Q3 2022 Park Hotels & Resorts Inc Earnings Call
Ladies and gentlemen, greetings and welcome to the Park hotels and Resorts, Inc. Third quarter 2022 earnings conference call.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
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It is now my pleasure to introduce your host Ian Weissman Senior VP corporate strategy. Please.
Please go ahead Sir.
Thank you operator, and welcome everyone to the park hotels <unk> resorts third 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 security 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 future performance outcomes and results may differ materially from those expressed in forward looking statements note also that all comparisons to prior year periods are on a pro forma basis. Please refer to the documents filed by park with the SEC specifically the most recent reports on.
On Form 10-K, and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in 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 recent to the most directly comparable GAAP financial measure in yesterday's earnings release as well as in our 8-K.
Filled 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 third quarter performance and outline of parks strategic priorities and the outlook for the balance of this year, Sean Dellorto, Our Chief Financial Officer, who will provide additional color on third quarter results and update on our balance sheet and liquidity.
And guidance for the fourth 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 am pleased to report another strong quarter.
Where we delivered solid performance across our portfolio as we saw strength across all demand segments.
Lodging fundamentals continued their positive momentum into the third quarter supported by a strong labor market and healthy consumer and corporate balance sheets.
Which translated into steady growth in business transient demand and stronger than expected group demand in the quarter.
Especially post labor day, as we witnessed broad based return to office trends.
And despite headline risk over increasing macro uncertainty.
We currently do not see weakness in our business with continued improvements to group.
Business transient and international demand for the fourth quarter and beyond.
Also for the quarter you remained laser focused on our capital recycling priorities.
And I'm pleased to report that we closed on three noncore asset sales since July for total proceeds of approximately $58 million.
Our year to date net proceeds to approximately $317 million.
The sales of our interest in seven hotels and despite recent choppiness in the debt markets interest in hotel real estate remains high.
And we expect to execute on additional noncore asset sales.
Including potential deals.
Excess of $100 million.
This would bring our total net amount of closed and pending dispositions for the year to over $500 million well within our expanded target discussed last quarter.
Once closed.
Our liquidity position would exceed $2 billion, which we believe will give us the optionality to pivot between defense and offense during these uncertain economic times.
From an operations standpoint.
We continued to benefit from the efficiency measures, we implemented over the last two years with.
With total labor cost pacing below 2019 levels, despite increases to both wage rates and benefits translating into an expected.
15% reduction in labor cost.
With full year 2022 versus 2019.
As we've noted before we are confident that the $85 million of expense savings nearly 300 basis points of margin improvement achieved over the last three years are permanent.
Leading to meaningful gains as the portfolio returned to prior peak levels.
Also continue to focus on unlocking the embedded value of our portfolio through our value enhancing ROI pipeline.
At Bonnet Creek, our $110 million meeting space expansion.
Includes two new Standalone ballrooms, the ballroom at the Waldorf Astoria is scheduled to open next month.
And initial feedback from meeting planners has been enthusiastic.
At the Sydney as Hilton, we're adding 90000 square feet of multi functional meeting space, which is expected to be ready for use by early 2024.
In addition to the ballroom expansion.
We plan to invest an incremental $80 million on a comprehensive renovation of the complex, which includes all 1500, Guestrooms all public space and updates to our signature golf course.
With all work expected to be completed by early 2024.
Overall this considerable investment is expected to help solidify the complex is position as one of the best in Orlando.
In addition, we have initiated plans for full scale renovation of the Casa Marina resort in key west.
A $70 million project, which will include a transfer transformation of the public spaces and guest rooms, and the addition of a new ocean front restaurants.
We expect to start construction in May of next year.
<unk> targeted completion date of early December 'twenty 'twenty three in.
Time for the peak holiday travel season.
We are incredibly excited about the transformative ROI project for this iconic resort.
Turning to our quarterly results third quarter pro forma revpar increased 62% year over year.
Recovered to nearly 91% of 2019 levels.
Performance continues to be led by strong leisure trends.
With Revpar at our resorts.
Hotels, finishing 14% above 2019 during the third quarter as rates exceeded 2019 levels by 23%.
Occupancy was within 93% in 2019 levels.
We're two Hawaii hotels recorded an average revpar increase of 13% over the third quarter of 2019 with.
The Hilton Hawaiian village, reaching average Occupancies in the mid Ninety's in July and August .
And an all time monthly high of $354 in ADR.
July and on pace to achieve a near record EBITDA.
This outstanding performance has occurred despite the lack of inbound international travelers, which has historically represented nearly 30% of the hotel's demand with 60% of its international demand historically coming from Japan as.
As we look ahead to 2023, the recent easing of travel restrictions in Japan is expected to finally drive the return of Japanese guests to our Hawaii and West Coast hotels, providing a welcome tailwind for the portfolio at.
At our urban hotels, we continue to witness material improvements in demand with occupancy increasing nearly 400 basis points sequentially over the second quarter to end the quarter at 68%.
Our urban portfolio witnessed particularly strong performance post labor day, driven by a return to walkers trends in major markets, which translated into average occupancy of approximately 71% in September .
Corporate negotiated revenue.
Continue to improve across the portfolio for the quarter, increasing to 72% of 2019 levels compared to 64% last quarter, driven almost exclusively by occupancy gains.
