Q4 2021 Park Hotels & Resorts Inc Earnings Call
Greetings and welcome to the park hotels and resorts fourth 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.
Note that this conference is being recorded.
I will now turn the conference over to our host Ian Weissman Senior Vice President corporate strategy. Thank you you may begin.
You operator, and welcome everyone to the park hotels, <unk> resorts fourth quarter and full year 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 and.
In addition on today's call, we may discuss certain non-GAAP financial information such as adjusted EBITDA and adjusted So you can find this information together with reconciliations to the most recently comparable GAAP financial measure in yesterday's earnings release as well as in our 8-K.
<unk> filed with the SEC and.
In the supplemental information available on our website at Teekay hotels and resorts Dot com.
This morning, Tom Baltimore, our chairman and Chief Executive Officer will provide a review of parks major milestones and overview of our fourth quarter performance and thoughts on parks priorities as we head into the recovery, Sean Dellorto, Our Chief Financial Officer will provide additional color on fourth quarter <unk>.
<unk> 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.
Six weeks ago, we celebrated the fifth anniversary of park hotels and resorts.
Over the past five years.
Our team has worked tirelessly.
And with laser focus and discipline to transform the company.
We have sold or disposed of 31 assets.
One $7 billion <unk>.
Including all 14 of the international assets.
They were part of the spin.
Vastly simplifying parks operating profile.
We added 18 high quality assets through.
The $2 5 billion dollar Chesapeake lodging Trust acquisition.
Improving portfolio metrics and diversifying our geographic.
Brand and operator profile.
We facilitated the exit of both Blackstone and H and a from park stock.
Eliminating the perceived equity overhang.
And taking out H N a N a highly successful secondary offering.
Allowed us to buyback our stock at a significant discount to NAV.
We also shut down operations at the three freestanding laundry facilities and.
And turned over management of parks.
Select hotels to third party management.
Freeing up our internal resources and simplifying our employee base.
And as we passed the five year anniversary on January the third 2022 we.
We removed significant built in gains tax restrictions on the sale of legacy park assets, giving us increased flexibility and optionality as we expect to enter the growth phase of the lodging recovery.
The past two years have been grueling for all of us.
Do you think about park's efforts I'm, especially.
Actually proud of how our experienced team has navigated this environment.
We did not panic.
Reacted swiftly and decisively to stabilize the business.
Temporarily suspending operations at several hotels to reduce monthly cash burn.
Thanks to the exceptional efforts of our asset management team to re imagine the operating model and reopening hotels only when it was financially beneficial to do so.
We reduced our monthly cash burn from a high of $85 million to portfolio breakeven by March of 2020 one.
We also worked proactively to maximize our financial flexibility. We were one of the first lodging reach to enter the bond market in 2020.
Orchestrating three successful bond offerings between May 2020, and September 2021.
And raising $2 $1 billion in senior secured notes.
Combination with the proceeds from park strategic capital recycling program.
Bond issuances allowed us to push out debt maturities.
Hey off 97% of our bank debt.
And perhaps most importantly ava.
Avoid the need to issue dilutive equity.
Which we've communicated as a key priority.
Looking at 2021 in particular.
I'd like to call out four key achievements first we successfully reopened six hotels during the year.
Including the nearly 1900, Rome, New York Hilton Midtown.
With the portfolio now, 96% open and only two of our hotels still suspended.
Second we achieved positive <unk> for the last two consecutive quarters due to the stellar efforts of our asset management team and operating partners to drive topline growth.
We're working towards re imagining the operating model to permanently cut.
An estimated $85 million in expenses.
Elimination of approximately 200 full time positions across the portfolio.
Translating into an estimated 300 basis points of margin upside.
Third.
We increased our financial flexibility through our strategic capital allocation priorities opportunistically selling five hotels for nearly $480 million to reduce leverage and.
In issuing $750 million of attractively priced corporate debt.
And finally.
We restarted work on several key ROI projects, including the Bonnet Creek meeting space platform expansion in Orlando.
Which we expect will drive outsized growth for our portfolio going forward.
In summary, we finished 2021, well poised to capitalize on the expected recovery.
Turned to normalcy.
Turning briefly to fourth quarter performance.
<unk> came in ahead of our expectation.
Driven by strong performance from several core markets consolidated pro forma revpar of $110 was above expectations.
By Outsize ADR growth.
With 37 of our 46 open consolidated hotels generating positive EBITDA for the quarter.
Similar to the third quarter leisure strength in Hawaii, Southern California.
In South, Florida helped drive portfolio of performance generating an average leisure transient ADR that was five 2% ahead of the fourth quarter of 2019, we.
We saw healthy performance at two hotels in Hawaii during the fourth quarter.
With minimal impact from the overcrowded variant over the holidays.
Hawaiian village ran over 96% average occupancy during the last week of the year and didn't like Aloha. We continue to see strong rates in comparison to 2019 with ADR up 27% or $63 to the fourth quarter of 2019.
On the mainland.
Our Florida properties continue to post incredible rate growth.
Creasing by nearly 30% over 2019 levels during the fourth quarter and.
And by 18% for the full year in particular, our two key West hotel saw a 76% increase in revpar compared to 2019 levels during the fourth quarter and a 44% increase.
The entire year.
We continue to see meaningful sequential improvement to group and business transient demand as well.
Business transient revenues increased by over $10 million from the third quarter to account for 30% of the total quarterly revenue mix in the fourth quarter.
And group revenues increased by over $19 million from the third quarter to account for nearly 20% of the total mix during the fourth quarter up from just 7% in the first half of the year.
Saw pockets of good group strength in New Orleans, Orlando, and New York and short term group demand in Hawaii throughout the quarter and encouraging sign of the pent up demand that it's president's groups increased meeting in person.
Looking ahead to 2022.
Park remains laser focused on key priorities.
As we move from the pandemic to the endemic phase of the crisis.
Park owns among the highest quality hotel portfolio in the sector.
With incredible Optionality and significant embedded value, which we plan to unlock over the next several years.
