Park Hotels & Resorts Inc

Welcome to the Park Hotels and Resorts second quarter 2023 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. Thank you. You may begin.

Thank you, operator, and welcome everyone to the Park Hotels and Resorts second 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. 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 financial information available on our website at pkhotelsandresorts.com. Additionally, unless otherwise stated, all operating results will be presented on a current basis and include all 41 consolidated hotels. In some instances, however, we will be discussing results on a comparable hotel basis with comparable view excluding the two Hilton San Francisco hotels that we anticipate will be removed from our portfolio as previously announced in early June. This morning, Tom Baltimore, our chairman and chief executive officer, will provide a review of Park's second quarter performance and highlight our strategic initiatives. Sean DeLorto, our chief financial officer, will provide additional color on second quarter results and forward-looking guidance, as well as an update on our balance sheet and liquidity. Following our prepared remarks, we will open the call for questions. With that, I would like to turn the call over to Tom.

Thank you, Ian, and welcome, everyone. I am pleased to report another solid quarter for PARC as we continue to benefit from ongoing improvements across our portfolio while executing on important strategic initiatives which strengthen our balance sheet and better position the company for long-term growth. On the operations front, our portfolio generated solid REVPAR gains versus last year, fueled by a nearly 400 basis point increase in occupancy during the quarter. In particular, we were very encouraged by exceptional results from our two resorts in Hawaii, the ongoing recovery across our comparable urban portfolio, and the continuation of accelerating group fundamentals. Additionally, as Leah previously disclosed in June, we made the difficult but necessary decision to cease making debt service payments on our $725 million non-recourse San Francisco CMBS loan secured by the Hilton San Francisco Union Square and the Park 55 San Francisco. In our view, the City of San Francisco faces an elongated recovery with an eventual return to 2019 peak levels that is uncertain for the two hotels. Accordingly, we strongly believe this decision greatly improves our optionality and is in the best interest of shareholders as it will significantly reduce our exposure to the city and strengthen our balance sheet considerably. Following the removal of these two assets from our portfolio, San Francisco will account for just 3% of 2019 adjusted hotel EBITDA. On a comparable basis, while our net leverage ratio will be reduced by almost a full turn and help further by freeing up nearly $200 million of capital earmarked for future renovations at both hotels. I do want to emphasize that this decision is not intended to be a negotiating tactic, and we continue to work with the servicer to divest these assets and the loan as quickly as possible. Q2 REVPAR increased 5.3% year-over-year for our portfolio, as a strong start to the quarter in April and May was moderated by tougher year-over-year comps in June. Our strength was led by solid results from our comparable urban hotels, which generated year-over-year REVPAR growth of over 14%, as well as both of our Hawaii hotels, which exceeded expectations with nearly an 11% year-over-year REVPAR gain. These results were partially offset by softer-than-expected demand trends across the Bay Area and certain resort markets, including Key West, where the disruption from our full-scale renovation of our Casa Marina Resort, which suspended operations in May, accounted for 140 basis point drag on comparable REVPAR growth in the quarter. Turning to segmentation, we expect group and urban demand to be key drivers of our growth, and we are very encouraged by the ongoing improvements we are witnessing for both. Q2 group revenues for the comparable portfolio increased 10% year-over-year to approximately $120 million as we benefited from strong short-term pickup, adding approximately 45,000 room nights for 2023 or $9 million of incremental revenue. As a result, full-year 2023 comparable group revenue pace improved during the quarter, increasing approximately 150 basis points to 91% relative to the same period in 2019, while 2023 comparable group ADR is projected to exceed 2019 by nearly 7%. As we look out to 2024, We are encouraged by the momentum in some of our larger group markets. The 2024 comparable group revenue pace over 93% to 2019 at the end of the second quarter. Healthy demand trends are being driven by strong convention and citywide bookings, especially in Chicago. With convention room nights projected to increase nearly 70% versus 2023 to nearly 800,000 room nights, exceeding the 2018 peak of 794,000 room nights, while in New Orleans, convention room nights are expected to increase nearly 14% next year to over 500,000 room nights, or just shy of the 2019 peak. At our Bonnet Creek Complex, where we expect to complete our $200 million-plus comprehensive renovation, and meeting space expansion by early 2024. Feedback from meeting planners has been incredibly positive. Group business on the books for next year is pacing ahead of 2023 by 42% and is well positioned ahead of 2019's high watermarks, with Cigna up 47% and