Q1 2021 Park Hotels & Resorts Inc Earnings Call
Greetings and welcome to the Park hotels <unk> Resorts, Inc. First quarter 2021 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 that this conference.
Is being recorded.
Now I'll turn the conference over to your host Ian Weissman Senior Vice President corporate strategy you may begin.
Thank you operator, and welcome everyone to the park hotels <unk> resorts first quarter of 2021 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.
In addition on today's call, we may discuss certain non-GAAP financial information such as adjusted EBITDA. You can find this information together with reconciliations to the most directly comparable GAAP financial measure and the last night's, earning or earnings release as well as in our 8-K filed with the SEC.
In the supplemental financial information available on our website at PK hotels and resorts Dot com the.
This morning, Tom Baltimore, our chairman and Chief Executive Officer will provide an overview of the industry as well as a review of parks the first quarter performance.
He will also provide color on recent demand trends and their impact on park's portfolio.
Sean Dellorto, our Chief Financial Officer will provide a brief review of performance across several of our key markets as well as more detail 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 hope that everyone is safe healthy and well.
Surpass one full year of living through an unprecedented pandemic.
I believe I speak for many of us when I say that there is finally a line at the end of the tunnel.
I am pleased to report significant improvements across our portfolio in recent weeks.
Including meaningful sequential occupancy growth as well as achieving portfolio of breakeven EBITDA in March.
Overall, I'm very optimistic about our outlook going forward.
To start I've been encouraged by the pace of vaccinations across the U S.
Which has helped to drive a dramatic increase in consumer confidence and greater mobility.
From the economic front there are several tail winds that are fueling increased economic activity.
State and local jurisdictions have begun lifting of restrictions on travel and public gatherings paving the way for increased mobility.
Ongoing government stimulus, including president of items, one nine trillion stimulus plan passed by Congress in March has continued to provide relief for those most economically impacted by the pandemic.
While also fueling increased savings for others.
U S savings rate now sits at approximately 28% the second highest rate on record.
The personal savings exceeded $2 five trillion in March of <unk>.
From 2.4 trillion recorded in February.
Personal consumption expenditures are currently forecasted to reach 7% this year, which would be the strongest P. C.
Since 1955 and business investment spending is expected to be close to 8%.
Both forecast materially higher than at the end of 2020.
And if approved proposed government infrastructure investments will be another major boost to the economy.
As a result of these factors two.
2021 forecast for GDP is now averaging six 4%.
Which is the highest protected level since 1984.
All of this bodes incredibly well for our industry.
Against this backdrop, we remain laser focused on our tier on our key near term priorities, which include returning to profitability by safely and efficiently reopening of the balance of our portfolio.
Reducing our monthly burn rate.
I'm pleased to report that our March burn rate was just $26 million.
Down from a high of $85 million at the start of the pandemic.
With an eye toward breaking even in the second half of the year.
In addition, we remain focused on continuing to re imagine the hotel operating model with another $15 million of identified labor savings, bringing the total annual cost savings to $85 million or nearly 300 basis points of margin improvement.
Additional priorities include further strengthening the balance sheet by deleveraging through asset sales and pushing out maturities.
With Sean and I will provide more color on shortly.
And finally pivoting to offense as we relaunch of our Bonnet Creek meeting space expansion project, and selectively pursuing attractive and value enhancing acquisitions in our target markets.
Turning to our first quarter results I am pleased with the sequential quarter over quarter improvement, including a material pick up in demand trends in March overall.
Overall results were driven by strong performance at our hotels located in resort markets as well as those with proximity of the strong leisure demand generators.
First quarter occupancy at our consolidated portfolio, which includes both opened and suspended hotels increased from 21% in January of 233% in March.
Our open hotels occupancy reached 46% in March with 17 of our hotels, surpassing 60% occupancy.
Compared to just seven in February.
This improving demand trends, coupled with our relentless pursuit of cost saving measures and efficiencies allowed us to reach breakeven EBITDA for our portfolio of March well ahead of our initial expectations.
We're able to break even.
We're able to reach breakeven EBITDA from March with occupancy of 32% and average rate down 25% versus 2019 levels well below the targeted breakeven occupancy range of 35% to 40% along with weighted declines of 15% to 20% we previously communicated.
Our cost saving measures and efficiencies all of the more impressive.
As a result of improving demand trends, we continue to make progress on the hotel reopening of including the hotel Adagio La Meridien in San Francisco.
And the doubletree at the Seattle Airport.
All of which were reopened towards the end of March we now have just seven hotels that remain suspended.
But the W City Center in Chicago expected to reopen next week and the 1900 room Hilton San Francisco Union Square scheduled to reopen prior to Memorial day weekend the should.
Cargo Hilton is scheduled to open in mid June.
In terms of our reopening our four remaining hotels.
We currently expect these hotels reopen by the end of the third quarter as travel restrictions ease and demand recovers.
From a segmentation perspective.
These are accounted for roughly two thirds of our demand during the quarter.
Rooms related leisure revenues nearly doubling from the fourth quarter of 2020.
While we witness clear signs of pent up revenge spending at several of our resort properties, including the Hilton Bonnet Creek and Orlando.
The outlet spend was $102 per occupied room or 23% higher than Q1 2019.
At the Waldorf Bonnet Creek.
It was $180 or 43% higher than Q1 2019.
In addition, golf and Spa expenditures at the resort exceeded $122 per occupied room.
More than double what we generated during the first quarter of 2019.
Overall total ancillary revenues, excluding food and beverage given that several of our outlets remain closed exceeded Q1 2019 levels by more than 30% during the quarter.
