,000 room nights were booked in December alone, led by San Francisco, with over 15,000 room nights, or over 21% of December's pickup for the year. Given these trends, the park remains very well positioned to generate impressive year-over-year earnings growth, driven by ongoing strength in resort markets, like a Hawaii, and Orlando, while pent-up business travel and stronger citywide calendars should support accelerating demand across our core urban markets. Accordingly, we are establishing full-year REVPAR guidance based on year-over-year growth of 7% to 14% with a wider-than-usual range driven by ongoing macro uncertainty. With respect to earnings, we anticipate adjusted EBITDA to be in the range of $610 million to $690 million, while hotel adjusted EBITDA margin is expected to range between 26.7% and 27.3%, a roughly 80 to 140 basis point improvement over the prior year. Adjusted FFO per share guidance is forecast to be between $1.60 to $1.99 per share. As we look ahead to 2023, our strategic priorities are unchanged. We remain laser-focused on operational excellence as we continue to aggressively asset manage our portfolio and improve the operating model, and we will continue to reshape and upgrade the portfolio by selling non-core assets and heavily reinvesting in the core portfolio with value-enhancing renovations and ROI projects. With that, I'd like to turn the call over to Sean, who will provide further details on our performance, as well as providing additional details on first quarter expectations.

Thanks, Tom. Overall, we are very pleased with our fourth quarter performance. As Tom noted, Q4 Red Park came in at approximately $163 as occupancy was just shy of 68%, and ADR was slightly stronger than we had expected at $241, or 8% above 2019 levels. Overall comparable hotel revenue was $644 million during the quarter, while comparable hotel adjusted EBITDA was $166 million. resulting in comparable hotel adjusted EBITDA margin of nearly 26%. Q4 adjusted EBITDA was $159 million, and adjusted FFO per share was 45 cents. Turning to the balance sheet, our current liquidity is approximately $1.9 billion, while net debt currently stands at $3.9 billion, or nearly $300 million lower since the beginning of 2022. We continue to evaluate several opportunities to address our $725 million CMBS loan on our two San Francisco Hilton hotels, which matures in November. And given our balance sheet and liquidity, we are confident we will have the matter addressed before the third quarter. We will keep everyone apprised of any developments over the coming months. Looking ahead to the first quarter, we expect to see the greatest improvement across our urban portfolio, with continued strength in Hawaii, Orlando, Miami and Southern California, with all of these leisure markets forecasting year-over-year gains. Softer citywide calendars in key markets such as Chicago and New York during the first quarter will present some headwinds with softer group trends expected. However, we project a sharp rebound beginning in Q2 with the acceleration of solid group trends expected to be a meaningful driver of performance for the remainder of 2023. Accordingly, we are establishing Q1 guidance with REVPAR forecasted to range between $156 and $162 for year-over-year growth of 37% at the midpoint of the range. Adjusted EBITDA is expected to range between $124 million and $140 million, while hotel adjusted EBITDA margin is expected to range between 22.8% and 23.4%. a roughly 400 to 460 basis point improvement over the prior year. This margin improvement will be negatively impacted by outsized cancellation income recorded during Q1 2022 related Omicron, accounting for approximately 100 basis points of drag versus prior year. Finally, adjusted FFO per share should range between $0.30 and $0.37. Note that both Q1 and full-year guidance considers a recently announced sale of our Hilton Miami Airport Hotel, which removes nearly $4 million and $12 million from expected earnings for these respective time periods. Turning to the Q1 dividend, based on current forecasts, we are targeting a recurring quarterly dividend of 15 cents per share, which aligns with our more constructive views of the recovery and full-year guidance. while remaining prudent given the ongoing macro uncertainty. Note that the actual amount of the first quarter dividend is subject to Board approval, which is expected to occur by mid-March. Finally, as Tom noted in his comments, over the past year, PARC has bought back over $250 million of stock at a significant discount to NAB. We continue to believe that there is currently no better use of our capital than reinvesting in our company, with still a wide spread between public and private market valuations. Accordingly, I am pleased to report that the Board approved a replenishment of Park's stock buyback program, giving the company the ability to buy back up to $300 million of common stock over the next two years, which we will prudently execute on a leverage-neutral basis. This concludes our prepared remarks. We will now open the line for Q&A. To address each of your questions, we ask that you limit yourself to one question and one follow-up. Operator, may we have first question, please?

Sure. Thank you. And again, as a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Flores Van Jackum with Compass Point. to proceed with your question.

