Park Hotels & Resorts Inc

Greetings, and welcome to the Park Hotels and Resorts Third 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce 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 Third 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 forward-looking statements. Please refer to documents filed by PARC 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 8-K filed 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 a comparable view excluding the two Hilton San Francisco hotels. This morning, Tom Baltimore, our chairman and chief executive officer, will provide an update on the status of our two San Francisco hotels, review PARCC's third quarter performance and near-term outlook, and highlight our strategic capital allocation initiatives. Shawn Dilorto, our Chief Financial Officer, will provide additional color on third 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'm very pleased to report another solid and productive quarter for PARC. with Q3 earnings exceeding expectations and tremendous progress being made against our capital allocation priorities, including entering the final stages of our transformative ROI projects at our Bonnet Creek and Casa Marina resorts, and repurchasing 5.8 million shares for $75 million during the third quarter. But let me first begin with an update on our two San Francisco Hilton hotels and the related non-recourse CMBS debt. Last week, the trustee for the loan filed a lawsuit against the borrowers related to our ceasing debt payments since June, and the court has appointed a receiver to take full control of the hotels. The receiver has complete and exclusive possession of the hotels as well as all income generated from their operations, which is to be used solely to pay all operating expenses and to cover all operating losses. Any operating losses or additional funds required to operate the hotels will be addressed between the receiver and the trustee. As such, FARC no longer has any economic interest, benefits, or burden the hotel's operations the receiver also has the power to market and sell the hotels during the receivership however if the hotels are not under contract by september the 1st 2024 the receivership will conclude in a non-judicial foreclosure by the end of 2024. now let me be clear about what this means for park and its shareholders First, while in receivership and through its conclusion, be it a sale or foreclosure, Park would no longer be obligated to fund any shortfalls for working capital or for payments on the loan. Second, we expect all operations at the hotels will remain intact. Hilton will continue to manage the hotels, which will continue to welcome guests. provide services in line with brand standards, and maintain its employee base. Third, as we have committed to thus far, we will continue to make ourselves available throughout the receivership as a special servicer or receiver request to effectuate a reasonable outcome for all stakeholders in a timely manner, but with no financial obligations. Fourth, There will be some adjustments to our earnings guidance, which Sean will provide further details on in his comments. Finally, we and our Board of Directors have determined that it is appropriate to pay a special dividend related to the taxable gain triggered by exiting the economic interest of these assets. Therefore, I am pleased to report that as of October 27, 2023, the board has declared a special cash dividend of 77 cents per share to be paid on January the 16th, 2024, to shareholders of record as of December 29th, 2023. As a reminder, the removal of these assets from our portfolio materially reduces our San Francisco exposure to just 3% of rooms from 14%. and meaningfully strengthens our balance sheet and credit metrics with net leverage improving nearly a full turn. With the San Francisco market still facing an elongated recovery, we still firmly believe this complicated but necessary exit in these two hotels is in the best interest of our shareholders. Now turning to our third quarter results, which were driven by a favorable mix of accelerating group fundamentals, ongoing strength at our Hawaii resorts, and strong resorts in key urban markets such as New York, Boston, and Denver. Rev par increased 3% over Q3 2022, or an impressive 4.8%. excluding our Casa Marina Resort Hotel, where operations were suspended throughout the third quarter for a comprehensive renovation. Despite facing difficult year-over-year comparisons in July, our portfolio produced solid results, with REVPAR, including CASA, increasing 3.2% during the month, followed by a 7.3% increase in August and a 4.2% increase in September, which were driven by improvements in both rate and occupancy. Turning to group performance, we saw continued acceleration in group trends during the quarter, with revenue for the comparable portfolio improving 12% year-over-year to over $95 million, while strong banquet catering results helped to drive performance. We continue to see solid short-term pickup adding approximately 112,000 room nights for 2023, or over $25 million of incremental revenue in the third quarter. As a result, full year 2023 comparable group revenue pace improved during the quarter, increasing nearly 180 basis points to 93% relative to the same period 2019. while Q4 comparable group revenue pace is 99% relative to the same period, 2019. Loop demand trends remain very healthy, while 2023 comparable group ADR remains on track to exceed 2019 by nearly 8%. Focusing on a few key markets, performance was once again driven by exceedingly strong performance in Hawaii and New York. Demand in Hawaii continues to be driven primarily by solid domestic leisure demand coupled with strong group trends. Our two resorts generated 3.5% rep part growth in the quarter compared to last year. Fortunately, our hotels were not negatively impacted by the devastating Maui wildfires. We are proud of our hotel teams and their efforts to provide relief. and support to the neighbors