We have been especially impressed with the robust recovery, taking place in New York with occupancy exceeding 674% during the quarter.
Up 500 basis points from the second quarter.
Our September Revpar finished nearly 2% ahead of 2019 levels as occupancies surged to over 88% and rate was over 10% above 2019 for the same time period.
We expect a positive momentum to continue into the fourth quarter driven in large part by a healthy pickup in group business.
Q4 transient pace on the books is now 95% in 2019 levels on a pro forma basis up from 83% reported two months ago.
In San Francisco recovery continues to take shape with.
With an improving outlook third quarter occupancy.
Improved nearly 1400 basis points sequentially to approximately 65% driven in part to the nearly 40000 Dream force attendees during the month of September .
With the advent viewed as a major success for the city and signal their first major citywide event since the start of the pandemic that said rate continues to be challenged trend in 14% below 2019 due in part to the mix shift.
Which resulted in a third quarter revpar decline of 41% to 2019.
Excluding our four assets in San Francisco.
Third quarter Revpar.
Par for our consolidated portfolio would have been just 2% shy of 2019 levels accounting for a 700 basis point drag on overall performance.
Looking beyond the third quarter the outlook for San Francisco continues to improve.
With fourth quarter occupancy forecasted to reach the upper sixties.
While revpar gap.
2019 is expected to narrow to 29% of our 2019 levels by December .
Vast improvement.
From the 90% Revpar decline to 2019 recorded in January of this year.
Looking to 2023.
The outlook for San Francisco is encouraging.
City set to benefit from a much stronger convention calendar.
640000 group room nights forecasted for next year or.
Or a 63% increase over 2022.
Looking more closely at the group segment.
Continue to witness positive group trends across the portfolio illustrated by incremental bookings and lead volume improvement with.
With stronger conversion rates across the portfolio.
This was especially evident post labor day, but September group pickup for 2023 coming in at 106% ahead of the same period in 2019 for 2020.
Group ADR projected to be 40% higher.
Generally speaking group demand is coming more heavily from higher rated corporate group.
Leads in this segment accounting for almost two thirds of new demand.
The historic.
Volume mix from 2019.
Group pickup trends for future periods are also continued to improve during the third quarter.
Definite bookings for the fourth quarter increasing.
$21 million more than half of the new bookings coming in September alone.
Q4, 2022 group pace currently sits at 77% of 2019.
Pickup of 800 basis points since June with definite bookings increase by over 90000 room nights since the second quarter.
For the year.
Definite bookings increased sequentially by nearly 10% to over one 7 million.
Over three times the amount for the same time last year.
Looking ahead to 2023.
Citywide calendars continued to improve in most markets with Honolulu, Chicago, San Diego, Boston, San Francisco, Seattle, and Denver, All showing growth ahead of 2022 levels.
As a result.
We have witnessed a meaningful pickup in forward group bookings for 2023.
With hotels, adding over $51 million of group revenue into next year during the quarter.
Currently group pace for 2023 increased to 75%.
Of 2019 levels or 300 basis points higher.
We reported during the second quarter.
Yeah.
Looking over to the balance of this year.
We remain very optimistic that the recovery remains on track, we continue to witness improving operating trends across our portfolio.
Leave our portfolio will continue to benefit from the broader demand trends that favor outsized growth.
In business transient and group demand.
We expect to benefit from our re imagine operating model.
<unk> pipeline.
Capital recycling efforts, all of which should help to support strong earnings growth over the next few years.
And now I'd like to turn the call over to Sean.
Who will provide some additional color on operations, all with an update on our balance sheet and guidance for the fourth quarter.
Thanks, Tom overall, we were pleased with third quarter results, which were inline with expectations as leisure continues to lead performance along with ongoing improvements across our urban markets. A trend we expect to continue throughout the fourth quarter and accelerate into 2023.
Pro forma revpar for the third quarter was $171 eight 8% below 2019 levels.
Driven by widespread improvements in demand with pro forma occupancy improving sequentially by 80 basis points to 71, 7%.
And pro forma rates continuing to improve to $239 for the quarter.
Or 7% above the same period in 2019.
Looking ahead to the fourth quarter preliminary results in October look strong with occupancy averaging approximately 74%.
And nearly 200 basis point sequential improvement over September while.
Average daily rates during the month is projected to be approximately $243 or 4% above 19.
Overall preliminary revpar for the month of October stands at $179 or less than 10% below 2019 levels although.
Although if you were to exclude San Francisco October Revpar is 0.4% above 2019.
Total pro forma hotel revenues for the portfolio were $642 million during the third quarter, our pro forma hotel adjusted EBITDA was $166 million, resulting in pro forma hotel adjusted EBITDA margin of nearly 26%.
Margins were negatively impacted by demand softness in San Francisco, where our hotels have relatively higher fixed costs, which drove a 200 basis point drag on the portfolio.
Finally damage and disruption to operations from Hurricanes, Fiona and Ian were minimal with Q3, Revpar impacted by 20 basis points and adjusted EBITDA impacted by less than $2 million.
Our hurricane preparedness teams efforts to protect our guests hotel employees and assets allowed operations to resume safely and quickly after the storms had passed.
Turning to the balance sheet, we have continued to make meaningful enhancements to liquidity and financial flexibility as Tom noted earlier, our liquidity as of quarter end was approximately $1 9 billion include.
Including more than $900 million available on our revolver and $1 billion of cash on hand.
