Park Hotels & Resorts Inc

At this time, all participants are in 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 from your telephone keypad. Please know this conference is being recorded. At this time, I'll now turn the conference over to Ian Weissman, Senior Vice President, Corporate Strategy. Mr. Weissman, you may now begin.

Thank you, Operator, and welcome everyone to the Park Hotels and Resorts First Quarter 2023 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 that all 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 and could cause actual results to differ from those contained in the forward-looking statements. In 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 this morning's earnings release, as well as in our 8-K file 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 first quarter performance and capital allocation initiatives, as well as an update on our full year 2023 guidance. Sean DeLorto, our chief financial officer, will provide additional color on first 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. I am pleased to report another very successful quarter where we delivered impressive top line results and significant margin expansion as we continue to execute against our strategic priorities and benefit from a strong recovery taking shape across our portfolio. We remain optimistic about our outlook and our ability to continue to deliver sector-leading results while creating value through our prudent capital allocation, including continued debt reduction, stock buybacks, and ROI investments. Turning to operations, first quarter results exceeded expectations driven in large part by ongoing improvements at our urban hotels and sustained strength at our resort markets. Q1 comparable rev par increased an impressive 37% year over year with occupancy up 1400 basis points to 65% for the quarter and average rate higher by nearly 7% over the same period last year. While all demand segments witnessed year-over-year gains, we were particularly impressed with group trends, with revenue up 74% year-over-year to $124 million, recovering to 83% of 2019 levels. Healthy group performance, particularly banquets and catering, coupled with the ongoing benefits from the aggressive cost-cutting measures we implemented during the pandemic, helped to drive exceptional margin gains during the quarter with hotel adjusted EBITDA margin improving approximately 550 basis points year over year to 24.2% or approximately 115 basis points above the midpoint of our guidance. An impressive accomplishment in the face of increased cost pressures. Overall, food and beverage revenues exceeded our expectations by over $15 million during the quarter, driven in large part by banquets and catering with notable strength in New Orleans, Orlando, and San Francisco. The acceleration in group demand is expected to be a primary driver of growth for PARCC in 2023, as group ADR is expected to exceed 2019 by 4%. Q1 group revenues exceeded our forecast by 15%, or approximately $16 million during the quarter, And we continue to see strong short-term group bookings, with the portfolio picking up approximately 300,000 room nights for 2023 during the quarter, accounting for $66 million of incremental revenues, with gains primarily concentrated in San Francisco, New York, and Orlando. In addition, group revenue pace for 2023 increased by 410 basis points during the quarter, to 82% of pre-pandemic levels and 90% excluding San Francisco. As we look out to 2024, we are encouraged by the momentum in some of our larger group markets with 2024 portfolio-wide group revenue pace as of March 31st, 2023, up 9% compared to the same time last year, driven by strong convention and city-wide activity expected for Chicago and New Orleans, and healthy in-house group booking activity, including at the Bonnet Creek Complex in Orlando, where we expect to see significant benefit from the expansion of the meeting space platforms at both the Signia and Waldorf Astoria, with 2024 group revenue pace currently up 47% versus 2023 at the complex. Turning to our markets, as we anticipated, the rebound at our urban hotels was very robust, with Q1 RevPar increasing 81% year-over-year, while RevPar at our resort hotels increased 13% compared to the first quarter of 2022. In Hawaii, performance remains very strong, with Q1 RevPar up 26% over 2022. RevPar at our Hilton Hawaiian Village Hotel was up 32% to 2022, evenly split between occupancy and ADR gains and driven by continued strength and transient demand, despite travel from Japan being down 93% to Q1 2019 at the hotel. The hotel also saw strong food and beverage revenues from both outlets and group catering, up approximately $10 million, or 78%. 2022 and well-managed cost controls that resulted in an impressive hotel adjusted EBITDA margin of 39.8% or 440 basis points above 2022 and 100 basis points above 2019. Our Hilton Waikoloa Hotel witnessed a 5% year-over-year increase in rev bar despite challenging comparisons to near buyout conditions during Q1 of 2022. Effective cost controls and modified outlet strategy at the hotel resulted in a 39.3% hotel adjusted EBITDA margin or 150 basis points above 2022 and an incredible 840 basis points above 2019 with the decision to shrink the overall size of the hotel in 2019 materially improving operating efficiencies. Looking ahead, we expect our two hotels in Hawaii to deliver mid-single-digit rep part gains over the balance of the year, and demand is expected to be driven mostly from U.S.