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spk11: Greetings. Welcome to Park Hotels and Resorts Incorporated 4th 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 Ian Weissman, Senior Vice President of Corporate Strategy. Thank you. You may begin.
spk07: Thank you, Operator, and welcome everyone to the Park Hotels and Resorts Fourth Quarter and Full Year 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 Park 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 statement. 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 for 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. Additionally, unless otherwise stated, all operating results will be presented 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 a review of Park's fourth quarter performance and the outlook for 2024. Sean 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.
spk13: With that, I would like to turn the call over to Tom. Thank you and welcome everyone.
spk12: 2023 was a year of outstanding accomplishments for PARCC as we executed on our strategic objectives, exceeded our operational goals, and meaningfully strengthened our balance sheet, while delivering sector-leading total returns for shareholders. Our strong operational performance was broad-based, as we witnessed ongoing strength in Hawaii, as well as an acceleration in group demand across several of our core markets, including New York, Boston, Denver, and Chicago, which helped to drive REVPAR growth of nearly 16% versus 2022 in our urban hotel portfolio. On the capital allocation front, we remain laser focused on targeting the highest returns on our invested capital, having strategically invested nearly $300 million across our iconic portfolio at expected returns well above acquisition yields. We also took advantage of the spread between public and private market valuations buying back nearly 15 million shares for $180 million in 2023 at a significant discount to net asset value. In addition, we returned over $450 million of capital to shareholders in the form of dividends, with dividends from operations totaling $1.38 per share or an attractive 8.5% yield based on our most recent share price. I'm also incredibly excited about our relative position in 2024. The investments we made in our portfolio the last two years, along with the repositioning achieved by the effective exit from the two San Francisco hotels, combined with the current backdrop of a healthier-than-expected U.S. economy, strong convention and group activity in our key markets, and the ongoing resilience of leisure travel create a a favorable setup for PARCC. Fruit and capital allocation remains a top priority as we anticipate continuing our initiative to sell more non-core hotels with net proceeds used to reduce debt and reinvest in our core portfolio with an expected disposition target of $100 to $250 million this year. Furthermore, We will continue to strengthen our balance sheet by extending maturities, all while maintaining sufficient liquidity to opportunistically acquire assets should capital market conditions improve. Turning to operations, as we previously reported, I am incredibly pleased with our results for both the quarter and full year 2023. Exceeded expectations. Set bar growth increased 4.1% for the fourth quarter, and 8.7% for the full year, or 50 basis points higher than the midpoint of our full year guidance. Including the impact from renovation, primarily at Bonnet Creek and Casa Marina, REVPAR increased an impressive 6% and nearly 11% respectively. Total REVPAR growth of nearly 5% in the fourth quarter was supported by an 8% increase in food and beverage spend, driven by solid banquet and catering in our urban and resort markets, translating into an incremental $3.5 million increase in EBITDA in the fourth quarter. With respect to group, we saw a continued trend of accelerating performance throughout the quarter, with comparable group revenues for the fourth quarter up nearly 9% year-over-year, or a sequential 12% improvement over the third quarter, while Q4 results represented the first quarter since the start of the pandemic where group revenue surpassed 2019's quarterly results. Looking ahead to 2024, we expect group to remain very healthy, group revenue pace up 13% year over year, and total group revenues forecasted to exceed 2019 levels this year, driven by a material hiccup in Group demand at our Bonnet Creek complex in Orlando, where our meeting space expansion project was completed recently, coupled with strong citywide calendars across several of our core markets, including Chicago, Honolulu, New Orleans, San Diego, and Miami, all of which are expected to produce double-digit increases in convention room nights 2024. Focusing on a few key markets, New York continued to benefit from impressive recovery of both group and leisure demand, which, when combined with a nearly 9% decrease in hotel supply since 2019, translated into a material increase in compression room nights during the quarter. Specifically, our Hilton New York Midtown recorded 45 sellout nights in the quarter, almost double same period last year, and most notably, the highest quarterly revenue in the property's history, rounding out a great year for the asset, which grew rev far by over 30% versus 2022. Boston also delivered a very strong quarter with our Hyatt Regency Hotel benefiting from better than expected group demand, helping to lift rate with ADR of 10% year-over-year or 12.5% above 2019. Turning to our resort