Q1 2022 Park Hotels & Resorts Inc Earnings Call
Okay.
Greetings and welcome to Park hotels, <unk> resorts first quarter 2022 earnings conference call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Ian Weissman Senior Vice President corporate strategy.
Thank you you may begin.
You operator, and welcome everyone to the park hotels <unk> resorts first quarter 2022 earnings call before we begin I would like to remind everyone that many of the comments made today are considered forward looking statements under federal Securities laws.
As described in our filings with the SEC. These statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed and we are not obligated to publicly update or revise these forward looking statements.
Actual performance outcomes and results may differ materially from those expressed in forward looking statements. Please refer to the documents filed by park with the SEC specifically the most recent reports on forms 10-K, and 10-Q, which identify important risk factors that could cause actual results to differ.
Or from those contained in the forward looking statements. In addition on today's call, we will discuss certain non-GAAP financial information such as <unk> and adjusted EBITDA.
You can find this information together with reconciliations to the most directly comparable GAAP financial measure.
In this morning's earnings release as well as in our 8-K filed with the SEC and 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, who will provide a review of park's first quarter performance and outlook over the balance of this year.
Sean <unk>, our Chief Financial Officer, who will provide additional color on first quarter results as well as more detail on our balance sheet and liquidity as well as provide additional information on second quarter performance. Following our prepared remarks, we will open the call for questions with that I would like to turn the call over to <unk>.
Tom.
Thank you Anne.
And welcome everyone.
I'm very pleased to report stronger than expected first quarter results.
As we enter a new phase of the recovery.
More specifically I'm.
I'm incredibly encouraged to see demand accelerate across all segments.
While we expect a continuation of strong leisure demand across our portfolio.
Coverage of both group and business transient is gaining momentum.
With some of the most negatively impacted urban markets seeing demand up 300% since it started the year.
In addition.
Covid case counts down significantly in the U S.
And more companies returning to the office.
Our urban portfolio has witnessed a sharp rebound.
Specifically in San Francisco.
In New York, where second quarter occupancy is forecasted to nearly double over.
Over the first quarter to nearly 60% in both markets.
Further support the broad based recovery, taking shape within our portfolio.
And in Hawaii, we are very excited about the upside potential, especially in Honolulu with the return of travelers from Japan expected toward the back half of this year.
Which should help support a meaningful acceleration in our earnings with Japan, representing nearly 20% of demand in Hawaii in 2019.
Looking at parks 2022 priorities.
We continue to see the benefits of our operational initiatives and realizing a more efficient model and the opportunity to create value by executing on our capital allocation priorities.
Including stock repurchases and ROI initiatives.
We remain committed to upgrading the overall quality of our portfolio.
And plan to take advantage of the strong bid for real estate in the private market through targeted asset sales.
Supported by our diversified portfolio.
Rapidly improving backdrop.
And our healthy balance sheet, we believe park is incredibly well positioned in the quarters and years ahead.
Touching briefly on the macro backdrop.
Despite concerns over global geopolitical uncertainty and.
And higher commodity prices, we have not seen a noticeable impact on our business as the U S economy continues to grow.
Driven by healthy consumer spending.
Strong corporate profits.
And record low unemployment.
Coupled with the widespread shifts and return to work policies among the largest companies in the U S and declining Covid cases.
Macro environment should help fuel a full recovery and <unk>.
<unk> industry by the end of 2023 if.
If not sooner.
Starting with group we.
We have witnessed a material increase in demand within the past two months as declining Covid cases, and loosening travel restrictions have translated to significant increases in both lead volume generation and actual group bookings.
The pent up group demand that we saw in the fourth quarter pre omicron.
Zoom by mid February with first quarter group demand, achieving a 35% sequential improvement to Q4 <unk>.
Despite widespread cancellations in January and group bookings for both 2022 and.
In 2023 increase threefold in March by approximately 200000 room nights versus just one month prior.
With over $44 million of group business added during the month.
Currently our group pace for Q2 through Q4 of 2022 sits.
Sits at 66% of what 2019 bookings were as of March 2019.
In group pace for the full year 2023 sits at 73% of 2019 pace as of March 2018.
<unk> in group trends is particularly evident at our urban hotels.
In markets like San Francisco, New York, Boston D C and Chicago 2022 group bookings accelerated materially from.
From February to March with some markets seeing a 25% increase in pace.
Our group demand in.
Improved 400%.
From January to March or our urban hotel portfolio overall.
We are seeing similar pricing power among our or groups that we have seen with leisure travelers, including very strong ancillary spending resulted in March group contribution.
Exceeding 2019 levels in markets like San Francisco, New York, Orlando and key West.
We are encouraged by recent trends and feel confident that our group oriented hotels will realize outsized growth over the near term and will return to pre Covid group demand levels in 2023.
Additionally, we expect business travel to accelerate during the second quarter paving the way for a healthy portfolio wide growth in the second half of 2022.
Business transient demand saw promising improvements beginning in February .
We're becoming a 34% sequential decline in January .
With a 25% sequential growth in February .
And a 46% sequential growth in March resulting in March business transient revenues were just 16% below March 2019 levels.
In addition.
Midweek occupancy for our hotels that cater board of business travelers improved to 56% in March up.
Up from just 27% in January highlighting increased mobility as the Covid wave receded looks.
Looking ahead.
Second quarter transient pace was down just 11% at the same time in 2019.
The pace of improvement continues to accelerate.
Just the last four weeks, we have seen overall transient pickup increased by 7% over 2019 levels and encouraging indicator of demand trends as we as a broader return to office unfolds and leisure demand remains healthy.
Some.
We expect business transient demand to continue to build.
Out the year and into 2023 accelerating parks overall growth profile.
Looking briefly at portfolio results Q1 came in ahead of our expectations and portfolio wide ADR surpassed first quarter 2019 levels for the first time since the start of the pandemic.
As mentioned earlier results were driven once again by robust demand trends in Hawaii, Florida, Southern California, and Puerto Rico and.
Importantly.
We are seeing an inflection or urban markets.
As we have also witnessed a strong uptick in business transient and group demand across several of our core urban hotels, including San Francisco.