Business transient demand.
Showed marginal improvement from last quarter, while group demand began to show signs of recovery with small group bookings in the quarter for the quarter.
While lead volumes continue to increase up from 50% of 2019 levels in January.
The 80% of 2019 levels in April.
Not surprisingly our top performing hotels for the quarter are located in leisure destinations with minimal travel restrictions in place.
Each of our three hotels in South, Florida average occupancy rates over 80% for the quarter on stronger than anticipated at leisure demand.
And many of these leisure markets. The demand pace has been so promising that our teams have been able to increase rates by yielding out lower rated discount it.
For more profitable channels.
Focusing on our top markets, our two hotels in key west of the Waldorf has some arena and the and the reach Curio collection continue to outperform and lead the way for our portfolio.
March occupancy averaged an incredible 96%, while combined revenues of 25 million for the quarter surpass budget by nearly $9 million.
The hotels combined first quarter Revpar of $440 not only grew 24% year over year, but it also surpassed their 2019 first quarter revpar by nearly 5%.
In addition, both hotels witnessed strong growth in ancillary spend.
Bind total revenue.
Averaging $611 for the quarter.
Outlet spend per occupied room hit a record $95 during the quarter.
Which was up 28% the 2019 and it was largely driven by the reach of successful new restaurant concept.
Key West has been one of the strongest hotel markets during the pandemic, our hotels of performed particularly well.
Both hotels, having consistently outperformed the key west track as well as their respective competitive sets in Revpar index.
Given the phenomenal pace of demand growth and strong rate.
We feel very optimistic about key west for the balance of the year.
In terms of our other strong markets.
Miami was another top performer for the quarter.
With the occupancy at our Royal Palm Hotel, increasing from 69% of January to 90 per cent in March on strong spring break related leisure demand.
Puerto Rico has also been of success story.
With demand at our Caribe Hilton.
Ramping up strongly throughout the quarter to reach 72% occupancy in March.
Given travel restrictions to the Caribbean and other travel the destinations Puerto Rico has been a popular alternative especially for east coast residents.
Turning to Hawaii.
Both of our properties saw growing momentum during the quarter.
Hilton Hawaiian village average 21% of occupancy.
With just three of five towers open.
While at the Hilton in wake of lower village.
Occupancy average, 41%, reaching an impressive 60% of occupancy in March.
The $300 and total revpar for the month generated by strong Spa and recreation revenues.
Travel restrictions and of why remain in place the ability of the bypass quarantine restrictions with proof of the negative COVID-19 test.
Has been greatly facilitated by domestic airline carriers.
Many of whom off of rapid COVID-19 test either at home or at the airport.
The real game changer for Hawaii will be win unrestricted Pan Pacific Air travel is allowed for those fully vaccinated, which could happen as early as July 1st.
Recent demand to Hawaii is also been aided by expanding domestic airlift from southwest and Hawaiian Airlines.
As well as the introduction of additional wide bodies service from United and American the.
The increased domestic air lift and corresponding demand is expected to offset anticipated weakness from east Asia travel in 2020 one.
We're vaccines have been slow to rollout and travel restrictions remain in place overall, we are confident about our wives recovery. This year with occupancy at Hilton Hawaiian village forecasted to reach 75% from the balance of the year.
While we expect occupancy to average over 80% at our Hilton like of lower village Hotel.
Looking ahead, the 'twenty 'twenty two in the in Hawaii.
We are expecting a very strong year drew.
Driven by continued.
The man strength increased group bookings and the return of East Asian travelers, who will likely be hungry for international travel after two years of restrictions are.
Our group booking pace for Hawaii in 2022.
Currently sits at over 40% ahead of last year with incentive travel and East Asia group demand paving the way for recovery.
Simply put we believe Hawaii has the potential to experience the same impressive demand growth as we have seen in key west and Miami over the past few quarters as restrictions are eased and pent up leisure demand accelerates.
On the capital recycling front, we are encouraged by the market interest.
And the strong pricing we have received on assets that are currently being marketed for sale.
Further supporting the ongoing demand for quality institutional watching assets.
Accordingly, we recently announced the sale of the 97 room W. New Orleans, French quarter hotel the.
The gross proceeds of approximately $24 million, we are pleased with the deal pricing, which translated into a four 3% cap rate on the hotels 2019, NOI inclusive of $8 million in anticipated Capex.
Transaction allowed us to pay down debt and it also reduced our exposure to a market.
We already have a strong presence.
We have several assets in various stages of the disposition process.
And expect to report positive news in the coming weeks.
As stated last quarter, we plan to sell upwards of $300 million to $400 million of noncore assets. This year to reduce our overall leverage and continue with our portfolio of evolution and we remain on track to achieve this goal.
Thinking about the operational landscape for the balance of the year. We are encouraged by the continuation of marches strength into April.
With the April occupancy average nearly 50%.
For our open hotels.
For a sequential monthly increase of over 500 basis points, while April Revpar was $85 for open hotels or $11 higher than March.
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We expect to see strong leisure demand continuing through the summer.
Furthermore, we anticipate that a large portion of the outbound U S travel market, which totaled a 100 million travelers in 2019 will choose the focus on domestic travel driving accelerated growth in markets like Hawaii, South Florida.
Southern California, and potentially urban markets like San Francisco, Boston and D C.
We are not expecting to see any material changes in business travel until more employees returned to the office, but some companies targeting after labor day for this transition on.
