Park Hotels & Resorts Inc

Greetings and welcome to the Park Hotels and Resorts Second Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief 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, of Corporate Communications. Thank you. You may begin.

Thank you, operator, and welcome everyone to the Park Hotels and Resorts second quarter 2025 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 security 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 Forms 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 comparable hotel basis. This morning, Tom Baltimore, our Chairman and Chief Executive Officer, will provide a review of PARCC's second quarter performance and strategic initiatives, as well as provide an update to our 2025 outlook. Sean Dilorto, our Chief Financial Officer, will provide additional color on second quarter results, an update on our balance sheet, and 2025 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. Overall, I was very encouraged by our second quarter results, driven by continued outperformance, from recently completed ROI projects, disciplined cost controls across the portfolio, and steady progress on our strategic initiatives. Q2 REVPAR was relatively flat year over year when excluding the Royal Palm South Beach in Miami, which suspended operations in mid-May for a transformative renovation and repositioning. Performance was led by strength in several of our resort markets, including Orlando, Key West, and Puerto Rico, as well as continued improvement in business travel, which drove solid results in urban markets such as New York, San Francisco, Denver, and Boston. An aggressive asset management strategy is one of our three guiding principles. And I am incredibly proud of the efforts by our team and our operating partners to drive effective expense controls across our portfolio, resulting in total expense growth of just 40 basis points for the quarter, or just 1% when excluding Royal Palm South Beach, marking the second consecutive quarter in which expenses grew by approximately 1% or less. Looking ahead to the remainder of the year, we expect continued low expense growth driven by cost savings identified through our deep dive analysis into cost structures in the first half of the year, in addition to the benefits of a sector-leading 25% reduction in property insurance premiums, which will result in an incremental $5 million in savings through year end. From a capital allocation standpoint, we made meaningful progress toward our goal of $300 to $400 million in non-core dispositions with the sale of the Hyatt Centric Fisherman's Wharf for $80 million at an impressive multiple of 64 times 2024 EBITDA, demonstrating the underlying real estate value supported in the private markets. While the transaction market remains challenging, we are actively engaged in discussions with potential buyers for several non-core assets, and we remain laser-focused on achieving our target by year-end. As a reminder, our strategic initiative to dispose of our remaining 18 non-core hotels is expected to meaningfully enhance the overall quality and long-term growth profile of the company. In line with our strategic priorities, we made the decision to close the 266-room Embassy Suites Kansas City Plaza Hotel by the end of September as the asset is projected to achieve just $73 in 2025 REVPAR and generate very little EBITDA. In connection with the hotel closure, we recently agreed to an early termination of the hotel ground lease. which was set to expire in January 2026. We also made the decision to exit two additional non-core hotels, the Doubletree Seattle Airport and Doubletree Sonoma, both of which are subject to a ground lease that will terminate at the end of this year, at which time the properties will revert to the landlord. Removal of these assets will materially enhance the quality of our portfolio, increasing nominal REVPAR by over $5, and margins by nearly 70 basis points, and bring us closer to our core portfolio of 20 consolidated hotels, which represents approximately 90% of the value of our portfolio. This core portfolio remains among the highest quality in the sector, with an average rev par of nearly $215 and EBITDA per key exceeding $40,000 based on 2024 performance adjusted for last year's strike disruption. Looking ahead, we expect the core portfolio to outperform the forecasted U.S. average rev par growth in the coming years. With respect to capital investments, During the second quarter, we commenced the comprehensive renovation project at our Royal Palm South Beach Resort, which we expect will generate returns of 15% to 20% on our $103 million investment, with the hotel's EBITDA expected to double to nearly $28 million once stabilized. Our