New York, Boston D C and Chicago by the middle of the quarter more specifically.
Hotel occupancy or our core or urban hotels across these five markets increased by more than 2700 basis points on the January lows to nearly 47% in March and are on pace to be near 68% during the second quarter.
Based on our current forecast.
Turning to some highlights from our core markets.
Hawaii continues to exceed expectations like Aloha surpass first quarter 2019, revpar by 32% and exceeded first quarter 2019, EBITDA by $1 $2 million or nine 5%.
On half as many hotel rooms compared to 2019.
Our hotel EBITDA margins exceeded 2019 levels by nearly 700 basis points.
Hotel hosted.
Two near buyouts during the quarter, which helped push banquet revenues, 19% ahead of first quarter 2019.
At Hilton Hawaiian village hotel consistently outperformed budgeted expectations throughout the quarter with March Revpar, just 5% below 2019 levels, while EBITDA margin was up 140 basis points compared to March 2019.
Testament to effective operating model changes.
Based on our current forecast, we expect our Hawaii hotels to surpassed 2019 revpar on a combined basis during the second quarter. Despite a lack of international demand, which has historically been around 30%.
Overall with the return of the international travel are expected to occur during the second half of the year.
And further accelerating our growth profile.
South Florida remains incredibly strong with our key west hotels exceeding 83% occupancy during the first quarter.
ADR has continued to climb reaching $752 during the first quarter.
Our more than 60% higher than levels achieved during the same period in 2019.
Miami occupancy topped 82% while rates at our Royal Palm Hotel for nearly 30% higher than Q1 2019.
We do expect a modest deceleration of growth during the summer as our hotels start to lap revpar growth rates of 150% to 200% on average achieved last year. However.
On the metals remains strong in South Florida for continued.
Is your strength.
Looking at some of our urban hotels.
In New York Omicron tip.
Hit, particularly hard in January but the market quickly rebounded in February with occupancy improving nearly 21 percentage points sequentially to 34%.
And a 54% in March as the removal of the vaccine and mask mandates in early March led to a sharp increase in reservations based on preliminary results.
April occupancy is on pace to be approximately 70%.
Domestic leisure has made up the bulk of the demand thus far but there are encouraging signs of material improvements for both business transient and international travelers and the group outlook looks strong.
Group pace up over 96% for the balance of 2022.
Overall, we expect the hotel to end the year.
At over 80% occupancy with average daily rate above 2019 levels in San Francisco the outlook is very promising.
Based on preliminary results are open hotels are expected to report occupancy of over 64% in April .
And more than 22%.
Improvement from March with the pace of improvement expected to continue throughout the second quarter.
Group returns to the market.
Tech companies resumed travel and leisure production accelerates.
Performance has been particularly strong at our 1900 room Hilton San Francisco in Union Square.
With occupancy improving to 60% in April based on preliminary results.
Up from just 30% in March.
Given better than expected group production, we made the decision to accelerate the reopening of Parc 55, which is now scheduled to open on or around may 19th.
Hotels expected to quickly ramp up with forecasted occupancy over the back half of the year.
<unk> to be just 10 percentage points below 2019.
Performance should accelerate as we move through the second quarter.
With hotel occupancy for our San Francisco assets.
Excluding the still closed Parc 55.
Forecasted to exceed 70%.
As demand trends improve our efforts to re imagine our operating model since the onset of the pandemic and translated into improved flow through and strong margin gains with our cost saving initiatives expected to yield 300 basis points of margin expansion peak to peak.
As a reminder.
We have eliminated $85 million of operational expenses across our portfolio.
A majority of which are managerial salaries and benefits that we expect to continue to maintain even as demand levels return to pre pandemic levels.
By way of example.
At our two Hawaii hotels, we are successfully.
Maintain a nearly 30% reduction in mid level management staff despite.
Nearing 80% occupancy during the first quarter. In addition, our properties continue to evaluate their food and beverage offerings flexing.
Flexing outlet openings based on demand and rethinking concepts and products to ensure profitability in alignment with changing guest preferences.
As demand returns our properties will continue to employ thoughtful staffing strategies to help minimize unnecessary cost creep going forward.
Turning to capital allocation priorities, we remain laser focused on pursuing strategies to create long term shareholder value.
Accordingly, we remain committed to taking advantage of a strong private market bid for real estate and anticipate executing on our stated goal of $200 million to $300 million.
Non core dispositions this year with over $100 million already under contract.
Proceeds will be reallocated to repay debt repurchase.
We repurchased stock to the extent that deep discount to our internal NAV.
Estimates persist.
And invest in our pipeline of in process ROI projects, including the Bonnet Creek meeting platform, the rebranding and renovation of the Waldorf cast Marina in key west to a curio and the conversion of the doubletree in San Jose to a Hilton all of which should generate returns in excess of 15% to <unk>.
8%.
While enhancing the overall quality of our iconic portfolio.
To briefly recap.
We are very excited about park's setup for the balance of 2022 and into 2023.
Hawaii is expected to continue to outperform expectations.
Particularly from the robust pent up demand.
From our Japanese travel partners and it's expected to materialize by the summer accelerating group and business transient demand should help push growth among our urban assets with these assets expected to fully recover next year.
While labor remains a near term headwind in certain markets.
Remain confident at our cost savings initiatives will translate into more efficient operations.
As demand recovers.
With over $1 5 billion of liquidity.
And just 1% of debt maturing in 2022, we have ample liquidity to execute on our capital allocation priorities to help drive growth overall.
Overall, we remain laser focused on creating shareholder value and narrowing the valuation gap with our peers.
Our 2022 priority squarely focused on operational excellence and realizing the embedded 300 basis points upside potential in operating margins.
Recycling capital and taking advantage of a strong private market bid for real estate unlocking the significant embedded.
Value in our portfolio by reinvesting in our hotels through our robust ROI pipeline and continuing to improve the quality of our balance sheet.
To provide for enhanced financial flexibility and Optionality.
Executing on our long term growth plans.
Now I'd like to turn the call over to Sean.
I will provide some additional color on operations, along with an update on our capital allocation priorities balance sheet and guidance.