On the group side, we expect to continue the prime primarily derived demand from localized short term smurf groups in the near term. Although there is exciting momentum for the return of large groups as early as late Q.
Q3 in certain markets.
Every expectation that sales force will commit to holding their annual Dream Force convention and in person in San Francisco at the end of September and in the annual UN General Assembly.
Conference in New York is currently expected to be held in person in mid September.
We have been seeing tremendous incremental lead volume for group business across our portfolio with meeting planners expressing participants desire to meet and connect.
As large gathering restrictions ease we expect these leads to convert to actual bookings in 2022 and <unk> and beyond.
Looking further out.
Bookings for 2022 of increased each of the past two quarters growing by over 110000 room nights or 13%.
Since September 30 of 2020 with acceleration following the approval of COVID-19 vaccines for emergency use in November 2020.
Before I hand, the call over to Sean I want to reiterate in the reiterate my excitement and optimism from parks outlook in the coming quarters we.
We believe our portfolio is incredibly well positioned to reap the benefits of strong leisure demand in the short term with markets like Hawaii, and Florida, leading the way supplemented by healthy group demand over the next few years as conferences and meetings resume and people eagerly reconnect with colleagues and peers.
With over $1 $3 billion of liquidity available and less than 2% of debt maturing through 2022, we are well positioned to execute on of our strategic priorities and capitalize on the exciting pace of recovery and growth.
And with that.
I'd like to turn the call over to Sean who will provide some more color on our results and an update on our balance sheet and liquidity.
Thanks, Tom overall, we were pleased with the first quarter performance with Revpar, increasing 49% over Q4 2020, driven by of 600 basis point sequential improvement in occupancy.
The average daily rate near the $155, 415% quarter over quarter increase.
As for the bottom line operating losses tampered with negative adjusted EBITDA of $49 million exceeding our internal estimates of solid performance across several of our resort properties and enhanced operating efficiencies across the portfolio helped the support results.
For example, at our cost the Marina resort in key West both Revpar and EBITDA exceeded prior peak up five 1% of nearly 16% respectively versus 2019 levels of margins came in at roughly 51% for the quarter were nearly 600 basis points higher than Q1 2019.
Looking ahead to the second quarter, we expect operating losses to narrow further as the occupancy for our consolidated hotels is expected to increase another eight to 10 percentage points sequentially to the upper 30% range, while hotel occupancy for opening of consolidate hotels is forecast to exceed 40% for the quarter.
Leisure demand is expected to continue to drive results across both the drive to and fly to markets in Hawaii, Florida, Puerto Rico, and Southern California.
Turning to the balance sheet as of quarter end, our liquidity stood at $1 $3 billion, including $474 million available on our revolver, while our net debt totaled $4 $5 billion.
Our monthly burn rate continues to shrink.
The one from averaging $42 million during the fourth quarter to $38 million in the first quarter with March coming in at just $26 million.
As we noted last quarter, we anticipate achieving breakeven over the second half of the year and given the positive momentum we witnessed the March and April along with the improving macro trends Tom discussed earlier, we see a path to reach breakeven during the third quarter of 2021 with our portfolio of expected to generate positive adjusted.
Post positive hotel adjusted EBITDA during the second quarter.
From a balance sheet management perspective, our focus remains on reducing leverage.
Net sales and organic growth, while further enhancing the balance sheet by extending maturities and reducing our reliance on bank debt to provide maximum financial flexibility as the industry begins to recover.
The public debt markets remain open and constructive and we will evaluate the potential for additional capital raises to further enhance the overall quality of our balance sheet has needed.
Finally, I would like to highlight some of our recent ESG efforts and accomplishments in January we published our third annual corporate responsibility report reinforcing our ESG commitment to our stakeholders. We also recently announced that four of parks hotels earned the prestigious energy Star certification in 2020 for superior.
Your energy performance, we are extremely proud of our four hotels, that's only 26 hotels in the U S earned the certification last year.
On the social side, our diversity and inclusion of steering Committee.
Which we created almost a year ago continues to drive our company culture of by emphasizing the central role of diversity equity and inclusion has played in park since our formation.
By establishing a formal committee, we're helping to demonstrate our commitment to diversity and inclusion to both our internal and external stakeholders and we look forward to sharing additional information on this topic with you.
We hope that by these efforts, we can help move the industry forward and make it a more diverse and accepting place.
We're also humbled to once again be recognized by Newsweek as one of America's most responsible companies in 2021.
Marking the second consecutive year Park has been recognized for ESG initiatives.
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.
Sure and again at this time of will be conducting a question and answer session and if you'd like to ask the question. Please press star one on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may price starting to if you like to remove your question from the queue and from participants using speaker equipment. It may be necessary the pickup your handset before pressing the star keys.
One moment. Please allow me poll for question.
Our first question from David Katz with Jefferies. Please proceed with your question.
Hi, good morning, everyone. Thanks for all of the detail.
Good morning, David.
Morning.
Look I wanted to just talk about the and you know get the sort of negative out of the way first right. There there's still a handful of hotels and they were among the larger ones that are closed.
When you know when they do come back.
They necessarily have to ramp more slowly than smaller hotels and I ask it in the context that you know things have just continued to progress positively seemingly on a weekly basis of late.
Yeah, you know it's a it's a fair question, David Let me try to put it in perspective for you and let's let's use of Hawaii as an example.
We.
We opened one tower than the second tower now of three.
But if you just look at the performance in and how quickly things are snapping back and you know.
Hilton Hawaiian village, we were about 13% of occupancy in January.
Moved out to 34% in March.
