Q3 2021 Park Hotels & Resorts Inc Earnings Call

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Greetings and welcome to Park hotels, <unk> Resorts, Inc. Third 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 as a reminder, this.

Conference is being recorded I would now like to turn this conference over to your host Mr. Ian Weissman Senior Vice President corporate strategy. Thank you. Sir you may begin your presentation.

Thank you operator, and welcome everyone to the park hotels <unk> resorts third quarter 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 will discuss certain non-GAAP financial information such as adjusted EBITDA and adjusted So 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.

In the supplemental financial information available on our website at PK hotels and resorts Dot com.

This morning, Tom Baltimore, our chairman and Chief Executive Officer will provide an overview of the industry as well as a review of park's third quarter performance and thoughts on demand trends, Sean Dellorto, Our Chief Financial Officer will provide additional color on third quarter results 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 am pleased to report another quarter of strong improvement to operating fundamentals.

We are pleased to report that we've achieved corporate level breakeven.

The first quarter since the start of the pandemic.

Based on the strength, we witnessed at our resort properties.

The leisure traveler had significant pent up demand as evidenced by incredibly strong rates and out of room spend.

Additionally, we are seeing promising signs of sequential growth in business transient and group demand in pockets across our portfolio.

And while still early we believe this is a positive indicator that we are on the path toward recovery.

On the macro front, there continues to be encouraging indicators of growth and momentum, including a nearly 8% annual increase in nonresidential fixed investment.

<unk> for 2021 and.

In an ongoing momentum on vaccine distribution, which should contribute to increase mobility and confidence.

Additionally, the unemployment rates improved to four 8% at September <unk>.

100 basis points improvement from the start of the third quarter.

While the U S personal savings stand at an impressive one three trillion dollars as of September highlighting the ongoing strength of the U S consumer.

Which we expect to continue fueling the strong recovery in overall demand.

Against this backdrop.

I'd like to remind listeners of park's unique and compelling value proposition and how the execution of our strategic priorities is positioning us well for the recovery first we are seamlessly executed on our noncore disposition program, which has greatly enhanced the overall quality of our portfolio.

Oh and position the company for attractive long term earnings growth.

In total we have sold or disposed of 31 hotels accounting for over $1 $7 billion of total proceeds since spinning out of Hilton five years ago, including <unk>.

All 14 of our international assets.

Second our portfolio combined with the right mix of demand drivers, which we believe should help drive outsized earnings growth over the next few years as business travel accelerates.

We believe that there will be a return to traveling for work.

And a return to meeting in person.

It's human nature to want to meet and connect and I firmly expect both business transient and group demand to return to pre COVID-19 levels.

While it is possible that the mix of demand will shift over time to accommodate more flexible work schedules I want to emphasize that we do not believe there are secular headwinds and larger.

And the earnings power of our company remains as strong as ever.

Third.

Our iconic portfolio of core hotels contains the untapped embedded ROI opportunities.

Including expansions.

And conversions and potential alternative uses that we believe will create meaningful value for shareholders and we plan to capitalize on these opportunities over the next several years.

These efforts began with the successful conversions of our Hilton Santa Barbara and our reach resort in key West and continue today with our Cigna Hilton conversion and expansion of our meeting space platform at our Bonnet Creek complex in Orlando will continue further as we accelerated planning to.

Reposition and expand a number of our core hotels.

And finally, we have continued to improve our balance sheet through opportunistic asset sales and debt repayments, surpassing our capital recycling targets and providing us with liquidity and optionality for the future.

With over $1 $8 billion of liquidity, including the entire $1 $1 billion available on our revolver, we are well positioned to capitalize on accretive opportunities as they arise.

Turning to our third quarter.

Our results came in well ahead of our expectations driven by ongoing strength across our leisure properties, coupled with better than expected expense savings.

Consolidated pro forma revpar of $105 was above expectations and 38 of our 45 open consolidated hotels generated positive EBITDA for the quarter.

Particular leisure strength in Hawaii, Southern California, and South Florida helped the portfolio generated an average leisure transient ADR that was three 4% ahead of the third quarter of 2019, while leisure led the quarter, we did see a sequential increase in both group and business.

Transient revenues group.

Group revenues increased nearly 130% from the second quarter.

Growing from 8% of mix to 13% of mix of business transient demand increased nearly 100% to account for nearly 20% of mix for the third quarter.

Looking more closely at group demand.

Witness pockets of group's strength during the third quarter in markets like New Orleans, Chicago, Orlando and Honolulu.

Although fourth quarter performance is expected to moderate somewhat as the uncertainty surrounding the delta variant cost nearly $8 million in cancellations.

Many of these groups have rescheduled for later in 2022, and we currently expect to see meaningful pickup in group demand in the second half of 2022.

We are currently trending around 65% to 70% of the group pace for 2019 at the same time in 2018.

With rates exceeding 2019 levels.

Our top group hotels for 2022 include the Hilton Chicago and.

And our four assets in key West and Miami, where 2022 group bookings are exceeding 2019 levels.

On the business transient side, we have seen a consistent increase in midweek demand among our hotels that cater to business transient demand with midweek occupancy at these hotels, increasing roughly 200 basis points since the start of the third quarter through October.

Theres been a noticeable improvement in midweek demand in October, which aligns with the increased confidence we have been seeing among travelers following a late summer Delta search.

We expect this trend to continue in the fourth quarter and pickup in the new year as more corporations returned to the office and.