For Q2.
Thanks, Tom.
Overall, we are very pleased with our first quarter performance as the recovery has expanded beyond leisure travel pro.
Pro forma revpar improved sequentially to $116. Despite a 60 basis point decline in occupancy to 51, 9%.
While rate averaged an impressive $224 during the quarter, a 7% sequential improvement over Q4 2021 and in line to the same periods in 2019.
First quarter results were negatively impacted by the Spike in case counts in January however, as concerns over omicron waned toward the tail end of the month, we witnessed a sharp rebound in demand over the balance of the first quarter with revpar improving by 45% in February from January and by 26% in March to a $149.
Sure.
Total operating revenue for the portfolio was $463 million during the first quarter.
Hotel adjusted EBITDA was $89 million.
The resulting in hotel adjusted EBITDA margin of 19, 3%.
Margins quickly ramped up as we move through the quarter, increasing from a low of just two 8% in January to 29, 3% in March.
Note that our first quarter EBIT margin was down slightly to Q4 2021 due to a $7 million sequential increase in property taxes.
Overall Q1, adjusted EBITDA was $82 million and adjusted <unk> per share was <unk> <unk> for the quarter with.
With March <unk> coming in at nearly $35 million.
Turning to the balance sheet, our liquidity currently stands at over $1 5 billion, including over $900 million available on our revolver and approximately $640 million of cash on hand.
Our net debt sits at $4 2 billion.
With respect to potential refinancing opportunities with.
We continue to monitor the credit markets as both treasuries and spreads have widened resulting in a meaningful increase in borrowing costs over the past couple of months and.
In spite of this <unk> balance sheet remains very good shape with 99% of its debt fixed and just $84 million of debt maturing within the next 12 months.
We will continue to closely monitor the debt capital markets and update you on our refinancing efforts over the course of this year.
On the capital return front as previously announced we re initiated our quarterly dividend in the first quarter at one per share and expect to continue paying a one per share dividend over the next couple of quarters.
Ending the year with a potential for a fourth quarter top up dividend.
Also as previously reported we bought back a total of $61 million of stock during the first quarter at an average price of just under $18 with nearly $190 million of capacity still available subject to the limitations outlined in our credit facilities.
Overall buybacks were executed at a nearly 40% discount to our internal NAV estimate or just 10, three times 2019 pro forma adjusted EBITDA.
In fact, when comparing to recent transactions, we have evaluated in recent months.
There is simply no better use of our capital.
Buybacks more than twice as accretive to earnings and buying hotels at North of 14 times 2019 EBITDA.
We believe the stock remains undervalued and we will update you on future buybacks during our second quarter earnings call.
Finally, as Tom noted in his earlier comments the pace of improvement has been remarkable.
And while Covid led to an unprecedented uncertainty over the last two years I am thrilled to announce that we have decided to reinstate earnings guidance for the second quarter based upon the broad based recovery taking shape within our markets.
Especially across our urban portfolio of hotels.
Accordingly, we are establishing Q2, revpar guidance of $160 to $164 or 15% below 2019 levels at the midpoint.
With adjusted EBITDA guidance for the second quarter between $160 million and $180 million or 18% below 2019 pro forma adjusted EBITDA at the midpoint.
Hotel adjusted EBITDA margins will range from 27% and 29%.
While <unk> per share will range between 40 and 49 for the second quarter.
This concludes our prepared remarks, we will now open the line for Q&A.
Dress 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.
Yeah.
Thank you ladies and gentlemen at this time, we will be conducting a question and answer session.
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Our first question comes from the line of <unk> <unk> Rose with Citi. Please proceed with your question.
Hi, good morning.
Needs.
I wanted to.
Actually just two quick questions.
Relative to our forecast the kind of other revenue line was quite a bit higher than what we had been anticipating and I was wondering if you could maybe talk about.
Customer spend sort of out of pocket spend during the quarter, what youre seeing there and where there may be some cancellation fees built into that number as well.
Yes means as Shawn you are talking through Q1.
<unk> here and then you can pre recall with obviously with a lot of omicron related cancellation on the group side cancellation fees were certainly a bit elevated if you're kind of tracking relative to your prior depending on levels of kind of model that way I would say that's the biggest gap youre probably seeing at this point is I would say we're probably.
Normalize around $2 million or so of cancellations in any given quarter and we're around $10 million for the quarter.
I think that's probably the biggest gap I think as you look at occupancy levels and whatnot certainly being.
Down meaningfully to pre pandemic levels, but from a resort fee standpoint, and which is in that line, we're probably about 5% down. So I think those probably the two combined are probably where you might be a little bit off.
Okay. Thanks, and then I just wanted to ask you you touched on it.
The private bid for four asset sales and I just was wondering given the rising cost of I've got and some things we're seeing going on in the <unk> market kind of what what have you seen just kind of more more recently.
From potential buyers and would you guys consider doing seller financing as a way of maybe getting a deal done.
Yes, I would say smedes one's great to speak with you that obviously there is tremendous capital whether it's private equity whether it's high net worth whether its sovereign funds.
Clearly.
As we look out and certainly limited supply growth.
And as we demonstrated last year as you know, we sold five assets for $477 million at pretty attractive.
Cap rates or multiples, we see really no slowing down of the debt markets are a little choppy and have widened out a little bit.
But it's still no real hindrance in getting a deal done.
Seller financing is really not something that we're considering at this time and we don't really think it's needed.
The types of deals that we're looking at transacting on.
Great. Thank you very much.
Thank you have a great day.
Our next question comes from the line of Floris Van <unk> with Compass point. Please proceed with your question.
Hey, guys good morning.
Yes, Tom.
Capital allocation you talked about.
Obviously, you had some a little bit of flexibility are you were you did buyback some stock I think that's I think a lot of investors. Appreciate that you are willing to put your.
Money, where your mouth is but.
Maybe talk about how do you weigh.
<unk> New investments for example building another tower in Hawaii at Hawaiian village, where essentially potentially you double your capital when that when the doors open because the values. There is so much higher than replacement cost.
How do you.
Those competing.
Demands on your on your on your capital.