And we expect total liquidity to exceed 2 billion following the closing of our pending asset sales.
Net debt sits at $3 9 billion nearly $300 million lower since the beginning of the year.
We are currently working with our banking partners to extend our revolver, which we expect to finalize within the next couple of weeks.
While evaluating several opportunities to address our $725 million <unk> Mellon, which matures late next year.
With respect to additional near term maturities, we have two small mortgage loans coming due next year totaling just over $100 million and we expect and we expect to pay off those balances with available cash on hand, as we continue to move towards a more unsecured capital structure.
Turning to guidance for Q4, we are establishing revpar guidance of roughly $163 to $166 or 92% of 2019 levels at the midpoint.
While we continue to witness improving trends across several key urban markets, especially in New York, Boston and New Orleans, We expect San Francisco will negatively impact Q4, Revpar performance relative to 2019 by approximately 850 basis points, partially driven by a tough comparison with the timing of the dream.
Citywide being held in September of this year versus October of 2019 went over 100000 attendees participated in the event.
But the bottom line, we are establishing adjusted EBITDA guidance between $140 million and $155 million.
Translating to <unk> <unk> per share between <unk> 35, and 43 for the quarter.
All hotel adjusted EBITDA margins are expected to fall within a range of 24% to 25% or 470 basis points below 2019 at the midpoint.
Note. However that Q4 2019 margins benefited from $21 million of business interruption insurance proceeds we received that quarter four our key western Caribe Hilton hotels impacted by Hurricanes, Irma and Maria <unk>.
Excluding those payments the margin gap between Q4 2022 versus Q4, 2019 would be 270 basis points.
Also note that our guidance considers recently closed asset sales, which contributed approximately $1 million to our quarterly earnings and approximately $1 million of business interruption in the fourth quarter related to hurricane in.
Finally, I wanted to provide additional guidance for our fourth quarter dividend, while it remains subject to board approval. We currently expect the dividend to range between 21, and <unk> 26 per share of which approximately <unk> 12 per share relates to distributions from operations and the remaining <unk> 14 per share relates to gains from <unk>.
<unk> sold this year.
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, and we have the first question. Please.
Thank you.
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Ladies and gentlemen, we will wait for a moment, while the question queue.
Paul it's up.
Our first question is from the line of Smedes Rose from Citi. Please go ahead.
Hi, Thanks.
I guess I'm wondering.
I can give you a little bit more good morning.
You mentioned that the forward group bookings for 'twenty three are running at about 75% 2019 levels.
A little bit of a sequential improvement I was just wondering is that rooms on the books or is that a revenue number and then could you just talk a little bit more about.
What you're hearing from corporate clients and kind of maybe a little bit about the booking window.
Great question, Smedes, I hope, you're well as as we mentioned during the prepared remarks. So group pace is up for 'twenty three of about 75, 4%. That's about 300 basis points increase that represents revenue.
And if.
If you think back to.
Some of the markets, obviously in San Francisco.
Florida and across our portfolio in New York.
New Orleans, Chicago, Hawaii.
All continue to show a really strong performance. So it's very encouraging from that standpoint.
In terms of corporate negotiated rates I mean, obviously those are ongoing and occurring now I know some of our peers of use numbers in the <unk>.
7% to 9% range and we.
We certainly.
We find that to be reasonable, but again those discussions are ongoing now as we are.
As we prepare obviously for the budgeting season, but we're very encouraged by what we're seeing on the group side.
And again sequentially, that's an improvement in.
And fully expect that that's going to continue to accelerate as we move out into.
Later, this quarter and certainly into 2023.
Okay. Thanks, and then Shawn maybe could you just talk a little bit more about how you're thinking about the refinancing of the debt on the San Francisco asset you mentioned that come due next year and maybe sort of help us think about the comp versus the 4% or so that's in place now.
Sure Yeah, we're certainly looking at a few different markets smedes.
And some other options as well in terms of working with.
Okay.
Situations, so I would say that as we look at as we look at the markets, whether it's bank financing or call. It <unk> anything thats kind of in that kind of high single digit debt yields and you're probably looking at call. It $3 50 to 400 over.
So far so that's kind of in the ballpark of kind of cost and again were looking looking at more so probably a mortgage type of situation with an unencumbered assets like the Bonnet Creek complex as a solution clearly will.
Continue to monitor the bond market as well, obviously not pricing what we'd be looking to do now, but if things kind of calmed down and normalize all that maybe see that as an opportunity, but I think more focused on kind of a mortgage route going forward at the pricing I just discussed.
Okay. Thanks for that.
Yep.
Yeah.
Thank you.
Question comes from the line of Dani <unk> from Bank of America. Please go ahead.
Hey, good morning, everybody.
Good morning, Jim.
Good morning, Tom I have a couple questions. So my first one is.
On Revpar can you, maybe just help us kind of think through.
You gave us the full Q4 Revpar guide of down eight versus 19.
And then we know October downtown can you just help us walk through kind of how you expect November and December got progress sequentially.
Yeah.
I mean, we've kind of we've talked through seven to nine down Dania, obviously, we'll look at October being down closer to call. It call. It 10% again, we mentioned on our call or in the script I should say that San Francisco is certainly a good drag.
They're ultimately without it we'd be up slightly so I think as you look kind of November December I think you see some sequential improvement down to the mid single digits.