Thanks for taking my question, guys. Morning, Gord. Morning. And one, thank you for providing, you know, 23 guidance as well as first quarter guidance and obviously, you know, that appears to be, you know, you believe that we're not going to go through a hard landing recession. I just wanted to maybe get a sense of your, if you could talk a little bit about some of the economic backdrop that you're envisioning for the hotel sector. And then specifically, I mean, one of the things that I, you know, I'm amazed by the performance of your Hawaii assets. And it seems like, Maybe if you can comment a little bit more in your outlook on Hawaii as well, because 20% of the demand essentially hasn't been there, and yet you still are in Hawaii Village at $173 million of EBITDA. Is it feasible that this hotel gets to $200 million of EBITDA should the Hawaii traveler come back in 2023? Maybe if you start with that.

Well, of course, thank you for the questions. A lot, obviously, to sort of unpack, but I'll start with Hawaii. Look, I would say if you step back during the pandemic, and we were crystal clear, given the facts and circumstances and what we were faced with, that we really needed to work hard to reimagine the operating model. You've heard me talk about it call after call. I think we can continue to see, and this is an example of that, having labor costs across the entire portfolio that were 16 percent lower. I mean, think about, obviously, the 1,200 jobs that have been eliminated. Now, again, these are not – these are across the board, both management and hourly, but it's really areas where there were certainly redundancies, where we thought we could be more efficient. So working collaboratively and in partnership with our operating partners and our very talented asset management team really taking costs out of the business. As you think about Hawaii, it is a world-class resort. There is not, in my humble opinion, another REIT asset across any other sector, maybe the Empire State Building would be comparable, that's worth more, that has as much of a story to history and has as much a following where people continue to go back generation after generation. We are investing a ton of money there. As we mentioned, the Tapa Tower, which we're renovating that 1,000-room tower. We're also working on the sixth tower there. So clearly a lot of pent-up demand. But that pent-up demand really being met by U.S. travelers, and you correctly pointed out that the Japanese traveler who have been going for 30 years or more and consistently, and have accounted for about 15% to 17% of the demand, and they're about, And while they stay longer, they also spend more. So to your thesis of could it be 200 million or more, absolutely. And I think as we continue to invest and upgrade and continue to improve the experience there, there really isn't anything comparable for that traveler and that scale and that size. So we are really encouraged, really excited. about Hawaii, but we're also excited about what we're doing in Orlando. You heard me talk about, obviously, the $200 million that we're putting in, $200-plus million for the Bonner Creek Resort. We are going to be thrilled to have that completed at the end of this year, first quarter of next year, and we'll make sure that we have an event and an opportunity for investors and analysts to see it. Truly world-class, what we're completing there. Regarding your question about economic backdrop, I'd make a couple observations. We're in a time of great uncertainty. I think we all know that. There are, whether it's inflation, interest rates, geopolitical, the war in Ukraine, all of that. But despite all of that, the consumer remains resilient. There's a really strong labor market. And there are a few things that I think help improve the outlook. Inflation appears to be past peak. Now, it doesn't mean that we're through it completely, but I think most of the experts believe we're sort of past peak. So that's a positive. The drag from Europe is less than feared. If you think about what everyone was thinking about in terms of a really deep recession there, but the warmer winter, better planning by the leaders there, have certainly helped mitigate that. China doing the U-turn on the COVID policy also, I think, helps to restart. Hopefully, we can have better relations, but getting that and the impact, the possible positive impact on supply chain in addition to travel, I think are also really encouraging signs. So, net-net, it's fair to say, I think, of sluggish or certainly a soft landing. and not a deep recession. We're certainly not forecasting a deep recession, but certainly a slower period is, I think, a fair base case. But even with that, PARCC has a number of green shoots and tailwinds, given the diversification of our portfolio, that I think really outpace and provide for accelerated earnings growth, hence the reason that we've got a rev par of 7 to 14 percent year over year. I don't think many of our peers are going to be in that range. So we had a tougher period, but I think the outlook for PARCC as we look out in 23 and beyond is very strong and very optimistic. So we are very encouraged over the intermediate and long term.

Thanks. My follow-up, and this may be for Sean. Sean, why would you not consider using the spare cash on your balance sheet to to pay off the maturing CMBS loan completely? And what would that do to your earnings expectations? Because presumably that is not in guidance, but that would be, again, you're earning less on the cash on your balance sheet than you're paying on the debt, I would assume.

