Q2 2022 Park Hotels & Resorts Inc Earnings Call
Greetings and welcome to the Park hotels, <unk> Resorts, Inc. Second 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. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note this conference.
He is being recorded.
I'll now turn the conference over to your host Ian Weissman Senior Vice President of corporate strategy you may begin.
Thank you operator, and welcome everyone to the park hotels <unk> resorts second 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.
<unk> or revise these forward looking statements.
Actual future performance outcomes and results may differ materially from those expressed in forward looking statements. Please refer to the documents filed by park with the SEC specifically the most recent reports on Form 10-K, and 10-Q, which identify important risk factors that could cause actual results.
To differ from those contained in the forward looking statements. In addition on today's call we will discuss certain non-GAAP financial information such as <unk> and adjusted EBITDA you can find this information together with reconciliations to the most directly comparable GAAP financial measure in yesterday's earnings release.
As well as in our 8-K filed with the SEC and the supplemental information available on our website at PK hotels and resorts Dot com.
This morning, Tom Baltimore, our chairman and Chief Executive Officer will provide a review of parks second quarter performance.
Outline of park strategic priorities and outlook for the balance of this year, showing dellorto, our chief Financial Officer, who will provide additional color on second quarter results and update on our balance sheet and liquidity, while establishing guidance for the third quarter.
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.
And welcome everyone.
I'm very pleased to report stronger than expected Q2 performance and the results materially exceeding expectations.
We witnessed exceptionally strong performance across our portfolio.
The ongoing strength in leisure.
Augmented by increased business travel, which came in at 95%.
2019 levels and accelerating group demand.
On the capital allocation side, we sold approximately $270 million of assets year to date.
And repurchased $157 million in stock at a significant discount to our internal net asset value estimate during the quarter.
Further strengthening our balance sheet and creating value for our shareholders and finally.
Based on our strong second quarter results, we exited the covenant waiver relief period.
For our credit facilities, one quarter earlier than anticipated.
Looking closer at our quarterly results.
Quarter pro forma revpar recovered to 90% of 2019 levels.
Pro forma hotel adjusted EBITDA came in roughly $30 million ahead of our internal expectations set forth at the beginning of the quarter.
Highlighting the strong recovery in demand following the COVID-19 related slowdown have started the year.
Pro forma occupancy improved over 19 percentage points over the first quarter.
While pro forma average rage finished 8% ahead of second quarter 2019.
The strongest recovery in the quarter was in urban markets.
Our hotels saw an encouraging increase in demand occupancy for urban hotels averaged 64% for the quarter.
Or a 25%.
Point increase from the first quarter on a pro forma basis and ADR came in 24% ahead of Q1 and slightly ahead of the second quarter of 2019.
Note that our last remaining suspended hotel the Parc 55, San Francisco.
Reopened on may 19th and quickly exceeded expectations.
The June occupancy, finishing at 67% for the 1000 plus room hotel.
Resort Hotel performance remained very strong.
Growing ADR nearly 27% over the same period in 2019 fueled by our assets in Hawaii.
Florida and.
In Southern California.
We were also pleased to see stronger than expected group demand for the quarter with group revenues up 68% compared to the first quarter.
Group demand remains very short term with pick up for the second quarter, representing nearly 44% of the room nights picked up in the quarter.
The remainder of 2022.
Most of the short term booking activity was seen in San Francisco and Seattle.
While the Hilton Hawaiian village benefited from positive pickup from better than expected citywide participation in may.
In terms of business transient demand, we saw material improvement.
During the quarter with business transient revenues totaling 95% of second quarter 2019 revenues.
Parks business oriented hotels open for the entirety of the quarter recorded midweek occupancy of approximately 73% for the second quarter.
Roughly 30 percentage point sequential improvement from.
From the first quarter.
As the portfolio recovers, we continue to make progress on our four key strategic initiatives first we remain laser focused on reaping the benefits from a re imagined operating model capturing margin improvements from both incremental revenue opportunities and operating efficiencies.
On the revenue side, we continue to benefit from the industry's remarkable rate discipline.
Our operators right optimization efforts.
To help offset inflationary cost pressures.
Occupancy rebounds.
Additionally, our teams continue to focus on driving out of room spend.
Impressive results for the second quarter in food and beverage.
Revenues exceeding our expectations by over $11 million at Hilton Hawaiian village for example, <unk>.
<unk> bar concept in aggressive invent and menu pricing helped to generate over $3 million of incremental revenue over the same period in 2019.
24% increase split evenly by 12% increases in both average check and covers.
On the cost savings side, our operational modifications help to drive.
Pro forma hotel adjusted EBITDA margins of nearly 31% during the second quarter.
Just 30 basis points below 2019 levels despite.
Portfolio Revpar being down 10%.
Most of the savings have come on the labor side with head count down 23% for managers and 29% for full time hourly employees compared to 2019 for the quarter within our Hilton managed hotels.
We firmly believe that the operational changes behind many of the staffing reductions are permanent translating into $85 million in savings or 300 basis points of permanent margin improvement relative to pre COVID-19 margins on a stabilized basis.
Our second key priority is to continue to reshape and improve the quality of the portfolio are remaining active on the capital recycling front.
We have made tremendous progress year to date by selling $270 million of assets.
Versus our goal of $2 million to $300 million established at the beginning of the year.