portfolio, excluding disruption primarily from the Casa Marina and Waldorf Bonnet Creek renovation, REFAR for the fourth quarter exceeded 2022 by over 6%, led once again by the sustained demand in Hawaii Specifically, at the Hilton Hawaiian Village, REVPAR increased 5%, driven by increased group room nights and ADR improvements from continued domestic leisure strength. Total air available seats into Oahu grew by 11% over 2022 during the fourth quarter, with domestic improving by 5% and international available seats increasing by nearly 30%. although still pacing 28% below 2019 level. We saw particular strength at our Hilton Waikoloa Village, which achieved a 22% increase in REVPAR during the quarter, driven by exceptionally strong group demand. Group revenues were up more than 145% over 2022, including increased demand from several groups relocating their programs from Maui, the big island during the fourth quarter. Even without the benefit of the still recovering international demand, both hotels reported record profits in 2023. The Hilton Hawaiian Village adjusted EBITDA up 15% over 2019 to $188 million. While Hilton Waikoloa Village exceeded 2019 by 12% to $56 million, despite having 600 fewer rooms. Looking ahead to 2024, the park remains well-positioned to generate solid year-over-year rip-off gains driven by tailwinds from our ROI investments, the ongoing strength of our resort markets, and an acceleration of group business transient demand in markets which stand to benefit strong convention calendar. At Urbana Creek Orlando Complex, feedback from meeting planners has been incredibly positive. 2024 group revenue forecasted to be a record year for the complex, with revenue on the books facing over 30% ahead of 2023, and hotel adjusted EBITDA forecasted to exceed 2023 by over 20%. while group revenue pace versus 2019 is currently ahead by 30%. At Casa Marina in Key West, momentum is building since the hotel fully reopened its rooms in mid-December. Revenue on the books, 2024, up 65%. The property forecast is to generate full-year REFAR growth in excess of 70%. Collectively, We expect renovation tailwinds from both the Casa and Bonner Creek to add approximately 150 basis points of lift to the full year 2024 DREVPAR to our overall portfolio. In Hawaii, we anticipate Hilton Hawaiian Village to have another strong year driven by healthy domestic travel, while inbound tourism from Japan expected to improve throughout the year. The latest forecast from the Hawaii Tourism Board suggests a material increase in airlift direct to Honolulu from Japan. The visitor arrivals expected to increase 50% this year and exceed 2019 levels by 2026. Between the two properties, we are forecasting our Hawaii hotels to deliver Low single-digit red bar growth in 2024, partially impacted by phased room renovations at both resorts that Sean will discuss shortly. We are very bullish on the future outlook for both markets in Hawaii. Japanese travel should continue to build over the next 12 to 18 months. We anticipate increased domestic airlift to both islands is up over 15% in 2019. should help to support ongoing strong domestic demand. Additional growth drivers in 2024 include strong performance across our urban portfolio with Boston, New York, Denver, and Chicago expected to deliver REF PAR growth in excess of 5% on average as both group and business transient demand trends continue to improve. In summary, 2023 we accomplished some key objectives that have set us up to deliver solid growth, to tailwinds from recent ROI investments, and a meaningfully improved balance sheet. Additionally, continued strength in Hawaii, well-positioned urban portfolio, supported by strong convention calendars, and encouraging momentum in our group business give us optimism in our outlook. 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 the first quarter expectations.
spk13: Thanks, Tom. Overall, we were very pleased with our fourth quarter performance.
spk05: Q4 REFAR was $178, with occupancy up 150 basis points to 71%, and with ADR increasing nearly 2%, to $251, or 15% above 2019. Q4 comparable hotel revenue was $619 million, while comparable hotel adjusted EBITDA was $171 million, resulting in comparable hotel adjusted EBITDA margin of 27.5%. Q4 adjusted EBITDA was $163 million, and adjusted FFO per share was 52 cents. Turning to the balance sheet, our current liquidity is over $1.3 billion, including approximately $350 million of cash, while net debt currently stands at $3.4 billion. We're down over $500 million versus where we stood over a year ago, with net debt to adjusted EBITDA lower by 1.5 turns to under 5.2 times, following our effective exit from the two Hilton San Francisco hotels. Overall, our balance sheet is in great shape with just over $700 million of debt maturing through 2025, or less than 20%, including our $650 million, 7.5% corporate bonds that come due in June 2025. With respect to balance sheet priorities, we continue to evaluate options to push out impending maturities by using proceeds from potential asset sales to delever and provide further financial flexibility. Furthermore, I'm delighted to announce that S&P Global recently upgraded Park Hotel's corporate credit rating by two notches, elevating it from a single B rating to double B minus. This marks a significant advancement for the company and reflects the agency's acknowledgement of our dedicated efforts over the past four years to strengthen our balance sheet and credit metrics. Turning to capital expenditures, we