In terms of hotel reopening.

We are pleased to report that our third largest hotel the <unk> hundred 78, Rome, New York Hilton Midtown reopened on October 4th and has already surpassed our performance expectations.

Ran 44% occupancy the first Saturday after reopening.

And as already hosted a 1300 person event.

Highlighting the pent up demand in the market as well as the recovery of the New York market as a whole.

<unk> ended the month of October roughly $1 million ahead of revenue forecast and we expect.

The remainder of the fourth quarter to continue to post strong results with hotel projected to sell out over the upcoming New York City Marathon weekend in just a few days.

Transient rates are trending at roughly 95% of 2019 levels and group rates have also remained in line with domestic transient travel already surpassing 2019 levels in the market.

Along with the reopening of international borders for travelers, who have historically averaged over 60 million annual visitors to the city, we are expecting healthy transient demand in the fourth quarter.

Overall, our portfolio now has 96% of its total rooms opened with operations at just two hotels currently suspended.

Diving into other core markets.

Our two Hawaii resorts continue to capitalize on strong summer leisure demand trends.

With third quarter occupancy, averaging over 75% an impressive revpar indexes of 124%.

For the Hilton Hawaiian village and 113 <unk> village.

Don Hawaiian village recorded 91% occupancy for the month of July across 2800 60 rooms.

With an average rate of $303.

Well ahead of expectations.

On the Big Island Hilton <unk> village achieved its highest quarterly average rate ever.

With an ADR of $320, which was nearly 25% above the third quarter of 2019.

While our hotels benefited from strong demand and increased airlift demand was temporarily disrupted by the governors August 23rd please for travelers not to visit the state.

A rise in Covid cases.

Following this announcement our property saw a material drop in demand with widespread cancellations in both transient and group business for the third and fourth quarters.

Under our hotel teams exceptional leadership.

Our hotels quickly pivoted and enacted contingency plans to modify staffing and operational outlets.

Leading to impressive EBITDA margins for the quarter of 39, 4%.

Looking forward, we are pleased that the governor recently announced that Hawaii would once again welcome vaccinated travelers starting November the first.

Although we note that the typical lead time for bookings to Hawaii averages several weeks.

We are expecting some upside throughout the holiday season at this point and we are turning our focus predominantly to 2022, when we expect to see increasing levels of international visitation by mid year.

We're particularly encouraged by the pace of vaccinations in Japan, which has accelerated dramatically over the.

The past few months, Japan, typically accounts for approximately 20% of all visitors to our two Hawaiian resorts.

South Florida continues its incredible run.

Some softness in September attributable to both the Delta variant pause and normal seasonality.

Our hotels in key west continue to achieve record milestones.

Including an average ADR of $474 at the Casa Marina and $433 at the reach for the quarter up 63% and 58% respectively over the third quarter of 2019.

Looking ahead to the fourth quarter, we are expecting a very strong holiday season.

With ADR of 200 to $1400 across our two resorts.

The week of Christmas.

In addition, we expect the momentum to continue into future periods as our resorts booked 2700 more group room nights during the third quarter for all future periods.

Ever before.

Orlando finished the quarter with decent momentum following a tough August and early September where leisure travel slowed due to the delta.

<unk>.

This momentum continued into October with strong group production at our up branded Cigna and Bonnet Creek as well as continued leisure strength associated with Walt Disney World.

<unk> anniversary celebration.

Turning to the West coast.

In San Francisco, we're seeing leisure strength that R. J W. Marriott Union square and our Hyatt centric Fisherman's wharf.

Partially offset by the lack of group business transient business at Hilton Union Square.

As we look ahead, we are encouraged by the return of international travel to the market.

Which typically accounts for 18% to 20% of demand to our San Francisco hotels.

We expect the JP Morgan conference in January will occur as scheduled in early January.

With average daily rates in line with pre pandemic levels at our Hilton Union square.

J W Marriott hotels.

As companies begin to return to the office in 2022, we expect to see more business transient and corporate group demand returned to the market.

Finally.

Touch on some of our other key markets, we saw stronger than expected demand built in Chicago for the quarter.

With incredible rate performance.

And just 1% to 2019.

We have also seen strong performance from our hotels in southern California, with a combined revpar down only one 6% for 2019 and in Boston, where we have seen promising growth in the business transient and group segments.

Finally in New Orleans, we are pleased to report that the Hilton New Orleans, Riverside sustained minimal damage from Hurricane Ida in late August.

Power was restored to the hotel within five days and our property secured a significant amount of SaaS to response and recovery group business that offset any business interruption that resulted from the storm.

Turning to capital allocation during the third quarter, we completed the sale of our Le Meridien San Francisco.

Which helped us exceed our goal of completing $300 million to $400 million of noncore asset sales in 2021.

With total sales topping $477 million.

On the investment side.

<unk> work is underway on our Bonnet Creek meeting space expansion project with the Waldorf Ballroom Foundation poured and site preparation work started on the Cigna side.

We also recommenced approximately $20 million of renovation work to update meeting space at the Cigna Bonnet Creek.

And the Hilton San Francisco Union Square.

And another phase of rooms, and the Tapa tower at the Hilton Hawaiian village.

All projects were accelerated to occur during low occupancy periods to minimize disruption ahead of the recovery.

Turning to acquisitions.

We remain laser focused on maximizing shareholder value and plan to selectively pursue attractive acquisitions in target markets that are both accretive to earnings and net asset value.