Overall hotel sales were executed at or near 2019 valuations.
Transaction multiple slightly above 13 times on average.
Versus the 10 times implied multiple on the $218 million of stock buybacks, we executed year to date.
And despite recent choppiness in the debt markets interest in hotel real estate remains high.
Accordingly, we expect to sell another $3 million to $400 million of assets to reduce leverage and reinvest back in our portfolio.
Our third priority is to fortify our balance sheet by continuing to push out maturities.
Reduced leverage.
Bolster liquidity.
And maintain flexibility.
As we look to pivot between defense and offense, depending on what the markets dictate.
Today, our liquidity position is approaching $1 $8 billion with no meaningful maturities over the next 12 months.
Finally.
We're focused on executing on a robust pipeline of value enhancing ROI projects that will unlock the embedded value of our portfolio work.
Work is well underway on our Bonnet Creek meeting space expansion platform with the Waldorf space when scheduled to open later this year and the Cigna space expected to be ready by early 2024.
Corporate balance sheets remained healthy.
Consumers still have.
Nearly one trillion dollars and personal savings following the pandemic related economic stimulus.
Pent up business and international inbound demand.
Still exists following two and a half years of depressed activity.
Which is forecast to be 5% in 2022.
And significant barriers to entry from rising construction costs limiting supply growth over the next three to four years, which.
Which we believe will continue to support solid fundamentals over the next several years.
With that backdrop, we are very encouraged with the pace of improvement across our major markets and.
And we expect to see incremental improvement throughout the year and into 2023. This leisure markets remained strong and the urban and corporate recovery accelerates.
Group pace sits at 66% and 72%.
The second half of 2022 and full year 2023, respectively.
When comparing to 2019 bookings for similar periods as of June 2019, and June 2018, respectively.
Urban market Convention calendar for 2023 are pacing well when comparing two events booked for 2019 as of 2018 with Chicago, Boston, and Washington D C. Each above 100% in Denver, and New Orleans above 80%.
San Francisco is currently showing over 760000 room nights on the 2023 calendar, which is 64% of the actual room nights achieved in.
In 2019.
Hawaii is expected to continue to outperform expectations.
Supported by healthy leisure trends and the eventual return to the Japanese traveler.
Especially in Honolulu, where historically, Japan makes up nearly 20% of total demand.
But it's been absent over the last three years.
Overall, we are bullish about the lodging recovery and.
We remain laser focused on creating.
Shareholder value in closing the valuation gap with our 2022 priority squarely focused on operational excellence.
Cycling capital to unlock the significant embedded value in our portfolio.
<unk> going to improve the quality and optionality of our balance sheet.
To execute on our long term growth plans.
<unk> remains well positioned for outsized performance, given our optimal mix of resort urban and group focused hotels and I'm incredibly excited about the future.
And now I'd like to turn the call over to Sean.
I'll provide some additional color on operations, along with an update on our balance sheet and guidance for the third quarter.
Thanks, Tom but overall, we are very pleased with our second quarter performance with results coming in well ahead of expectations driven by ongoing strength in leisure coupled with significant gains in both group and business transient.
So from a revpar improved sequentially to $173 has pro forma rate averaged an impressive $244 during the quarter.
7% sequential improvement over Q1 2022.
And 8% above the same period in 2019.
Pro forma occupancy improved to 71% for the quarter or a 19 percentage point improvement from Q1 2022.
Looking ahead to the third quarter preliminary results in July look very strong with hotel occupancy averaging approximately 73% while average daily rate during the month is projected to be approximately $248 or 12% above 2019.
Overall, nearly two thirds of our consolidated hotels are cheating rates in excess of 2019 rates with the strength witnessed across most major markets. In addition to Chicago, New York, Denver downtown La and several of our airport hotels.
Total pro forma operating revenue for the portfolio was $670 million currently second quarter, while pro forma hotel adjusted EBITDA was $270 million.
Salting and pro forma hotel adjusted EBITDA margin of 38% or just 30 basis points shy of 2019 operating margins and impressive result, with hotel occupancy still 15 percentage points below 2019 levels and with one of our largest hotels, the Parc 55, San Francisco suspended for over half of the quarter.
Results were driven by incredibly strong rate gains coupled with operating efficiencies achieved over the course of the last two plus years.
Turning to the balance sheet, our liquidity currently stands at approximately $1 $7 billion, including more than $900 million available on our revolver and $758 million of cash on hand.
Net debt sits at $4 billion, a $200 million decrease from the first quarter.
I am excited to report that park has exited our credit facility Covenant waiver period, one quarter ahead of its scheduled exploration.
Additionally, given the material improvement in operating fundamentals for our Hilton Hawaiian village and Hilton Denver hotels, both mortgage loan secured by these two properties are expected to exit their cash traps in early August freeing approximately $90 million of restricted cash and thereby increasing our total liquidity to $1 8 billion.
On the capital on.
On the capital return front, we continue to take advantage of the dislocation between public and private pricing and repurchased $157 million of stock during the second quarter, taking our total buybacks to $218 million year to date with just over $80 million remaining on our board authorized buyback program.
Overall buybacks were executed at a material discount to our internal NAV estimate or just 10, three times 2019 pro forma adjusted EBITDA turning to guidance turning to guidance for Q3, which is traditionally our second weakest quarter of the year, we expect to see a seasonal shift from Q2 with transient revenue mix increasing.