For us it's a great. It's a great question I think the first thing and I think we've been really crystal clear about that and that is that.
When you were trading at the kind of discount that we are at 30% to 40% as Sean noted in his prepared remarks.
The highest and best use of available cash for us is really investing back into our portfolio either.
And buying back stock or in the case of reinvesting in the ROI projects and Bonnet Creek is a great example of that.
Finding that right balance is as important you will expect we've set a target here of selling obviously noncore assets of $200 million to $300 million I would expect that we will at least meet that if not exceed that.
And then we will use those proceeds and will allocate.
Carefully.
Where the stock is trading and that discount in terms of buybacks and what we're permitted to do and we certainly expect to be out of the covenant.
Restrictions here in the near term if not if not second quarter surely.
Shortly thereafter, which will also give us increased flexibility, but reinvesting back in the portfolio as you look at something like Hawaii, which is just an extraordinary asset 2900 rooms, where we're working through the entitlement process now we're still a few years out where we really have to make that decision in terms of investing we're doing all of it.
The entitlement work will obviously design and work through that but Fortunately, we don't we don't need to make that allocation decision on that in the near term here.
Great.
My follow up.
If possible so.
Are you sort of touched upon the fact that youre going to be you expect potentially to emerge from the covenant waivers in the second.
In the second quarter.
Do you where do you see your split between resort and urban at.
At the end of this year and do you have like an optimal.
And optimum a.
Percentage of your portfolio and has that changed over the over the past 18 months in your view.
Okay.
Got it.
Yes.
Yes.
Listen to tier two things as Sean is going to just give you a little more clarity on the on the covenant piece. So let me youll come back to that in a second.
I said, possibly by second quarter Hill clarify that just where we are.
The other point is we don't look at.
Obviously, Hawaii is 25%.
We have two phenomenal assets there, we're certainly not looking to necessarily add more product in Hawaii, we are not looking to obviously sell either of those assets.
At this point as well on the urban front, we will continue to evaluate markets.
As we've said, we certainly like others are looking at what's happening obviously in.
In the southeast and certainly markets that we to find attractive whether that's.
A nashville or in Austin, our Phoenix, obviously, theres a lot of supply coming so we certainly want to be thoughtful in that respect as to how we're allocating capital.
But as we look at the urban the urban markets.
We're seeing we fully expect here that youre going to continue to see that recovery accelerate.
That's going to be very attractive to us as we move forward.
Yeah and your floor is just to clarify we shouldn't expect that we have the covenant waivers through Q3, and certainly expect to be in position, where our covenants. When you annualize Q2 will be really strong because ultimately.
Since it's not really truly tested and you don't get out and test it that way in Q2.
We're only expecting kind of more more towards Q3, obviously, we get a lot of work to give us a lot of flexibility in that during that covenant waiver periods are not too worried about us functioning as we need to through Q3, but I think candidly, we won't be out of it until Q3.
Thanks, guys.
Okay.
Yes.
Hello.
You got to go on.
Yes, the park team is here.
Alright.
For me I will open the floor up to the others.
Yes.
Yes, I think we have.
Operator, we can ultimately go to the next question in the queue. Please.
Our next question comes from the line of Anthony Powell with Barclays. Please proceed with your question.
Hi, good morning, everyone.
A question on leisure pricing and I think that you said that you expect to see copper tougher comps in the summer leisure properties with which we all expect I'm curious do you expect to be able to push pricing over 2021 levels in some of these markets or do you worry about inflation, maybe taking away some personal power some of these properties.
This summer.
Anthony one great to hear from me I'm, sorry, we had a little bit of a delay there, but hopefully we've got that corrected.
Look we were we were seeing a little bit of moderation.
Really in the context of what we're seeing in key west is as Sean noted.
We're looking at numbers that are 150% to 200% above.
Obviously please.
Previous thresholds, which obviously are healthy.
Having said that as we sort of look out here.
In Q1, both Casa and the reach were 46% to 50% over and and Revpar certainly versus 2019 were expecting were.
<unk> going to be.
And that 40% to 50% range here as we look out there's a little bit of.
Moderation, but theres still going to continue to be strong.
As we sort of look out over a Hawaii and Hawaii really Hasnt had a great run. So we are just incredibly encouraged and as we said as we look out in second quarter there.
We're looking at probably both properties combined probably being a revpar over 7% over 7% of what we had in 2019, but clearly.
Like Aloha has just been incredible performer and clearly in that 45% range and fully expect that that's going to continue to it's going to continue there. So.
We see no real retreat other than probably pockets of of just trees don't grow to the sky and given the fact that <unk> is just chip just been so extraordinarily successful.
Slight moderation there is not unreasonable.
Got it Okay, and then maybe on Hawaii.
You mentioned, you're very positive on our second half of the year.
Given the return to the Japanese traveler.
<unk> was <unk> <unk>.
<unk> 21 year low so I'm curious how currency plays into your view of Hawaii in the back half of the year as.
Those travels or phases based on interest that some currency headwinds I guess.
Yes.
It's a fair point, Anthony but I think if you look at.
Japanese travelers into Hawaii over the long run I mean, they've consistently been about 1 million and a half.
Visitors.
As you think about Hilton Hawaiian village for US, it's about 30% international of that about 60% of that so 20% in total obviously coming from Japan.
That's down over the last two years has been significant pent up demand and they've been absent.
And that their visitation is down about 97% plus or minus so they spend more and they stay longer.
And we just here and we believe just based on the trends in the discussions that we're having that that recovery and that return is coming in really going to be robust and pretty significant. So we're really encouraged by that and fully expect that in the second half of 'twenty two into 'twenty, three and beyond and <unk>.
Over the last 30 years, it's really been a that group.
Important.
Partner base has been.
Just consistent.
And we fully expect its going to return.
Okay. Thank you.
Okay. Thank you.
Our next question comes from the line of Chris <unk> with Deutsche Bank. Please proceed with your question.
Yeah, Hey, good morning, guys.
Good morning.
Good morning appreciate the decision to give guidance again think that gives us all a little bit of confidence and since it's your.
First time going back to what I want to go easy on you but.
Based on what you said about March numbers, you gave out and then <unk>.