A continued focus on upper upscale and luxury hotels in top 25 markets and premium resort destinations.

Looking ahead.

Our outlook looks better than it did a few months ago for the fourth quarter, we expect to see healthy transient booking trends with the resumption of international travel, which should benefit our hotels in markets like New York, Miami and San Francisco, We believe international demand from Asia, particularly.

To Hawaii will not see a material increase until the middle of next year.

Although this could certainly accelerate with increase vaccinations.

We also expect our hotels in markets that have historically hosted group events with large international attendees, such as New York, Chicago, and San Francisco will see healthy improvement.

And demand in 2022.

As noted while we are forecasting a sequential improvement in business transient for the fourth quarter.

We are expecting a more material increase beginning in the first half of 2022.

And with a presumed return to office for many workers.

And for group, we're expecting momentum to build as we.

Heading into 2022 with 2022 group pace.

Currently at approximately 66% of the 2018 pace for 2019.

Finally, despite.

Ongoing improvements in lodging demand and the expectations for strong business recovery in 2022.

GAAP between public and private market valuations remains incredibly wide.

A disconnect which has become increasingly more apparent as the volume of private market transactions built while providing greater transparency on hotel real estate values.

While most other asset classes within the broader REIT universe trading at a premium to consensus net asset values.

Hotel Reits continue to trade at historically wide discounts and park is no exception.

Based on the latest range of analysts' estimates part trades at nearly 30% discount to consensus midpoint or.

Our $20 27 a share.

A very conservative view on valuation.

In our opinion.

In our view.

However that is the path to recovery becomes increasingly more apparent with a return to business travel valuation gap should eventually narrow.

Before I hand, the call over to Sean.

To emphasize the strength of park's current position.

As we look ahead to a more broad based recovery.

Our diversified portfolio is positioned to reap the benefits of incremental growth in the business transient and group segments, while simultaneously continuing to capitalize on leisure demand.

On the capital side.

Poised for growth and Optionality.

We plan to continue to focus on value added transactions and projects.

I mean.

Meaningful shareholder value.

We continue to work tirelessly to unlock value and shape our portfolio for long term growth.

And with that I would like to turn the call over to Sean who will provide some more color.

On our results and updates on our balance sheet liquidity and ESG efforts.

Thanks, Tom overall, we were very pleased with our third quarter performance with pro forma revpar sequentially, increasing nearly 35% over the second quarter driven.

Driven by a 900 basis point increase in occupancy and an 11% sequential improvement in rates, which near $206 for the quarter or just 7% below the same period in 2019.

Overall total pro forma operating revenue was $404 million during the quarter, while pro forma hotel adjusted EBITDA was $83 million nearly double what we reported last quarter.

Q3, adjusted EBITDA was $77 million and adjusted <unk> per share was <unk>, marking the first quarter of positive earnings since the start of the pandemic.

Witness widespread strength across the portfolio with 43 out of 52 open hotels generating positive EBITDA for the quarter versus just 32 during the second quarter.

In addition to strong topline growth our improved performance was driven by our ongoing efforts to contain expenses.

Resulting in hotel adjusted EBITDA margins of nearly 21% during the quarter.

We saw particular strength across our 11 resort properties, our margins exceeded 2019 levels by nearly 250 basis points to over 36% for the quarter.

While over 80% of our open consolidated hotels generated positive operating margins for the quarter.

Looking forward to the fourth quarter, we expect operating results to be a bit choppy, especially in Hawaii and Orlando for both group and transient demand were negatively impacted by the Delta variant.

And in New York, where its reopening and subsequent ramp up will negatively impact portfolio margins versus Q3.

Said October is off to a solid start with occupancy for our consolidated portfolio improving sequentially by 270 basis points to 50%.

While ADR is expected to reach approximately $200 or a 5% improvement over September.

November and December look equally as promising with transient pace for our resorts accelerating week over week at levels commensurate with those seen pre delta and groups once again booking events in the fourth quarter.

Turning to the balance sheet as Tom noted our liquidity currently stands at over $1 8 billion.

<unk> nearly $1 $1 billion available on our revolver.

And over $770 million of cash on hand.

While net debt is $4 1 billion.

Overall, our balance sheet remains in very solid shape with only 2% of total outstanding debt maturing through 2022.

And with 99% of our debt obligations fixed.

As we have noted in previous calls the public debt markets remain open while other markets are also becoming more constructive as.

As a result, and as you plan for next year, we anticipate turning our attention to refinancing our $725 million <unk> on our two San Francisco assets coming due in late 2023 to further extend our maturities.

And refinancing the $650 million seven 5% senior secured notes that we issued in may of last year to reduce our cost of debt.

We have now paid off 97% of our bank debt, leaving us with considerable optionality going forward.

Finally, I'd like to finish by providing an update on some of our ESG initiatives I am pleased to report that we recently published our fourth annual corporate responsibility report for our stakeholders.

As reported highlights we are committed to ongoing improvements across environmental social and governance initiatives as well as continuing to provide additional disclosures around them.

To that end our report includes indices that align with the sustainability accounting standards board or SaaS, B and the global reporting initiative or <unk> as well as our first task force on climate related financial disclosures or TC FTE report.

We also participated in our second annual credit real estate assessment. We are pleased to report a seven point increase in our scores as we continue to build out our ESG program.