700 basis points, replacing higher rated group production and it's higher margin banquet and catering F&B spend.
Accordingly, we are establishing Q3 consolidated revpar guidance of $171 to $174 or 19% of 2019 levels at the midpoint.
As the portfolio continues to narrow the gap to 2019 with occupancy continuing to improve and Hawaii, New York, Boston, Denver, and Northern California.
Adjusted EBITDA guidance for the third quarter will range between $145 million and $165 million and hotel adjusted EBITDA margins are expected to be between 26% and 27%.
Finally, adjusted <unk> per share will range between 34.
<unk> 43 for the third quarter.
As a reminder, please note that the assets sold year to date contributed approximately $5 million to our quarterly earnings.
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 that we have the first question. Please.
Also as a reminder, if you'd like to ask a question. Please press star 1 million telephone keypad to join the queue.
Our first question comes from the line of Patrick.
So with <unk> Securities. Please proceed with your question.
Great. Thank you for taking my question.
Hey, Patrick.
Great. Thank you.
I'd like to hear your latest observations on return.
International inbound customer.
And related to that how far off are.
Are you from a.
Pre COVID-19 levels for that customer and then perhaps.
Greg I'll start breaking it down by you know, perhaps a three important markets to the East Coast, New York, a west Coast, San Francisco, and then certainly Hawaii. Thank you.
Okay.
Patrick Thank you for the question.
If we back up for a second as I think about inbound international and to the U S was about $79 million in 2019.
I believe last year.
It recovered slightly to about $22 million.
We're looking at this year I believe from latest reports that I read at about $53 million.
I would say.
Across our major markets.
We are probably 500 to.
Two 750 basis points sort of below sort of 19 levels. So we see that certainly is a tailwind I think if you look at Hawaii I think is a great example.
Our Japanese which represent again, 20% of our visitation.
<unk>.
They've been down, 95%, I believe plus or minus.
They historically have been.
One of our most loyal customers.
Stay longer they spend more.
Thank for for Park as we move out in this recovery continues to unfold. It is going to be a real benefit for us we will expect Hilton Hawaiian village to probably be up vis vis <unk> 19 at around 4% to 5% in Revpar.
Compared to many of our peers that are running it.
Certainly much larger numbers than that but we also expect this year in Hawaii that would probably approach.
An all time high.
Our close to our all time high in EBITDA, So we see tremendous upside there.
As you think about San Francisco, New York, Chicago, All of whom are probably double digit historically of 15% to 18%, we're probably in the high single digits low double digit across each of those assets again, we see that beginning to come back obviously, the big gap is really coming out of Asia.
And to the extent that the Lockdowns subside and we start to see.
Those areas to begin to open we see that as real growth potential for us as we move forward.
Great.
Okay. Thank you for the update.
Okay.
Our next question comes from the line of Anthony Powell with Barclays. Please proceed with your question.
Hi, Good morning, a question on the asset sale, yeah. Good morning time.
Question on the asset sale, you, obviously did well year to date selling assets at good valuations.
Said one.
Actually I was too are cash rich read the other one was to a buyer with multifamily you said as you look to do the remainder of this year.
So I could see the same I guess success at achieving valuations or could you see a bit more of a drop in price given the the buyer pool, we're seeing higher rates.
More just tougher time getting leverage.
Yes, it's a great question Anthony look if.
If you back up and just think about since the spin now we have we've sold.
36 assets, including 14 international for nearly $2 billion.
As you know many of those were very complicated from Brazil to South Africa to the U K, we sold two assets in San Francisco in the middle of the pandemic.
When there was virtually no visibility so I would say that our team Tom Orient and his team on the investment side continue to work really hard to find the right buyers no doubt that costs are rising.
No doubt, there's still a tremendous amount of equity on the sideline and interested in.
And hotel real estate.
So we're cautiously optimistic that we'll continue to demonstrate a strong.
Results, whether those come in a little bit that would not be unreasonable, whether that's 25% or 50 bps.
When cap rates and given where debt.
That spreads are but we do expect that the debt market will hopefully begin to loosen up and open up a little more here.
Third and fourth quarter and certainly into next year.
We're not a panic seller, we will be thoughtful we will continue to work hard as we've demonstrated.
But we are laser focused on selling another $3 million to $400 million in assets again, using those proceeds to pay down debt.
Reinvest back into the portfolio continuing to build liquidity and make sure. The balance sheet is strong strong shape. So that we have the optionality to pivot between defense and offense as we said in our prepared remarks.
Okay. Thanks for that and maybe one more in terms of the guidance I understand yet the EBIT impact of the mix shift in the third quarter focusing more on the Revpar growth guidance. It seems like you expect to see Revpar growth decelerate in August September our hand, some good stuff from around Labor day bookings from others. So I'm curious what you're seeing in those months regarding.
Our revpar growth.
Yeah, I'll, let Sean take the latter part of the question.
Anthony Thank you for the question, we sense that many listeners.
I have some concern or comments regarding that I think it's important to note that if you think about our portfolio.
Second quarter and fourth quarter are traditionally the two strongest quarters within this portfolio, the first and third quarters being the softer third quarter is traditionally one of the softer group periods.
That is holding true.
This year as well and so we're down about 700 basis points and a shift to transient versus group.
We make up for a lot of that in the fourth quarter.