Clearly as we go through the quarter.
Got it and then my other ones on the margin so.
If you kind of look at the if we adjust for the bi proceeds in 19, youre kind of shaken out to somewhere directionally. It looks like it's about 100 basis points lower versus <unk> 19 in Q4 compared to Q3.
Maybe just help us understand how much of that is seasonality how much of that is.
As the urban cores of the country kind of recover.
A little bit of mix shift going on and just kind of hard to understand how that is going to progress.
Okay.
Yeah as you think about mix shift were roughly down 300 basis points in group relative to Q.
Q2 was down <unk> 40, and that was certainly a better quarter at similar at similar shift.
To 19 as Q3.
Do you think kind of a flow through I think we'll continue to kind of see improvement improving flow through as you bring some occupancy back.
And so I think for the most part we feel pretty good about.
Where the.
Where the markets are going but obviously, it's a tough comp given Q4, given the San Francisco drag as well as the <unk> that we saw for <unk>, especially in Q4 2019 as you mentioned.
Got it thank you.
Thank you.
Our next question comes from the line of Dori Kesten from Wells Fargo. Please go ahead.
Thanks, Good morning, everyone.
Good morning.
Okay.
Or would you expect to spend over the next two years.
And Ross.
And what return you're expecting on the ROI projects you mentioned in your prepared remarks.
Well we are.
Generally we are on a normalized basis about 6% of revenue we've always been on the higher end just given the nature of the portfolio of revenue. So that's one starting point, obviously that was disrupted obviously during the pandemic.
If you think about what's in the pipeline right now.
We're wrapping up on a creek, there's another $80 million that we talked about in the $70 million.
So you're a few hundred million.
Back of the envelope I think would be.
Good planning for what's in the pipeline we are laser focused as we've said in terms of priorities.
Selling noncore, we're making really good progress there you'll continue to hear more about that in the coming weeks and using those proceeds to delever, but at the same time reinvest back into the portfolio, particularly with our ROI projects and quite optimistic and really encouraged by that.
And then of course, we will look for other capital allocation that could also include.
Buybacks on a leverage neutral basis, but.
The priority is getting down the leverage and certainly reinvesting back into the portfolio. So a few hundred.
Depending on how many other projects we launch we've got the Doubletree project in San Jose and converting that it's in the planning phase now.
Even the uncertainty.
We clearly are.
We're committed to getting.
Barton Creek.
Resort and that expansion done, it's well underway and as we mentioned the Waldorf Ballroom will open next month.
And obviously the Hilton Sydney.
About another 13 months plus or minus and then we're also.
A completely renovating the guest rooms, and public space and of course, our World Class Golf course as well.
Custom arena, we've had enormous success with the reach the sister property there.
We expect that we will have at least that if not better with a with a complete renovation of the cast from arena as well.
Okay.
Okay. Thanks.
Just thinking in Q2 of your larger markets given what you know about the convention calendar in San Francisco for next year.
Hopefully the pending return of Japanese travelers to Honolulu.
What kind of tailwind.
In that.
There could be as a result in revpar for 23.
Yes.
It's a great question I mean, if you think about San Francisco and I realize there's a lot of energy around it and.
I'm in fact, leaving here and headed out west.
I've been out there many times as many know.
But we are we are cautiously optimistic I mean, if you think about the.
Parc 55 did not reopen until more until may of this year. Obviously the Hilton was also not until the end of 'twenty. One so you've got both of those sort of ramping up and we had revpar down 90% at the beginning of the year and as we said, we expect that revpar will be down probably inside of 30 <unk>.
<unk> by the end of the year, that's that is ramping up quite nicely and when you think about the citywide. So there is 640000.
Room nights expected, it's about 63% of really the all time high in 19, coupled with.
Probably.
Wondered 30000 room nights approximately already on the books at that complex.
We would we would certainly expect a.
Pretty dramatic increase.
With a market like that with only 30000 rooms in a clearly are complex, they're accounts for 10% of it having that having anchored with city wides, coupled with internal group allows us the great opportunity to really yield out the transient so.
Don't have a revenue revpar figure for you today, but it really sets up nicely for a significant tailwind there.
Why is.
If you look about Hilton Hawaiian village, it's just.
It's just an extraordinary.
I would respectfully submit certainly one of the more valued assets in all of lodging.
When we think about that.
<unk>, where we still don't have the Japanese traveler back, but we're probably going to be flat to revpar.
This year, we're still expecting to be at or near an all time high in.
And EBITDA.
So we are very encouraged by what we're seeing there now a lot of that has been certainly domestic travel, but it's also been in other international International is normally about 30% of that asset its about 10%. This year is what we're tracking in the Japanese traveler now will have been gone for nearly three years.
And historically, they stay longer and spend more so we think that there is a tremendous tailwind Waco LOE has been 20% to 30% increase in revpar.
And if you think about Hilton Hawaiian village, which essentially we will end the year was up 7% I believe in the third quarter, but we'll probably end the year, probably just flat to slightly negative.
Certainly.
You would expect.
Double digit increase in Revpar as we look out assuming obviously.
<unk> remains the economy remains healthy, which is which is what we believe today absent.
Any significant changes.
Okay. Thank you.
Thank you.
Thank you. Our next question comes from the line of Anthony Powell from Barclays. Please go ahead.
Hi, good morning.