Finally, we recently updated some of our ESG specific policies, including our environmental policy, our human rights policy and our vendor code of conduct to further ensure our role as a good corporate citizen.

For more information about these initiatives and parks corporate responsibility approach. Please visit the responsibility tab on our web site.

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.

At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment it may be necessary.

Are you to pick up your handset before pressing the star keys as a reminder, again please limit yourself to one question and one follow up one moment, while we poll for questions.

Question comes from the line of Rich Hightower with Evercore you May proceed with your question.

Hey, good morning, everybody.

Good morning Rich.

Good morning, Tom.

I'm asking I guess a question related to that.

I guess the context is the reopening in the Bay area and the return to office targets in January of next year, but I'm wondering.

As you look at I guess, what we might consider alternate alternate data around office utilization and the different major markets. If you've noticed any historical patterns. There in conjunction with the return to office metrics in <unk>.

Other cities around around the country and maybe how that translates into the the pace and the cadence of the the occupancy buildup.

And just kind of the ramp up.

<unk> some of those indicators and then also.

Where do you think about timing for the reopening of Parc 55 again in San Francisco.

There's a lot of you.

Question. The original let me, let me talk a bit about kind of Parc 55 for a second.

As we sort of look out to San Francisco I mean, obviously I think probably the most complex situation in our portfolio.

As you know we had success is there the CBD. We have sold two 2019 pricing very pleased very proud about that and obviously we've got the.

Hilton.

Our Union square and the Parc 55 across the Street Union Square is open and our plan is based on on demand trends right. Now is to open Parc 55, probably December timeframe.

Really pleased the JP Morgan as proceeds is proceeding with the health care conference.

One we understand they're committed to it which we think is great. Obviously, what we're hearing so far is probably 50% to 75% participation.

2019 sort of rate levels I think also an encouraging sign there. So if that holds true and we believe it to be the case.

It certainly makes sense for us to probably reopen our 55 in that December timeframe, plus or minus again, we will continue to evaluate as you've seen I think as do carefully and all of the situations. So we reopened New York and obviously, New York is exceeding expectations and doing quite well regarding.

Office Occupancies.

Clearly theres more sublet activity in San Francisco than I think than in other major markets.

I think it would be.

Huge mistake to sort of bet against San Francisco, We hear this all the time I think it's important to remind listeners when you. When you look at the amount of innovation that is coming out of that market the job creation the educational footprint.

The venture capital industry being anchored there and the amount of capital flows no doubt, it's a tougher environment right now.

Particularly for business transient and group.

We believe as you heard in my prepared remarks that when you get people back in office as you get more vaccinations for kids and families and people resuming sort of a normal we fully expect that San Francisco among the other sort of our urban markets are going to come back. These are great cities of the world.

And.

People, who are sort of writing them off I think it's a bit premature.

If you look at for example on the leisure front in San Francisco are J W. Marriott in.

And our Hyatt.

Fisherman's Wharf, both continued to do very well I think in the third quarter data <unk> was about 67%, obviously, a smaller box there, but continuing to ramp up in occupancy.

The Hyatt Fisherman's wharf was in the mid eighties, obviously Union square as obviously, it's a big group box. So as we begin to see that ramping up and in the January and certainly into 2022, we certainly expect that thats going to continue to ramp up nicely as we move forward.

So I'll stop there if you've got any follow up questions, but I wanted to I wanted to respond due to your inquiries.

That's helpful. I'm good thank you Tom.

Our next question comes from the line of David Katz with Jefferies. You May proceed with your question.

Hi, Good morning, David good.

Good morning, Thanks for taking my question.

And for all.

Commentary.

I did hear commentary about the prospect of being positioned to be a buyer.

I wonder whether there are circumstances or any discussion worth having on whether you'd be a seller.

How you think about some further divestitures at the moment.

Yes, David It's a great question all all options are on the table to create value.

For our shareholders I think we've been.

We've been crystal clear and I think I've made the statement before and I'll make it again.

We're going to get paid either by the public markets or the private markets.

When you look at the kind of significant discount to NAV as it exists today.

Certainly not sustainable.

And clearly with us trading at somewhere at or.

30% discount plus or minus.

As they make the case, if you will for just a minute for park.

Think back to the crisis and the decisions that we made we were com we were prudent we didn't panic.

As Sean outlined we did three bond deals we pushed out our maturities we have now paid off 97% of our bank debt.

We didn't do any kind of dilutive equity raises.

We didn't sell any assets at wide discounts all of those were very wise and appropriate decisions.

We've really reshaped the portfolio.

We've sold now 30 wound is sold and or dispose of 31 assets for the $1 7 billion, we bolting on Chesapeake 18 assets there for the $2 5 billion.

We've achieved all of our 2021 priorities reopening hotels with the exception of park, Parc 55 million and the Hilton.

In short Hills, which will open probably in.

First quarter of next year, we've re imagined the operating model taking out.

The $85 million and cost about 300 basis points.

Hold five asset this year.

Just south of <unk>.

$500 million, and obviously pay down debt, we have transitioned to offense, meaning looking at both the embedded opportunities within our portfolio.

In addition to that obviously, we are open to acquisitions that makes sense.

Sure.

And we have a lot of Optionality are built in gain tax as part of the spin expires at the end of 2021, that's going to be huge we've got Nols that are also significant that also gives us optionality so to your point of selling and your question.

The most likely scenario would be that we look to partner and JV on an iconic asset or two.

Hawaii would not be included on that list.