One example of that is if you think about.
We've got about 620000 room nights in the back half of the year.
And New Orleans were down about 27% in the third quarter in group were up about 40% in the fourth quarter. So it really is a seasonality and a timing issue.
So were.
We thought it was appropriate to be conservative and.
But also recognizing the historical trends within this portfolio.
We're not seeing any softening as we said during our prepared remarks, and we're still very bullish on the lodging sector.
But we certainly wanted to be careful as we provided third quarter guidance and I'll turn it over to Sean to address your other question.
Yes, just picking up what Tom said just being careful.
With the group pace that we have in the Q3 and we're certainly seeing good in the quarter for the quarter pick up through Q2.
Just kind of with the way that the business.
Projects out or ultimately runs through the summer times really not going to count so much on the in the group in the quarter for the quarter pickup.
But certainly September has opportunity.
There was a little bit of a.
Typical kind of.
Thoughts around holidays with labor day being a little later in the first week of September and we have the Jewish holidays in the back half and what you're compared to 19, but again I think certainly theres some good.
Potentially picking back up where we saw some of that business level demand and in May and June So we certainly think.
So it never picks up well, so I think so.
Suddenly I think September has an opportunity to outperform on July right now, it's probably on level with July and August was a little softer.
In another quarter.
Thank you.
Our next question comes from the line of Floris Van <unk>.
<unk> with Compass point. Please proceed with your question.
Hey, guys. Thanks for taking my question.
Obviously, there it appears that you still have about 19% short of your peak occupancy.
For the quarter relative to 19, maybe touch upon the.
Our Hawaii in some more detail and how much more growth.
We can expect in the second half of that year is that going to be more fourth quarter ramp and then also what's your prospects look for for next year for Hawaii in particular.
Hawaii is going to be I mean, it's been incredible certainly through Q2 and ended the latter parts of Q2 in Q3, we see continued build of Hawaii and on the occupancy level going from across both hotels increasing.
200 basis points. So certainly very very pleased to see how that continues to stay strong.
I think certainly be a big plus for us on the rate side as it continues to improve its rate relative to 19.
I'm going to kind of high single digits to low double low double digits through the course of the next several.
So we certainly think as Tom talked about here and ask demand demand and as we kind of quoted some of the things we've seen recently in Japan.
One of our major source markets traditionally is still only it's only at 12% of 19 level. So we just think as those.
It was those consumers come back into Hawaii.
Going to be incredible tailwind for us going forward, we've been able to achieve pretty much 19 levels.
Of of of profitability are approaching that.
With some of the margin efforts, we've done revpar recovering.
On just on domestic pretty much domestic business alone are certainly not without the Japanese business. So I think certainly Hawaii.
Certainly expect to be a big tailwind for us going into next year.
Thanks, Matt and maybe my follow up in terms of buybacks presumably.
You will look for additional asset sales before you start to buy back some some some.
Some more stock down the road.
Yes, there is.
So if we have that.
We've made it clear obviously that the.
Our highest and best use for us from a capital allocation standpoint would be investing back into this portfolio either through ROI projects or buying back stock.
We have a current authorization up to $300 million.
As we said earlier, we will focus on the 3% to $400 million of additional asset sales to reduce leverage so we make sure we have that optionality.
We will continue to watch market conditions carefully.
To the extent that the dislocation continues.
The assured all options are on the table, including that buyback as well, but we really in the near term will be focused on selling those noncore, taking those proceeds pain.
Paying down debt and obviously addressing the revolver and then San Francisco CBS that Sean mentioned during his.
His remarks.
Thanks, Tom.
Thank you.
Our next question comes from the line of Chris <unk> with Deutsche Bank. Please proceed with your question.
Hey, guys good morning.
So maybe we can drill down a little bit on group.
I think you gave out data point, 66%, 72%.
For second half and for 'twenty, three and I know you mentioned a lot of in the quarter for the quarter pick up which is encouraging but the question is.
Yes.
It's a great question.
Obviously, as we look out to next year.
What we are seeing is that the booking windows are certainly shorter.
We saw that in the second quarter, where we had obviously a 76% I believe of 19 levels.
We look at next year at 72%, we see kind of the same trends that first and second quarter out of the box a pretty strong I think second quarter is up around 86%.
No doubt as companies continue to.
To get back in.
To return to office.
As we get I think more visibility on the economic climate.
No doubt, we expect that to continue to accelerate.
Even in markets like San Francisco, where youre seeing increases in citywide citywide in Chicago or growing Orlando growing.
City Wides, obviously in San Francisco growing.
Boston and D. C is certainly growing.
So all of that will certainly help.
Really getting those big companies, where they have a lot of what we would call self contained.
We're certainly seeing some of that through the association, who we expect to the corporate side for them to continue to accelerate Chris as we move forward.
Okay. That's helpful. Thanks, Thanks, Tom and then just.
On capital allocation right.
On paper and the buybacks make a lot of sense you've sold assets accretively.
Market doesn't seem to always reward that unfortunately, what's the.
It's something that's on the table selling a super tanker asset because most of those assets you've sold have been fairly small.
Saw a super tanker for AR.
Really strong multiple is that on the table do you think that can help us.
Does it even makes sense, given where your level of EBITDA, you're you're at currently.
Yes, Christopher another another fair question.
Certainly all options are on the table.