substantially completed several strategic projects in 2023, including the $220 million full-scale renovation and meeting space expansion at our 1,500-room Signia and Waldorf Astoria Bonner Creek Resort Complex in Orlando, as well as the $80 million renovation of our Casa Marina Resort in Key West, the $85 million complete rooms renovation of the 1,021-room Tapa Tower at Hilton Wine Village, the $11 million complete rooms renovation of the 455-room Riverside Tower at our Hilton Delones Hotel, and the $5 million renovation of the 30,000-square-foot Grand Ballroom at the New York Hilton. In total, we spent nearly $300 million of capital in 2023, a third of which were targeted ROI projects. In 2024, our total capex spend will be approximately $230 million to $250 million, of which nearly 60% will be focused on guest spacing areas, including renovations for nearly 850 rooms. Key projects this year include a multi-phase rooms renovation at Hilton New Orleans Riverside, where we will renovate all 1,167 keys in the main tower over the next few years, with 250 keys targeted for completion in 2024. In addition, we will also launch phased room renovations at both of our Hawaii hotels, including approximately $45 million to be spent at Hilton Hawaiian Village, where we will renovate nearly half of the 796 rooms in the Rainbow Tower this year, while adding 26 keys, with the balance expected to be completed in 2025. We also plan to renovate nearly half of the room product in the 400-room Palace Tower at Hilton Waikoloa Village for a total investment of $31 million, also adding 11 keys. But the balance of the room is expected to be completed by early 2026. Renovation displacement in Hawaii this year is expected to be approximately $8 million, placing a nearly 180 basis points drag on Hawaii RevPAR performance, or a 40 basis point drag on total portfolio results, while negatively impacting total portfolio margin by 20 basis points for the year. Turning to guidance, we're establishing a full-year 2024 REVPAR guidance of $185 to $188 for year-over-year growth of 3.5% to 5.5%, while hotel EBITDA margin is expected to be between 26.8% and 27.8%. With respect to earnings, we are forecasting adjusted EBITDA to be in the range of $645 million to $685 million. And adjusted FFO per share guidance is forecast to be between $2.02 to $2.22. With respect to full-year hotel adjusted EBITDA margin, which is forecast to be down 50 basis points at the midpoint, Prior year comparisons will be impacted by last year's favorable property tax appeals and other non-repeating items, which will negatively impact margin by approximately 40 basis points. The first quarter has had an exceptional start with REVPAR growth up 13.4% in January. And positive trends continue in February, with preliminary REVPAR forecast to be up over 8% for a pickup of over 250 basis points of year-over-year growth relative to our forecast at the beginning of the month. We have witnessed solid performance across much of the portfolio, with outsized gains driven by our urban core, including New York, Chicago, New Orleans, and Denver, while we expect rep par in Hawaii to increase by 10% through the first two months of this year. Additionally, renovation tailwinds at both Casa Marina and Signia Bonnet Creek are translating into solid REFAR gains at these properties, with results in January and estimates for February projected up 20% and 19% respectively. Looking ahead to March, we have tougher year-over-year comparisons, especially on the group side, which witnessed exceptionally strong performance last year, while the Easter calendar shift is an additional headwind to March performance. Consequently, we currently anticipate low single-digit rep part growth for March to balance out the quarter, yielding expectations for Q1 rep part growth in the range of 6.3% to 7.3%. Turning to the Q1 dividend, given our positive outlook for the year, we recently declared a quarterly dividend of $0.25 per share, which is a 67% increase over the $0.15 quarterly dividend paid last year. and translates to an annualized dividend yield of 6.2% based on recent trading levels. As we stated last quarter, we expect to resume our targeted payout ratio in the range of 65% to 70% adjusted FFO per share for the full year, which, based on our current guidance, would translate into an incremental top-off dividend at the end of the year. 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 the first question, please?
spk11: Thank you. If you would 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 to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your headset before pressing the star keys. Our first question is from Flores Van Dijkum with Compass Point. Please proceed.
spk18: Hey, morning, guys. Hey, Flores. So, pretty impressive. As I look at this, you know, I still see a 47 million hotel EBITDA gap in your results. just curious as to, uh, when you think that the portfolio is going to exceed 2019 levels and the 47 million, obviously, you know, your, your hotel EBITDA relative to 2019 levels. And, and maybe if you could touch on, on, uh, uh, specifically Hawaii village, because that asset is just, uh, it keeps, it's a gift, I guess, that keeps giving because it's within touching distance of getting to 200 million of EBITDA. And despite the disruption that you expect in 24, I mean, 6% EBITDA growth essentially puts you over the 200 mark. Is it possible within the next calendar year to be able to achieve something like that?