But others that we could sell an interest.

At private market valuations.

Which would then allow us to shield that with our Nols that gives us optionality to go on offense, whether thats embedded opportunities within the portfolio, whether thats opportunities externally.

We will be thoughtful.

Know that we have a need to buy an asset today or tomorrow.

Particularly given the fact that we've been so active in the recycling in the last few years as I mentioned selling assets and of course, obviously bolting on the Chesapeake portfolio.

Okay.

Perfect. Thank you so much.

Our next question comes from the line of Anthony Powell with Barclays. You May proceed with your question.

Hi, Hello, Good morning, Anthony.

Good morning.

I guess a question on acquisitions.

You mentioned, you want to be selective and you're looking to grow eventually.

A lot of your peers are focused very heavily on these very ultra luxury smaller properties.

You've talked this morning about how you vary.

I guess positive on our long term return of business travel and group could you maybe go the other way and lean more into upper upscale group hotels in urban markets or would you be looking at some of these kind of more small luxury properties that others have been buying.

Yes, it's a great question, Anthony and look we will continue to follow the demand.

Returns we have.

Put a stake in the ground and I think we've been clear in.

Look we are we are well positioned to be we've got.

18 hotels that clearly have a strong leisure and if you look at what's happening for us in Orlando, and Hawaii, and certainly key west that would share that we're seeing really aggressive.

Certainly performance there and we will continue to look there are markets that where we are underrepresented.

Phoenix comes to mind parts of Texas, clearly, we'd like to continue to expand our footprint into.

In the Florida.

At the same time.

That's that's an over and over broad trade right now I think some of the pricing is quite aggressive.

I do have intellectually have a hard time.

Whether you can generate the scale and the return and the cash flow on an.

On some of the baby resorts, but we'll see we'll see how that unfolds over time.

This does remind me and a 10 plus years ago I've been around for a long time when.

The focus was on lifestyle hotels in New York.

<unk> I've cited this example, but I think it's a real example.

That was the.

There was this.

Excessive focus on buying those lifestyle hotels in New York and as we know fast forward and look back I don't think that trade really worked out for a lot of people, particularly at the prices that people were paying.

So we will continue to.

<unk> the portfolio, we are confident that upper upscale and luxury hotels in top 25 markets in premium resort destinations.

Have a great footprint on resorts now we will look to expand that selectively but I think it's got to make economic sense I think the message we'd like this and as we have so many embedded opportunities within our portfolio I think bonnet Creek is just a great illustration of that in our basis Theyre, given where we're trading is about three.

100000, a key we've got 350 acres of 500 room resort a world class Golf course, we're expanding the footprint there for the meeting footprint. In addition to the Optionality that we have from a leisure standpoint, we think thats, a wise and prudent investment and thats going to yield superior risk adjusted.

Returns for our investors.

Got it thanks and then.

Maybe switching gears to pricing.

Is your pricing had been very strong across the country and we're seeing prices well above 19 levels, but group in BT I think prices are at 19 or slightly below is there an opportunity for you and others to push pricing on.

Corporate group and transient a bit more or are you more focused on getting those parts of the business is back in volume.

Yes, it's a great. It's a great question Anthony I do think over the intermediate and long term, there's going to be more pricing power in this business.

I have to believe that demand is going to outpace supply certainly given the amount of scoring and pain that occurred.

Open through this pandemic and we're pleased is that some of the stats that Shaun outlined I think really demonstrate that operators are being disciplined on pricing and we're getting close to 19 levels.

We're still at Revpar is that our 2030% below in some in some cases below 19, so I do think that there's going to be a.

Much better opportunity for real pricing power and margin growth in this industry, which we have not seen we certainly did not see the end of the last cycle. So we are encouraged as we look out.

Alright, thank you.

Okay.

Our next question comes from the line of Smedes Rose with Citi. You May proceed with your question.

Hi, good morning.

Good morning.

<unk>.

Can you just talk about what Youre seeing on labor cost I think in March you cited $78 million in cost savings from a reduction in.

And hotel staffing and then.

As you think about that what percent do you think could be offset.

The rising labor costs by the reduction in staffing needs.

Yes.

It's.

It's a great question, let me answer the first part.

I think the operating model.

So we're confident that we've been able to take out $85 million and permanent cost it's about 1200.

Ftes approximately across both hourly and management.

We're confident that that will.

Qs and certainly certainly deliver huge benefits for shareholders as we move forward. The one benefit that we have on the labor side is obviously being 60% union and with those cost already largely baked in.

We're not seeing some of the same challenges on labor front, we are seeing it in our non Union hotels key West is an example, where labor and certainly Orlando.

Pockets of Florida that a bit more challenging.

We're not seeing huge increases on the on the labor front.

Let me hand, it over to Sean if he's got additional comments he'd like to make.

Sure Tom Thanks, and yes, certainly with Tommy mentioned is really kind of are doing in limiting positions, but do you think about some of the.

Operating model elements or whether it's housekeeping or changes to F&B because those things are still evolving it's hard to kind of sit there and I think at this point the dollars at it.

We still need the right mix to come in through to kind of test. Some of these changes to the standards out and the take rate and everything there. So.

Kind of evolving in work in progress, but were certainly confident that will kind of add be additive to the 85 million tonne discuss as we move forward and ramp back up.

Great and then just.

I have a follow up.

In your prepared remarks, you mentioned a focus on value added transactions and projects and it looks like you reduce capex to 56 million for maintenance projects. This year.