in-house design and construction team is working diligently to ensure the hotel opens in Q2 of next year. ahead of the 2026 World Cup, during which Miami is scheduled to host seven matches in June and July. Additionally, we expect to launch the final phases of room renovation projects for two of our rooms towers in Hawaii this month. At Hilton Hawaiian Village, the second and final phase will encompass a full renovation of the remaining 404 guest rooms in the iconic Rainbow Tower, and the addition of 14 new guest rooms with a total investment of $48 million. At the Hilton Waikoloa Village, this $36 million phase will fully renovate the remaining 203 guest rooms in the Palace Tower and add eight new guest rooms. We expect both projects to be completed in early Q1 of next year. At the Hilton New Orleans Riverside, we are currently underway with the second phase of a three-phase renovation project, investing $31 million to upgrade an additional 428 guest rooms in the main tower, while the remaining 489 guest rooms of the 1167-room tower are scheduled for renovation in 2026. I'm very excited about the investments we've made in our core portfolio. as we continue to enhance asset quality and strategically allocate capital to maximize long-term shareholder value. We are confident that reinvesting in our portfolio is the highest and best use of our capital, positioning us for sustained growth and outperformance. Since 2018, PARC will have invested more than $1.4 billion in our core 20 consolidated hotels through 2025, upgrading nearly 8,000 guest rooms, and fully repositioning several of our most iconic hotels. Turning to operations, we witnessed continued strength in Orlando with our Bonnet Creek Complex delivering record-setting revenue for the second quarter, RevPAR for the complex exceeded expectations, increasing nearly 12% year-over-year, with strong transient demand driven by a surge in advanced purchase activity and enhanced commercial strategies. The Waldorf Astoria was particularly strong, reporting a 24% increase in REVPAR year-over-year, as demand improved for both group and transient segments, each posting approximately 20% growth compared to last year. Notably, this quarter marked the 15th consecutive quarter of year-over-year group revenue outperformance at the complex. I'm also pleased to share that the Waldorf Astoria Orlando was recently recognized in Travel and Leisure's 2025 World's Best Awards as the fourth best resort in Florida and the top-ranked resort within the Orlando market. Looking ahead, Both transient and group demand remains strong at the complex, which is expected to deliver high single-digit rev par growth throughout the remainder of the year. Overall results at the Bonnet Creek complex have exceeded our underwriting expectations, with 2025 EBITDA now forecasted to be well over $90 million and nearly 40% above prior peak. further validating our strategy to invest in our core assets. Turning to Key West, our Castle Marina Resort reported a nearly 4% year-over-year increase in rev par during the quarter, with transient occupancy increasing by over 20% as the hotel continues its position as one of Key West's premier hotels. Food and beverage outlet and ancillary revenue outperformed last year by 8% during the quarter, resulting from the increased transient volume and the newly added Dorado restaurant that opened in Q3 of 2024. Notably, total food and beverage revenue for our Key West hotels reached a new Q2 record. Looking ahead to the second half of the year, we expect continued strong performance at both hotels, driven by sustained transient room demand and food and beverage activity, with total REVPAR projected to grow high single digits over last year. In Puerto Rico, strong leisure and business transient demand drove a nearly 18% increase in REVPAR for the quarter compared to last year. Consistently high occupancy contributed to Caribe Hilton outperforming its comp set and delivering a REVPAR index of 120%. A positive trend we expect to continue. leading to mid- to upper-single-digit red bar growth expected for the back half of the year. In our urban portfolio, we were particularly pleased with the ongoing strength of business travel during the second quarter, which contributed to solid red bar growth in New York, San Francisco, Denver, and Boston. At our JW Marriott Hotel in San Francisco, red bar growth exceeded 17%, driven by solid transient and group demand, as the city benefited from an increase in convention room nights during the quarter. In New York, our Hilton Midtown Hotel delivered a nearly 10% rep bar increase during the quarter, supported by a 16% increase in group revenue and a more than 11% increase in leisure revenue, both of