the Waldorf up 24% to 2019. The complex has also witnessed solid pickup in group room nights for next year, up 76% through the first six months of this year relative to the same period for 2019 to 145,000 room nights. Strong forecasted rate gains of nearly 20%, coupled with a 65% projected increase in banquet and catering revenues, are expected to drive total revenue performance in excess, 2019 levels by approximately 22 million dollars for the full year 2024 turning to our urban markets New York City demand has returned as one of the strongest markets within our portfolio with the city generating year-over-year red part growth of 26% during the quarter for just 2% below 2019 with all demand segments contributing to results overall Occupancy at the hotel increased an impressive 18 percentage points over last year to 87%, while the hotel posted rate gains of 1% over 2022 and 7% above 2019. In Chicago, year-over-year rep part growth during the quarter was up 23%, driven by both solid rate and occupancy gains, as the city benefited from a strong convention calendar during the quarter, while in Boston and Denver, Red Park growth for the quarter reached 11% and 12% respectively versus 2022. Conversely, San Francisco continued to weigh on results, excluding the Park 55 hotel, which was closed for a portion of second quarter 2022. The three remaining hotels were at 175 basis point drag, on the Q2 portfolio RevPAR growth in comparison to the same period last year. Our resort portfolio demonstrated the continued strength of our unique assets, particularly Hawaii, which once again delivered impressive year-over-year results. Our Hilton Hawaiian Village delivered the strongest Q2 RevPAR results in history, bolstered by the best June performance on record. so far increased 12% during the quarter versus the same period last year, driven by a nearly six percentage point increase in occupancy and ADR gains in excess of 5%. For the first time since the start of the pandemic, occupancy during the quarter exceeded 2019, while ADR was up 14% above the 2019 peak. Q2 occupancy, averaged 96% during the quarter, an impressive result, with Japanese demand still pacing 92% below 2019 levels. At our Hilton Waikoloa Village Hotel, REVPAR during the quarter increased 6% over last year, driven by a 770 basis point increase in occupancy to 81.3%, the highest Q2 occupancy level at the hotel recently. since spinning out from Hilton in 2017, an average daily rate at 57% above the second quarter of 2019. The performance of our Hilton Waikoloa Village Hotel has been impressive since 2019, when we reduced the size of the hotel and transferred over 600 keys to Hilton Grand Vacations to convert to timeshare. Over that period through year-end 2022, total rev bar has increased by nearly 49%. Margins have expanded by 775 basis points to 39%. And EBITDA per key has improved from 45,000 to over 83,000, making the hotel one of our most profitable assets in our portfolio. Market share continues to be the success story at both hotels. with Hilton Hawaiian Village running at a 24% REVPAR premium to the comp set, while Waikoloa REVPAR premium exceeded 15% for the second quarter. Looking out over the balance of the year, healthy domestic demand is likely to continue to drive performance in Hawaii, with low to mid-single-digit year-over-year REVPAR growth forecasted over the back half of the year, although we are encouraged by the expected increase in the number of direct flights from Japan to Honolulu scheduled over the balance of the year, increasing to 175 flights per week by December from just 100 flights in July. Turning to guidance, despite ongoing strength in Hawaii and acceleration in group trends, we are moderating our full-year 2023 adjusted EBITDA expectations by 2% at the midpoint to a new range of $619 million to $679 million, largely driven by the continued underperformance of the two Hilton San Francisco hotels, which are now expected to break even in 2023, versus the $15 million of combined hotel adjusted EBITDA that was included in our prior guidance. and to a lesser extent by some small pockets of transient softness across select markets expected during the third quarter. Despite a small change, we remain optimistic that the lodging recovery remains on track and that an improved macro backdrop will continue to support solid consumer trends and ongoing improvements in business travel over the latter part of this year. Additionally, we remain committed to executing our strategic goals, which we believe will create long-term value for shareholders and position the company for success. On the capital allocation front, we are maintaining our goal of $200 million to $300 million of non-core asset sales this year, including the $118 million sale of Miami Airport, which closed during the first quarter. Proceeds from non-core asset sales are expected to be used to further reduce leverage, to reinvest back in our portfolio through leverage-neutral stock buybacks, and to fund our robust CapEx and redevelopment pipeline, which is in excess of $350 million this year. As with all strategic initiatives, we will continue to update the market on our progress. In summary... I want to reemphasize that we have a well-positioned portfolio that will continue to benefit from improved group and urban demand, in addition to ongoing strength in Hawaii. 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 success. With that, I will turn the call over to Sean.