Just going into 2022, how do you think about spending there.

And are there any major projects on the horizon.

Yes.

We mentioned obviously the bonnet Creek, we have reinstated.

Both our expansion there of the the meeting footprint for the Waldorf as well as the Hilton So thats north of $100 million project. There that has that is underway.

Very confident that that's going to be a huge success for us. We're also going to be renovating that <unk>.

The meeting space as well as some of the Guestrooms as well.

We've also completed recently.

Meetings space at the Hilton San Francisco.

We've also done some partial renovation of the tapa tower at Hilton Hawaiian village, So youll see those costs really ramping up both on the maintenance side as well as on the embedded ROI side for the park portfolio.

We've got a number doubletree San Jose is one that we are.

Pretty far along in planning and our plan to convert that to a Hilton as well just another example.

Thanks.

Our next question comes from the line of Neil Malkin with capital One Securities. You May proceed with your question.

Hi, good morning, everyone.

Okay.

I was just wondering if you can give an outline just kind of what you see for <unk>.

Group outlook.

Pay so how do you want to quantify it for you or San Francisco and Chicago.

Markets heading into again, I guess that 2022.

Yes, if you think about.

San Francisco.

2022, citywide banker right now on the books about 34 events.

620000 room nights and if you look back to 19, which I think was an all time high at about $1 2 million room nights.

Clearly continuing to ramp up I think jpmorgan proceeding with the health care conferences.

Great News and I think as you continue to get more people back to say Werent return to office.

Back to business travel, we fully expect that.

Yes.

That market will continue to thrive.

We look out in Chicago.

In our corporate group there our group pace is about 83% of the 2019 levels.

That's about 168000 room nights.

Plus or minus city Wides are also I think are over 700000 room nights in Chicago.

So very encouraged Chicago has really held up better since we reopened back.

In June of this year, so encouraged about both of those markets as we move forward.

I appreciate that.

No.

One of the things.

The group guys good focused.

Owners solid.

Pretty significant take up.

Second quarter to third quarter on the on the group side, obviously significantly below 2019, but compared to the first and second quarter I would say a pretty pretty significant step.

Function Hyatt.

And that also came with it pretty stronger than expected I think F&B overall I was wondering if you.

You can.

Comment on.

What are the spending habits as those groups.

Bread and butter groups start to come back.

Are you seeing the same amount of willingness in terms of like minimum spend.

Any any different or changes in preference is for like.

Bank rates or.

Group gathering sessions and also I think it spills into the other revenues, which have been on fire and maybe you could shed some light on what's going on.

There as well.

Yeah. Neil this is Sean I think in the end that the groups are generally behaving consistent with what they were doing pre pandemic I mean, obviously the overall participation is lower than 19 as they show up but I would say as we kind of project out in and plan for an event.

I think generally it's been pretty consistent that we're underestimating the participation. So the good news is they are showing up in <unk>.

With that planning and everything else I think too they're also showing up and realizing they want a little more than <unk> I think youre seeing some kind of.

Incremental spend when they are on site they.

They're not necessarily.

The minutes are necessarily leaving the assets a lot in going out and doing seeing alternative.

Alternative outlets or F&B experiences are kind of multi lifetime staying in hotels, clearly that's happening with the leisure side too. So we're seeing a lot of benefit.

In outlets in certain areas, there certainly some out of room spend.

Where we have the amenities like golf a bond it everything else, we're seeing upticks as well and that's been consistent as we've been open in kind of in kind of good good kind of elevated operations are elevated demand levels in different parts of this pandemic.

Okay. Thank you.

Our next question comes from the line of Gregory Miller with choice. You May proceed with your question.

Thanks, Good morning.

Just congrats on for Michael.

Okay.

As we look to Thanksgiving and the December holidays.

Hi, I'm interested in how your cold weather markets Nathan here this season, and the extended pent up leisure demand that may be shifting back up north.

It's possible could you share your initial expectations are markets like New York City.

This year relative to pre pandemic yours.

Yes, Greg this is Sean.

Specifically clearly a good new story happening up there opening up the asset early October and is really ultimately exceeded our expectations as we looked at our reopening models for October and as we get into November December clearly the holidays are part of the success of this asset and so what we're seeing right now offering.

New York is is thanks.

Thanks savings pacing around 80% of 19 levels with sellouts for Wednesday, and Thursday, with ADR flat. So feeling good about how we're coming into that week earlier than that we have a sellout around New York City Marathon.

Coming weekend, so I think again November shaping up pretty well for the asset and then when you get into as you get to that in December we're seeing certainly on the weekend some real good strength there of about 60% to 70%.

<unk> occupancy with the assets. So I think we've got a good base and I think we're continuing to see positive pick up volumes.

At or above the comp set in the market. There. So feel good about New York and obviously feel really good about our resort areas, where you would expect strength.

Around the holidays, Hawaii is looking good despite the governor kind of putting a pausing a little bit of pause and hesitation on booking the holiday travel. We're now seeing the pickup as I mentioned my remarks, starting to see some more pace picking up week over week, just like we were seeing pre.

Pre delta.

Hawaiian village right now.

Behind I think without the far east traveler, there, which typically comes in strong around the holidays, it's still tracking a little below 19 levels, but like Hello on the Big Island is just going to be incredible it's going to be about 50% higher rates than 19. So that's a combination of the demand and rate strategies that are being deployed there by the teams so kudos to them. So again <unk>.