Our focus over the balance of this year and beyond.
<unk> to aggressively asset manage our hotel portfolio and adhere to our principle of relentless pursuit of operational excellence.
I mentioned earlier, we have eliminated an estimated $85 million and expenses through our tireless efforts to re imagine the operating model.
Translating into an estimated 300 basis points and marching upside as our portfolio recovers, we seek to demonstrate to the market that the operational efficiencies we achieved over the last two years, our permanent while unlocking the embedded growth opportunities across the portfolio. In addition, we will seek to take.
The advantage of the strong demand for hotel real estate in the private markets by continuing to sell an estimated 200 million to $300 million of noncore assets at or near 2019 valuations, while evaluating opportunities to buyback upwards of $250 million of stock at a meaningful disk.
Count anything.
We believe.
But there is no better capital allocation decision then to invest in park, either through share repurchases or investment in ROI projects. Thanks to the great work of Sean and his team. We recently amended some of our debt covenants to our credit facility to allow for more flexibility going forward.
As the recovery broadens over the back half of 2022.
To reinstate a modest dividend subject to board approval.
And plan to selectively pursue attractive acquisitions in our target markets that are immediately accretive to both earnings and N V.
With a continued focus on upper upscale.
And luxury hotels in top 25 markets and premium resort destinations and finally.
We expect a prioritized portfolio enhancing ROI projects that are targeted to drive outsized growth.
And unlock the embedded value in our portfolio.
If we can work is underway on our $110 million in Bonnet Creek meeting space expansion project as we seek to repeat the incredibly successful brand conversions at the Hilton in Santa Barbara and the reach resort in key West we plan to launch two additional brand conversions.
Doubletree, San Jose to a Hilton and the Waldorf Casa Marina to a curio branded hotel overall, we expect to invest at least $200 million in value enhancing ROI projects over the next few years.
Rejected attractive returns.
I hand, the call over to Sean I want to emphasize the strength of park's current position as we head into a more broad based recovery.
Remain committed to maximizing shareholder value and working aggressively to narrow the current valuation gap, which currently stands at over 25% discount to consensus estimates.
And an even wider gap.
Based upon our own internal view of value.
Our balance sheet is in excellent shape with over $1 $6 billion of liquidity and we believe we have several levers to pull to generate outsized earnings growth over the next few years.
As we unlock the enormous embedded value within our portfolio.
<unk> also.
Taking advantage of our streamlined operating model.
Pending return of the business and international traveler.
We expect our strong leisure base of business in markets, like Hawaii, Florida, and southern California to continue to fuel results.
And the recovery of business and group related demand in markets like New York and San Francisco should translate into a strong second half of the year with overall group pace approximately 62%.
2019 pace as of December 2018.
Fight the near term challenges presented by the AMA crime variant.
We believe we remain on track returned to prior peak operating results by 2023.
With that I'd like to turn the call over to Sean who will provide some more color on our results and updates on our balance sheet and liquidity.
Thanks, Tom overall, we were very pleased with our fourth quarter performance with pro forma revpar improving sequentially to $110 driven by a 120 basis point increase in occupancy to 52, 5%.
While rate averaged $210 during the quarter or just 4% below the same period in 2019.
Overall total operating revenue was $435 million during the quarter, while hotel adjusted EBITDA was $85 million, resulting in hotel adjusted EBITDA margin of nearly 20%.
Q4, adjusted EBITDA was $81 million and adjusted <unk> per share was <unk> <unk>.
Marking the second quarter in a row of positive F O since the start of the pandemic.
We witnessed widespread strength across the portfolio with all four location types resort urban airport and suburban reporting flat to positive hotel adjusted EBITDA for the quarter.
Among the highlights for Q4, we were very impressed with the overall performance of the Hilton New York, Midtown, which averaged nearly 60% occupancy during the months of November and December while rates surpassed 2019 levels.
The hotel was able to host groups international travelers and leisure guests looking to take advantage of all that the city has to offer during the holiday season.
Looking to the first quarter of 2022 performance has been negatively impacted by the Omar Khan variant.
Particularly in markets like San Francisco, New York, and Chicago, which saw a major citywide events cancel coupled with the delayed return to office, which negatively impacted business transient demand in an otherwise seasonally weaker quarter for leisure travel in these markets.
Overall, the portfolio was taken $30 million in group cancellations do at home, Iran. Although the vast majority of the fallout appears to be contained to just the first quarter.
Therefore, we anticipate Q1 revpar to dip slightly from Q4 of last year. Our margins are expected to be negatively impacted by a projected year over year increase in real estate taxes.
Despite the Q1 challenges we are very encouraged by the end of the year for the year pickup with nearly $25 million and new group bookings generate just last month for Q2 through Q4.
Beginning a trend a positive net group booking activity over the past few weeks.
Especially in the Hilton managed portfolio, which has seen 2022 corporate group lead volume double versus same time last year and increased nearly fourfold in January versus December .
On the transient side demand has increased from roughly 59% of 2019 levels in early January to around 77% over the past several weeks.
They've averaged 3% to 4% premium over 2019.
By the end of January transient booking pace for the weekends was 26% higher in 2019, while weekday pace was down just 8% improving from down 19% at the beginning of the month.
Turning to the balance sheet, our liquidity currently stands at $1 $6 billion, including over $900 million available on our revolver and approximately $650 million of cash on hand.
Our net debt sits at $4 $2 billion.
Overall, the balance sheet remains in very solid shape with only 2% of total outstanding debt maturing through 2022, and with 99% of our debt obligations currently fixed.
Despite recent volatility the debt markets remain active and becoming more constructive towards logic.
Which had put park in a solid position to refinance the $725 million see MBS allowance on our two San Francisco assets, which comes due in late 2023.
We also expect to refinance the $650 million seven 5% senior secured notes that we issued in May 2020.
Calling them on or prior to June 1st call date to realize meaningful interest savings going forward.
Finally, as Tom noted I'm very pleased to report that we successfully amended our revolving credit facility and term loan, which we finalized earlier this week.