spk13: Of course, great. It's always good to
spk14: talk with you. As you know, that was a lot to unpack there. Let me, on the Hawaii piece, I think as Sean put, as he noted in his prepared remarks, Hawaii has been a phenomenal and really strong performer. And despite the fact that the Japanese traveler isn't back, it's, depending on, I think last year, about 600,000 visitors versus, so if you look over the last 30 years, I think about 1.5 million. So you're still you know, 50, 60 percent plus or minus below normalized levels. We do think, as we noted, that we'll get back to, you know, one and a half million visitors probably in that 2026 timeframe. So, you know, it continues to provide, I think, incredible tailwinds for us. There's nothing like Hilton Hawaiian Village. When you think about 22 acres, five towers, You've had generations that continue to go there. It's not ultra luxury, and so it appeals to the masses. It's got, obviously, the long history with Hawaii Five-0. So it is special. To answer your question as to whether or not we eclipse 6 percent or 200 million, you know, I don't know whether it's this year or next year, but I certainly think it's in our future. As we said in our prepared remarks, we're probably looking at low single digits this year, given the fact that we're going to try to complete half of the renovation of Rainbow Tower this year. If you look at TAPA, and huge credit to Carl Mayfield and his team at the design and construction side, we were picking up $75 in additional ADR from that renovation. We expect we'll do something comparable, if not more, for what we're planning, obviously, at Rainbow Tower. So we are very, very bullish as we as we look out in Hawaii, Hilton Hawaiian Village. But let's also not forget Hilton Waikoloa, which had a phenomenal year, up 146% in group revenue last year. Despite the fact that that property, again, has half the inventory that it had pre-spin, we're generating, I think, $85,000 in EBITDA per year. per guest room. So it just continues to be a phenomenal performer. Our asset management team working in conjunction with our operating partners out there, the strong leadership that we've got at Hilton Hawaiian Village, Debbie Bishop and her team just do a phenomenal job. So very, very bullish on Hawaii as we look out. As you know, we're also working on entitling a sixth tower. So we think there's even more upside in Hawaii as we look out. it would be impossible, and I emphasize impossible, to replicate what we have at Hilton Hawaiian Village. And that also does not include the 1,000 units of timeshare that we don't own. But at any point, you're looking at guests at 10,000 to 11,000 or more on site at the village. So it is truly iconic and special. And I'm not sure there's another REIT asset across any of the sectors that generates the kind of EBITDA that we do at Hilton Hawaiian Village. So very proud and very bullish and grateful for the hard work there. You know, regarding your question across the portfolio and the gap that exists, it's pretty interesting when you think about, you know, the fact that, take January as an example. Fourth quarter, we said we were up group 16%, but if you look at, just January. Urban was up 20%. Resort up 10%. If you think about our group pace, our group pace in January up 29%. February up 26%. And it's broad-based, as we noted. Chicago was up 38%. Denver up 34%. San Jose, in business out there, close to Apple and others up 35%. New Orleans up 52%. New York up 21%. And despite the fact that we finished last year up 31% for the year. So you're really seeing the urban group come back. And you're also seeing, obviously, the tailwind of the upper of scale. And so as we look at our portfolio, obviously, as Sean noted, March will soften. but very, very bullish as we look out for 24 and beyond.
spk13: Thanks, Tom.
spk01: Our next question is from Danny Assad with Bank of America.
spk11: Please proceed.
spk06: Hi. Good morning, everybody. Good morning, Danny. Tom, I just wanted to unpack a little bit your, like, the REVPAR guide. Especially in your prepared remarks, you guys mentioned that the renovations will be adding you know, 150 basis points to REVPAR. So it just feels like, you know, the two to four that you're kind of, you know, implying to compare it to, you know, the six to seven that we're going to do in the first quarter. Is there a touch of conservatism into the rest of the year or kind of what's driving that, you know, that like, how do we think about that decel relative to the first quarter?
spk14: Yeah. A couple points of clarification, Danny. We're three-and-a-half to five-and-a-half in guidance rev par, so obviously at midpoint about four-and-a-half, and then we're looking at about 150 basis points of tailwind coming out of Casa and then obviously coming out of Bonnet Creek. Admittedly, obviously January and February are very, very strong based on the trends that we're seeing. There will be a decel in March for all the reasons that we pointed out, Group is going to be down, and, of course, you've got the Easter shift will clearly impact. So, yes, there's January and February don't make a year, so there's certainly conservatism built into that. But, look, we are very pleased. I think you are seeing, as I said previously, you're seeing now, you know, we had, obviously, the pent-up demand from leisure coming out of the pandemic. You're seeing, obviously, group. urban really beginning to gain momentum. And that shouldn't surprise anyone. Also keep in mind when you look at our portfolio and take New York I think is a great example. You've got a 9 percent reduction in supply there. You've got a lot of people that were selling and sort of riding off the city. We were not in that camp. You've only got three large hotels that can handle large groups. You know, we look at New York and see more upside, not less. So we see real tailwind in that market in particular as we look out. And obviously, we think we're incredibly well positioned there.
spk05: That's great. Danny, real fast, I'd also add, there is a headwind of a 50 basis point renovation impact to Repar this year. Most notably in Hawaii, which we pointed out. And I would also say that's in the that's concentrated in the back part of the year. So as you think about, as you go through the rest of the year and maybe some of the conservatism and thinking around that, you know, we're going to have a little more impact, disproportionate impact in the back part of the year.
spk06: Got it. Thank you. And then if I could just follow up, you know, your outlook for like total REF PAR, let's call it, like the hotel revenues outside of the, you know, HGV portion of it is about 50 basis points ahead of your REF PAR outlooks. How should we think about the incremental growth that flows through from that to the bottom line?
spk05: Yeah, I would say that on the whole, you probably have, from a total revenue standpoint, well, let me just back up and say from an out-of-room spend or additional to REVPAR, total REVPAR, about 30 to 50 basis points, I would say. You know, I would say it's balanced. You've got more kind of outlet revenue coming through than banquet and catering. Certainly in the first part of this year, you know, that's a little bit lower flow through than you might see the banquet and catering. We have, you know, we're not counting on as much cancellation, which is obviously a full flow through. So on the balance, I would say that I wouldn't count a lot more incremental flow through from that incremental 20 to 30 to 50 basis point add to RevPAR.
spk13: All right. Thank you very much.