We're expecting to be close to 60 in the second quarter and again, as we said probably high seventies, and the third quarter and continuing that into the fourth quarter.
We could not have predicted that I mean, this is a fly to market you've got testing requirements that are still in place, but again, the pent up demand the revenge spending that we're seeing it's really snapping back Christian it's certainly quicker than we could have anticipated.
So, let's then fast forward and look at San Francisco.
We did not expect candidly to reopen the Hilton San Francisco till probably later in the year and what we're finding much to our surprise here as we sort of look out is that.
We're gonna open before memorial weekend.
The state of California, obviously, you're set to open the everything around June 15th as of May six they've started to relax reopening for bars and meetings and receptions.
And we look at our of our group pace and then we also look.
What's happening.
Whether it's going to be both on the leisure front, maybe it's small groups, maybe it's on the business transient side.
We're seeing our hotels there if you take the debt would be Marriott in the Fisherman's wharf, our Hyatt there again began the year and 16%.
We're already ramping up to Q1 in the mid Twenty's and we expect to be in.
In the high thirties, and and one probably in the low 50 so.
You know all of our asset management team under Sean's leadership in and the extraordinary men and women that we have there have just worked so incredibly hard to think about where we were a year ago. When we had a burn rate across the portfolio and admittedly we have a lot more big boxes and a lot more exposure.
Our burn rate in that $85 million to $90 million range, and we've gotten it down to $26 million and its just relentless work of re imagining the business thinking about things differently working with our operators and taking permanent cost out of the business. So we are we are.
Every day, we are more encouraged as we sort of look out and so we're certainly more confident today as we think about reopening San Francisco and the same things apply in the Chicago.
We're seeing the same sort of buzz and excitement and people of people want to reclaim and recapture their lives not only from of leisure standpoint, but to reconnect with their colleagues from our from the business standpoint. So we're seeing some of the same green shoots in Chicago as well that are also encouraging.
Admittedly I'd say, New York is the most complex and so that's one that we will continue to study and monitor carefully and determined the right opening day, but even in New York, they're trying to reopen.
Much faster than we originally thought so.
The questions of very fair question, but I would tell you look at look at the performance look at what we've done look how we've handled candidly of situation probably more difficult than the most of our peers, just given our footprint and our distribution, but the other side is this is a very seasoned team of men and women, we knew what to do.
We knew how to do it and we reacted accordingly.
I would agree and if I can just follow up quickly on sort of the above property expense interactions because I think you touched on that of bitten your answer but you know progress that you've made with your operators of the brands on and how much of that is permanent.
Yeah.
Yeah. It's it's another great question, and obviously being in someone that's been in the business a long long time, and I know they're going to be.
Skeptics out there that look and say we've been to the movie before we take cost out in a recessionary environment.
And then as soon as things come back we have the arms race the brand start adding all of the entities and then the cost creep starts here's the difference and for the listeners remember I worked of for multiple bearing odd companies that I worked for Hilton twice I was.
Before launching my first company and of course taken this assignment, which by the way. This is the <unk>.
Fifth week, our fifth year anniversary that I rejoined Hilton to spin out park and other.
Enjoyed every bit of this extraordinary team we've put together obviously the last year has certainly been testing for for all of us, but the difference is Hilton and Marriott given how.
How paternalistic given how careful they are with their workforces, but to think about how they have retooled and taken out 2030, 40% of their cost of the corporate level I have never seen that before over a long career. So I use that as sort of evidenced number one and the number two we've.
I'll have to think about the business differently, we'd never could have imagined that we could have gotten to breakeven.
March at 32% of occupancy across this entire portfolio given the carrying costs, we're still carrying Chicago, New York San Francisco that are close so it's just phenomenal work by this team by really digging in and looking at every line item. How we can take cost out of the business the challenge for all of.
US is as we pivot and move forward that we make it permanent that we think about the business and then we respond to the changing customer preferences that are out there. So we're we're confident we're going to have to continue to be disciplined about it and really push and partner with our operators, but I hear different tone in a different level of communicate.
<unk> coming from those brands and our operating partners as well, saying, we've got to think about the business differently. We've got to make these 300 basis points of margin benefit the 85 million that we've taken out of we've got to make the permanent so that we can have a more viable.
And candidly more attractive to investors as.
As we move forward.
I appreciate it thank you very much.
Thank you for the questions.
And our next question is from some of those Roes with Citi. Please proceed with your question.
Hi, Thanks.
It's made the comment I just wanted hi, I just wanted to follow up a little bit on that with the larger hotels, but I think kind of a set of allergic component of it sounds like your group needs are accelerating in the sound very positive but just.
In general what you're hearing.
Any sort of feedback of hesitancy from on the group side or even the corporate transient side.
Companies are looking to reduce their overall travel budgets, having enjoyed a year without having to spend any money from that front of kind of any updated thoughts you have on this idea that business travel will be kind of permanently impaired.
Yeah Smedes, it's a it's a great question and let me let me parse it a couple of ways I'd be honest. The answer is I don't think we're going to really know.
Until we have.
Citi has completely opened we have schools opened we have offices open and people are back to figure out what that new rhythm is gonna be.
There's no doubt that the business transient of <unk>.
One can assume that it's going to be impacted on the margin is that permanent impairment 10, 15, 20, 30% I certainly am not in that camp, but will people be more selective about some of the trips that they make I think the answer is yes, but I also think that if we're going to allow people to work remotely.
And work in different locations than in some respects that whatever we may have lost you could make a case of some of that gets picked up as they will travel more coming back to the corporate headquarters coming back for training activities and if anything I think on the group side I think the need for companies to bring their people together.