With this effort we accomplished three key objectives.
First we extended our financial Covenant waiver period by two quarters with the first test period pushed out to the end of the third quarter of 2022 with the exception of a one times fixed charge coverage ratio test based on Q2 results.
And further modify the covenant thresholds beyond the waiver period.
Second we gained more flexibility to run the business by increasing the amount of investments permitted eliminate restrictions on asset sales and capital expenditures within the portfolio, while also giving us the flexibility to prepay outstanding secured debt among other adjustments.
Third we secured the ability to buyback upwards of $250 million of stock, which is permitted so long as there are no outstanding amounts on our revolver and our repurchases are financed solely from cash on hand cash from operations proceeds from asset sales.
I'd like to personally thank the members of our bank group for their continued support of the company.
They have been incredible partners throughout these unprecedented times.
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, do we have the first question please.
Thank you and just a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Information tumbler indicate that your line is in the question queue. You May press the star key followed by the number two if you would like to remove your question from the queue.
And as the moderator said, please limit yourself to one question and one follow up question.
Our first question comes from David Katz with Jefferies. Please state your question.
Hi, good morning, everyone. Thanks for taking my questions.
Morning, Dave.
Good morning, and I will apologize if it was on just a couple of minutes late but I wanted to just make sure I got a clear take on your views on it.
New York, and San Francisco, and how those qualitatively speaking, they're going to roll through this year right. There are still.
Much earlier stages of recovery I think that's probably a fair statement.
How do you expect those to evolve as we roll through 'twenty two.
That's a great question, David and thank you for joining us today first.
If we look at the New York Hilton as an example.
We reopened the asset I believe October before we studied quite carefully.
Whether or not it made sense to open at that point, we debated whether or not it would make sense to open perhaps even earlier or spring of 'twenty two.
We were pleasantly surprised that we made the decision to open in October .
Think back as Sean pointed out in some of his remarks, but we opened I think in December .
November we were running about 55% to 60% occupancy.
Close to 300 dollar rates.
Believe just a seven or 8% below 2019 levels December we were running occupancy there at about 63%.
At a rate of about $345 and we were about 7% plus or minus over 2019 levels. So.
It performed much better and I think again to the issue of the pent up demand.
Also saw the resurgence.
International travel there as well, obviously that had been impacted obviously by omicron in.
And the variance there that sort of disrupted but we remain very very bullish and constructive on New York you really have only three boxes that have really significant meeting platforms I think too.
Our view that the Hilton has the best meeting platform and as we look out in the booking pace and what we're seeing just in group pace in 2022.
About 60% of 2019 levels, there about 100000 room nights.
And we're encouraged as we sort of move forward.
I think as you think about New York and San Francisco I would certainly say that New York is really poised as as you also think about the return to office and I think we're all seeing and all recognizing that.
They're really encouraging signs out there and I think this also applies to San Francisco and I'll jump I'll respond to your question on San Francisco as well, but.
Covid cases are really declining globally.
I think we're all learning and getting in coming to the conclusion that we've got to accept Covid and then we're really moving from this pandemic phase to the endemic phase and returned to office is really accelerating so when you think about pent up demand and really its in all segments, it's not only in leisure, but it's an and business and even group.
The need to be together is more important than ever.
And also a resumption of international travel if you think about just visitation into the U S. So that was about 79 visitors in 2019, obviously, that's going to we believe begin to ramp up that's also going to be a strong.
Source of demand not only for the U S, but particularly for the urban environments. Both from a business transient leisure standpoint, as we move forward. So very encouraged about what we're seeing in New York.
San Francisco was one that.
But many people are quite down one.
I would say that it's important to remove some of the <unk>.
Emotional clatter.
And negative energy that's out there and just step back for a second to think about the city. It's one of the great cities of the World innovation creativity. The number of universities that are located there the venture capital.
<unk> is anchored there.
So I think the demise of San Francisco is a bit premature obviously safety and security is an issue I personally.
<unk> was out there in early December with another REIT CEO .
Meeting not only with the mayor the chief of police Chief of staff.
Chief of staff and really stressing the need for the safety security issue and I know that those meetings and other meetings were a positive catalyst.
As we look out in San Francisco in our own portfolio there.
The city Wides are about 34 events for this year at about 525000 room nights, I believe plus or minus and you think back to the high watermark. It was 2019 I think it's been reported of about $1 2 million room nights in city wise, It really was closer to about $1 million.
The mayor is even now attending sales calls and driving home her commitment to safety security and really getting groups back which I think is also positive. So as we look out in San Francisco, We're encouraged.
There was recall there was some activity. This week with three school board members that were recalled Theres talk of the day the district attorney.
Unfavorable views on many issues of him, possibly also being recalled so I do think there's some positive things that are happening there no doubt the safety and security issues, they've got to be addressed but but we certainly remain constructive on San Francisco over the intermediate and long term.
Tom.
Understood perfect. Thank you very much.
No.
Our next question comes from Smedes Rose with Citi. Please state your question.
Okay.
Thanks.
I just wanted to ask you. Good morning, you guys had talked a little bit.
On your calls about selling noncore properties and I'd emphasize a lot most of your EBITDA comes from you know just kind of your core.
Assets with that all the time to you or would you expect from 'twenty two to kind of formalize our disposition program.
You know given your confidence in a broad based recovery you think now the time to kind of.
I guess, new maybe more quickly on that or how are you thinking about that.
Yeah. It's a great question Smedes I would tell you that if you think back over the five year history.
We were aggressive and proactive.
We've sold now 31 assets for $1 7 billion and that includes 14 international assets in South Africa, two in Germany, seven in the U K and asset in Brazil, and asset in South and South Africa.
All complicated with lots of legal and tax issues. It was really prudent of us to do that.
Just think had we not done that heading into COVID-19 and the complexity of issues that we would have faced otherwise. So we're proud of all the great work that the team did there.
We are going to continue to aggressively.
Recycle to your point there are top 27 assets really account for about 90% of the value of the company and.
And so we've identified another batch of noncore assets that we're going to aggressively move keep in mind. We also had the building gain.