which helped to drive a nearly 230 basis point increase in rep bar index during the quarter. In Denver, Repar growth at our Hilton Denver Hotel exceeded 6% during the quarter, fueled by strong performance across both group and leisure segments. Meanwhile, in Boston, an over 22% increase in leisure revenue contributed to a 5% Repar gain at our Hyatt Regency Hotel. Turning to Hawaii. While we continue to face some near-term headwinds, we are encouraged by the sequential improvement we are seeing, especially at our Hilton Hawaiian Village, even as inbound international travel has not fully recovered. Combined REVPAR at our two properties declined by approximately 12% during the quarter, with Hawaii continuing to be impacted by weaker inbound travel from abroad. With respect to Hilton Hawaiian Village, the resort continues to recover from the Q4 labor strike last year. However, we are encouraged by the hotel's continual improvement in market share, regaining over 1,600 basis points since the beginning of the year and exceeding full share since May. Looking ahead in the near term, we expect the sequential recovery for Hilton Hawaiian Village to continue. evidenced by a strong forecast for July that had occupancy over 90% and rev par index above pre-strike levels. However, this momentum is expected to be offset by Hilton Waikoloa's weakest quarter of the year, producing a combined rev par decline that is expected to be slightly better than Q2. Beyond Q3, Performance in Hawaii is expected to accelerate meaningfully in the fourth quarter. The Hilton Hawaiian Village lapse, the labor strike disruption from last year that drove REVPAR down over 25% in 2024. In addition, combined group pace across our two Hawaii resorts is forecasted to increase by nearly 50%, which we expect will translate into high teens combined REVPAR growth during Q4. Looking ahead, the long-term outlook for Hawaii remains very favorable, supported by very limited new supply expected through at least 2030 and the anticipated improvement of inbound travel from abroad. In our opinion, Hawaii is one of the most dynamic and resilient resort markets in the country, with less supply growth forecasted versus any other U.S. market, and with over 3,500 fee-simple guest rooms at a huge discount to replacement cost, Park remains well-positioned to deliver above-average long-term growth for shareholders. And finally, I am pleased to report that neither of our Hawaii hotels sustained any damage following the 8.8-magnitude earthquake, off the Russian coast on Wednesday, and subsequent tsunami alerts throughout the Pacific Ocean. With respect to fundamentals over the back half of the year, the outlook remains mixed as the ongoing uncertainty around tariffs, elevated inflation, and geopolitical issues are expected to continue weighing on travel demand during the third quarter, while easier comps and improved group travel are will help to support strong trends during Q4. Overall, July results have been modestly weaker than expected, with preliminary rev part declining by approximately 4% when you include the nearly 130 basis points of renovation disruption at the Royal Palm South Beach. Recent trends are persisting, with continued strength in Orlando, Key West, and New York City, offset by modestly softer-than-expected results in Hawaii and Southern California. Based on our current forecast, Q3 REVPAR is expected to decline by approximately 4% to 5%. Our revised forecast reflects softer-than-anticipated group demand, with group pace lower by 380 basis points to down 14%, our weakest quarter of the year. coupled with softer leisure transient demand forecasted for Q3, mainly due to heightened economic uncertainty, reduction in government demand, and weaker inbound international visitation. We expect a significant improvement during the fourth quarter, with group revenue pace increasing 18 percent, which when Combined with significantly easier year-over-year comparisons, we expect REVPAR growth to reaccelerate to 3% to 5% in the fourth quarter. Overall, the improvement is relatively broad-based, with outsized gains expected for Hawaii, Denver, Orlando, Key West, Boston, Seattle, and Chicago. We remain laser-focused on our strategic objectives of reshaping the portfolio through reinvestments in our iconic portfolio to drive long-term value for shareholders, executing non-core asset dispositions, and further strengthening our balance sheet by extending maturities and reducing leverage over time. These priorities keep us focused on what we can control and position us to navigate near-term volatility while building a stronger, more resilient platform for sustainable long-term growth. And with that, I'd like to turn the call over to Sean.