And of safe environment for training for team.
The team building of.
For continuing to recognize.
You're never going to do away with that need to be together.
So we'll have to wait and see what that impact is on the business transient I I don't think it's going to be of significant as some of some say I think the sales and marketing people and the people, who say well I don't I can just zoom in as they make the presentation I don't need to be there I think that's going to work for them until they lose that piece of business in their competitor.
Has all of their men and women on site.
And there.
They're they're making the pitch and they've shown that effort to be together I Sip like many of you on many organizations and boards in the industries and.
We're all doing.
Zoom in these different.
Applications, because we really have two but they're painful.
They don't have the same intensity of the same engagement youre not seeing the same collaboration and communication.
We're not seeing it here in our office and we've got a small smart Swat team that's still been here since the pandemic and we've got a lot of people that are working remotely. They are working hard we're getting the work done, but we all miss that the time together and so I'm I'm confident that you'll see like we're seeing on the leisure and like we're seeing in some of the markets that we.
We thought it would be slower to ramp there, we're seeing green shoots out there that the people want to be back in the office they want to be back on the road and they won't be back connecting.
Yeah.
Okay, Alright, I appreciate it thanks.
Thank you.
Our next question is from rich Hightower with Evercore. Please proceed with your question.
I can never anybody.
Good morning.
Hum.
I wanted to go back to the.
The 85 million dollar of annualized.
Expense target, the 300 basis points of margin improvement remind us.
If we go back maybe six months ago or.
You know sometime last year, how has that target are those targets out of there.
Evolved over that period of time, and then how does the current sort of labor bottleneck constraints.
How does that factor into that target as well.
Yeah, Let me start rich and then the.
My partner of Shawn jump in here, because it's a lot of the great work by by Sean and the men and women on our asset management team and then our S. P N a team as well.
The originally was 70 billion in cost non union.
About 1100 employees of about 375 of those management and then about 600.
Proximate the hourly and then really about 100 jobs, plus or minus debt, we werent werent, replacing.
And what happens just over time as you.
You get a little chunky.
You get a little complacent.
Of layers.
And we've really worked with our operating partners to sort of take cost out think about what you really need to operate the business.
Sean and team went back and recently and have now found another $15 million.
And we're confident as I said, we've it's gonna be a requirement that's going to be on us to continue the work and push of.
As I mentioned earlier, just think about how the brands had to respond as they had to retool they were affected as well other models don't work, so well when their franchisees and owners have no revenue they pay no fees. So while the capital light businesses of better business model. Some would say it's not a perfect.
This model if your constituents have no revenue. So that also was a wake up call for them to also think about we permanently take cost out of the business. So let me pause there and the showing some add some additional color.
Yeah, I think when we started out with it it was really just kind of baseline each of these properties and the staffing levels and a lot of these are you know managerial type levels of assistant managers, you know, whether it's front desk or F&B and and just trying to of you know obviously you take this opportunity to zero-base, it and ultimately push and so we ultimate care of attack that $70 million.
Since then have you looked at as we've looked at how the F&B operations are being thought through and living with the the skeleton kind of environment that we're in the labor environment that we're in here you recognize that there's some redundancies still of that we could ultimately.
Ill take one manager on the F&B operation that was.
The situation, we had in F&B manager over each restaurant now you combine that multiple restaurants under one manager and things like that some vacant positions that you knew in the end you you'd thought event.
Then about not need to fill so.
It was just another kind of crack at it again with some of the experience in some of the things we garnered over the next over the last nine months or so so it's just continuing the evolution of rethinking the model, there and finding those and working with our partners here to kind of be creative. So we do think the ease or these are permanent and I'd say another $5 million of lean complex.
Inc.
Where you know the sales team of and in an area, we've looked at a little differently.
Wet or one example is we had our.
Joe manager of hold the line village you, it's outstanding and we had our general manager at the White claw resorts take up of different position and we used the opportunity to kind of game will have her assumed the role of of kind of a lead manager managing direct of over two hotels and save about $400000 by not replacing in general of amateur position at the white flow resorts.
Ultimately using hotel managers that are certainly.
Certainly qualified to work under this main regional director or managing director.
For the for Hawaii, So again, just kind of rethinking things somewhat opportunistic, but we think that's kind of the right model for us to go forward.
Alright, and then rich the that's helpful.
What's the second part of your question, where you asked about some of the labor challenges look there. There are people who are unable to go back to work.
Whether they have school aged children at home the schools have an open.
And that's certainly part of it is we look at some of the gaps today, but the other part is in.
That's the elephant in the room is that there are very generous unemployment benefits.
You hear numbers to the tune of 20 to $23 an hour and full benefits. So there are some that debt.
Has that the bridge if you will out of and it's very accommodating bridge through September. So again, we would fully expect as Vivek vaccinations continue to accelerate people out of more and more confident as we get to the fall you expect people back in their offices for some significant period of time plus the kids in schools.
And then I think we're going to get a much better sense of really where the labor picture is.
We fully expect in our case given the fact that we do of Union properties of the recall rights, we fully expect that.
Any of those men and women of are going to.
The be excited to come back and we're gonna welcoming back as we expect that the demand will continue to accelerate and grow.
Great I appreciate all of the detailed there and maybe just a quick follow up on Hawaii.
We look at we look at the fact that key West for instance is essentially at least for the first quarter back two of 2019 run rate and given some of the comments you mentioned earlier just on the ramp up in Hawaii.
Non.