Tax requirements that have now expired. So that also gives us even more optionality with the portfolio and we also had the self up to we had four assets that we were self operating.
Given some of the tax restrictions it was.
Unity for us to sell those sooner those are now easier for us to sell here in 2022.
Our sales activities are already underway. So it's a core priority for us in 2022, you'll see us accelerate those noncore asset sales. We also have a number of joint ventures there.
Nine of those remaining three of those are consolidated.
Also look to where possible some of those have legal and tax issues as well, but we will continue to work hard to reshape the portfolio improve the portfolio metrics and then use those proceeds so far.
For share buybacks, we trade at a significant discount to not only.
But also to replacement cost and we're not happy about that and we want to work hard to address that immediately.
Use those proceeds for share buybacks also for ROI projects, and then also for opportunistic acquisitions that fit our profile.
Okay. Thank you and then it just as a follow up I wanted to I wanted just to ask you on the dividend.
You know if you've reinstated I got from the back half, obviously, it's sort of starting out with a pretty modest at a pretty modest level, but if it is it driven by taxable concern or is it just your.
Are you sort of messaging that you have increased confidence in you know.
Recovery kind of outlook or how are you kind of thinking about that in terms of.
Targeted payout ratio I guess initially yeah, yes, certainly we expect that we will have taxable income we do have some net operating losses, obviously coming out of the pandemic that gives us additional optionality, but also having the modest dividend makes us more attractive to some of the income investors that Bruce wouldn't consider us others.
Wise.
And also its confidence it's confidence that we do believe that as we move from this pandemic phase to the endemic phase.
Having.
Return of capital, including not only buybacks, but a modest dividend as a prudent move and certainly will benefit shareholders.
Okay. Thank you.
Our next question comes from Rich Hightower with Evercore. Please state your question.
Good morning, guys I'm wondering Tom.
Tom I think you intercepted my question I had on the built in gains implications. So I can I can move to kind of a different a different angle here, but just you know from where we sit today.
You know not knowing anything about the future in terms of potential acquisitions.
You know that you guys are considering how how do you weigh on specifically between prepaying some of the higher cost secured debt.
It remains on the balance sheet later this year versus share repurchases, you know kind of competing IRR profiles, you know with one decision versus the other but also in terms of overall flexibility how do we how do we think about those two priorities.
Yeah, It's a fair question rich I would.
Just want a backup for a second and just reemphasize, what our priorities are going to be for this year.
First and foremost operational excellence, we are laser focused on the operational front and Reimagining. The operating model as we've said repeatedly we're confident that we've been able to take $85 million in cost out of the business and we estimate about 300 basis points.
And margin benefit there and those are 200 jobs part management part management.
Eliminating redundancies and for us first and foremost by doing that demonstrating that.
Candidly, earning credibility there we're hoping obviously, we will continue to see the stock price improve that also gives us optionality.
For for growth and certainly close the valuation gap that that is.
Frustrating and.
And we are laser focused on achieving that.
Again, selling those noncore assets continuing to reshape the portfolio.
Those proceeds again being used for share buyback and if we can address the first on the operational excellence and selling non core assets and close our approximate to 2019 pricing and it gives us the opportunity for buybacks reinvesting back into our portfolio and ROI projects and then using that for acquisitions sure.
Sean and his team have just done an extraordinary job as we think about how we manage the balance sheet and the moves that we've made as Sean pointed out we've got the $650 million bonds that we can take out.
We're looking probably late spring early summer.
<unk> there.
That clearly will get us interest savings, but by selling the non core and really closing this valuation gap.
Using strategically on the buyback side when Youre trading at.
25% to 30% and Thats, obviously below what we think our internal evaluation. Our internal NAV is now we see that as a real priority and we want to show that we've got confidence and so there is no better investment. We can make then really investing back into this portfolio.
We're trading 10, 11 times, if not probably inside of that buying assets at $13 $14 $15 16 times multiples and what people are paying is really we don't think the prudent move for park to make at this time, we don't see that really being accretive given where our cost of capital is right now.
Okay that makes that makes perfect sense and then just a quick follow up if you don't mind I think if I go back to one quarter ago on on this call. I believe you said you were planning at that point to open Parc 55 in December obviously omicron.
It happened has happened since then but was that the only change that really sort of affected that decision or was there anything else that sort of.
Has led to sort of further delay versus I think the you know the target as of 90 days ago.
Yes.
We said and again a lot of credit to Sean to the asset management team of men and women. There well. We've always said is that we will reopen hotels when it's financially viable to do so it was certainly our intent to open them that window, obviously, the new variant certainly delayed that.
But given as we look out now.
And encouraging signs in San Francisco as I mentioned, having city Wides north of 500000 above 34 events, plus or minus plus the in house group and the leads that we're seeing we think it's going to be probably in that April may timeframe will make the most sense to maximize.
And to reopen part 55 at that time.
Okay, great. Thank you Tom.
Yes, Thank you rich.
Our next question comes from Floris Van <unk> with Compass point. Please state your question.
Thanks, Laura.
Yeah.
Hey, Tom.
Yeah, I wanted to see if I can get you to say something a little bit more in terms of your own view of value I know one of your peers is out there very publicly talking about.
You know.
His view of his of his.
Shares and.
Will you be doing something similar to that and but particularly when when we look at your stock and we think there's significant value, but the street well, it's obviously higher much higher than where your current share prices appears to be somewhat lagging and there still seems to be fair amount of skepticism, particularly.
Regarding Neal.
Well, perhaps to your urban exposure.
Can you see anything more in terms of your replacement cost our views have not changed.
Since.
Since we spoke last and and.
And maybe about your thoughts about being a little bit more explicit with that with the investment community.
Yes, it's a fair question, we intend to.
<unk> put out a bid.
More detailed summary of NAV.
We clearly believe that and I believe consensus NAV is somewhere in the $27 a share.
Would certainly be in a range higher than that 28 to $32 range.
But we certainly plan to put out more detail.
And back that up and I think thats appropriate.