Good morning, Anthony.
Good morning, Tom.
On New York I mean, I think you highlighted how the market is recovering very strongly and our revenues are coming back quickly.
Question on margins, there I still think that our margins are kind of trailing.
What's the opportunity left there to kind of maybe improve the operating structure at that property I know that was a big topic of discussion pre reset free.
Pre COVID-19, so, whereas where are we in that process now.
That's a great question Anthony I mean look we have we have spent a lot of time and a great credit to our asset management team, we've been working with our operating partners.
King for ways to continue to streamline operations.
Room service is a great example, where it's sort of more of a non can drop or.
We have limited food and beverage.
Obviously, we've got significant food and beverage as it relates to the group meeting and banquet business, but really thinking about the business differently.
The endemic forced all of us.
Better communication better collaboration among the brands as well as the management companies.
We are anchored as we've said in the $85 million in savings.
The 200 jobs that had been eliminated and a lot of that is.
Uh huh.
Really in food and beverage and taking out assistant managers and taking out the sales and marketing costs that candidly had become a bit.
A bit.
Accelerated over time so.
Clearly as you see occupancy continue to rise we will see the full benefit of those margin improvements, but it's a really different operating structure.
Then what we have today.
We're very encouraged by what's happening in New York.
I'd remind listeners everyone was sort of writing off I think both New York and San Francisco and other urban markets six months ago, a year ago through the pandemic.
I think New York is a great indication that it's coming back in and I think coming back pretty strongly.
Sure.
And we were.
If you think about where we were at the first quarter of occupancy I think it was in the low thirties second quarter at 69%.
Obviously the.
The third quarter at 74% and were expecting probably Q4 to be in the low to mid <unk>. As an example, so I'd say, that's ramping up nicely and as we communicated on the San Francisco story continue to see that as well, though certainly San Francisco's lagging for the reasons that we've noted.
But new York is coming Roaring back in the city has been fully activated and having really one of only three big boxes in the city really gives us a really competitive advantage and a foothold there. So we are quite optimistic about New York as we move forward.
And I would just quickly add that we certainly would expect things to improve for Q4 as Tom mentioned, you with occupancy kind of improving we saw obviously down 26 points in Q3, and we expect it to be down more closer to 11 points in Q4, so getting the occupancy up will certainly improve the margins I think we will still have a gap, but also as you look at Q4, we're still down 20% on <unk>.
Group revenue. So you got to get the oxy up in gigabit group mix more normalize to kind of achieve the margins, but I would say that we're looking at mid to middle to high double digits.
Our teams I should say for Q4 margins versus that what was kind of high single digits for Q3.
Thanks for that and maybe on San Francisco can you remind us how important business transient internet market and and where it is right now.
Would there be any risk of some headwinds there next year, what you've seen.
Lay off kind of announcements from Twitter stripe and whatnot.
Maybe a BT kind of slowdown or reversal in a market.
Could that maybe offset some of the strength youre seeing in group next year, yes.
Yes.
I think Anthony if you look historically I mean, I think the real benefit of of San Francisco was having obviously.
Supply constrained a great convention.
Market and following.
Having a strong leisure and a strong business transient so I wouldn't say, it's Kelly a third a third a third.
So I don't have the data in front of me, but but if you look historically it has been.
It had been a strong a market as any and particularly as I think back to 2006 through 2019, certainly was among the top three markets and really it was those strong sources of demand.
No doubt that given that given what's happening on the tech side, certainly will be felt a little more in San Francisco.
The fundamentals of getting the convention market back getting kind of returned to office, we know that that's lagging I know that the mayor and others are really pushing.
But I wouldn't write off San Francisco over the over the intermediate and long term I've said that before and so we stand by it.
We continue to monitor and study the market carefully.
And we're not bearing our head in the sand. We are we are out there and.
We are seeing some some green shoots in some positive things, we certainly want to see that accelerate in 2023 and beyond.
Thank you.
Yes.
Thank you.
Our next question comes from the line of Duane <unk>.
Good luck.
Evercore ISI. Please go ahead.
Hey, Thank you for the time.
Hey, Duane.
Same here. Thank you on on the Japanese inbound traveler I Wonder historically are there any differences in sort of the peak seasonality.
Of that traveler or does it line up you know does it line up pretty closely with with peaks in.
Hawaii overall.
Duane it's a great. It's a great question, if you think historically.
It's been about $9 million.
The $10 million of user.
Use of $9 million is kind of inbound into Hawaii.
About 60%, 62% coming from the U S second largest market really coming out of Japan kind of $1 5 million plus or minus.
Look it's been consistent for 30 years, plus or minus particularly into the into that asset and you've got generations coming they tend to stay longer.
And Pat and pay more.
In terms of seasonality I think it's been pretty consistent.
As shown.
<unk> data on it but.
Obviously the tour operators have been.
<unk> been a good good part of it.
But I think it really dovetails nicely.
And given the capacity, we clearly have the capacity to accommodate that demand whenever it comes.
Yes, I think we can see a little bit of blip in the spring around Golden week in Japan, but I think as Tom says, it's generally pretty consistent across travel normal kind of vacation times.
The reason I ask it we've seen some some airlines try and launch.
Hawaii service some successfully some somewhat successfully and it just tends to be I think the learning as it tends to be a longer lead time.