spk11: Our next question is from Schmid's Rosewood City. Please proceed.
spk04: Hi, thank you. I just wanted to ask a little bit about what you're layering in for wages and benefits expectations for 2024 across the portfolio, and maybe specifically if you could talk about those assumptions in Hawaii, if they're meaningfully different from the broader portfolio.
spk14: Yeah, Smith, as you can imagine, you know, there will be some negotiations, and we certainly don't want to forecast where we think those negotiations will end. I think if you look sort of last year, you know, wage increases were in that sort of 4% to 5% range. But, you know, to forecast anything beyond that would really be inappropriate at this point. Look, we have enjoyed, I think, very strong relations with our partners. We've got a labor piece, if you will. And I think we had a very successful outcome in 2023. And, you know, we would expect something similar here in 2024 and beyond as we look out.
spk04: Okay. Okay. So we'll... wait and see on that front. But it sounds like in your guidance that 45% is what's kind of factored in, at least for right now, until we have better information.
spk14: Yeah, I think if you look at overall expenses, we're probably in that range. That's probably the better way, I think, to look at it right now.
spk04: Okay, and then can I just ask you, you mentioned hoping to execute on sales in the range of $100 to $250 million. Just broadly, what sort of EBITDA would you expect to be selling in that range? I guess either it's multiple or absolute dollar amount or kind of how should we think about that, which I think is not added into guidance.
spk14: Yeah, a couple things to keep in mind, Smeets. We've got – if you think since the spin – We have disposed of nearly 42 assets, sold or disposed of 42 assets for just south of $3 billion. Last year, obviously, one asset sale and then another small kind of leasehold interest that we ended up selling as well. So, you know, we've set a target of $100 to $250 million. Tom Morey and his team have done an exceptional job every year. We're not... certainly a desperate seller. So we'll be disciplined. We'll be thoughtful about it. And we will look to recycle that capital. We're confident in our ability to be able to sell assets. I think we continue to demonstrate that. But we'll use those proceeds, obviously, and recycle that back for ROI projects. We'll use it also for projects reduced leverage, could be opportunistically to buy an asset if something were priced right, or to buy back shares. I mean, that's really been the playbook that we've used, you know, the last several years. The other comment that I would make is keep in mind our top 25 assets really account for about 90% of the value of the company. So out of that remaining 10%, to answer your question directly, you know, that would be a small portion of that 10%. as we sort of look at, if you want to kind of frame it, in between that 100 to 250 million.
spk13: Thank you. Appreciate it.
spk11: Our next question is from Patrick Schultz with Truist Securities. Please proceed.
spk02: Thank you. Good morning, everyone.
spk14: Good morning, Patrick.
spk02: A little bit more color on the strength in groups You know, what changes have you seen as far as the composition of these groups? And related to that, you know, propensity or lack of propensity, but it sounds like it's propensity to spend outside of the room. You know, what types of groups are sort of shifting in and what are being shifted out? Thank you.
spk05: Yes, Patrick, it's Sean. I think you're continuing to see, I think for one, groups are getting bigger. As we kind of naturally thought as we came out of the pandemic, we started with the small groups and now gone to larger in-house groups. You now have gotten to the point where convention is, I think, the leader in the clubhouse. We look at this year in terms of growth. We've talked a lot about the convention calendars being in our favor in a lot of our markets with Chicago up, you know, strong 65%, D.C., up almost 50%, Honolulu's up 30%. And so down the line between New Orleans and San Diego and other markets are also kind of either flat or slightly up to about 20% up. So again, all across the board, I think we're seeing convention being a lot stronger in this. So I think that's leading to larger, certainly room blocks for us. I think corporate still remains strong through this year. And I think that certainly leads itself to, you know, again, just getting bigger and they're outperforming. We're seeing rebounds up. I think that's contributed to some of the strength we've seen in January and February. So, you know, more are showing up than we anticipated, and that's leading to better, certainly, F&B spend. I would say the characteristics, I think, kind of leading, you know, aside from just the size of them getting larger, I think it's just more getting into your more traditional, whether it's professional, technology, the kind of the more traditional groups we've had in the past are kind of coming back. And importantly, too, as you think about some of the success recently here as we're picking up, you know, things like Tom had just briefly mentioned, but Apple has been a big contributor now in the short-term pickup in our market out in the Bay Area. So it's been encouraging to see a place like Cupertino and Juniper, Cupertino, and to some extent San Jose, picking up some short-term group business as I think these technology firms are coming back more and bringing people back to the office and bringing people together to kind of train and kind of ultimately get back to normal business.
spk02: Patrick, the other thing... Go ahead.
spk14: Patrick, the one thing that I would just say, I agree with everything that Sean outlined, but You know, just the natural need to bring your people together, whether that's for training, whether that's for celebration. You've got to think this is a, it sort of makes sense. Everybody was sort of focused initially on pen of demand and leisure. But as you're getting back, people back in the office, the need to be together. And what's really pleasing to see is that we all expected it, but we're beginning to see it accelerate and it's broad-based. And city-wise, obviously, being the leader in the clubhouse here, but you're also seeing it on the group side, the in-house group side. So very, very encouraging as we look out.