Again, we've got to make sure that we're jumping through the appropriate legal and disclosure hoops.
But it is our intent to provide more detail there. So that's 0.1 0.2 give.
Given obviously inflation given the barriers to entry that exist within our portfolio I think it's important to remind listeners.
There are many assets in this portfolio.
It would be impossible to replicate think about Hilton Hawaiian village 22 acres nearly 3000 rooms.
We are in the process of working on an out parcel to add a sixth tower. There as an example think about San Francisco with 3000 rooms over to city blocks or or the New York Hilton, There, which is south of 1900 rooms.
Would be impossible to replicate and so when you think about a replacement cost and given rising.
Inflation, certainly rising cost, we clearly think we're trading at.
Some discount probably in the 55% range and discount to replacement cost. So clearly we're undervalued and when you think about it.
How the recovery is going to unfold and the reopening of offices and people moving in mobility. We are seeing obviously significant growth in revpar and take <unk> as an example, north of 70% I know everyone's focused on.
And leisure markets as are we were also encourage Hawaii, we think obviously, we'll continue to benefit significantly.
We're not running we're running in the 60% occupancy there and on a more annualized basis, but keep in mind that hotel in particular ran.
97% or more pretty consistently my point being when you think about growth and where it's going to be the urban markets. Both from a business group and how many leisure standpoint are going to be participants in this growth.
We're confident in that we believe that and I think over time, we're certainly are going to see that so those that are writing off those markets I would respectfully submit that.
But there are their conclusions are a bit premature.
So hopefully that answers your question for us, we will be providing more detail on giving you a little bit of a summary, but no doubt we traded at significant discounts.
Thanks Robert.
The private market transactions.
Private market transactions that we've done.
Over the last year or two I think only reinforced that.
We sold two assets in San Francisco last year.
Both of which were trading at 19 valuation so the underlying value of the portfolio. We're confident is there and again the ability you can build select service hotels on every corner.
Building full service hotels of this scale and scope is.
We are very very difficult near impossible in many communities to be able to replicate.
Okay.
Hum.
Thanks, Tom if I can have one more question.
And maybe this is perhaps more for Sean as well, but.
As you know some of your peers or are exiting covenant waivers or are getting close to exiting covenant waivers as you consider obviously share repurchases with the fact that you want to exit your covenant waivers as well and you've got some.
You ideally want to be able to refinance the bonds hopefully with with proceeds from asset sales as well, perhaps how do you weigh all of those things and what is going to be.
Priority one is it is it.
Repurchasing some stock or is it first fixing the balance sheet and then repurchasing some stock or maybe think about it lay out how you think about that Sean.
And Tom.
Sure Floris, it's Sean I mean, I think we think about it in terms of some balance here you should think about as Tom alluded to kind of where valuation stands today I think we're going to be more certainly proactive in looking at.
Addressing it.
Cost of equity side of the equation, but we're going to be prudent. We're certainly beginning of the year, we feel confident how it is going to transpire.
But certainly we're going to be very balanced.
To be prudent about how we allocate towards stock repurchases knowing that we do have.
So essentially uses here as we think through refinancing through the latter part of the year with the bonds. We certainly think that we can refinance those that certainly much lower rates, even even the market J. It's open. It's it's working certainly it's not as voluminous as it was.
Prior to the fed take a little more hot hockey stance, but I think the the fact that it remains constructive on top of the fact that we should expect to see.
If things hold as we think it's going to hold improved operations I think well have a nice tailwind for us as we look to kind of take those out again as Tom mentioned in the springtime, so finite balance of savings from the dry powder to allow us to.
To execute on the plans throughout the year, but I think certainly as we sit here today I think certainly the focus right now is thinking through the stock.
And then and then kind of layering in the rest of the balance sheet.
Our plans as we go forward through the year.
And Sean if you were to quantify it today, if you were to refinance be able to refinance those bonds today, what kind of savings would you be looking at on an annual basis.
But you're probably looking at on the fact that you're probably you're probably in the neighborhood of I would say $8 million to $12 million.
On the <unk> hundred 50.
That's attractive.
Well it starts with an unattractive coupons, which one we want to get rid of as soon as we can.
I think well worth it fair enough.
Dennis.
Thanks, guys that's it for me.
Thank you.
Our next question comes from Anthony Powell with Barclays. Please go ahead.
Hi, good morning, everyone.
Good morning, Anthony.
A question on ROI projects I think Tom you said you wanted to spend $200 million over the next few years on those projects.
Why not do more I mean, when you look at some of your other peers theyre spending a bit more at the percentage of their total sizes on ROI projects, you've done well with our viewers.
If you were to Santa Barbara and <unk> feedback right now is a good opportunity to maybe lean in on on Capex. So just curious on your thoughts on that.
Yes, it's a great. It's a great question and Anthony we want to strike the right balance.
And there's no doubt when you think about our portfolio, obviously, the doubletree San Jose low hanging fruit, the curio and converting that.
I guess I'm oriented a curio makes all the sense to reach has just been a.
Been a grand Slam obviously, we've got.
The Doubletree Crystal City, and we've got we sit at the front door of the Amazon campus there.
We're evaluating what our options are there and studying and Theyre also or other assets within the portfolio, but obviously, we're making a huge investment.
The resort and Bonnet Creek, and what we're doing there with the expanded meeting platform both for the for the Cigna Hill. In addition to the Waldorf there and there are others that we are also studying.
New Orleans, Riverside, we've got eight acres there in <unk>.
Along the river.
Over 5 million square feet of additional if they are that's obviously a major project that we would.
Plan that master plan that and certainly execute that most likely with a partner over time and of course, we're looking as you know on the.
Adding the sixth tower at Hilton Hawaiian village, which is a major undertaking.
We've got that we got that entitlement work underway we.
We do have the.
Site.
Under control.
And so we're really excited about that but that too is going to be in the intermediate to longer term, so you'll hear more and more about some of the other embedded.
ROI projects that we have within the portfolio and I'm really really proud of the team.
<unk>, our chief investment Officer.