Keep in mind, they have a low tax basis.
Getting getting debt for one of those big deals is a little more complicated than some of the asset sales that we're trying to do.
But rest assured as we've said.
We're open to all.
Options, we are looking at many.
We're going to close this valuation gap, we are laser focused on it.
But we also don't think it's prudent to be sell.
Selling assets like that really at the bottom of the market. So you've got to be careful and thoughtful about that and.
I think you've seen look at again, the San Francisco asset sales that we did in the middle of the pandemic very attractive pricing look at the asset sales that we've done all had been accretive almost all if not all accretive.
You still have that as a theme as well and certainly a guide our guiding principle.
But we certainly want to be.
Allocating capital in right sizing the portfolio over time, so that we can certainly get.
And our presence in some of the other growth markets as well, but we certainly believe that the urban play has legs as we move forward and then we're going to begin to see the tailwind and we're seeing evidence of that already.
Okay got it that's helpful. Thanks, Thanks, Tom.
Our next question comes from the line of Laura <unk> with Wells Fargo. Please proceed with your question.
Thanks, Good morning.
Hey, there.
Okay.
Can you talk about the various options.
To address year in 'twenty, two and 'twenty three maturity.
Sure. So on the 22 theres not theres really nothing we view us as meaningful so theres a couple of small mortgages that are out there that we'll look to.
Dressed with cash on hand, as we've noted we've got $1 eight approaching $1 8 billion liquidity half of that is with the cash. So we'll just look to take those out.
As they as they mature in the next 12 months on the bigger ones certainly that kind of towards the end of the year, we're exploring a.
I have a few different options. One obviously, we have time to do that.
We'll be addressing our revolver and certainly in great standing with our banks, we have great relations with them long standing relationships with them.
You're already kind of have a conversations and thinking to the timing of it.
And so we'll have confident we'll work through that and get that recast and keep that liquidity intact.
And then ultimately, we'll we'll look to address the San Francisco again weighing our options on that.
Have unencumbered assets, including some big sized and large sized assets.
So we'd look to kind of utilize that potentially is.
Our mortgage on those along with some of the cash on hand to take out <unk> and obviously, we have access to the to the high yield markets, which we've demonstrated in the past as well. So we will look to opportunistically, you'll find the best option for us over the next few months and proceed accordingly.
Okay. Thanks, Tom.
Yep.
Yes.
Our next question comes from the line of Neil Malkin with capital. One. Please proceed with your question.
Okay.
Good morning, everyone.
Good morning, Neil.
Hey, Thanks for your time today.
Following up on <unk> question.
The assets.
Or collateralized and that that see MBS in late 'twenty three the Parc 55 in the Union square, obviously to your biggest.
Yeah hotels.
Both I think in at least the Parc 55 I believe.
Needs a fair amount of Capex.
Just curious at all.
You mentioned that the disconnect between public and private valuations.
Yes.
Sales asset sales around that.
For assets like that.
No.
In San Francisco, obviously, a market that has a lot of issues.
Try and get resolved it will probably take a few years and.
Maybe you could help you.
<unk> deleveraging or.
A larger buyback or.
The reallocation to you.
I guess more in favor slash higher growth.
Markets.
Obviously again overlaying that on a more difficult.
Refinancing you're facing.
Okay.
I heard the commentary Neal.
Question selling at what I want to make sure I understand your question before.
Demand appropriately.
Yes, sorry, yes, it would just be with all the you know the.
Yes, it's a tougher environment for the for refinancing you just mentioned that.
And some of the debt.
That are collateralized and that need a fair amount of capex, so could good selling an option.
Or do you plan.
Look.
We are as we've said many times all options are on the table, we certainly are prepared to.
Whether itself some of the larger assets our joint venture.
Keep in mind those two assets are crossed.
As Sean mentioned that CBS matures at the end of 2023.
We are not at all panicked.
Again think back to the worst of the pandemic.
We had a number of maturities we did three bond deals we pushed out maturities.
Paid back 97% of the bank debt.
Everyone earned fees.
Could not and I think it's been happier with park, given how we executed in the worst of times.
So we've got $1 8 billion, we have a lot of optionality.
Could yes in theory.
So one or both assets.
Again, getting getting that right now in the near term given that the debt markets are very choppy would be a very difficult execution in.
In three to six months.
There are a number of optionality number of options that we think are available.
We certainly believe and have said publicly and we are seeing evidence that San Francisco, albeit lagging.
Certainly is coming back.
We'll watch carefully as to what we think the trajectory is for that market.
Okay.
The commentary and then the other one is I think you mentioned that the <unk>.
Sure.
Indiana was.
Plus percent teen.
<unk>.
And then and then it seems no group has.
A bit a bit more to go although obviously favorable booking trends et cetera.
But no.
Yeah Laurie.
Your peer who recently reported.
Made it seem like group is going to probably recover ahead of.
BT <unk>.
Curious on your view there.
I, obviously understand the portfolio is around the same but both group group focused.
Do you expect.
D T two actually lagged the recovery in group.
And you know.
Obviously do you think that maybe some group will on the corporate side wind up becoming a new segment as the work from home dynamic.
Persists and people use hotels as a way to convene groups the report et cetera.
Okay.
It's a complicated question.
Obviously, it's hard to compare across portfolios because people have got different.