Well, ultimately, I would say it's pretty close in terms of what's being earned. That debt is at 4.1%. And clearly, with cash on balance sheet, I would say it's still, as part of our overall liquidity, $1.9 billion. It's certainly a little more important as you kind of think about playing that down. $725 million is certainly a lot of money. It's going to be certainly part of the solution, but I wouldn't say that we're looking to pay it off completely today with that cash that we have in our balance sheet.

Hey, Floris, I would also add that, look, the The beauty of where we sit right now is we have the balance sheet is strong. You saw the measures that we've taken again over the last few years. We have optionality. We're going to study the situation carefully. But rest assured, we will have it solved by third quarter, if not sooner. And we've got optionality. We can put debt on an asset or a combination of assets. We could extend. We could reach out to the servicer. number of different things that we can do here so we're not at all alarmed we're going to be thoughtful we're going to be measured and we're going to get to the right outcome and i use as example the beginning of the pandemic um when everything was closed and we had debt maturities and the world thought park wasn't going to be around much longer we didn't panic we did three bond deals we pushed out maturities we've paid off now we paid off 98 of the bank debt You'll note that when we went to recast our revolver, the banks welcomed us with open arms. It was done quickly, efficiently, and we were one of the few that were able to upsize in that environment. So you've got a very seasoned and experienced team here. We know how to handle the situation. We will study it carefully, and we'll get to the right outcome.

Thanks, guys. Thank you.

Our next question comes from the line of Duane Finnigworth with Evercore ISI. Please proceed with your question.

Hey, thanks. Good morning. Good morning, Duane. Hey, nice to see you. Just on labor cost inflation, I wonder if your relative flexibility and geography, so essentially operating in higher cost urban markets where rates were already high, makes you less exposed to labor rate increases versus your peers? Is having less flexibility on labor actually a good thing right now?

It's a great question, and I think you are spot on. One, we have labor peace. We've been working with our union partners. And as a result, the fact that we had perhaps higher wages gives us a benefit. And there's another part to it as well, is because of seniority, because of recall rights, we didn't suffer and have to challenge and chase labor to the extent that perhaps some of our peers had to. That doesn't mean that we didn't have challenging markets. Orlando's been a market, a challenging market for everyone. Key West was a particularly challenging market. But for many of our markets, having that embedded relationship was an advantage for us.

Appreciate those thoughts. And maybe just to expand a little bit on the Japanese traveler returning to Hawaii, do you have a view, just given seasonality of the year and maybe some of the incentives that they continue to run in the first part of this year, when would you expect that to kind of meaningfully pick up?

It's the second half of the year. And we remain in contact with the tour operators. Your observation is right. There's a lot of incentives to keep some of those dollars over and keep some of those yen over in Japan right now. But we fully expect you're now three years of not having that Japanese traveler. And I can't remember the number. of weddings, Sean can remind me, but I want to say 150 that we were doing on an annual basis that obviously have not occurred. So we fully expect that we'll get more than our fair share and that when they come back, they will come back with significant energy and we would expect certainly longer stays and more spend. So we're very excited about that. Despite that, as you've heard in the prepared remarks and the question, it was a record year. Now, that's a record year of one property and about the size of that amount of EBITDA, about the size of some of our peers. So just sort of put it in perspective with huge upside at that world-class resort.

Okay. Appreciate the thoughts. Thank you.

Our next question comes from the line of Anthony Powell with Barclays. Good to proceed with your question.

Good morning. Good morning, Anthony. Good morning, Tom. It's a question on asset sales. You made a lot of progress last year and start this year with asset sales. Maybe update us on what you're still looking to achieve this year in terms of incremental sales.

Great question, Anthony. Look, if you step back now, we've sold since the spend sold or disposed of 39 assets, about $2.1 billion. And we are laser-focused on continuing to reshape, improve, and upgrade the portfolio. And we also bolted on the 18 hotels from the Chesapeake deal as part of that. But keep in mind, our top 27 assets account for about 90 percent of the value of the company. We want to continue to improve and upgrade the portfolio. So this year we're targeting another two to three hundred million. There's nothing we've been able as we did last year if you include Miami obviously four hundred and thirty five million. So those eight asset sales we're confident that we'll we'll be able to continue to make progress there and again we'll use those proceeds to invest back into the company or buy back stock on a leverage neutral basis. But it will be a constant for us to continue to recycle and continue to reshape and upgrade the portfolio.