Carl Mayfield hazards design and construction and the men and women on our team that are working so hard on these initiatives.
Got it Okay, and then maybe just one more on pricing you mentioned, New York had pretty strong ADR.
So some of the other urban markets, maybe trail debate I guess, what differentiated the ability for you to drive price in New York and then when do you think that comes back.
Other urban markets like Chicago for example.
Yeah, we have a really talented team in New York and I think across the industry I think we've all learned that the race to the bottom doesn't help any of us. So I think youre seeing rates hold up better on the other thing is we had demand.
When <unk> got anchored business and you've got group and <unk>.
Having.
Having it layered with habit anchored with with group, having some contract allows you obviously to continue to push and priced the transient accordingly so.
Very encouraged as we sort of look at your also.
There is a little bit of confusion in New York, where you got near term talk of new supply, but the reality is given some of the legislation that's being talked about and some of the conversions.
Perhaps over time, New York does.
Does get to a better balance and certainly a more economic.
Our economic model as we move forward, but keep in mind. There are only three big hotels that really have the meeting platforms to be able to handle the big group and we would argue the Hilton New York has got the best platform.
Alright, thank you.
Thank you.
Our next question comes from Neil Malkin with capital One Securities. Please go ahead.
Hey, Neal.
Hey, Tom Hey, everyone. Thanks.
Bigger picture question Tom.
You guys commented that debt markets are improving.
You guys lodging region generally have lower leverage than in the private market players.
And then just given the large disconnect in valuations than has been well documented and you highlighted several times do you think that in 2022, given all of those things kind of coalescing.
That sort of take.
<unk> will start to happen and potentially.
<unk> as a catalyst for valuations.
Yes. It is.
Great question. Neil you would you would think if you I mean I've been around a long time as many of you know.
I think back to the.
Kind of early two thousands through 2006 2007, obviously there was a lot of take private activity then.
Given the fact that there has been a grueling two year period.
With Covid, there's been scoring I think management teams themselves, we've got to decide what they want to do.
And given the fact that you've got.
Tremendous liquidity the world is awash with capital I think you would need the debt markets to improve in and I think.
Improved visibility on the demand front and I think we're all getting that we're all cautiously optimistic and we are seeing some.
Some real rays of Sunshine out there I do think it's important to keep in mind. The fact that were all crossing the bridge and realizing that we've got to learn to live with Covid moving from this pandemic to the endemic phase, but I would certainly expect that there would be some take private and I think even some groups might even look at some M&A and some combinations.
I've been saying this for north of a decade, but.
But I certainly don't expect that you'll have 15 public lodging Reits plus or minus here and another another year or so.
Super helpful. Thanks, and maybe a little early on but can you just maybe walk through how.
Your.
Our customer service or guest satisfaction is going.
You're starting to see more of the core.
Traveler.
Be it group or be it a larger business travel what kind of start to come back.
Obviously, the brand standards mean revised outlets amenities, and obviously things being harder to staff.
Maybe thinking is on open as long or and not as many days.
Are you hearing from some of your core gas.
People, who are heavy users that they're they're not you're not exactly happy or you know frustrated with the new sort of level of service or business model or potential lack of <unk>.
<unk>, just given that the labour and brand standard sort of.
The environment we're in today.
Hey, Don we have not heard that and certainly talking with with our partners and especially.
Hilton being our largest.
Just not seeing.
The score is diminished relative to where they were prior to the pandemic I've seen a lot of cases up a little bit. So I think in the end I think people are Warner understanding.
To evaluate and someone who has got used to it to a degree but you know clearly the brands are very focused on that one to make sure that we're maintaining market share and we're obviously partnering with them and discuss it and having the right balance but in the end you don't expect.
Certain services to be coming back.
And yesterday, you know fundamentally appreciate appreciate that incremental service level. So I think we will naturally keep our scores at stable levels and positive level is going forward. So again short answer is we haven't heard anything negative really on the whole.
Okay. Yeah I appreciate that if I can just sneak one more in I just wondered Tom do you think that.
Again, given the discount and valuations to private market and kind of I would call your portfolio like chunky in terms of its exposure would you think of sort of proving the value by.
Selling you know some of your larger market exposures and into a joint venture of sorts and then using that that cost of capital.
To execute on some of your strategic priority.
Yeah, No. It's a fair it's a fair question. We're looking at all options all options are on the table to make sure that we close this valuation gap.
And again, we believe it begins first and foremost with the operational excellence proving out that thesis building cash flow getting that momentum selling non core assets.
Given the fact that we're out of the building gain tax requirement is a huge benefit to us given the fact that we've got net operating losses. The one thing I want to make sure that listeners understand is that not only do you have a great portfolio you have a very seasoned team here and we have a lot of optionality.
We're going to create shareholder value, we are steadfast in our commitment and working our tails off to make sure thats going to happen.
Thank you guys.
Okay.
Our next question comes from Ari Klein with BMO capital markets. Please go ahead.
Hey, Eric.
Hi, good morning I E.
Highlighted a number of hotels with potential alternative uses including <unk>.
Where does that rank on the priority for you and is that something we start to see this year.
It's a fair question as I've said.
So Neil I mean, all options are on the table.
Look the beauty is when you think about the quality of the portfolio the location.
The huge barriers to entry.
Near impossible to replicate.
All of those whether they are they are encumbered by debt long term agreements with Hilton some have a little bit of time share. So those types of opportunities just need to be studied carefully but theres no doubt that all options are on the table to close the valuation gap and create value for shareholders.
Yeah.
Thanks, and then maybe just on wages, but you know what kind of wage growth have you been seeing and what are your expectations. In 2002, and then from a staffing standpoint, where are you versus maybe where you'd like to get a daily.
Yeah. Yeah. This is Sean I think from a labor standpoint, and really kind of look forward, we're certainly seeing.
Yes, some increases in markets.
Orlando as being one of them, but in other markets generally stable unequivocally, we've got a portfolio that's it.
Heavily 6% call it union that.