Purchase consideration to your to your point you don't go to Hawaii for a weekend most of the time you you go for a longer period of time and so.
I would expect there is a longer lead time in those purchase decisions as we think about.
Travel restrictions going away. So it may just be a little too early.
To measure the success or failure of those of those easing of travel restrictions.
My follow up.
Do you mind, if I could just to unpack that a little bit I think it's a great point, but no as I said, you've got north of 30 years, if not more are really consistent if you look at those travel patterns coming out of Japan.
It's been a loyal consistent.
Easy to get to.
On a relative basis.
And so when you look at it that pattern now this will have been the third year.
They've been virtually shut out so I mean, I would respectfully submit that as we saw in the U S.
With that sort of pent up demand.
I would expect similar behavior.
So the airlines will respond to that demand as we saw.
Certainly respond here in the U S. Although some did it better than others, but we are quite encouraged and despite that I mean, obviously we've.
Got a resort here that has continues to.
Extraordinary performer.
And we would expect when we get the Japanese traveler back that.
It will.
To accelerate that Revpar growth and we really haven't seen the revpar growth that some of our other leisure markets and that other of our peers have seen so we see that as a real tailwind for park is.
As we move in to 'twenty three and beyond.
That makes sense. Thank you for those thoughts and then just I apologize if you've.
Covered this in another question, but Sean could you, maybe just give us capex or capital spending 2022 2023.
I mean, ultimately Tom covered that I'll, let Tom.
Got it.
We've certainly Duane you always had 6% of revenues certainly higher than normal in part just given the nature of this portfolio and as I said, we've got pending ROI projects that are active in.
I said for planning, it's certainly a few hundred million dollars is a good base number to use and that can flex depending on.
When we accelerate the Casa Marina complete transformation that we're planning for next summer and of course closing out the additional $80 million to finish up Barton Creek, which is going to be a complete rooms redo the golf course.
Which we're quite excited about is we really position that world class resort, there in Orlando and certainly be as competitive as any other property there.
Thanks very much.
Alright, thank you.
Sure.
Thank you. Our next question comes from the line of Chris <unk>.
From Deutsche Bank. Please go ahead.
Hey, good morning, guys. Thanks for all the growth of detail Martin.
First question was I don't know, maybe we can zoom in on San Francisco Group, a little bit I think.
You've given us a lot of data points and some encouraging but I think on the rate side right not where we want it to be is this a is this some kind of structural issue, where San Francisco from a group perspective has become more of.
A value city and the higher dollar has gone to Vegas and the question and that is.
Matters for you guys right you need to you want the higher rated premium groups to really drive the EBITDA recovery there.
Yes.
Not sure that I would I would agree with that thesis.
Chris I mean look.
Vegas works I think for certain groups, but if you think about some of the high end educational base pharma.
And you think about the audience in San Francisco.
Historically had and if you think back to 2006 2000 through 2019 and Vegas was still strong at that point.
San Francisco more than held its own.
We think it's been the pandemic the unfortunate negative narrative that got away from the city.
I do think the city is correcting whether its street conditions the homeless.
Some of the safety and security issues and you know that many of us have been out there in <unk>.
Many other business leaders men and women of also I, certainly know that the city gets set and I think they're moving in the right direction.
So I certainly would not and given the fact that you've got a market that is 30000 rooms in the CBD take New York, It's a 120000 or more so you have natural opportunity for real compression there.
We see for our portfolio and our complex it certainly makes sense to have it.
City Wides anchored with in House group, and then the ability to really yield that transient so we.
We are encouraged I mean, the group pace this year as in the in the low 30% group pace next year.
North of 50% I think about 130000 room nights was I think the number that I gave in city Wides are at about 640000.
Which is about 63% of of <unk> 19, which was an all time high so encouraging.
Look we need we need San Francisco.
That performance to continue to accelerate.
As I reminded listeners remember the Parc 55 was closed for 27 months. It didn't open until may of this year.
There were many who.
Made the comment that in New York, and San Francisco, and others wouldn't wouldn't be back until 'twenty five 'twenty six or later I think it's fair to say that based on what we're seeing in New York and even the early signals here in San Francisco that we certainly think thats going to happen before then.
Yes, one thing I would add Chris is if you look at Q1, so maybe to start with Q1 pace for 'twenty three relative to pre pandemic levels were up for the decline of the complex 8% on on rate for pay so I think again coming from where it's been I think it's very encouraging and it's and I think it's also as incurred.
<unk>, what we saw the activity for in the month of September for booking for 'twenty three for San Francisco, which really represented about 14% of the total rooms added that month and ultimately 20% of revenue. So we got average range of $433 booked foreseeable.
For San Francisco for all of 'twenty, three I think some of that obviously is probably.
Going into Q1 for Jpmorgan, but in the end, it's an average rate of $4 33, which is 30% higher than.
The numbers were seeing on the 8% pace I talked to you about.
Just I just mentioned, so I think again encouraging and in the right direction for Francisco.
On the group side.
Sure Great.
Helpful. Just as a follow up.
How do we think about some of the puts and takes on margins going forward I mean, we're going to have higher occupancy next year hopefully.
<unk> mix could be because it depends on your perspective could be positive could be negative.
And really what I'm asking is whether it's kind of group group margins on some of the ancillary stuff or even some brand initiatives I don't know if youre continuing to work with the.