Thanks. And it's kind of a related question. I think on the CapEx guidance for the year, 300 to 325, I think it's the highest since you've been a public company. A lot of ROI projects, which I view as positive. So is it a sign that you may cycle more ROI projects over time? And maybe it's your approach of, you know, ROI projects versus buybacks and capital allocation.

Yeah, great question, Anthony. We'll seek to find that right balance. Look, when you're trading at this kind of discount to NAV, you can certainly expect that we'll be buying back stock. No better investment, as Sean said in his prepared remarks, than investing back in the portfolio. So we'll find that balance. of buying back stock on a leverage neutral basis but at the same time investing in the portfolio. Just a few the the Bonnet Creek that we mentioned in the north to 200 million dollars for putting in there. We completed the reach resort which is a sister property to the castle marina in Key West which is a huge success. We're now going to complete the castle marina project. We'll probably close the property for about five months plus or minus. We've given what we think will be the disruption as well as the EBITDA impact that is baked into our guidance. We have an extraordinarily talented design and construction team led by Carl Mayfield, best in the industry, seasoned. We know how to handle this. We've dealt with extensive hurricanes, major projects. So we've got it teed up. and we're confident we'll get that done this year. We'll also be able to get the final phase of the Tapa Tower in Hawaii. So, look, we obviously paused a little during the pandemic for the obvious reasons, but we are being very thoughtful, very strategic. We're planning well, making sure that all the supply chain issues are addressed, and we know how to handle it, and we know how to handle the large, complicated projects as well as anybody in the sector.

Great. Thank you. Thank you. Yep.

Our next question comes from the line of Smitty's Rose with Citi. Please proceed with your question.

Hi. Good morning. Hi. I wanted to just kind of circle back a little bit on your RevPAR outlook and margin expectations. Because it looks like if you, after the first quarter, the remaining three quarters of the year at the low end are kind of maybe, you know, zero to slightly down to maybe up mid single digit at the high end. And I guess on the margin expansion, I mean, would you expect that to be more sort of packed into the first quarter and then it sort of flattens out as we move through the year? Or do you think even with a more sort of tepid rev par growth through the balance of the year that you can still achieve expansion, margin expansion?

Hey, it's me, Sean. Yeah, certainly I think as you look at kind of the back half of the year in that range, I assume you're kind of talking obviously more, a little bit more year-over-year comparison. Ultimately, yeah, ultimately I think, yeah, I think we can ultimately, we feel pretty good about holding margins at least at a steady level relative to prior year in the back half of the year. As we kind of look at it, Clearly, we move forward. I mean, a good amount of it relies on our picking up the group, which I think is a great group year for us. As Tom alluded to in his remarks, the pace over the same time last year is strong. We actually think it's getting stronger. And so we feel pretty good about being able to, you know, right-size some of the margins, especially on the F&B side, to kind of drive home a better flow through as we kind of bring in the banquet and catering that comes along with group. over the back half of the year, essentially, while we have, for the most part, a lot of the other types of costs generally fixed. We've talked about labor, and now we feel like we're in a good position now. We're not looking to add positions. So in the end, I think we pretty well have set on the cost structure. So I think we can actually see a decent flow through, even if it's a little bit on the rep part side, a little bit lower than expected.

Okay, and just in your composition of RESPAR, I mean, it's fair to say that it's maybe more occupancy-driven this year versus rate-driven, which seems to be sort of a theme in the industry, but I'm just wondering if you're thinking that way as well.

Exactly, Smith. That's how we're thinking about it as well. Certainly a lot more opportunity than rate. Okay.

Okay, thank you. Our next question comes from the line of Patrick Scholes with Truist.

Please proceed with your question.

Thank you, operator. Good morning, everyone. Good morning, Patrick. Good. When we think about the full-year REVPAR guide, 7% to 14%, you know, drilling down a little bit more on our customer segment, how might you think that specifically the leisure travel REVPAR would – look in that range? Would it be towards the lower end of the 714? Or how would you think about that?

Thank you.