Celebration into April .
It seems like those could be pretty conservative. So I guess the question is is April the April the strongest month of the quarter from where you sit now.
Yes.
Full of things Chris look we.
It's a conservative team here.
Just based on the trends we are confident in the guidance.
And look and we hope that we're having this discussion in less than 90 days from now and certainly meeting and exceeding that.
But the reality is I think listeners should gain confidence that the management team is confident we are seeing very encouraging signs.
Remember theres been a lot of people that have been.
Certainly understandably concerned about certainly on the group and the business transient on the urban I think it is clear that debt.
That those segments are accelerating and we are confident that thats certainly going to continue.
Okay.
That's fair Tom and then.
On the dividend I think you mentioned.
The tiny for the next couple of quarters, but beyond that and understandably you are still getting the balance sheet back to where you want you have to come out of the covenant relief, but.
Beyond that with the 10 year at 3%.
Where do you think you might land or would you like to land relative to to say 19 given that the.
The competitive yield is now not a lot higher.
Yes, it's a great question look we've decided as a team in the past we had a set dividend.
And then of course, we would do a modest little top off we've decided in this environment, particularly as we will be continuing to recycle capital that will use more of.
Fourth quarter sort of top off strategy here in the near term.
We will be thoughtful we will continue to put out additional information we thought it was important to lead with the <unk> and then we will continue to adjust that as asset sales and as the business operations improve and you can expect to get more clarity on that in the in the weeks and months to come.
Okay.
Okay very good thanks, Tom.
Thank you.
Our next question comes from the line of Danny Assad with Bank of America. Please proceed with your question.
Hi, good morning, everybody.
Ken Tom or Sean.
Chris This question a little bit differently, but.
Q2, Revpar outlook of down 15 is just lower than your April run rate. So.
So just when we're thinking about May and June can you kind of just help us unpack that whether it's you know are there is there like an implied DSL in specific markets and specific segments or is it just youre.
Well, we Havent, we don't were not really we don't have as much visibility into some parts of the recovery. So we're going to be conservative and kind of laid out that way.
Yeah, Danielle I'll give it a I'll give it a shot to Tom already went there I'd say that again I'll kind of under underlie the underline that the conservative this in here as it's as Chris one easy on US. We certainly are coming out for the first time guidance a couple of years one they can certainly take a conservative tone, but realistic tone, but I would say that.
Bottom lines May we were coming off the leisure strong leisure elements of April So may is a little bit.
A little weaker than April but June I'd say is in line to slightly better than April .
<unk> made a little little bit soft.
But overall again I think we feel pretty good about what our guidance with the guidance we've given you.
Understood. Thank you and then for my follow up.
And just a little bit it's been a bit tricky to map out that margin recovery pattern only because you have so many moving pieces right there.
Cost reductions you have some labor issues in some markets that are offsetting that we don't know we haven't seen the full picture of the labor.
And some of those markets.
Returns from ROI projects and so all these things are beyond kind of how we would think about the core portfolios normal margin recovery. So how do we think about that for the balance of the year and is there any are there any significant milestones.
We can look for to see kind of Oh, there will be an inflection for example, New York or San Francisco hurt hit certain thresholds or something like that.
Yes, I think I mean, I think when I think about it for one I think.
The getting back to the group and a more stabilized were down 600 points or 600 basis points on mix on group and where it's down significantly relative to Q.
19 on banquet and getting revenue so you're talking about a line item that youre getting 45 ish percent margin on versus more reliance on outlet, which has been great and we're actually more profitable in that in the outlets, but we're only it's only about 12% margin herself saw 15% margin so getting that mix back I think.
That's going to help I think demonstrate some of the margin strength here. So we just need to get to more stabilized mix in our business. When you start comparing to prior pre pandemic times, but when you look back at that portfolio.
We've obviously had this group of assets, even if that one's probably always should we have the data and you look at kind of the great recession 2008 to 2000 10011, you got Revpar drops of 10% to 15% margins are down 500, 600 basis points relative to where we're talking about 50% down at the midpoint on our for the quarter and you're only down 300 basis points or <unk>.
So in the margins. So I think I think you're seeing it in different ways, but it's going to take a little time to kind of get through kind of the variability of some of these different elements of the business coming back at different times.
Okay.
The only thing I would say probably are as well.
We are laser focused as we've said on and working with our.
Our operating partners to re imagine the operating model and we standby the $85 million.
And cost it's about 200 jobs the vast majority of those are <unk>.
And management positions.
Obviously, the pandemic forced all of us to think about the business differently and to respond to customer preferences and the changing customer preferences.
Evidence of that as you think about first quarter.
Our labor expenses were down 73 million just in the quarter and a lot of that coming in food and beverage labor a lot of that coming in sales and marketing.
Look we understand it's a bit of a show me story investors aren't giving us any credit and certainly analysts aren't giving us credit for it but we are very confident.
Confident that we're going to continue to demonstrate that in as Occupancies in the business comes back and continues to accelerate youre going to see that it is a very different operating model and that they are much better profile as we look out.
Okay very helpful. Thank you very much.
Great.
Our next question comes from the line of Ari Klein with BMO capital markets. Please proceed with your question.
Thanks.
Maybe on the group booking obviously been improving quite a bit of late wanted to dig in on the rate side, which is flat for 2002 and up to 5% by 'twenty three versus 2019.
The rate back up or evolved quite a bit in some of these bookings were originally ACO was hoping to get some color on how more recent bookings compare versus 2019.
If you expect more of an uplift from the narrow body weight.
Yes, I Couldnt really give you a big heart a lot of hard data on sorry, but ultimately talking with with our folks.
At the brand operators for ultimately, saying, yes, we're seeing more a little more pricing power on the group side or also in implementing and we're working through ways to.
Bringing some some adjustment factors in as you think about bookings that are done in some of the outer years and yes, I think it through inflationary elements too that are going to have the ability to adjust where truly has not been there over the last several years, even even in the last cycle. So those kind of elements are being now brought into the contract discussions so you're starting to see that you know more pushing on the rate side and the <unk>.
<unk>.