Together, our combined those two will make Hawaii really good market for US and then Florida just across the board Miami key West Orlando.

Great markets for us for the holidays Thanksgiving week can be supported by some sporting events Orlando. The Waldorf is pacing ahead of 19 levels with a 60% increase in rate. The <unk> complex is seeing pace up 85%.

And while they are up 125% to 19 on the Christmas New year's Eve week. So.

Just incredible and in cost I mean, just remains on a tear we're looking at rates that are 500 to $600 higher than 19 levels around the holidays around specifically the Christmas New year's Eve holiday, so that basically translates to a $100000 of incremental revenue per day at the hotel.

That all sounds great I appreciate.

Ill, let utilization.

Thank you.

Our next question comes from the line of Chris <unk> with Deutsche Bank. You May proceed with your question.

Yeah.

Hey, great guys.

Hey, good morning, Tom.

So I heard your comments about.

When we think about acquisitions, maybe some kind of joint venture where you can.

Contribute an asset mark to market on that and then add more liquidity for acquisitions and so the question of that is just on any potential acquisitions is this something where given.

Given where we are in the recoveries come along faster gaining steam.

Youre going to go for something Thats, yielding right now that doesn't have a ton of <unk>.

The story to it or would you prefer to do things that have a story to them and value add.

Yes, it's a great question, Chris and as you know, we're talking about hypothetical here thinking.

<unk>.

Yeah.

In a perfect World I think finding something that is cash flowing.

But we could.

Plug in our best practices in our asset management team and the men and women on our design and construction team for some value add over time.

And would probably create the most upside and clearly with something with in place cash flow is certainly attractive to us as we look out but we will evaluate there are sometimes really deep turns that can make sense.

It's really better suited I think in many cases for private equity than it is for.

Perhaps a REIT capital structure.

We'll be thoughtful.

No. We're not we don't feel the need people I think it's important for listeners to remember we bolted on 18 hotels from from the Chesapeake deal, we have tremendous embedded opportunities within the portfolio.

Whether it's the doubletree in San Jose.

The doubletree in Crystal city at the front door of the Amazon.

Campus, there literally at the front door.

Hilton Hawaiian village on the long term, where we're getting a site entitled that we've got an option to that will allow us to do a six tower now thats a few years out as we as we sort of look out the Hilton Santa Barbara that we converted we up branded.

Bonnet Creek, which were also up branding to our Cigna.

Has huge upside within this portfolio. So we wouldn't be really thoughtful about acquisitions, we're going to grow make no mistake that as this recovery continues to take unfold as it unfolds that park will be a participate a participant both in buying assets. In addition to continuing to recycle capital within our <unk>.

Current portfolio.

Okay.

Okay very helpful and then.

How do we think about the puts and takes next year.

With international coming back both ways inbound outbound and for you guys.

Florida Big beneficiary this year of <unk>.

State domestic and then youre going to get more internationally down next year is there a way to think about from a media rate perspective, what what happens when we.

We kind of see more Americans going abroad, and more international guests coming into your markets, maybe other than Florida is there any way to just directionally think about that.

Yes first of all I think I think it's going to bode very really well for not only the industry, but I think for park in particular.

If you think back to 19.

We had inbound international of about $79 million and outbound from the U S was about $100 million plus or minus so it may be a little off Chris, but I don't think much.

And so when you think about what's happened here during the pandemic.

Those 100 million travelers plus or minus.

We're all really focused on U S or the Caribbean, some going international but largely those that were travelling where focus more kind of U S centric.

I think as we're coming out of the pandemic, we're going to begin the journey to get back to the way things were meaning youre going to see more and more of those international travelers coming back into the U S.

And think about where they want to go.

They're there.

Not likely going to San Antonio.

They are looking and I love, San Antonio, but Theyre looking more for New York, Boston D C. Chicago San Francisco In addition to the Florida Miami.

All of those markets, where we're park is incredibly well positioned so we see this being <unk>.

Really positive for us, but I also think we can't lose sight again of the pent up demand we've been through two year two years of Hell.

And I think this sort of revenge spending.

This desire to get out and reclaim and recapture People's lives is only going to continue to accelerate.

And for an industry that in our market, where you've got less supply risk. We think we finally benefit from having our supply exposure. It's about one 7% I think among the lowest in the lodging Reits given our footprint, but we think that that's only going to bode well for us and having more pricing power and I didn't even talk about her.

Why keep in mind, Hawaii, historically, it's about 30% international of that about 60% of that 63% I think to be exact relates to coming out of Japan, Japan Japanese had been coming the last 30 years consistently 15% to 17% of that market.

Now you've got two years, where they havent visited so I think Hawaii gets the double benefit getting more and more penetration coming from the U S. In addition to seeing the the international and particularly the Asian trade beginning to really ramp up.

As Sean said.

Thats, probably second quarter I mean, we think we'll have a really strong holiday, but we think as you look out to Hawaii and.

Particularly now with international travel in six markets in particular, driven largely by Japan will continue to only benefit that market as we move forward. So the international is nothing nothing but.

Significant tailwind for the industry and I think for park in particular.

Okay very helpful. I appreciate all the thoughts thanks, Tom.

Thank you.

Our next question comes from the line of Robin Farley with UBS. You May proceed with your question.

Great. Thanks, most of my questions have already good morning, how are you.

Most of my questions have already been covered I guess, maybe just one follow up and you sort of touched on a little bit but.