Knowledge that there are some differences in terms of inbound demand and all of that sort of stuff, but you know what do you think the past the prior peak might be timing wise for for Hawaii.
You know, it's a it's a great question rich.
If you look at Hilton <unk> village in I was spending some time on this.
Yesterday, because it was so astonishing and I think really of a great example.
No. We were January about 24% of occupancy finished the first quarter of 41%. We expect the second third and fourth quarter as I said during the prepared remarks to be well into.
The 80% if not above for the balance of the year now remember we've shrunk half of the hotel made it of 600 room property as part of the deal of the spin with the.
The Hilton Grand vacations.
And so if you if you think about rates. So our average rate in that second quarter will be about 7% higher.
Then 2019 the.
Third quarter will be slightly below but we had a couple of big buyouts in 19.
Insurance buyout. So it was a little skewed but in the fourth quarter of this year, we expect till the line doesn't like Aloha.
ADR to be 15% higher in that fourth quarter.
So it's not inconceivable that were back next year.
And part of the earlier question, just trying to show that as a far greater.
Greater snapback than any of us could of projected I think the thing that people with all due respect of missing is that this is a global health crisis, it's not a typical normal cycle.
And we're solving the crisis demand is going to snap back faster and we're seeing evidence of that I also think that people thought there was going to be all of this distress.
There's not we're going to see some there'll be in the pockets there'll be conversions and there'll be people that are under capitalized.
We will have a tough time, but it's not going to be this.
SNL crisis that that some of us of 30 years ago I, just don't think that's the scenario.
And there is a need and the desire to be connected people want to get out of the bunker and I think we're going to see it across all of the demand segmentation, yes business transient will lag, but it will lag until people are back in the office and the people.
People want to get on the road I've been traveling I've been fully vaccinated for several months.
And I have been traveling and eagerly and excited too and then I think you'll see more and more people that have the desire.
Okay. Thanks, Tom.
Thank you.
Yeah.
Our next question is from Neil Malkin with capital One Securities. Please proceed with your question.
Hey, everyone. Good morning.
Good morning, Neil.
Hey, I the.
First question just kind of on.
The I guess staffing and in margins.
Yeah can you give a sense for what the.
EBITDA or margin benefit was from.
The difficulty in finding.
Labor.
And just kind of thinking about what fixed cost kind of look like.
You know as as those people come back from there.
As you called it very generous.
Unemployment benefits and as your additionally, as your kind of core business traveler comes back and expect of certain things of what what kind of the snapback in in costs are.
The fixed cost should we.
The X factor of how should we kind of think about that.
Okay.
Hum.
Let me try to unpack it there's a lot of embedded in there are a few things. If you think about some of our union operations were.
We're providing.
Wages and benefits really above any of those thresholds.
So really not a matter of factor there.
We also as you think about the business.
The customer preferences are also changing.
They want a digital key or the equivalent for the front desk to be able to bypass the.
Won't that privacy in the rooms and <unk>.
Not all are going to once day over cleaning and so we've got to find that right balance. So there are in the food and beverage offerings. As you think about room service that it will be probably in most situations obviously not in some of luxury hotels, but it'll be a limited and it will be sort of I'm not going to drop again people arent going to one people in their room.
So there's a real opportunity to continue to re imagine the business.
How and forget about how we did it historically, but really those changing preferences. So as we've said we're confident.
And the $85 million, we have to continue to work hard to deliver that and to partner with our operating partners, but we don't see any retreat of that and we really don't see any other way and I think as I said earlier I think the brands they understand that it doesn't mean, there won't be some amenity creep in.
The the perpetual the arms race, but I really think there'll be less of that coming out of this crisis, but what we've.
<unk> seen in past cycles.
Sure I think I was kind of looking at it from.
Do you expect to see just like you know even incorporating your savings of a stepwise increase.
In let's say the third quarter.
When you start to see.
People come back and just trying to think about how I think everyone's been impressed with how expenses have been.
And just relative to the sort of sequential increase in demand and revenues but.
Yeah, I think that you know is it fair to say that there's sort of a lagged effect, there and you'd expect to see a.
Pretty substantial bump in fixed costs as we get to that part of the year that that's kind of more of what I was looking at it or.
Yes.
You could you could have on some margins, but on the other side of that you would.
Insurance costs, we thought there would be a huge spike we think those could be flat to slightly negative we will see how that ultimately prices.
Property taxes in many environments, where there has been some sort of impairment.
At least in the short run we Havent got an income approach and operators and owners, having net income so there could be some relief there youre right there could be some inducements that are necessary in some markets depending on some of the labor challenges.
We will look at that on a case by case I don't have any data to share today, we're not seeing debt.
And then in an argue many cases, we're seeing a lot of people eager to get back in summer waiting obviously, there is a little bit of the health concern, but some of that is the the inability to deal with some of the childcare issues. So it all fits together and I think we'll have the well I'll have to take a wait and see and see how that.
How that unfolds, but we're confident.
Insulated to and we've got enough to absorb given the the $85 million that were confident were taken out of the business.
Great and my other question is.
You guys are seeing good progress in 2022.
Maybe as you sit here today could you give us a sense of what you think.
The.
The sort of run rate relative to 2019 will be for the large association citywide group.
Performance in a let's just call it the first half of 2022.
Yes, you know compared to 19, what would you would you kind of think as you sit here today and you kind of see what that.
Booking trends look like and Rebooking from cancellations looked like.
Yeah, I mean, the Rebooking trends I think we set of about $500 million that of the canceled through Q1 in total for this pandemic. We continue to re book about roughly about 25% of 26% of that.