on the island of Maui. At Hilton Waikoloa Village, the hotel delivered over 4% repar growth in Q3 year-over-year and 38% hotel adjusted EBITDA margins, an impressive result given the difficult year-over-year comparison. Overall, the hotel witnessed a pickup in demand generated by displaced Maui residents and travelers during the quarter, including an incremental $1 million in business expected in the fourth quarter from two groups moving their programs to the Big Island. At our Hilton Hawaiian Village Hotel, we are pleased to report the near completion of the multi-phase renovation of the 1,021-room Tapa Tower to a wrap-up in December 2023. with the newly renovated rooms in the tower commanding a $75 ADR premium to the other room types. This strong performance is even more encouraging as inbound travel from Japan continues to recover, with Q3 production at our Hilton Hawaiian Village Hotel improving to 24% of 2019 levels from 8% during the first six months of the year. Conversations with our Japanese travel partners indicate improving sentiment and willingness to travel internationally, and the expected increase in airlift to the islands from Japan could also support better inbound trends into 2024. With respect to airlift, Delta Airlines just launched daily direct service to Honolulu, while Japanese carrier ANA Airlines announced that in order to accommodate A recent pickup in demand that has brought a third Airbus A380 aircraft in service between Tokyo and Honolulu, starting in early December, increasing its weekly round trips to 14 from 10. According to the airline, the expansion sets a record for seat capacity on this route, reaching over 18,000 seats per week in total. and surpassing pre-COVID levels. Looking ahead to the fourth quarter, we expect rep bar growth to remain very strong across both of our Hawaii hotels, with low double-digit year-over-year growth forecasted, ranking among the top performing markets within our portfolio. Turning to our urban performance, Our comparable urban portfolio delivered 7% REVPAR growth during the quarter. In particular, our Hilton New York Midtown Hotel delivered impressive results, REVPAR up nearly 30% year-over-year or 8% above 2019. Results were driven by better-than-expected group trends coupled with strong attendance at this year's US Open, the UN General Assembly, Overall, group compression days translated into a 17% uplift transient ADRs versus 2019, while the hotel achieved 44 sell-out nights during the quarter, a four-fold increase over the prior period. In addition, reduced supply across the city has also helped add a very positive impact on performance, with total room count down approximately 7% in 2019, while New York's strict regulation on short-term rentals could have a positive impact on leisure transient trends across the city for the foreseeable future. Looking ahead to the fourth quarter, we anticipate the positive momentum to continue with the hotel on pace to generate a solid Q4 gains, with preliminary October revenues of approximately $32 million, the second highest monthly revenue in the property's history. Focusing briefly on the macroeconomic backdrop, we have yet to witness any signs of an economic slowdown impacting transient demand outside of the normalization of Sunbelt Leisure Demand. In fact, we are very encouraged by the strong group trends heading into next year, the 2024 comparable group revenue pace backing 94% versus 2019. and nearly 100 basis point improvement from last quarter driven by double-digit increases in convention room nights across several of our core markets, including Chicago, New Orleans, San Diego, Washington, D.C., and Hawaii. In Chicago, we expect to benefit from a strong citywide calendar with convention room nights up 65 percent to a record 786,000 room nights, while in New Orleans, convention room nights are expected to reach nearly 510,000 or a year-over-year increase of 11%. Hawaii is slated for another solid year as international demand continues to build, while both Casa Marina Key West and our Bonnet Creek complex will benefit from easier year-over-year comparisons and newly renovated product. As a reminder, Casa Marina accounted for a 110 basis point drag on REVPAR performance in 2023, translating to $15 million of EBITDA disruption this year, while the rooms renovation at Waldorf Orlando contributed to almost $3 million of disruption in the second half of this year. We are thrilled to introduce our newly renovated and upgraded Castle Marina Resort, which partially reopened with nearly 60% of its room inventory in October. The balance of rooms slated to open December 15th. We are also introducing our new oceanfront restaurant in February 24th called Dorado, which will elevate the resort and offer an unparalleled dining experience on the island. At Bonnet Creek, we will wrap up our $220 million comprehensive renovation in January 24, which will include an additional 137,000 square feet of meeting space, newly renovated guest rooms throughout the complex, refreshed public spaces, and a comprehensive renovation of our championship golf course. Group revenue is forecast to be a record year for the complex, with revenue on the books facing 38% of 2023, rise of an even mix of room nights and average rate gains. In summary, I'm optimistic about the setup for next year, with our comparable portfolio well-positioned to benefit from improved group and urban demand, in addition to ongoing strength in Hawaii, coupled with expected tailwinds from fully renovated hotels in both Key West and Orlando. In addition, the effective exit of our two San Francisco Hilton hotels meaningfully changes the park narrative. We remain on track to deliver sector-leading earnings growth for the year, and we remain laser-focused on executing our internal growth strategies and capital allocation priorities we are confident we'll create long-term shareholder value and position the company for success. With that, I'll turn the call over to Sean.