With Hilton and I guess, the other brands to a lesser extent on further things, whether it's cost of royalty or other that could be helpful going forward.
I think it's a number of things Chris do you think about building. This back I mean, clearly occupancy you are at a level, where youre ranging in that 70% and so you're kind of getting to that point, where youre going to have a lot of your layered fixed cost and you're going to basically with added volume just flow that better I think we'll continue to see rate growth in.
Certain markets, obviously think about San Francisco and the drag that it is I mean, if you think about it coming back some kind of real soon and lift our revpar to 19.
<unk>.
And so I think as you think about the flow through for our business again getting a mix in there with group, which has continually about 300 basis points less than what it's been in 19.
Therefore, getting the banquet and catering revenue coming through I think you certainly see a lot of a lot of opportunity for this to continue to grow and obviously go beyond where we were at <unk> 19, as we've discussed with the with the.
The changes we made in the in the staffing changes we've made so I think we certainly see continue to see growth, obviously with the business still performing and will put aside the macro discussion for the moment with this but I think in the end we have a certainly a path towards getting to you know certainly higher margins that we're seeing.
Here today.
Okay very good thanks, guys.
Thanks.
Thank you.
Our next question comes from the line of Neil Malkin from capital One Securities. Please go ahead.
Thanks, Good morning, everyone.
Good morning.
Hey, good morning.
Just maybe some clarity on the.
Potential additional dispositions that you've talked about.
Can you maybe highlight.
Give us some color on.
Are those are those just sort of the noncore, maybe not the not the upper upscale.
Full service.
I think the one off markets Jv's.
Maybe maybe potentially.
Reshuffling of the portfolio.
Or do you think some exposure to troubled unionized markets that lag any any help on that.
Side of the ledger would be great.
Yes.
It's a fair question, but let me also just say.
We've got a number of people in the queue here and we want to try to answer as many questions. As we can and I know were stacked up with a lot of other companies reporting today.
Yes.
Excellent.
Yes, no no no team as is sold and move more assets than we have since the spin we're up to 38 assets now.
$2 billion international.
<unk> thousand 14 of those as you know South Africa, Brazil, Germany, seven in the U K.
Joining venture in Dublin, I mean, we've seen it all and done at all so we've worked on a lot of credit to the men and women on our own.
On our development team and investment team and have worked really hard every one of the deals has legal tax other other complexity. So it's a combination we are constantly working on reshaping this portfolio.
So I would say that their assets over $100 million, they're non core to what we would say long term holding.
We are not looking at this point and for your questions about some of the big urban boxes.
We don't think now is the time.
They are big they are complicated there are tax and legal issues.
And with that markets, where they are we think there are other assets that are.
That are marketable noncore.
Plenty of sources in private equity into our owner operators and family offices.
I think we've shown a real skill and being able to sell and.
And also do it efficiently and at pricing that makes sense, we're not a distressed seller. We're doing this thoughtfully and prudently and we set a goal of $2 million to $300 million, we've already exceeded that we've raised it now to $500 million.
We're confident we'll be able to deliver that and continue to use those proceeds are certainly delever and reinvest back into the portfolio.
Okay. Thanks.
Okay. Thank you.
Thank you our.
Our next question comes from the line of Robin Farley.
UBS. Please go ahead.
Great. Thanks.
Robyn Hi, how are you.
In your release, you talked about the asset sales and how given that you've been successful at selling more than you had targeted that you might pivot between being defensive and offensive and I'm. Just curious does that is that suggesting that maybe you would be thinking about making acquisitions or I don't know if that was more just about reducing leverage and reinvest.
It sounded like pivoting between defense and offense could mean, you're potentially interested in making an acquisition.
Yes.
Love to make an acquisition at the right time Robyn.
Remind listeners again, we've we've sold to.
The 38 assets for $2 billion, we obviously bolted on Chesapeake for those 18 hotels for $2 5 billion. So we've really been a net acquirer. It's just been silent here as we've as we've worked through the pandemic.
Priorities are again getting the revolver done Sean and team are making great progress there selling noncore reinvesting back into our portfolio.
And then again as I said, we will have as we have done we will look at buybacks, depending on where the share price.
And clearly we trade at a huge discount today and if we can do some buybacks it on leverage neutral basis, we'll certainly continue to look there.
Not lost on us given all of the uncertainty.
Part of the reason why we want to continue to build tremendous liquidity is that there will be a time when pivoting to go on offense makes sense and park, we will be ready and part will be.
Active at that time, we don't think that that is necessarily today or this quarter.
Okay, great. Thank you.
Thank you.
Thank you.
Our next question comes from the line of Patrick Scholes from Suntrust. Please go ahead.
Great. Thanks, Good afternoon, everyone. Good afternoon.
There've been a number.
Sizable acquisitions amongst your public REIT peers over the last several quarters.
I've noticed you folks have had.
Not been terribly active in the acquisition market and I'm, just curious as to your thoughts and rationale why you've decided to perhaps take path and again. This has not been right or wrong I'm just curious as to what is your internal thinking of why you have.
<unk> been active in that.
Thank you yeah.
Thanks, Patrick as you know I'm not going to comment on others' deals.
Let them speak for themselves I think we've been pretty.
Pretty consistent and what the priorities are for parking.
We really wanted to use the pandemic in the post pandemic to re imagine the operating model.