In terms of the REVPAR improvement year over year, certainly on the lower end, I mean, you can imagine you've got some moderation in the markets like southern Florida, where you've had tremendous uplift. And so while we're still ahead of 19 levels, I think from a year-over-year comparison, they continue to be tough comps. We've seen, as well, some moderation in places like our Santa Barbara asset. Again, has performed tremendously, but I would say still will continue to have some positive growth, but, you know, on the lower end of the range. Hawaii still, I think, strong, and certainly the first half of last year, it was still trying to ramp up, so we still have some, I think, easier comps for that market, as great as it's been. I think we'll still kind of see that pretty strong in the first half of the year, and ultimately we'll face tougher comps the back half of the year. So put it all together, I think certainly you see the leisure end being a little bit lower on the end versus certainly urban where we have tremendous growth year over year, certainly in Q1 and certainly as you build through the rest of the year.

Okay. That's it for me. Thank you for the call.

Thanks, Patrick.

Our next question comes from the line of Ari Klein with BMO Capital Markets. Please proceed with your question.

Thanks and good morning. Maybe just on San Francisco, you mentioned improving group outlook there. What about from a business transient standpoint? What are you seeing there? And then I think you did about Flattish EBITDA in 2022. What do you think that could look like this year?

Flat of Shibata in San Francisco?

I think in 22, I think that's what it did for the full year.

Yeah, you said flat. It was certainly zero. You were certainly being diplomatic, and we appreciate it, but let's all be honest. The situation in San Francisco is has certainly been incredibly complex. It's interesting, if you look at trends and you think back a year ago and what people thought of kind of New York, San Francisco, and Chicago, everyone thought in the case of New York and San Francisco in particular, you'd be years before they'd ever recover. Look at what happened in New York. In the first quarter, we didn't open the New York Hilton until October of 21. We were down 55% in Q1 in RevPar, down 22% in the second quarter, down 16% plus or minus third quarter, and then up 2% in the fourth quarter. So just think about how quickly that recovered. San Francisco was not that story. We were down... First of all, we didn't reopen Park 55 until May, and the Hilton was the latter part of the end of 21. So they're down 82%, then down 47%, then down 40%, and then rallied back up a little bit at 52%. So no doubt it's been a lagging, and certainly it's been frustrating. But we are encouraged. I think a few things give us signs to be optimistic. One, the JP Morgan conference was a big test. They passed the test. There's 700,000 room nights expected city-wise this year versus the 380 last year. It is a market with only 32,000 rooms. There's no market that's smaller, more compressed, which gives it in good times a time to have real pricing power. You also finally, I believe, have an alignment not only between the political leaders but business leaders, and I think listeners know that I've been out there more than 10 times, and I'm going out again in March, and I'll continue to go out, but the Mayor put forward her plan that we referenced. There are a number of real initiatives underway to make it, whether it's cleanliness, crime, tax incentives, reimagining buildings and converting to figuring out ways how they can reactivate the city. So very encouraging from that standpoint. And then we continue to get green shoots of more and more group business coming back to the city. I think we've got 150,000 room nights just self-contained within the complex that we have there, the Hilton and the Park 55. You know, the big unknown is the business transient. But if you can get the base there and get it anchored with city-wide and group and get the leisure going and you get the flywheel effect there, San Francisco, now do I think it's going to recover as quickly as the New York story that I shared with you? I do not. I think you lay the foundation this year, but we certainly are more encouraged as we look out in 24 and 25 and beyond. I hope that answers your question. Hopefully it gives you a good framework to think about it.

Yeah, and I appreciate it. And then maybe just following up on the ROI project, I think you previously talked about your potential for new tower projects. in Health and Hawaiian Village. Can you just update us on the timelines around that? And I think you've also mentioned potentially bringing in outside capital to help fund that and where that might stand.

Yeah, it's way too early to talk about how we're going to capitalize it, other than to say that we've got options on two sites that we are going to move forward on. We're working through the entitlement process. It's certainly a few years out. It's not something that will require capital in 23 or 24, and I'd leave it at that. Other than to say adding another tower to that world-class resort coupled with the 1,000 rooms of timeshare in addition to the nearly 3,000 rooms we have and the incremental amenities being talked about will only continue to strengthen it for generations to come.

Thanks for all the color. Yeah, thank you.

Our next question comes from the line of Chris Barranca with Doja Bank. Please proceed with your question. Hey, good morning.

Hey, good morning, guys. Good morning, Tom. Question is kind of on, you know, we like to focus on margins a lot, right? Been a lot of talk about reimagining the operating model and such. And there's also been a lot of, of course, pluses and minuses, mostly minuses on inflation. But how do you look at this thing heading into this year and even beyond where, you know, is the reimagination of the operating model done? And, you know, do we ever get to a point where now we're bringing back a little bit more housekeeping or restaurant hours and You know, just the question of as the OCC comes back, and I understand your margin guidance for this year, and it's, you know, impressive to be honest. But, you know, with more of that coming back and the service-oriented things coming back, you know, how do you get – is there any more to go, or is this just we have to get all the group business back, we have to get all the OCC back, and that's what gets us back to where we wanted to be in 2019 on margins?