Different portfolios in terms of their distribution product size no doubt that that we believe that that group is going to continue to accelerate in the companies. Given the fact that people are working remotely our hybrid we will have a need to get people together more frequently.
We heard from C suite leaders all the time.
Now with people being spread around.
The need to bring people together for training for celebration for cultural activities smaller groups larger groups. So we certainly agree with that thesis.
<unk> Park is going to be very well positioned for that.
The issue is how and when does that begin to accelerate we see evidence of that in some small groups, but I think as you get the bigger companies as we get through and get more visibility on the economic side, we certainly think thats going to accelerate I think the same thing applies on the business transient.
I was talking with the C suite leader.
Months ago, who now.
Is working remotely and Florida is now having to make you said 25 trips.
Back to New York for the home office that he didn't have to make historically.
That is again.
<unk> business transient so I think both are going to continue to be strong and then this concept of leisure travel that we talk about.
People start out traveling in part for business.
It may get elongated and stay and take an extra day or two for personal reasons I found myself doing that.
And I think Youll see that segment to continue to grow as well. So I think the good news for the overall industry is that demand is going to continue to be really healthy as we move forward. I think you also have a backdrop that supply is going to be muted.
It's hard to imagine that youre going to see.
Two new development, given what's happening with inflation rising material cost and.
And particularly when you think about our portfolio and some of the markets that we're in.
Got one of the lowest impact of supply across our across the sector and we think that's going to benefit us and provide pricing power and a benefit for us as we move forward.
I appreciate the answer thanks.
Okay. Thank you.
Our next question comes from the line of.
Duane.
<unk> <unk> with Evercore ISI. Please proceed with your question.
Hey, Thanks for taking my question.
I'm not sure.
Sure.
Thank you appreciate it industry and look forward to meeting you in person. So same here excited excited to be here.
So not not sure if you can generalize to a market level, but where do you think you realize a relative revpar premium.
And what markets do you see the biggest opportunity versus fears Alberta versus peers.
The first question I'll, let Sean ponder that for men and come back in terms of.
I guess I'd answer it this way when you think about parking.
The case for park, if you will.
I would say it's both.
Urban at a group recovery play as you think about.
The markets that we've been in and candidly I think many thought that both urban and group would not some didn't think they recover at all and some thought it would be $25 26, I think we can see based on what we saw just in from first quarter to second quarter with urban occupancy growing 25% ADR growing 24.
<unk> group revenues growing 68%.
Those are going to continue to accelerate so.
I think that across our broad portfolio, we see that as a as a tailwind I think on the international international demand.
Given the fact that we are anchored in many of the urban city centers.
International is coming back as I said, it was 79 million inbound in 19.
$22 million I think last year approaching $50 $53 million this year.
We see that continuing.
<unk>.
<unk>.
The world.
Begins to get beyond Covid moves we move to the endemic phase So we see that as a tailwind.
Hilton Hawaiian village, we see that as just a huge.
Many of our peers have seen parabolic and significant growth on the leisure side, we haven't seen it there.
Again, we're still going to approach profitability close to an all time high and we don't have 20% of our visitors.
Historically <unk> been coming for north of 30 years consistently and they haven't been there for nearly three years. So we see that as again, a huge tailwind for us as we look out.
Into 'twenty, three 'twenty four and beyond.
Just name a three hopefully that answers your question from a concept and I'll, let Sean Sean pick up on.
On the.
Part of your question.
Yes, and it is tough to kind of gain through I mean since market, but it's also the kind of asset as you imagine too. So some of the larger hotels, we have in there. It's maybe not so much more of a revpar premium exercise, but a total revpar.
Exercise, where youre, obviously looking to drive the ancillary spend.
<unk> spend everything else for the group activity in some of those so a case in point talk about our Bonnet Creek asset where we excel.
And meeting space and looking to capture a lot of ancillary revenues through that investment.
And as well looking at <unk>.
Key West for example, certainly you know Theres a lot of good competitive assets in that market and we have a kind of a good little group base that we have for our hotels in constant. We've made we've made the conversions from Waldorf to carry out a kit ultimately think we can still drive the same types of revpar and rates at those assets, but ultimately have a leaner operating model.
Five more profitability. So it's kind of a it's kind of a complicated answer when you think about just to focus on Revpar, We think theres a total revpar story.
And as well as a profitability story.
That's helpful. And then just just for my follow up.
When conditions support pivoting to offense, what would that look like what shape would that take.
It's it's single assets and portfolios its upper upscale and luxury in the top 25 markets in premium resort destinations.
Clearly in the southwest whether it's Phoenix.
Parts of Texas, South Southeast and South, Florida, clearly into Nashville, and I think that.
There's a lot of supply and the pricing is getting a little lofty.
But clearly continuing to balance out the portfolio is certainly something that that you will see us execute over time.
Thank you.
Our next question comes from the line of Robin Farley with UBS. Please proceed with your question.
Great. Thanks, I just wanted to return to the Revpar guidance for Q3, just to ask a little bit about <unk>.
I understand your comments.
Sequentially from Q2 to Q3.
Look comparing the periods 2019, so that would kind of take out the seasonality.
Just looking at the rate of recovery in June given what you've said about mix being lower in Q3, it feels like with the strength in resort and leisure rates.
That actually allow Q3 to show better recovery relative to 2019, because it's more of a leisure transient quarter than a group quarter. So that the outperforming segment right now.