You kind of have obviously contracted wage levels and so we think we're certainly feeling pretty good about our position about year over year increases as we go into 'twenty two.
That said I'd say from a room labor standpoint.
We're probably roughly call it around flat.
And ultimately it's a combination of the fact that we have fully staff labor in certain hotels in resort markets, but you know were understaffed in certain markets as well so love to kind of see if things stabilize.
Secondarily as you think about more so the F&B side, we're certainly seeing a lot more reduction in kind of year over year.
Levels or certainly relative to 19 levels I should say on F&B. So that one can also will also be one little bit choppy as we kind of bring that business back as well so as a percentage of revenue generally it's about holding about steady.
And again, we've got and certainly as depressed revenue levels. So we'll have to see.
As the portfolio ramps back.
But overall I think again I think what it comes down to this for US as you know from the Union side too we've got <unk>.
Contracted labor wage increases we also have the ability to bring our labor and versus having that kind of having issues trying to source labor. So I think that's actually a big benefit for us.
Maybe just a follow up on that for the union contracts any any of them coming up.
In the near future.
Yes, we do have a few that come up through the end of the end of this year, we will look to negotiate a few and I think San Francisco and Hawaii to name to name a couple of markets.
Yes.
Thank you.
Our next question comes from Bill Crow with Raymond James. Please go ahead.
Hey, good morning, guys.
One of your optimistic view.
Good morning.
Your view on San Francisco, and I'm, certainly hopeful that reopening pace picks up and local governments improves.
You know this market really began to struggle with groups before COVID-19 right and complaints were centered on high cost of holding meetings and homelessness and crime and so does the market need to adjust pricing in order to.
Be more attractive to groups that maybe offset some of the other challenges I guess more broadly speaking is there a risk that markets like Portland, San Francisco, even Chicago start to get red lined by meeting planners and instead, we see like everything else more of a shift in the sunbelt markets.
Yes, it's a fair point Bill and obviously.
One of the things that I had it Meyer about you given our long history together in this industry as you call. It the way you see it.
I think a couple of things to keep in mind.
Even this year when you think about San Francisco and again the high Watermark was about 1 million room nights as I said I think this year citywide youre looking at just north of 500000 and about 34 events.
<unk>.
You look at certain high end groups, whether there.
Farmer.
Education.
Whether they are tech and whether this the health care conference. There is a benefit to them being near the capital sources and given the fact that you've got great air lift.
Great cities that have got other amenities no doubt.
San Francisco is a tougher operating environment I went out and spent a few days there bill walking talking with employees meeting with the mayor meeting with her chief of staff meeting with the Chief of police I and another read CEO . In addition to a no other Ceos and other C suite leaders.
And driving home that you've got to have a safe environment first and foremost I think the phrase was what we've heard from meeting planners.
You can be expensive and safe, which you can't be expensive and unsafe. So I believe that the mayor understands that I believe that there are initiatives and good work underway as I mentioned, she's actually one sales calls as groups are trying to plug away and I think what youre seeing.
There are threats aren't so much Orlando is always a threat the bigger markets Atlanta to some extent some of the other markets I think are less of a real competitive threat for them Vegas as a as a threat, but it's a very different experience. So there's a natural audience for San Francisco I think they've got to work on the safety security.
I think they've also got to make sure that they've got to work on pricing and you're not wrong that it may be that it's at a slightly lower price point as they're rebuilding credibility and rebuilding demand as we move forward where I disagree.
When people sort of Red line and write these cities off.
I'm in these cities.
Im talking in watching.
As are many others and you still look at capital flows you look at California to look at the Bay area and I am not happy with some of the things that we saw but I am cautiously optimistic that they're beginning to move in the right direction understanding that theyre going to kill the Golden Goose here, because tourism is an important part in <unk>.
Visitation is an important part you can think about also the entre coming from the far east as well and given the great Air lift that you have so San Francisco is still one of the great cities of the world challenged a little now, but cautiously optimistic certainly come out of it do I think New York comes out of it sooner I do and I think we.
Saw evidence of that given the fourth quarter, how strong it was it would be interesting to see as we come out here in both getting into the spring and summer and Youre getting more meetings and people engaging.
Zoom work it worked as a Phil zoom is not going to replace the need to be together and I can't stress that enough.
And you will see a return to office you will see people gathering.
I have been traveling extensively.
What I find is people can go into the baseball games, the basketball games the football games, the Super Bowl College football, we can do everything but returned to work.
It's time for leaders to.
Provide the kind of encouragement returned to office is a good thing and I think youre going to see that just accelerate that also will help and be a catalyst here on the demand front.
I ask you these questions because I always appreciate your answer so thank you that's all for me.
Thank you Bill.
Our next question comes from Jay Kornreich with F. N B C. Please go ahead.
Hey, good morning, great to be on the call.
I was one of the amendments to your credit facility was increasing your acquisition ability to $1 billion I guess, what would you need to see in order to feel more comfortable turning to acquisition pipeline back on.
Yes, listen we are we're continuing to underwrite and look and like many of our peers I mean, we're focused on top 25 markets.
Upper upscale and certainly luxury assets in top 25 markets in premium resort destinations it's got.
Gotta be immediately accretive or near term accretive and when we look at where we sit today again the focus again on the operational side really improving the cash flows buying back stock opportunistically to get the value. So that we can get clearly a cost of capital.
Okay, it's more reasonable for us to.
To buy assets, we don't think it makes sense for us to be buying where some of the assets are trading and if you look at some of the leisure markets as an example, you're getting.
Inflated cash flows and at higher multiples and in some cases those cash flows are going to balance out and are going to have a reversion back to the mean, so I think it makes it difficult for those to be economically viable over time, so we're being disciplined and careful we continue to underwrite.
You will see park buying assets, we bought a company with this team is very experienced and buying assets portfolios companies, but will be thought about we'll be thoughtful about it in the context of our near term priorities priority number one is on the operational front priority number two is selling noncore using those proceeds to.
Buyback shares ROI projects looking for acquisitions, we will continue to be thoughtful and disciplined about our capital allocation decisions.