Yeah, it's a great question, and Chris, you and I both, we've been around the block a little bit, and initially you started out going down what I call the amenities creep, and every time things start to look better, the brands want to add back more. I do think the pandemic forced all of us to think about the business differently, using technology, whether it's digital key, whether it's reimagining room service with a knock and drop, which have been widely accepted and I think appreciated by guests. I believe in the Marriott call, the CEO made reference to different levels of housekeeping service and that now being finding the right balance with both stakeholders, whether that's employees and whether it's guests and So I think you're going to see permanent changes. And I think what we've got to do as an organization and as an industry is to continue to be relentless in figuring out what drives customer satisfaction and intent to return, but also figure out a way to make sure that we've got an operating model that makes economic sense. None of us want to go back to the days of 16, 17, 18, 19, where we're anemic growth at the top line and no margin growth. It wasn't fun for you guys to analyze the business, and it certainly wasn't fun for us as owners, and in our case, operators, since we had to self-op a few hotels as well. So I think that these changes are here. There will be pressure points, and you're right, once we can get group back to the levels and business transient, there'll be some add-ons from here and there. But I think the abuse and the amenity creep that we've seen for generations, in my view, that game is over. It just doesn't make sense in an environment where we're going to continue to have cost pressures. You've seen us. We're giving you guidance where we're expanding margins, in part because of the great work done by the men and women at PARCC and our partners to really work hard to take cost out of the business. We're going to continue to fight and find ways to continue to find those efficiencies.

Okay. Very helpful, Tom. That's all I had. Thanks.

Thank you. Our next question comes from the line of David Katz with Jefferies. Please proceed with your question. Morning, everyone. Thanks for taking my questions.

You covered a lot of detail. I just wanted to go back to the credit markets, and it obviously plays in a couple of different ways. Sean's comments, you talked about some of the alternatives for, you know, refining. But, you know, we have seen some improvement in the credit markets lately. How important is that in order for you to be able to sell 200 or 300 million of assets? Are you embedding some expectation that it will continue to improve? And there, what's your thoughts on how that all plays into what you've talked about so far?

Yeah, Dave, it's a great, great question. I'll take the first part of it. I think we've shown, as I said earlier, look, we've sold 39 assets since the spin, you know, for over $2 billion of different quality and with all with tax, legal, joint ventures, some very attractive assets, some less attractive assets. and we've continued to get it done. Right in the middle of the pandemic, we sold two assets in San Francisco for very aggressive pricing. So there is an abundance of capital out there, as you know. It's $400 billion in private equity just on the real estate side. Family offices, owner-operators, regional banks are still open for business. Clearly, the big money center banks are being more are constrained and being a little more careful. But I think we've demonstrated time and time again, whether it's, and we haven't been able to use seller financing. We haven't been, we haven't needed to use seller financing. Our buyers have been able to raise the necessary capital to get deals done. So we're, we're confident. And obviously with once the tightening cycle and there's better visibility there, you know, the banks are going to be back in business. We're, we're in a, 4% to 5% range. For those of us that are older that have got more scars, 4% to 5% is not that bad. The problem is we've got a generation of people that have been dealing with free money. With all due respect, the free money is over. And so you've got to work a little harder. And I think that's going to play to Park's benefit over the intermediate and long term to be candid. But the debt markets will be back. There will be liquidity. There will be There'll be the ability to be able to get deals financed. It's not just a phone call anymore. You've got to do a little bit of work. But we certainly think there'll be plenty of capital for transactions.

Okay. Thank you. Thank you.

Our next question comes from the line of Robin Farrelly with UBS. Please proceed with your questions.

Great. Thank you. I'm interested in what's going on. Hi. Good morning. How are you? I'm interested in what's going on with business transient. And just looking at your urban rev par, which maybe is a good way to think about business transient, it seemed like just almost a rounding error in terms of sequential improvement in Q4 from Q3, right, where occupancy kind of relative to 19, down 18 points, you know, down 17 points of Q4, slightly better than the down 18 points in Q3. But I guess, you know, mostly seems like a rounding error. I guess I wonder if you could talk a little bit about what you think is going on with Business Transient, because it's just sort of surprising that that didn't maybe show a little bit more. And certainly you're not the only hotel company where I think, you know, we're not seeing as much of that. But I'm curious what you think is happening with Business Transient. Thanks.