I guess I'm, just trying to understand why you're.
Who is calling for the quarter to not be as strong as what you've seen in June and July are you just being conservative or is there or are you. In fact are the comps getting tougher in your rate sensitivity returning to the leisure traveler.
Thanks, Thanks Robyn.
Ultimately one thing I'd say is in our guidance our topline gains in Revpar, we are ultimately showing improvement in narrowing the gap to 2019 levels. We ultimately think second quarter, 10% down we're.
We're guiding to be improving upon that by a couple hundred basis points or so so I think we are relative to the to the June and July right, sorry, just to be like the June and July being down about 4% both of those months just in terms of.
From from there sequentially.
Yeah, and then ultimately again I think that's where kind of that while you have you have August which is that mix thing, where you don't really have a ton of business travel per se through that month. You also have leisure kind of falling back because people are obviously going back to critical back to school and people are coming off of vacation kind of midway through that through the month.
So I think ultimately you have a little bit of a depression going away in August .
Relative to kind of walk you.
During July stub month, obviously, we think we picked back up in September they kind of equate to where it can be July were more driven by business.
The business traveler coming out back on transient and group ultimately, we think could have some in the quarter for the quarter buildup and an opportunity and so we do think yeah. We certainly are taking.
A little bit of a conservative approach to it that when you think about kind of again in the quarter for the quarter build won't necessarily be like it was in Q2.
Well some of the holiday impact as we think about what kind of come off of vacation travel again in September .
And so it does sound like Youre being conservative, but I'm also just curious.
If you what your thought is on the leisure traveler being more price sensitive just given another hotel company today.
You talked about July revpar being down year every year still up versus 19, but actually down year over year. So I'm just curious if you are sensing.
That sort of returned to what typically the leisure travelers more rate sensitive historically it doesn't seem like they have been lately, but do you feel like that's changing or not.
Maybe.
Yeah.
I mean, I think one thing that also recognized.
People didn't have a lot of options with travel last year, Let me go into markets certainly attrition wouldn't get a lot of that demand. So you think about southeast, Florida, even to some in new.
In New Orleans, and other places where you have hurricane season, So I think you've seen and obviously a lot of heat. So I think you've seen a lot of people have maybe alternatives. This year to go elsewhere, and so you have a little bit of the pressure on demand and some of those markets.
From a year over year, which obviously was very elevated so I think they remain very strong relative to 19.
And ultimately, but from a year to year comparison, where people didn't have a lot of options to go I think you'll see a little bit of moderation.
Great. Thanks very much.
Yeah.
Our next question comes from the line of Chris styling with Green Street. Please proceed with your question.
Thanks, Good morning.
Good morning, Chris the Hilton Hawaiian good morning, going back to the Hill village for a second can you touch on the second quarter margin print maybe give some details as to what's driving that result, and then looking forward, what's your expectation on margin for that property.
Yes.
The Hilton Hawaiian village.
<unk> had a kind of an accrual there as we worked through labor negotiations there and so ultimately there was accruals.
And that.
We're ultimately released that benefited the margins this quarter going forward I mean it.
Certainly I think it was a very very good story.
For for Hilton Hawaiian village, especially as we look at it could certainly that's one where we've seen the revpar levels.
<unk>.
Along pretty much in line with 19 levels without too much variation between very elevated ADR and a very low actually theres somewhat been somewhat caught up in both respects. It sounds like you've been a good proxy for us to look at some of our our labor initiatives and ultimately that we've talked about the $85 million and so when we look at.
When we look at Hawaiian village and look at some of the margin improvement there again thinking it's pretty much on par with 19 levels on the top line. We're looking at kind of adjusted for what I just discussed for Q2 somewhere in that 202 hundred 80 basis point.
Range relative to 19 and Thats without.
That was about half of the room nights booked for group relative to 19. So we're missing out on some of that higher margin banquet and catering business as compared to 19, So I think theres certainly some better.
Better margin improvement beyond the 202 hundred 50 I mentioned.
Okay. That's helpful.
Chris the other thing I'd add to what Sean said as we have.
We have been crystal clear.
And we are laser focused on re imagining the operating model and the <unk>.
Taking out $85 million in cost across the entire portfolio.
1200 Ftes.
More than half of that or management, admin et cetera, I think Hilton Hawaiian village is a great example to what Sean was talking about I think we've been able to reduce some of the management and additional admin their 2025%. So thats also another example of really the good work between our asset management team and our operators to continue.
To think about the business differently.
We fully expect that that's going to continue.
Although as Sean said, we did have the one time benefit, but but Hilton Hawaiian village is just going to continue to be an outperformer for us in 'twenty two and beyond.
Got it.
And then a little bit higher level.
Can you just step back and think about some of the challenges that the airlines have been facing around flight capacity do you see this as a risk at all to the recovery of occupancy in your portfolio or is that not necessarily have much of an impact.
It hasn't had much of an impact today I mean I think.
When you think about Heathrow and then deciding to.
Have little or no traffic are not taken bookings for two weeks I mean, these are things that unimaginable as we think about it historically.
We live in an unprecedented times right now.
Have to believe that those talented leadership teams will rightsize their businesses and get it sorted out there are just so many other variables to work through right now but.
We are seeing probably more in the U S people are probably doing a lot of drive to.
To help compensate and ease their own.
Travel frustration.