Okay. That's.
Fair perspective, and kind of leads me to limit it to the next question a follow up which is with the return to office finally, seemingly underway, which should lead to a strong recovery in corporate corporate travel are you expecting the no. The L. T outperformance in business travel and group under performance to kind of converge as we go throughout the year and do you see that.
Isn't traveling group demand returning at a similar pace or do you start to want to outperform the other.
Yes.
It's a great question and a bit of an unknown for all of US I will say that we are.
There is no doubt as you get the return to office and were hearing it broadly across industries leaders and I think many of you are as well I think we've all recognize enough.
And if it's staying home and there is a benefit were all stronger together when youre in your offices, whether its through two days three days four days whatever the company culture is.
And so we certainly expect that youre going to see that as the anchor and then youll from that <unk> business transient Youll see group, what I've heard from a lot of C. Suite leaders is because they are allowing people to work more remotely.
And then having them come to the office that youre going to see more business transient as a result of them coming back to the office more frequently and the other thing is for those that are allowing people to work a little more remotely and that balance for that particular company the need to get people together and more central locations for more group meetings either way.
Portfolios like park will really benefit from that given the fact that where were located in New York and Chicago, San Francisco and New Orleans.
<unk> et cetera.
Boston D C and so we feel good about that the other thing to keep in mind.
This concept of believes your travel, which I think is another growth and another opportunity for the industry as well where people began on the road.
Obviously for what begins as a business or perhaps a leisure trip and then ends up into a blurring of the lines for a business into a leisure trip as well for an extended trip. We see evidence of that we think that's encouraging so I think the signs for us all living in the bunker the days.
The bunker I think our ending people are getting back to work, they're getting back to the office, they're going to get back to traveling.
And we think that theres going to be this new age of it we're excited about it and really believe that our portfolio is going to is going to benefit from that.
Got it thanks, so much for the time.
Thank you.
Our next question comes from Chris <unk> with Deutsche Bank. Please state your question.
Yeah.
Hey, good morning, guys.
Morning, Chris.
Hey, Tom.
Want to ask about the Chesapeake portfolio and you guys, obviously didn't own that for a very long time for a COVID-19 started.
Sold a lot of the assets.
Some of those were capital situations. So the question is kind of as you look at it now is there any way to kind of recalibrate the potential of that portfolio. Once you now get in and get to do finally get to do all the remaining things you wanted to do with the with the core assets of it just any way to measure kind of what your revised.
Expectations for that portfolio are in terms of a return or yield or something like that.
I think Chris I'll take a stab at in terms of how we think about this kind of the synergies that we had talked when we bought that.
The portfolio when we obviously have recognized a big chunk of those through just eliminate the G&A side on the corporate side, we're certainly stood out to you.
Drive through additional synergies operationally through we thought could ultimately driving yield rate more.
We had some various projects we knew we could do within various certain assets, which we still own today.
So we're looking to obviously the pandemic kind of put a stall on that but as we kind of get more familiar with some of these assets I think we have seen also see more opportunity as well so as we come out of that.
The assets that remain I still think we have kind of in that neighborhood of 10 million in $5 million to $10 million of synergies. We can drive or you know EBIT of synergies, we can drive there and it's still a good amount of your revenue driving driving rate.
And thankfully through this pandemic I think people have gotten more emboldened to jointly.
Really drive rate so.
So I think we certainly think we can get that from these assets as well as some of the products, we have where we're converting additional meeting space.
Additional parking revenue sources.
And I like where we just think theres opportunities there just need that demand come back and take advantage of it.
Okay.
Thanks, Sean and then Tom I was just hoping to get perspective from you if I could.
Whether or not you think resort assets are.
Gonna have a permanently higher multiple are much higher multiple than urban assets. Once we get a little further down the road into the recovery and is there a way you guys might be able to take advantage of any arbitrage that's out there because I know youre not youre not going to walk away from from urban markets.
It's a fair question, Chris look we are we have always believed in the importance of having a diversified portfolio.
Think about our resort collection right now, we obviously have got Bonnet Creek.
Which.
Our basis there is about 300000, a key 300 acres Championship Golf course, that's next to the four seasons that traded at $1 $4 million a key.
We feel really good about that.
Transaction and where we are.
If you think about.
The two resorts that we have in key west and how well they've performed we've repositioned one will reposition the other.
Possible to replicate either of those two assets think about Hilton Hawaiian village in like Aloha.
Quaker lower we've shrunk the hotel and the GOP basis, it's more profitable than it was.
Nothing compares to Hilton Hawaiian village with nearly 3000 rooms, as we work on the <unk> tower, there and again, creating more value. So we don't think they're mutually exclusive I.
I think really part of it becomes timing.
How youre going to allocate capital.
Clearly everybody wants a resort property those those assets are trading at premiums today are those premiums are sustainable over the long term I think we will see.
But I think we all recognize it.
More focus on the leisure front now there aren't a lot of alternatives. So the cruise line business Hasnt really return international travel abroad. Hasnt returned keep in mind in 2019, we had 79 million inbound.
International travelers, but U S citizens traveling about $100 million.
It was about 100 million trips.
Passengers excuse me going into Europe , and other parts these things will balance over time.
No doubt there are world class resource out there that makes sense in those trophy, but but it's not unlimited.
And they have these things naturally ebb and flow over time.
Okay very good thanks, Tom.
Thank you.
Thank you next question comes from Robin Farley with UBS. Please go ahead.
Oh, no my Carrabba's on that transact Hi, how are you. It was on the transaction environment, which I think at this point, you've probably covered pretty thoroughly so im all set thanks.
Thank you Rob.
Thank you and that's our last question we have in queue I'll now turn the floor back over to Mr. Tom Baltimore for closing remarks. Thank you.
Well, we really appreciate each of you taking time today, we look forward to seeing many of you at the upcoming.
Citi Conference and other events Stacy.
Stay safe be well and we really look forward to seeing each of you in person.
Thank you. This concludes today's conference call. All parties may disconnect have a great day.