And I think we've still got some in the pipeline. We're looking to place here. So we will consider the have layer that on in a lot of that is getting rebooked into 'twenty, one 'twenty, two and 'twenty three from.
From the overall citywide perspective, I would say you know as we look at our markets for sure we have some some pretty strong.
The strong pacing if you want to call it that for room nights in certain cities, you know Hawaii being one of them is exceptional well of a 200% relative.
Relative to the can you kind of I would say prior of pandemic levels the wall.
In Chicago also pretty strong and over kind of over indexed over 100% indexed against that prevent down at the levels I'd say on par.
Would be kind of of D C San Diego, Seattle, Boston, and Denver, as we look at those kind of correct right and of of Cine vicinity, and then you've got a couple of markets that are lagging somewhat and I think that's probably more function of they've been youre doing better and picking up things earlier than later and somebody like Orlando Miami, So and I think Miami is a little bit of.
Unit case, given it I think had the Super Bowl. So I think overall 22 from the citywide looks to be pretty strong on top of the fact that you know, we're pacing pretty well there and.
And feel really good about what we've seen in pick up here on the last pretty much since the the vaccines where or announced in November we talked about in our release, we've seen of about 110000 rooms picked up.
And I think we are ultimately in April pacing.
And 80% of 2019 levels and that's up from 50%. So I think it's all trending in the right direction and I think as as some of these other markets like New York and Chicago Open up and of the already announced that you'll start to see a lot more conversion activity I believe as yet we've seen plenty of lead volume for these markets. The people had havent been able to pull the trigger because you just.
Looking at capacity restrictions self so I think there's always kind of open up as we've seen in other cases, especially in places like Orlando as they've opened up we've seen a lot more activity come through on the group side.
Yeah.
Thank you.
Thank you.
Our next question is from Anthony Powell with Barclays. Please proceed with your question.
Hi, Good morning, the question on New York, So I'm I'm sitting in my office and I am looking outside and I see tourist on the double Decker buses.
The restaurants reopening of museums reopening it could be a pretty decent leisure travel season in New York of the summer. So why not open the the hotel there now I suppose of waiting till the fall, where they may or may not be corporate travel coming back.
Well Anthony Great to hear from you and I hope you're doing well and thanks for the question the New York situation is.
He is certainly the most complicated.
We are hearing and seeing some evidence now it looks like the mayor of the governor of our aligned.
With the city reopening.
Subway is going to reopen I think thats the start keep in mind that based on the work that we've done 16% of the office workers in the New York region.
Turning to the office of kind of the last week of April. So that's also a pretty good.
Pretty good sign.
In General Assembly, we understand will have their conference in the.
In September of Broadway is going to open probably in September as well and keep in mind, New York was probably the most broken given the epicenter of COVID-19 and what happened.
Got 30% to 40% of the think of the city's inventory of hotels I guess remain closed you know our belief is some portion of those will not.
Open or will be converted.
Some proposed legislation.
To restrict future hotel development in the needing a sort of a special permit. So we are studying the market and the situation carefully.
Like we've done with the others.
When we open we don't want to shut down again and.
And so we want to make sure it candidly that it's viable and that we will lose less money and then quickly begin to ramp up to make money and not lose more money by reopening and just given the complexity of that operation as the.
The one of two largest hotels and given the staffing requirements. There, we just want to make sure that it makes economic sense.
We've I think demonstrated time and time again, given the complexity of our portfolio and our distribution and given where we were last year at $85 million a month in the.
The great work the the team has done to get it down into the the mid twenties.
In New York is candidly the highest part of that burn. So it's one that we want to continue to study and I would not bet against New York Long term, we're big believers that grade city will come back, but it's certainly a tough environment right now that we want us to the a little.
Alright, and I guess moving to yeah, Puerto Rico, you mentioned in the few times in the prepared remarks. It seems like that market has gained some mind share among travelers during the pandemic.
Have you seen that in your numbers and has that changed your view of the potential of the asset and how it fits into your portfolio of long term.
Yes, I think of the prepared remarks, we said north of 70% and I think it's the comment that we made if you think about international travel right inbound to the U S. Historically about $79 million in 2019 outbound from the U S about 100 million in the <unk>.
Reality is given the options, we think fewer Americans are going to be traveling abroad, and they are going to be focused more domestic more Caribbean four to the Hawaii <unk> of the world and.
And we think that bodes really well for the park portfolio.
And so given the fact that you suffered through obviously the hurricane Maria couple of years ago, it's been of $200 million complete redo the <unk>.
Fabulous asset in Puerto Rico, when you've got plenty of the air lift.
And it's and obviously.
Obviously, given the tie with the U S.
Easy trip and economic trip to make so we are encouraged and we will continue to watch that.
And enjoy that benefit and we've always believed that the.
Is that asset.
Is one that's a core holding in.
And one that we think has potential certainly from a leisure standpoint.
Alright, thank you.
Thank you.
And our next question is from Robin Farley with UBS. Please proceed with your question.
Great.
Hi, good morning, how are you.
Most of my questions have been asked I just wanted to follow up with a quick one on group you're.
You're getting a lot of stuff is there sort of an overall 2022 room nights on the books.
In terms of group compared to 19 of this at the same time that year.
And the right now we have about 900.
6000 room nights on the books.
That compares against.
<unk>.
Around the kind of the same if you compare kind of the same pace or kind of what was on the books at this time in 2019 from prior year. It's about 83%. If you look at kind of what it is relative to just what ends up on the books for the year against what looks like what the 2019 finished up it's probably about 40%.