Clearly as you think about what's happening in Hawaii and other other businesses, we have to take.
Airlift.
We're seeing no no shortage there there's plenty of capacity.
And those are desired certainly destinations.
As Sean pointed out a lot of people didn't have a lot of options. Some options are opening up but despite that and despite the fact that.
Even in Hawaii, where we don't have the anchored customer in the Japanese we're getting plenty of visitation throughout the U S and other parts of the world.
And I might add on the margin, we're certainly seeing benefits in our airport properties, there's a dislocation happened Seattle Airport Boston Logan.
Hilton has certainly seen some pick up obviously from people being unfortunately dislocated a stranded and on top of that I'd say anecdotally as I talked to people who are typically you might come in for the day to meet or flying the night before to ensure that theyre going to get there. So we're seeing a little bit of benefit of that to people just kind of being little more cautious in and actually staying a night versus doing a day trip.
Alright, thank you.
Yes.
Our next question comes from the line of Jean Laurent.
<unk>. Please proceed with your question.
Hey, Thanks, good morning.
Hey, James.
Hey, how are you I'd be curious to hear your thoughts as it isn't transient C. As you know still remains significantly below it doesn't 19 levels and accelerating how do you see that delta in occupancy. It does 19, providing a buffer in the event there is a mild recession and b T demand, possibly holding up better than it historically has no recession do you think that maybe on the flip side.
Whereas leisure demand on the operating at peak levels, how would you see that essentially staring at him out of recession.
Well I would.
It's a great question I mean, obviously anecdotally, we would we would believe that business transient would continue to.
Withstand because the recovery is.
Still underway.
There's still a lot of pent up demand.
Business leaders men and women need to get out and send their teams out to.
Certainly.
Okay.
Connect with customers and peers so.
We would expect that in theory, if there is some sort of pullback that there really would be less of an impact given where we are in that cycle.
And.
And well I understand it's true for business transient.
There's a different impact on leisure demand it doesn't maybe have that buffer of occupancy gap.
Yes, I mean, everybody trees don't grow to the Sky I mean, we're all we're all benefiting from.
Certainly elevated travel and the leisure side, a lot of that a lot of that because of the pent up demand, but I think he can make a case for this concept, but believes your travel with people working remotely or hybrid.
I think that.
Stronger leisure footprint I think we can we can make a case that that it has legs.
Does it have legs at 50% growth in Revpar every year I don't I don't think Thats achievable.
We are getting some of that benefit, but I, certainly think those demand patterns or perhaps going to be altered as we as we fully come out of this pandemic and move forward.
Got it and then just one more on the on the Covenant waiver, which you've now exited.
Exiting what kind of flexibility does that provide you are what opportunities to open up.
But not being somebody gives out anymore, but maybe on the external growth side or or internally just what does that do for you.
Quite honestly, we've put a lot of flexibility into the.
Covenant relief with lots of buckets for acquisition activity and everything else. So I would say quite honestly that doesn't really free up it doesn't make.
Huge amounts of flexibility for us.
Is it kind of existed already I think haven't really period, thanks to the banks for being flexible for us. So I think it's kind of business as usual.
And ultimately we still have flexibility under elevated leverage targets as those ramp down over time.
And interest coverage, we certainly still have a little bit of cushion there to kind of build up.
The portfolio back, but I don't think there's anything that we see as dramatic just because we thought that a lot of flexibility during the late period.
Okay got it thanks very much.
Thank you.
And our next question comes from the line of David Katz with Jefferies. Please proceed with your question.
Hi afternoon, Thanks for taking my question.
Good to hear you all.
There's been a lot of discussion about asset sales and a three to 400 can you just give us a little more depth of color around your.
Sensitivity of philosophy of kind of balancing valuation in the moment.
With.
The productivity that we've all discussed around.
Adding some things sold.
Sort of I guess I'm trying to gauge your.
Aggressiveness or assertiveness meter.
I guess, the first way I would answer David I don't know that.
Anybody has been more active over the last three or four years than we have.
We sold 36 assets.
For $2 billion.
Joint Ventures 14 international.
Half of them incredibly complicated with a lot of hair.
From Brazil, Germany, UK, Dublin, South Africa, the Netherlands.
Two are in our joint venture with Sunstone so.
To some small assets that we were self operated so we have we've constantly been working hard to reshape.
This portfolio and continue to improve the quality of it that effort isn't going to continue we're going to accelerate it.
We don't again see the need to panic, we don't see at fire sale.
We want to.
Get the best price.
And we certainly want them to be accretive for shareholders as I think we've demonstrated.
Could there be a situation where depending on where the debt markets are in.
An asset Thats non core that we want to do I think cap rates have compressed a little bit.
Our widened in this environment probably.
But again, there's so much liquidity there I think $370 billion in just on the private equity side.
There are 25 companies with over $1 billion. So they've got to put that money to work and so our objective is to find the right buyer for the assets that we're selling but make no mistake. We are laser focused on <unk>.
Deleveraging reinvesting back in the portfolio and closing this valuation gap.
That effort is only going to accelerate.
That's perfect. Thank you very much.
Thank you.
And we have reached the end of the question and answer session I'll now turn the call over to Tom Baltimore for closing remarks.
Great to be with you today I hope everybody has a great remainder of the summer and look forward to seeing you in the coming weeks and months.
Yeah.
And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
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