spk02: Thank you. And my follow-up question actually has to do with looking out. Any initial observations or perhaps statistics that you can give on how 25 is pacing at this point? Thank you.
spk14: Yeah. I would just say 25... Group PACE is about 97% of 2019 levels as we look out right now, and with rate, very strong increase in rate, near double-digit increase in rate.
spk05: Yeah, I'd say PACE is 10% right now.
spk14: Yeah.
spk02: You say PACE, just to be clear, that's a revenue PACE for next year versus 2024, 10%?
spk05: Yeah, as you look out, same time, you know, same kind of timeframe. For 2025, you're up 10% for revenue-based, yep.
spk13: Okay, great. Sounds good. Thank you.
spk11: Our next question is from Dwayne Fenningworth with Evercore ISI. Please proceed.
spk08: Hey, thank you. Good morning. On group revenue pace, I just wanted to try and ask the question a different way. What percentage of the group revenue that you expect to generate this year is on the books? And if you have it, how does that percentage compare to this time last year into 2023?
spk05: Dwayne, I would say what we have relative to forecast, 78% is relative to what we have forecasted on the books already. That compares to 74% last year. As you think of the first half this year, right now, we're 90% booked for what we're expecting for the first half of this year.
spk08: That's super helpful. Thank you. And then just Hawaii, I guess, a longer-term question. It's obviously off to a strong start. I think you've commented in the past, like, expectations for the year. How should we be thinking about Hawaii in its entirety for the year?
spk14: Well, we said in our prepared remarks last sort of low single digits for Hawaii, just given, as Sean noted, obviously we've got the coming off of a strong year, but we've got the renovation obviously in the back half of the year. Now, you know, we're up 10%, and so far it's doing well, but we clearly would guide you more to that low single digits as we think about for the year.
spk13: Great. Very clear. Thank you.
spk11: Our next question is from Dory Keston with Wells Fargo. Please proceed. Thanks. Good morning.
spk00: Hi, Dory. I know you just laid out your 24 CapEx plans, but can you give us a sense of what's on deck for 25? Should we be considering 25 a year still with net renovation tailwinds?
spk14: Yeah, it's a great question. Obviously, we'd begin Rainbow Tower, obviously a key tower in Hawaii, expect to finish that next year. I'm sort of in the queue as we're working on Royal Palm, obviously in Miami and South Beach, Bullseye Real Estate, about 393 keys. So our design and construction team are working on another transformative renovation for certainly that asset. Santa Barbara is another one that we're working with our partner and adding potentially going through the entitlement process, but adding another 80 keys there as we look out, and clearly continuing the renovation on New Orleans, but also being the queue as well. So, just a few of the assets, but we are really focused, doing laser focus on spending money where we're making money, and you can see already the benefits that we're getting, and really we think candidly better than and acquisition yields and what we can get in the marketplace.
spk00: Okay. And I may have missed this, but how apprised are you kept on the plans for your two former San Francisco assets at this point?
spk14: The question again, Dori, I'm sorry, you broke up.
spk00: Oh, I said, how apprised are you being kept on the plans for your two former San Francisco assets?
spk14: Again, we have the receivers in control. As a courtesy, I know that Sean occasionally and other members of the team are reaching out if they have questions or anything that we can do. But the reality is that we're not involved in the day-to-day. We have no economic benefit and no economic risk moving forward. And I think given how San Francisco has played out, I think we would all agree that that was a very wise and very prudent decision, while difficult, certainly the right decision for Park and for our shareholders.
spk00: Okay, thank you.
spk11: Our next question is from Jay Cornridge with Wedbush Securities. Please proceed.
spk03: Hi, good morning. Just to follow up on the strong start to the year, you know, Red Park growth in the fourth quarter was about 4%, yet, you know, January jumped to 13%, February was up 8%. I'm just curious, you know, what caused this kind of upward hockey stick level of growth to start the year? And is this something you first saw, or did it kind of come by surprise at all?
spk14: I see it as a pleasant surprise. As we pointed out, obviously, group was up, you know, 16%, obviously, in the fourth quarter. We saw a sequential, I think, about 12% increase between third and fourth quarter. So, and I think we've all been talking about and expecting, obviously, that Group and Urban would really begin to accelerate. So, I think it's a natural progression. We just sort of got the pickup a little sooner in terms of its acceleration in January and February. As Sean noted, and I noted earlier, obviously, Apple and Cupertino is a great example of we got some short-term business there. Obviously, you had some one-time events, the Sugar Bowl in New Orleans, but again, New Orleans was up north of 50%. Look at San Jose, obviously had an event, but up 35%. So you're really starting to see, obviously, that those business travelers really get back on the road. Again, that need to connect, to be together, build those relationships, that need is never going to go away. So really, this is a natural progression. And given the fact that, if you think about our portfolio, we've got such small and certainly below the long-term average in terms of supply impact, that's going to continue to benefit us as we move forward. New York, again, you're taking supply out of the market. There hasn't been, I think, a permit approved since 2021. So we look at New York and are very, very bullish. And obviously we had a great 23 and are very encouraged about 24 as we look out. Just to give another example, Chicago. Again, we knew there was going to be a very strong citywide, almost near record, and up 65%, close to about 780,000 room nights as we look out there. But there was strong group business in January. which also gave us an additional tailwind there. So it is broad wind.