Got it and then just on on group pace, 23, 73% and Thats kind of flat to where it was at at the end of December .
We expect that gap continued to narrow moving forward.
Yes. It is.
No doubt about that I mean, if you look at that obviously.
Obviously, you're seeing Orlando continue to really accelerate.
In New York City, Hawaii DC.
Even as we look out on San Francisco, So very encouraging there.
And again, given the booking window, what we saw here just in one month of that $44 million in incremental and about 200000 room nights.
We expect that's going to accelerate.
Thanks.
Our next question comes from the line of Jay <unk>.
With NBC. Please proceed with your question.
Hi, Thanks, Good morning, as you mentioned good morning, Alex.
Good morning, as you mentioned seeing solid pickup in the urban markets can you just give us a little more color with what youre seeing on the ground and maybe highlight how San Francisco's improving and drive that business transient and group demand.
Okay.
Yeah.
No.
Obviously, we've been talking a lot about San Francisco I've been out personally several times over the last several months.
No doubt I think.
<unk> leadership, there we continue to have outreach through our operators there.
Chief of police the other leaders in the street conditions continue to improve so the safety and security issues and important part of that.
And then as you think about the citywide.
But 34 events, just south of 400000 room nights.
As we look out.
Yeah.
Obviously in the second quarter you got.
Our IMS com.
Conference their heart rhythm about 6000 attendees RSA, probably about 20000 attendees providing.
Pretty good citywide coverage here as we look out hence, giving us more confidence to reopen Parc 55, so very very encouraged obviously as we said earlier youre looking at Hilton, San Francisco, which was at 30% occupancy and margin increasing to.
60% there in.
And.
In April and we expect probably second quarter to be in the 65, 65% range. So it's a very very encouraging picture, obviously, the J W. Marriott and Hilton Fisherman's Wharf have been really strong performance for us in the mid to high <unk>.
What we saw in April and we expect obviously in the second quarter, having occupancies in that mid Seventy's is we are as we look out so still a little flat on revpar.
A little bit more of a discount there than we're seeing in other markets, but no doubt the outlook is.
Far far more encouraging than what we saw 30 60, 90 120 days ago.
Yes, I would add to that if I could just to say that you can think about pick up activity across the portfolio. It's certainly been driven a lot by some of the urban markets here lately, Hawaii and Orlando remained consistent performers, putting up together about $4 million to $5 million a month for the year for Neil each month pick up but you think about looking at the four main <unk>.
Marcus I think they have been really challenged in New York, San Francisco, Chicago and D. C. You had about $4 $5 million of cancels.
At the end of the year for our 22 by the time, we get to February was just over $1 million of cancels amongst those four markets and then you turnaround in March it was $11 million positive pickup across those four assets are four markets I should say with a big a big jump for for New York, which is up $7 million of pickup so I think and again clearly.
Clearly youre seeing youre seeing that turnaround that inflection point driven by the urban markets and on the group side.
Got it that's great color. Thanks for that and then just as a follow up I believe you previously targeted the summer months for international demand to more strongly returned.
Markets like Hawaii, San Francisco, New York, and I know you spoke about of the Japanese customer base I'm curious of your updated thoughts on demand from other countries returning as theres been some uptick in Covid cases abroad, specifically in China. So just curious how you see the international demand coming back throughout the year.
Yes, I don't see China, obviously, China has been a.
Pretty small part and when you think about it largely youre getting the international coming from obviously, the UK coming from Canada, Youre, having from Mexico. If you think back we were you were about $79 million.
In terms of inbound on the international front in 2019.
We don't expect to probably get back to those levels.
For for certainly a few more years.
But as.
And as we as we think about.
The Japanese travel very confident that's going to come back, but really youre going to see it coming out of <unk>.
Three markets that I mentioned coming out of Europe .
Coming out of Mexico, coming out of Canada will be clearly where where it will be anchored.
Alright, that's great. Thanks, so much for the time and congrats on the quarter.
Great. Thanks.
Our next question comes from the line of Bill Crow with Raymond James. Please proceed with your question.
Hey, good morning, guys.
I'm sure Bill whether you all are.
I'm curious whether you all are building in a recession scenario.
2023, I think what 30 person an economist Sir.
They are now, but I'm wondering how you think about that when you think about capital allocation.
Bill It's obviously, it's on everybody's minds right now we've got obviously the parade of Horribles out there obviously the war.
Clearly rising inflation there is some evidence that some believe perhaps inflation starting to starting to peak and I am not.
Certainly my Crystal ball is not bad.
Other than anybody.
Else's on that front and.
Obviously you got.
<unk>.
Really a challenging environment and certainly given that uncertainty I would say one of the things Bill that this team has done as well as anybody.
Is just think about how we handle the last crisis.
Didn't panic, we didn't do a dilutive equity raise.
We shutdown hotels, we re imagine the operating model. So it's really part of our DNA and.
And really part of our strength is to be able to toggle between defense and offense.
As we look out we're very encouraged what we're seeing on the demand side as we've articulated and youre seeing and obviously, providing the guidance and having confidence there.
No doubt, we're going to continue to work really hard to reshape the portfolio continue to sell the non core assets.
And reinvest obviously back.
Whether it's through buyback, whether it's through the ROI projects.
That's through paying down debt, we'll find that right balance.
But you will continue to make sure that we will continue to make sure that the balance sheet is protected here. So that we have that optionality.
Alright.
And my follow up.
On the group demand.
The pace picked up so dramatically in the quarter.
Curious since one of that was in the year for the year does that.
Does that mean, it's smaller groups and where theres some markets normally just hit on New York.
To gain a lot of share.
Other markets that really did a good job of increasing their group pace over the last 90 days.
On the pay side Bill I would say the ones that I mentioned on the.
On the urban side I think naturally saw a good three to 400 basis points improvement New York specific we talked about that Chicago has been one that really has picked up in D. C has been really strong of late and has continued to strengthen I'd say, it's probably in the 80% 85% range at this point so.
Really encouraged by that Boston has also showed some good pickup when it's actually been a little bit lower on the scale.
Coming into the year, so it's actually picking up in the year for the year pretty well. So we like those markets San Francisco has been one where it's been more.