I think with business transient, we certainly have seen, and we've tried to test it through looking at midweek occupancies throughout the year, and we certainly saw a tremendous improvement. Our occupancy sequentially, especially looking at an urban portfolio, is a little skewed in a sense of, again, San Francisco, coming back to it, but there's definitely some shifts in a big citywide there. When you look at 19, that caused a lot of hard comps, as you think about Q3 and Q4, I'm looking at sequentially. So ultimately, you kind of normalize for that. I think you would see a little bit of improvement in AUC in that portfolio from Q3 to Q4. Going into Q1, it's certainly been a little slower. We're certainly focused on some of the big corporate accounts and kind of they're coming back. It's certainly, as you think through technology and whatnot and with the layoffs, you're seeing a little bit of hesitancy in travel and lack of travel there. Some of the other verticals have been strong through the end of the year, but financial services and the like, a little bit lighter. Clearly, transaction activity and other things are light right now. We do expect it, though, to continue to kind of right-size and pick up some more, though. You certainly had some disruption around holiday events and the holiday weeks in Q4, and so I think we kind of get beyond, get into a normal cadence here as we get into March. I think we'll see that pick up again. Certainly when we're monitoring, that's one we certainly feel better about group and leads holding on than business transient, but I feel pretty good that we're going to see still recovery there this year.

Okay, great. Thank you. And just a quick follow-up, you did already allude to the fact that San Francisco wasn't cash flow positive, and I know you've talked about that for a while through last year. Are you at a point in recovery where it's starting to be cash flow positive, or is that not necessarily something you expect for right now?

Robin, we do. We are encouraged and certainly believe it's going to be cash flow positive. Now, do we expect it back to 19 levels and peak? We do not at this time, but we certainly are turning the corner and expect it to be cash flow positive.

Okay, great, thanks. Thank you. Our next question comes from the line of Bill Crow with Raymond James.

Please proceed with your question.

Yeah, thanks. Good morning. Hey, Sean. Morning, Bill. How are you? I'm well, thank you, Tom. Sean, I want to start with you in following up on Robin's question about the urban properties. And I'm just curious what your REVPAR index trends are within those properties?

We have the trends on REVPAR, well, certainly for, I'd say for San Francisco, it's, they're lagging. We probably typically see 90% REVPAR index 95. I mean, it's definitely, you know, bigger boxes to fill and relative to its, you know, its location relative to others and the comp set to the convention center certainly puts it at a disadvantage. It's, It's now, I would say, kind of in that mid-60s, 70s. We certainly expect that to improve as we get better in compression, but that one's lagging. New York is, I think, on par with what we've seen in the past and actually a little bit better than we saw in 2019. And ultimately, Chicago, as a box, as a big box in Chicago, we're seeing that hold its index relative to 2019. you know, probably within about, you know, 5% to 10% of where it was in 2019. And then, ultimately, New Orleans, we feel, is pretty much right there, a little bit above where it was in the past. Again, given its proximity to the Convention Center, I think it's certainly been helpful for that asset. Those are probably the key markets I would probably be pointing to, Bill, for kind of review the index.

Bill, the other thing I'd add to that, if you looked historically, I'm going to date myself here, but if you probably went back and looked 10, 20 years or more, I would bet the San Francisco complex ran between 90 and 100%. And part of it is the size of the facility in the complex and also the location. So clearly well below that, and I think there are reasons for it as it's ramping back up. just to put it in context and to frame that for you. We're well aware one of our projects is going to be, and we've been completely transparent about this, we were going to renovate Park 55 in 2020, obviously the pandemic. But the model rooms are done. The capital is allocated. It's just a matter of when we're going to begin that. We're going to wait. We'll figure out how we refinance the asset. and then that will be one package. But we clearly are going to get that done, and that certainly is going to help the overall complex.

Okay? Tom, you remain bullish or optimistic, I should say, on San Francisco, which I appreciate. I think there has been some progress made on the ground, and I've written that, and you and I have talked about that. But the economic aspect of it has gotten worse. And, you know, downtown is kind of turning into a little bit of a ghost town. So what would make you less optimistic? I mean, if the, if JP Morgan announced a relocation when their contract ends, is that a, is that a turning point for the market? Yeah.