spk13: Okay, thank you very much. I'll stop there.
spk01: Our next question is from Anthony Powell with Barclays.
spk11: Please proceed.
spk13: Hi, good morning.
spk15: I guess a question on your remaining, I guess, California exposure. You know, two hotels in San Francisco, your two in Silicon Valley that Sean talked about, and one downtown in LA, the Hilton Checkers. I think all the gap versus 19 is at those five properties. So maybe talk about what you're seeing there, and are those hotels still core to your portfolio?
spk14: Yeah, Anthony, it's a great question. I would say, look, having 3% exposure in San Francisco And look, it's important to have a diversified portfolio. And I would respectfully submit that those groups that say I'm going to be leisure only, I'm not sure that's really a sustainable or those that are going to be, I'm going to focus on urban and group. Having that diversified portfolio, I think, is really showing significant benefit to us. So as we think about San Francisco, I've said that. I certainly expect that that market is going to come back. I just think that it's going to be elongated and pushed out. For the two assets that we own there, obviously the JW Marriott and also the Hyatt Centric, certainly assets that at this point we continue to expect to hold. As we think about San Jose and Cupertino, again, two attractive assets. You know, downtown L.A., I think, is a different story. They're in a different, complex, challenging situation, not dissimilar to what's happening in San Francisco. And, you know, we'll continue to evaluate that sub-market and see what we do in the future.
spk15: Okay. And thanks. I think, Tom, you also talked about acquisitions. You know, if the capital markets just cooperate, can you maybe expand on that? What do you mean by capital markets? Is it equity, debt capital? And remind us what your target leverage ratio is right now.
spk14: Yeah, I mean, look, we've always said from the moment of the spin that we wanted to be leveraged kind of three to five times. And, you know, we'd certainly like to be closer to four times. I think in the context of capital markets, it's really beginning to get a re-rated EBITDA multiple in getting our stock up and something closer to net asset value. I think even the worst of times, you know, we didn't do a dilutive equity raise. We're not going to do one now. We've been, I think, passionate and laser-focused on recycling capital. We've sold assets. We've used that to reinvest back in the portfolio and to buy back stock and reduce leverage. I'd say that we would be anchored in those same goals and principles, but we're always looking opportunistically, and if there are unique situations that are creative, we certainly are going to continue to underwrite and explore, but And we'll see. We'll see how the year unfolds. But we certainly want to be on offense at the appropriate time. Right now, and last year was a great example of that, buying back 15 million shares at an average price of $12 or inside of that was a very prudent decision for shareholders in our view.
spk13: Got it. Thank you.
spk11: Our next question is from David Katz with Jefferies. Please proceed.
spk16: Hi, everybody. Thank you for taking my question. You know, we've been hearing, obviously, from, you know, peers and other sources, right, that there isn't a lot to buy in the market these days. And, you know, it sounds like you have what to buy. You know, what is your assessment of the market at the moment? Is there a bid-ask spread issue? underwriting conviction should be better, I would think, but I'd love to hear yours.
spk14: Yeah, I would open. Dave, it's great to talk with you, first of all, but I think also keep in mind that uncertainty is the enemy of decision-making. I think part of what we're all waiting for, we believe the Fed tightening cycle is over. I think we all expect that at some point, whether you're in three reductions this year in interest rates, or is it Fed funds rate, or is it four or five or six? You know, I certainly think people are looking for that to re-rate, and certainly would expect, obviously, the debt markets to continue to open up. Banks are, you know, got their own regulatory challenges, but there's certainly plenty of private capital, private credit capital in particular out there. So, you know, deals are getting done, albeit at a slower pace. But I think in the second half of the year, you'll begin, as we get better visibility, you'll begin to see that open up. There are a lot of people out there who believe that, you know, there's going to be tremendous distress. I think you'll see, in my view, probably more of that on the office side than I think you'll see on the lodging side. And there'll be some assets that need to be recapitalized. But, you know, this is not the GFC in what we saw yesterday. back in that period of time. And, you know, we'll continue to be thoughtful. We'll continue to reinvest in our portfolio. Again, we think we can generate higher yields there. And, you know, if the gap remains between our share price and NAV, you know, we'll recycle capital and buy back shares. I mean, we're not, we're definitely not going to look to raise equity in this environment right now, given where we're trading. And we're hoping that our continued outperformance will get noticed. and that we'll begin to see that rating in our stock price.
spk13: Okay. Thank you.
spk11: Our next question is from Bill Crow with Raymond James. Please proceed.