Just in terms of the transaction environment low interest rates out there.

Some types of buyers that can be much more leverage than public I guess is that do you foresee that kind of making it difficult maybe.

To make some of the acquisitions that you might be thinking about.

Yes, it's a.

Great question Robin Theres no doubt.

The World is awash with cash and I think thats only going to continue in.

And clearly the lowest cost of capital wins and there are what I would call some of the.

Trophy real estate, if you will and we're seeing some of that trade it sort.

Sort of eye popping numbers at these two $2 5 million of key.

Not likely to be where park is going to be trading.

And where we're most interested so I think youll find whether thats the sovereigns the high net worth some of those family offices, perhaps will be in the hunt for some of that we're confident just given our relationships that we'll be able to find very attractive opportunities in <unk>.

Have to be selective we will have to work a little harder, but historically.

My lead teams have always done well in finding off market in those deals that are that are compliant. We also will have the ability as our as our stock continues to recover.

To use op units and have the optionality of being able to structure deals that can also be attractive.

Certainly.

The types of of sellers. So we'll use everything in our toolkit to make sure that we're creating value for shareholders.

And.

I'm also thinking about your comments about.

The asset value with significant discount you're trading in.

In the past you have actually sort of given target for asset sales.

Any thoughts I mean, if the public market is not valuing them.

Get more value by selling them.

Would you think about actually giving a target for asset sales.

Yes.

Another fair question all options are on the table I mean, we are committed to creating shareholder value and as I've said, we will get paid either by the public markets or the private markets and we're serious about that.

We will continue to work hard and create value for shareholders and we do expect as the recovery takes hold and continues to accelerate I think some of the.

Fears and concerns of of the New York San Francisco's in Chicago's of the World was certainly subside. These are great cities of the world that.

People that are betting against them and my humble opinion are making.

Yes.

Unwise bit.

These cities are certainly going to be coming back.

Okay, great. Thank you very much.

Thank you.

Okay.

Our last question comes from the line of Bill Crow with Raymond James You May proceed with your question.

Good morning. Thanks.

Good morning, Bill how are you.

Good. Thank you quick clarification, and then a question clarification.

The Hilton Midtown is it fully opened all 1800 rooms opened I had read that it was going to be partially opened.

All all rooms are open bill.

And Bill as Sean said, and we fully expect to.

Amir if not a full sellout for the marathon this weekend so its ramping up.

It's ramping up better candidly than any of us thought.

I've been in New York three.

Three times here in the last couple of weeks in the cities coming back it's coming back to life and it's great to see.

Yes.

The question really just take a crack at the labor question kind of a different angle, which is.

And aside from your Union contracts.

Much do you think labor labor wage rates have to rise over the next year to get us back to an equilibrium, where we're not talking about a deficit man hours.

<unk>.

Turnover relative to history.

Yes.

As always.

Thought provoking in.

Reasonable question, it's a it's a tough question because I think you've got to think about individual markets.

If you look at it and in New York as an example, or any of the other major cities we're paying.

Pretty significant wages as you know well north of $30, an hour plus or minus in any of those cities. So some of that.

Pressure that we have in some of the turnover that I think some of our peers and others are seeing we're just not seeing it there's seniority their recall rights.

If anything we would we think theres an opportunity to continue to work hard to rightsize to find the right balance there going to be continued advances in technology, whether it's digital key and other applications and these changing customer preferences.

Got to be factored in we all know it it's expected and I think that's going to continue to be a benefit for the industry there'll be some pain pockets as we as we unfold.

Where I think we see more of some of the labor challenges or are markets like key west Orlando, where.

There were some lease labor and other opportunities where you don't have the affordable housing and it's just a tougher market. There and you are seeing rages wages rise, but the other side of that as Sean pointed out I mean, if you think about just third quarter are our two key west assets Revpar was up 88.

8% over 2019 levels, and Thats and Thats only going to continue to accelerate part of that is pent up demand and people wanting to reclaim and recapture their lives.

And I don't know it is Sean you've got some other inside on the labor side, but.

It's one that will we will study some more bill and then.

Follow up with you offline and just make sure that we answer your question appropriately.

Yes, I appreciate it seems like the smaller and mid sized markets may have.

More pressure from competition from Amazon warehouses, and things like that and maybe some of the large markets.

Yes.

We're not seeing it and the one thing I would say bill.

You and I, both been around a long time I just think the one thing as we look out I think there is there is more optimism I think there is more optimism for for having pricing power for having margin growth.

The supply growth.

As you look out over the park portfolio as I think I said earlier about one 7% theres some well it's been a tough tough nearly two years.

There are reasons for having real optimism as we move forward I think finally, we can get back to this being a certainly more attractive business than it has been from a hotel ownership in the past certainly in the in the near term and the Alaska last couple of years until the end of the last cycle.

We can all to now I'll use my optimism pushing it up.

Thank you Bill stay stay well.

Ladies and gentlemen, we have reached the end of today's question and answer session I would like to turn the call back over to Mr. Tom Baltimore for closing remarks.

We appreciate the opportunity to visit with all of you today look forward to seeing you in person in the near future, Although I know the upcoming NAREIT will be virtual.

We will be on the road and have been over the last.

Several weeks and really be reaching out to many of you to get together in person so stay healthy and look forward to seeing you soon.

Thank you for joining US today. This concludes today's conference you may disconnect your lines at this time.

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