Okay, great. Thanks.
Yep.
And our next question is from Chris where Ranke with Deutsche Bank. Please proceed with your question.
Hey, good morning, guys and thanks for all of the morning morning, Thanks for all of the good.
Good morning, guys and thanks for all of the detail again.
Tom You you did mention the the word offense in your prepared remarks, but I was hoping maybe we could spend a minute on that and kind of my question.
There is.
You know obviously you have some terrific properties in the in these big markets that were significantly impacted by COVID-19, but but some of them had some kind of structural issues right, whether supply or labor or other expenses before COVID-19. So.
When you do go back on offense I mean are you willing to go deeper in some of the same markets or do we see you go into smaller markets and the more broad based folks on resorts.
We did see you sell New Orleans, French quarter, which is small hotels. So it sounds like the carrying costs youre not necessarily going to look at small hotels. So just a few words maybe on the.
And where do you go from here. Thanks.
Thank you Chris for the question look we've.
We've got clear priorities for 2021.
Reopening our hotels profitably and as quickly as we can continue to reduce obviously, our cash burn, which youre seeing evidence there continuing to re imagine the operating model, we're making great progress there.
Selling non core assets.
The W. They're in.
Uh huh.
As the first of others that you will see.
See and read and hear about and as I said in the prepared remarks, we're active and we're confident we're going to be able to sell $3 million to $400 million of assets.
We're going to work hard to continue to strengthen the balance sheet by pushing out maturities, obviously terribly important from there and.
And really begin to pivot to offense Bonnet Creek is.
Just a fabulous resort.
We've got the side of the 500.
The rooms, there obviously, the 1000 room Hilton coupled with the.
The Waldorf, we're going to expand the meeting footprint, we're going to upgrade the Hilton to of Cigna with 200 acres there with the championship golf course, so we see that as a really important offensive move and we have so many embedded ROI opportunities within our portfolio that we're going to continue to evaluate them.
And the inactivate and then we will continue to look for single assets portfolios as well and look its not lost on US as you think about what's happening and we'll follow the demand generators will follow the population changes. So you would have to get to your direct question you would certainly expect us.
To be looking at the Phoenix is of the world in parts of Texas that continue to grow Austin stands out Nashville, clearly central and South Florida continue the boom and we don't see that changing.
The Red line. The other markets, we certainly believe that the great cities of New York, and Chicago, and San Francisco, while certainly the tougher operating model.
We will continue to evaluate on a case by case not inconceivable for us to lighten our load a little in San Francisco, just given our exposure there, but theyre also huge barriers to entry there and theres still the epicenter of of capital and venture capital. We don't see that changing so there are markets. There that we'll continue to really watch and monitor the <unk>.
<unk> patterns carefully.
Okay very helpful. I appreciate all your Oh your thoughts from.
Thank you.
And as a quick reminder, if you have any questions you May press star one on your telephone keypad.
And our next question is from the Lucas Heart, which with Green Street. Please proceed with your question.
Thanks, Good morning.
Hey, Lucas.
Hey, Tom So yes, that's the debate around how the hotel industry might see of demand shifts do you know what's happened over the past year.
I was just hoping for park's portfolio can you provide maybe a sense of how ADR compares across the various segments of business transient leisure and group.
Compares right now the 2019 or kind of just how they compare with to each other in kind of a normal setup.
Yeah, Yeah, how they compare to each other so maybe looking back in 2019.
Moving on an index basis out of the component each other.
Yeah. The hill overall that would be clearly kind of the business transient would be.
Would be kind of the.
At the highest and now I'd, probably say Oh, you. Finally came back 250 bought the business transient group on average about <unk>.
Call It $2 25, and leisure about 200, so kind of you were kind of acres net 225 to 15 between leisure group and business transient respectively.
Great and then my other question is just it's interesting that Revpar performance is similar across the several hotels in markets.
With some doing better on rate others on occupancy I was just hoping you could talk through how operators think about you know the dynamics, whether it's the focus on holding rates are focused on gaining occupancy what are the levers that theyre looking at.
The.
I think fundamentally its understanding and in and going getting demand that's there.
We're still in a very I think.
China kind of unpack the question there about it revpar looking similar or whatnot, but in the end you have you're going to have certain elements of.
The of contract business being.
<unk> taken where ultimately being a bigger part of the mix, which is going to obviously impact how how you report we got things like of New Orleans asset, which is as we we told the multiple calls here. We've talked about are the Xavier students, we have which we will ultimately get through the spring semester, but that was certainly a EBIT positive.
The transaction for us, but you know really just brought in a bunch of occupancy at the low rate and so a lot of as hotels are ultimately had been working to just drive the demand of that that's a day or an available to them and that debt.
We're certainly not in any normal environment. So.
It is case by case I think obviously the most normal looking.
Places out there are going to be places like key west, which have been truly leisure oriented and ultimately pushing the rate and have enough pricing power there, but on the other you know a lot of many other markets. It's ultimately just finding discounted leisure.
Small group business, Tom talked about Smurf coming through.
And just finding the demand where you can find it.
Awesome I appreciate it thank you.
And we have reached the end of our question and answer session of and I'll now turn the call over to Tom Baltimore for closing remarks.
Thank you operator.
We really appreciate all of you taking time today, we look forward to talking with you.
In the coming weeks and we look forward to seeing you in person we hope sometime this summer and early fall.
I hope all of the stay safe and well.
Yes.
This concludes today's conference and you may disconnect. Your line of at this time.
Thank you for your participation.
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