spk17: Hey, good morning. Hey, Tom. Good morning, Bill. Good morning. The two W hotels in Chicago I'm interested in because W seems like they're really trying to rebuild the brand, and it's a very different brand. product type than the traditional W's. Do you have any immediate plans to either reinvest in those properties or divest those properties?
spk14: Yeah, it's a great question, Bill. Look, we know, obviously, given the work that Marriott's doing, that they're trying to reinvent, if you will, and I think to elevate the W brand, and we certainly support that. We're not sure that either of those assets are what we would call as pure Ws as we move forward. We're actually in discussions about repositioning. And, you know, we think a soft brand play may make the most sense there. And, you know, I'll stop there. But we are carefully exploring our options and ways to create more value with those two well-located assets. Great.
spk17: And then the other one I wanted to ask you about was I look forward to your event out in Orlando. I'm wondering what the one or two things you're hoping the street takes away from that event.
spk14: Yeah, it's a great question. I could not be prouder, Bill. When you see just the magnitude of the work done and the complete transformation of not only adding 100,000 square feet over suspended over water, for the Signia ballroom, but then to see the event lawn and to see, obviously, the additional ballroom that we added adjacent to the Waldorf, and now the ability to be able to layer in groups and accommodate multiple groups and to have a few hundred thousand square feet of meeting space there and a renovated golf course. That complete experience and to have really a world-class resort, 350 acres. And, you know, Bill, you've heard me say this before. I mean, we're right next to the Four Seasons, which is a fabulous asset, best in the market. You know, I'm not sure what was paid for it, $1.3, $1.4 million a key. And we're trading at $2.50 a key, maybe slightly above that. I think we're a pretty good value. So I think that's something else I'd like and hope that shareholders take away.
spk13: But we hope you can join us, and we look forward to seeing you. Great. Thanks, Tom.
spk11: Our next question is from Chris Darling with Green Street Advisors. Please proceed.
spk10: Thanks. Good morning. I just have one follow-up question on guidance. When I look at what's implied by the 2024 outlook, I calculate expense growth for the year between 5.5% and 6% at the low and high end, which is just a $10 million range, it looks like. Can you help me understand what gives you confidence in projecting that relatively tight range of outcomes?
spk05: I think it's a matter of, as you think through going, just the various ins and outs that happen when you think about elevated growth on the high end with room production as well as out-of-room production versus kind of, you know, the other side of it. I think ultimately you're going to cut expenses as well as you lower revenues. And ultimately, so I think we get generally comfortable with it. I'm not sure quite that much of a range, but I think certainly I think feel pretty good about our guidance. I mean, it is at the higher end of 5%. Nominally, when you think about the adjustments for the fact that we're lapping, we're adding in a bunch of expenses because we're reopening CASA this year relative to last year, as well as lapping some of the things that we had our benefit in Q3, which were one time in nature or ultimately a prior year tax appeal in Chicago. It's about 100 basis points lower, call it high fours, when you think about kind of a more run rate kind of growth prospect.
spk13: Great, that's helpful. That's it for me. Thank you.
spk11: And our final question is from Keegan Carl with Wolf Research. Please proceed.
spk09: Yeah, thanks for the time, guys. Just one for me. Just wondering if we could kind of dive in a little bit more to your expected contribution from Hawaii in the first quarter of the year and then full year 24. It would be really helpful. Thanks.
spk05: Well, I think, as Tom noted, you know, it's kind of a lower single digits for Hawaii. It's really broken out. I mean, Hawaiian villages, I would say, is more kind of in line with the portfolio performance, you know, if you kind of adjust for the disruption we expect in the back part of the year. It's really Waikoloa that has, you know, paces down 30-plus percent for the year, and so we expect kind of a negative, you know, growth pattern for that. You know, not like mid-single digits down, but certainly it's a drag towards Hawaii overall as a market. That said, I think, you know, and I think it's probably back half of the year, you know, it's more we see the group, you know, down for Waikoloa on top of disruption. So I think, you know, we certainly expect that it's better performance in the first half of the year. We certainly thought Waikoloa would be a little bit softer coming into the year, and it's performed really well. It's picked up short term. I think there's some benefits still from Maui displacement. We're seeing for the first half of the year, Airlift is positive into that market. It's up 5% domestically and then 50% up from Japan is a big island. And in Honolulu, well, it's down a little bit domestically. It's up almost 100% for the first half as we look kind of forward bookings for airlines. So I think we feel pretty good about where, you know, we'll kind of go for the first half of the year. I think it's just the back half of the year that kind of softens a little bit for that market. But I think going forward, you know, somebody asked about 25 pace. Hawaii is up another 25%. Honolulu is up another 25%. And then Waikoloa is up 55% and 25%. So I think you're going to have a rebound here as well as you get into 25% for these assets.
spk09: Got it. Thanks for the time, guys.
spk13: Appreciate it.
spk11: We have reached the end of our question and answer session. I would like to turn the conference back over to Tom Baltimore for closing remarks.
spk14: Appreciate all of you taking time today. Look forward to seeing many of you at the city conference next week. Safe travels.
spk11: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
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