Reducing the cancellations are starting to kind of get that inflection point, we're actually picking up so I think we're at that juncture right now.
So I think the overall again, it's mostly the urban side that the resort areas have been just generally consistent.
I'd say not driving the recent resurgence as much because it just been solid throughout.
Great. Thanks.
Thanks for the time appreciate it.
Thanks.
Our next question comes from the line of Stephen Grambling with Goldman Sachs. Please proceed with your questions.
Alright. Thanks, following up on <unk> question about the volatility in the hotel transaction debt markets.
What do you think changes that dynamic and is it related follow up I guess with residential mortgages now well over 5% versus maybe three years before it.
Seems like cap rates there were probably following some of these properties look like theyre more likely underwater versus the debt load. What do you think this dynamic means for hotel cap rates in other words do you generally see any crossover in the master basis, or a correlation with multifamily Rajiv properties.
Yes.
It's a fair question, Stephen but I think if you.
If you look historically.
Cap rates have been.
Maybe we're seeing 25.
50 basis point, depending on.
Certainly were.
In particular markets.
But we're not seeing any kind of softening as we're looking to market assets right now and again, just given the amount of capital that's out there.
We're talking hundreds of billions of dollars certainly looking for a home are only so many.
Resi deals industrial deals and low cap rate deals that get done in three and four times, 3% and 4% versus.
Where we think hotels are going to trade. So we think in many respects, it's just going to make this asset class, even more attractive and certainly being a daily leasing business. So we're not seeing any any issues, we're not seeing really the need for any seller financing.
We have a robust process and all of the assets that we're currently marketing at this point.
Awesome that's it for me thanks, so much.
Alright. Thanks.
Our next question comes from the line of Neil Malkin with capital. One. Please proceed with your question.
Hey, everyone. Thanks first one Blackstone has been pretty active recently.
Acquiring.
The public Reits.
Kind of trading it.
Discounts to private market values, obviously isn't lodging sector is a it would be a good.
Poster child for that.
I know that Blackstone had a couple of failed attempts at.
Acquisitions.
Uh huh.
Lodging Reits over the last several years I'm just wondering.
Do you think that do you think that.
Blackstone could potentially look at your sector and what do you think the likelihood of some M&A or private equity take privates are.
This year.
For lodging.
Thanks.
Well, it's a great question and I think listeners know that I've been one of the stronger advocates for the the need for consolidation or take private in this sector.
Obviously Blackstone knows this industry as well as anyone and other P firms. So I would expect again, just given the amount of capital.
On the sidelines that.
Clearly the hotel trade would accelerate over time.
When that happens I, certainly am not going to try to predict or comment.
When Blackstone or any other P firm makes a decision to enter the space and a more meaningful way.
Other than to say.
Given the disconnect that.
And not only for park, but for others in terms of how wide the gap and MTV.
You would expect that.
That is certainly.
Would be enticing overtime.
Okay, great. The other one for me is just kind of going back to leisure ADR.
I think everyone. We've heard report is pretty confident about.
The stability of leisure ADR in sort of a reset.
Compared to last cycle and rates Im just.
Very cautious on that I mean, if you look at sort of.
People have never had more.
Savings are at least previously from the lack of student debt having to pay interest.
A lot of people were paying nothing for housing a lot of physical stimulus unemployment et cetera.
And it just doesn't seem to me that it seems more likely that these people are doing these sort of non sustainable purchases versus like how many.
People out there in the country, you can afford to pay $800000 for a room.
Keep it at 80% occupancy for a whole quarter.
It doesn't seem like these very high ADR or sustainable.
Long term and I, just like to get your take on.
What youre kind of seeing at your more.
Coastal.
Leisure oriented properties, the kind of the demographic mix, there and any trends that youre seeing that would give you caution.
You know that we are potentially you have seen that the peaks of.
Revenge and I have a lot more money mania going on.
And those sorts of hotels.
Some new sustainable thanks.
Yes, I think it's important to keep in mind as we all move towards a more hybrid working model.
This concept of sort of bleser kind of building.
<unk>.
Combining both your business and leisure.
Think provides more optionality and I think it provides an opportunity for hotel owners and operators to continue to find that right balance both in product and service and in pricing. So there is no doubt I think that the.
Leisure trade remains strong.
We continue to see that even in markets like key West, where we said we were up 150% to 200% now where we expect to see a slight moderation. There. We still believe that you can expect that trade to continue to be strong here as we look out.
Your comment about trees don't grow to the Sky I think is fair.
We certainly don't see any peak at this point.
Okay. Thanks.
Okay great.
Our next question comes from the line of Robin Farley with UBS. Please proceed with your question.
Great. Thanks, So most of my questions have been asked by now, but just wanted to circle back on the group.
The group topic.
And I know you've talked a lot about the acceleration in the last month or two.
I guess, it's just surprising for 2023, given that there seems like there will be groups that have.
But Matt for three years, and even groups that need only every two or three years that there would be something of a backlog in demand for 23 group.
From what Youre seeing.
Do you think that Youll get 23 group to be above 2019 levels I guess, it's surprising that the pace for 'twenty three is still so not too far below that 773% of 19 with 73% of 19 as of early 80, right now where 2019.
So we're further behind.
Well looks like.
Your thoughts on whether 'twenty three.
And if not what are your thoughts.
Hearing from the ground in terms of why are these groups coming back that haven't met in three years okay.
Robin to your point, we certainly expect that it's going to continue to accelerate as we as we noted in my prepared remarks, I mean, obviously we saw.
Three three fold, 300% increase just between <unk>.
March and February and again, 200000 room nights or about $44 million and about 117000 room nights of that.
In 2022 in the year for the year and again about 77000 room nights plus or minus into 2023.
That was $44 million in really a 30 day window. So we fully expect in the body language and the feedback that we're getting from our operating partners as we expected we expected that's going to continue to accelerate so I think youre spot on.
We're not at all concerned as we've said, we would expect that we'd get back to 2019 levels.
During calendar year 2023, and in some markets, we may even get back even sooner here in the fourth quarter or so of 2022, just given how things are accelerating.