-based travelers, as international demand is still 60% below 2019 levels for our two hotels. However, we expect to see increased inbound activity from Japan toward the second half of the year, which should provide a strong tailwind to performance over the next few years. Turning to our urban markets, we were particularly encouraged by better than expected group performance in San Francisco, with Q1 convention room nights up over 200% to over 140,000 room nights versus the same period last year. In addition, a healthy showing during the J.P. Morgan Conference helped to drive meaningful rate increases across the city, Group revenues for our four San Francisco hotels were up over 530% to last year with group rate exceeding 2019 by 15%. Q1 RevPar averaged $142 with ADR just 8% shy of 2019 levels as we witnessed solid rate gains during the quarter. Significantly, all four hotels generated positive EBITDA during the quarter, a first since the start of the pandemic. Looking out over the balance of the year, convention room nights in San Francisco are expected to reach 675,000, or an increase of 78% year over year, with over 60% of the room nights booked for the second half of this year. In our other urban markets, Washington DC delivered Over 80% RevPAR growth year-over-year, driven by stronger-than-expected performance from government travel. Our Chicago and Boston markets showed approximately 50% and 42% year-over-year RevPAR growth, respectively, while RevPAR at our Hilton New Orleans Riverside improved by 37% year-over-year, driven by double-digit growth in all segments, particularly among group, which was up 49% to last year. We were especially pleased to see the return of large medical events to New Orleans during Q1, a sign of the continued momentum in group recovery across our portfolio. Finally, New York City continues to show remarkable progress, benefiting from all three demand segments, with RevPAR increasing 113% year over year, or just 5% below 2019 levels. Driven by strong rate growth, up over 4% year over year, and a 35 percentage point increase in occupancy, the 69% for the quarter. We saw another strong group quarter in New York with group revenues during the first quarter surpassing 2019 levels by approximately $640,000. Our group booking strength continued with $30 million of business booked during the quarter, including an incremental $8 million for 2023. We expect 2023 hotel adjusted EBITDA from New York to surpass 2019 levels. As we look out over the balance of the year, we recognize that the macro backdrop remains uncertain. However, at this point, we have not witnessed any notable impact on our business. We remain constructive on hotel fundamentals and anticipate demand trends to remain healthy, especially across our major U.S. cities as an expected pickup in convention room nights should support improving group trends while anticipated ongoing leisure strength, especially in Hawaii, should continue to drive out performance. Regardless of the macro backdrop, PARCC remains well positioned to handle potential fluctuations in the economy with approximately $1.8 billion of liquidity available, and we remain laser focused on prudent capital allocation initiatives which we are confident will create long-term value for shareholders. And despite the more challenged credit markets, we expect to target 200 million to 300 million of non-core asset sales this year, utilizing excess liquidity to further reduce leverage and reinvest back in our portfolio through value-enhancing ROI projects, while opportunistically taking advantage of the relative disconnect between public and private market pricing through leverage-neutral stock buybacks. During the quarter, we used cash proceeds from the sale of the Hilton Miami Airport Hotel and cash on hand to fully repay the $50 million balance on our revolver and repurchase 8.8 million shares at a nearly 10% implied cap rate and a material discount to consensus net asset value. We plan to invest over $300 million back into our portfolio this year, including the final phase of the Tapa Tower Rooms renovation at our Hilton Hawaiian Village Hotel. The full-scale renovation, rebrand and resiliency upgrade of our Casa Marina Resort in Key West, and the transformative renovation and meeting space expansion at our Orlando Bonnet Creek Complex. Turning to guidance. Given our better-than-expected results during the first quarter, we are increasing our full-year 2023 guidance range and remain on track to deliver sector-leading REVPAR and earnings growth this year. Specifically, we are increasing our adjusted EBITDA forecast by just over 2% or $14 million at the midpoint to a new range of $624 million to $704 million, while our adjusted FFO guidance increases by approximately 9% or 15 cents per share at the midpoint to a new range of $1.76 to $2.12 per share, representing year-over-year adjusted EBITDA growth of 10% and AFFO per share growth of 26%. I want to reemphasize, that our team remains laser focused on executing our internal growth strategies and capital allocation priorities, which we are confident will create long-term shareholder value and position the company for long-term success. With that, I will turn the call over to Sean.