You know, I, I, a few things, Bill. And I mean, obviously you and I could, could, we probably could spend an afternoon talking about it. I think, What happened in San Francisco is sort of the narrative got away from them. I think we all saw it in A-Read that city conditions were better than I think people expected. No doubt they're lagging, and I think you know I've been out there as much as anybody. But I think in fairness, there are some embedded advantages to San Francisco. Just the geography, the beauty, I don't need to, share that with you, but when you think about the education base, when you think about what's happening in the technology space, if you look at what's happening in the AI, there's six times the money being spent in AI out in San Francisco than any other market in the country. So, look, a lot of the unicorns were getting money and spending like drunken sailors, You know, those days are over. So you're going to see that market right size. But the foundation of venture capital, of that innovation, it still is going to be a very important part of that growth. And then don't forget, lose sight of the close connection to Asia. That will reconcile at some point. It may take a little while. And as we pointed out, that spend of that Asian traveler really nearly three times what we see on the domestic side. So there are fundamental benefits, I think, to be encouraged over the intermediate and long term. We're not Pollyannish about this. We've been living through this like no one else, given the fact that we've got, obviously, that 3,000-room complex. That's really the big drag. Once you get that anchored and that recovering, given the the operating leverage, it could come back faster than people realize. You probably heard the New York story I gave, right, where we were 55% in the first quarter and up 2% in the fourth quarter. None of us would have predicted that. I'm not sure that was in your crystal ball, and your crystal ball is probably as good as anybody. So I wouldn't write it off. It's a source of frustration, I think, for many. But safety, security is important. You've got to have political leadership, but you also have to have business leaders. And I think the women and men leaders there are also stepping up. So you're seeing them far more engaged as you talk about tax incentives, other incentives to reimagine the city. So it's going to take time. It's not going to happen in 23, but I do think the foundation can be laid and some things to be encouraged about in 24, 25. The fundamental issue for us is do we believe that the intrinsic value of that real estate is higher than the debt? And the debt is at $250 a key or inside of $250 a key. We sold the La Meridian for north of $600,000 a key in the middle of the pandemic. So we believe there's embedded value here. And you're not going to be adding a lot more hotel product in San Francisco. particularly with a market with 32,000 rooms, you're not going to see what happened in New York with the onslaught of all the select service hotels that peppered and undermined the market. You're not going to see that in San Francisco. So there's some fundamental benefits there that over the intermediate and long term, today painful. But we certainly believe that it's worth hanging in there. And as we said, we're going to carefully study how we're going to refinance it. But we'll get it done like we've gotten everything else done through the worst of it, through the pandemic and through the recast last year. I think we've demonstrated time and time that it's a very experienced team and we know how to handle it.

Well, I appreciate the time, as always. Thank you, Tom. Thank you.

And our next question comes from the line of Jay Cornish with SMBC. Please proceed with your question. Hey, Jay. Hey, thanks.

Good morning, guys. Hi, good morning. Just one for me on the group side. It looks like T plus one group bookings at the end of the year were 74% of what they were in 2018. So they're clearly picking up, and I'm sure a good portion of that's coming from San Francisco. But can you break down at all if you're seeing the same type of groups return and similar sizes and markets? or if there's a different type of group customer that's showing up currently stronger than what you saw before the pandemic.

I wouldn't say it looks drastically different. I mean, certainly we're starting out with smaller groups on peak than we have had past and haven't really gotten to the point where we got those 800,000 room on peak behemoths. But that's growing and ultimately the booking window is lengthening here as we've seen plenty of activity booking for 24 in December and January as well. So while it remains that in the quarter for the quarter, I'd say that's a big difference, clearly a lot of short term and smaller groups, but you're starting to see through the pipeline, some of the, you know, larger groups coming through planning ahead, you know, a group that might've done something yet last year is coming back and ultimately being bigger. But I wouldn't say the, you know, the demographics of that group or the breakdown of those groups look much different. Just kind of the sizing of it is they're starting smaller, but we expect them to get bigger as we go along.

Okay, I appreciate it. Thanks for all the time, guys.

And we have reached the end of the question and answer session, and I'll turn the call back over to Tom Baltimore for a close remark.

Really appreciate everybody taking time today. We look forward to seeing you in the coming weeks and perhaps many of you at the city conference. Have a great day.

And this concludes today's conference and you may disconnect your line at this time. Thank you for your participation.