Hawaii is an example of that and just given the fact that second quarter. We expect it will be over 7% again those are the two resorts there two world class resorts that we have there and of course, what we're seeing in markets like U S continue to accelerate there, but we would expect the group is only going to continue to accelerate that need to be together.
Other reclaiming recapturing, bringing whether it's incentive whether it's group and training, we would expect that to continue to grow.
Okay. Thank you.
Great. Thank you.
Our next question comes from the line of Patrick shows What's Yours. Please proceed with your question.
Hi, good afternoon.
Hey, Patrick.
And your intimate.
In your <unk> outlook, you gave a range of down 14% to 16% for Revpar versus 2019.
How would you think about what.
So the three specific customer segments, the transient leisure transient business and group.
Ballpark what would.
Are your expectations for those three segments in relation to down 14 to down 16 versus 2019. Thank you.
Yes, I think I mean, I think youre going to see just kind of a continuation of improvement across obviously the group and business transient standpoint, I Havent really we havent broken it out in that regard too much detail, but I would say that you're still going to see.
We're still going to see leisure.
Basically that.
At or slightly up on a on a relative to 19, so call that kind of a slight positive again, you've got the leisure kind of running out.
On.
Off of off of April there. So you get some strong April but you kind of have it in.
In slowing down in May.
With a group you've got I would say group is still going to be somewhere in the neighborhood of.
Call it 10% kind of on pace with that with our guidance because again, you've got some strong group here coming back we're still obviously below normal levels and then San business transient while still recovering we'd probably still pacing at close to 60%, 65% of 19 levels as we kind of entered the quarter.
I think youre still looking at that being down 20% or so 25%.
Okay.
Okay. Thank you that's it.
Our next question comes from the line of Chris <unk> with Green Street. Please proceed with your question.
Thanks, Good morning.
So I'm, hoping you can provide a hey, how's it going.
I'm, hoping you can provide a few thoughts on the supply backdrop across your portfolio journey market standout on the positive or negative side and more broadly I am curious how that outlook for supply kind of plays into your confidence around some of your urban markets recovering over the next couple of years.
Yeah, Chris. Thank you for the question I mean, as we look out I mean.
If you think about just three of our larger markets.
And our Hawaii when Youre looking at.
Near impossible to get new product on there and just.
Given the barriers to entry.
So there clearly we would expect to be.
Virtually no supply added.
Dan Francisco was another market, where we see certainly in.
No.
Sub 1% supply Orlando was another certainly low supply so when we look out kind of our our exposure vis vis our peers, it's certainly sub 2%.
And as we look out across the industry.
As we think about 'twenty three 'twenty four 'twenty five.
Again, you are behind you are below the long term average of 2% and probably in the 1% range and as you think about urban markets again would be very difficult to replicate.
Our portfolio whether it's.
Clearly in a.
San Francisco New Orleans.
Chicago.
Even.
Even the two city block and what we have in New York, New York, probably the one market with a little more supply, but you've also got a bunch of hotels that are also being taken out and probably at a reset lower than where it was in the 2019 levels. So we see that again is.
Another opportunity and a real benefit and while Youre seeing other select service youre not seeing urban full service hotels get done given the fact that that entitlement process can be 345 years.
You'll see that being a real benefit and of course, we trade at.
A huge discount to replacement cost probably 55% plus.
Plus or minus and Youre also seeing obviously in this inflationary environment.
That's probably increased given the fact that you are looking at replacement cost probably rising another 10% to 15% if not more.
Got it I appreciate the thought that's all from me.
Great. Thank you.
Our next question comes from the line of David Katz with Jefferies. Please proceed with your question.
Hi afternoon, everyone. Congrats on the quarter and thanks for taking my question.
You have a target out there I think of two or 300 of asset sales.
Im curious if you can elaborate on sort of how that number is derived and what if any.
Potential gating factors would be out there that that might cause it to get bigger.
I will go up.
Yes, it's a great question David.
The realities.
Set a target last year sort of $3 million to $400 million, we're just kind of inside of $500 million. What we've what we constantly are doing is looking at the portfolio.
There were four or five assets as you may recall that we were self operating that store as part of the spin we were required to obviously.
Hold those for a period of time those are assets like that smaller assets, but ones that we're working aggressively to certainly recycle that capital. There are other joint venture assets. There are other assets within the portfolio that we're working through we've set a reasonable target I would expect given how hard. This team is working there we're going to make.
<unk> debt and <unk>.
Raising those proceeds only gives us additional optionality and as I articulated early really given where we're trading we think the highest and best use is to really invest back into this portfolio either buying back stock, whether it's reinvesting through ROI projects.
Alternatively, certainly finding the right balance and paying down debt as well. So we're very confident that youll see us continue to reshape the portfolio.
We sold 32 assets were just over $1 7 billion, we've been very thoughtful and targeted about that and this is really a continuation of our recycling, where we're where we've really had a lot of success over the last five plus years.
Got it so if I'm, if I'm sort of taking.
The context really is that that two or 300 as a baseline.
It sounds like just <unk>.
Complexity in.
Finding the right.
Mint and circumstance to execute is is what the gating factor ultimately.
Yeah, It's a fair point I mean, I think last year as you think about what we sold we were being told that we really would be difficult to move urban assets. You may recall that we sold two in San Francisco, It really comparable to 2019 pricing so.
So it's not a fire sale, it's thoughtful it's targeted.
As I've said, there is plenty of capital whether it's through P firms high net worth family offices.
No shortage of capital and as people are going to be looking for higher returns.
And being in both real estate or being in certainly in lodging, where where you've got a deal with a daily leasing business and certainly perception of more pricing power.
And I believe confidently that.
Better days are ahead for lodging for the industry and certainly for park.
And there are only so many three and forecast industrial deals you can do.
I concur, thanks very much appreciate it.
Yes. Thank you.
Okay.
Concludes our question and answer session I would like to hand, it back to Tom Baltimore for closing remarks.
Well, we appreciate the opportunity to visit with you today and we look forward to seeing many of you in upcoming meetings at NAREIT Stacy.
Stay safe be well and I look forward to seeing you soon.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.