As Sean pointed out as we get occupancy back and we get later in this recovery. We are we are confident that we're going to see permanent savings and real value there.
Want to continue to reshape the portfolio and selling and recycling that capital.
We sold 38 will continue to sell some of the noncore or top 27 assets really account for about 90% of the value of the portfolio. So cleaning it up we think that makes sense in the highest and best use of those proceeds is really reinvesting back into our portfolio, whether that's through the ROI or that's through targeted by.
Buybacks on a neutral leveraged neutral basis.
There will come a time.
When we will be a buyer. We just don't think that time makes sense right now for park.
If you think about since the spin we've really have been more of a net buyer than seller given the fact that.
Sure.
We bought $2 5 billion versus selling the $2 billion.
And then also obviously, we've got we've had a ton of buybacks over that period of time as well so.
I'll stop there and hopefully that answers your question.
It does thank you for the color.
Yes.
Thank you next.
Our next question comes from the line of Bill Crow from Raymond James. Please go ahead.
Good morning, Tom.
Good morning Bill.
Yes.
There's a little I would like to discuss.
Actions matter with you than some of the big picture issues.
Just curious.
We might be talking about group and the recovery in San Francisco or Chicago D C.
If thats not maybe missing the point here that we might be undergoing a larger paradigm shifted where groups might be heading in that I'm thinking about markets like Tampa Nashville, Austin Denver.
And whether we're thinking about some of these holes.
Trench.
Group markets, maybe that's just wrong going forward.
Just love to get your opinion on that.
Yeah.
Bill I'd love and I'd love to schedule them.
A follow up.
<unk> had this discussion with you I just don't think they're mutually exclusive.
I don't disagree with you that there are some really compelling things happening in Nashville, or Phoenix and Austin as you know my.
My past life of one of the largest owner for owners of hotels in Austin, So I know it well, but I would also say that there are there are true and tried markets and infrastructure capacity in Chicago and Boston.
In San Francisco.
And land that.
That have that have worked and are really part of the rotation D C.
And there are reasons why those associations <unk> those groups.
Need to be or want to be in those markets with great air lift and other other.
Other reasons, so I don't think theyre mutually exclusive.
And I think we're going to have to see over time.
Would respectfully submit that.
If you look historically at some of those top markets and then put Orlando in that there is.
There is a cycle and.
In a rotation and I would fully expect Boston's in.
D CS in San Francisco's a Chicago is to continue to be part of that.
Now there is no doubt and we won't get an argument here bill about there are some structural challenges in some of these cities that need to be addressed.
No doubt about that and I think you and I have had it I would respectfully submit that I've I've tried to be constructive and I've been I've been a voice in written letters and made lots of comments on the subject I think as you know.
No I do and I. Appreciate you have you can see for the industry.
That was it for me I appreciate the time.
But I will scheduled time would you be able to continue this.
Alright sounds good.
Alright good.
Well always good talking with you.
Thank you.
Our next question comes from the line of Jay Congress from F. N. B C. Please go ahead.
Alright, thanks, very much good morning.
Hey, good morning provide some.
Alright.
Can you provide some additional color on how you see that F&B revenue trending in <unk> and then the strength you see in this segment in 2023 as group demand and the convention calendar continues to ramp up.
I lost the first part of the question, we Couldnt hear you. So if you could just repeat the first part again.
Yeah sure I was asking about if you can provide some additional color about how you see the F&B revenue trending in <unk> and then the strength of SP in 2023 as group demand and etch counter continues to ramp up.
Yeah, F&B F&B will will ultimately come through certainly better than we saw.
In Q3, as we look at Q4, clearly you kind of get into the into the.
Into the season of holiday season, whatnot, you see a little bit of a.
Ramp up in banquet and catering at CIT ultimately.
To get to a point, where it's rivaling Q2 F&B.
F&B revenue. So I think I think certainly as you see clearly as you see that.
Mixed more normalize on the group side is certainly our pace would demonstrate that we're continuing to see improvement year over year.
Certainly you're going to see the F&B side growth. So we are certainly down significantly without the group the group mix in place there. So I think certainly as we go into next year, we'll see it certainly see the grip grip mix normalize and F&B revenues certainly no more normalized 19 levels as well.
Okay. Thanks, so much I'll stop there.
Alright, thank you.
Yeah.
Thank you. Our next question is from the line of Chris <unk> from Green Street. Please go ahead.
Thanks, Good morning, Hey, Chris.
Good morning.
Tom I appreciate the comments you gave on the transaction market already but I'm just curious whether you could comment on many value changes you may have seen over the past couple of months, obviously being enacted seller in the market.
Then I wonder if it's possible if you could delineate any of those changes across some of your major markets.
Yeah, It's a fair question, obviously, given given rising rates.
Kept cap rates come in.
Are they expanded 25 bps, maybe 50 bps, depending on but we're still seeing.
I really healthy.
Market for hotel real estate I know the private equity funds and I may be off a little bit on my numbers, but I think are sitting on about 400 billion.
Of of capital you've got family offices, <unk> got owner operators.
There is clearly demand as you look for yield I would believe that lodging and expect the lodging is going to continue to be an attractive asset class.
It can be only so many industrial and residential three cap deals you can do and I think they get harder to do given given where rates are so we haven't seen any sort of slowdown I do think that deals that have a story.
That also have an opportunity that.
Perhaps with management are unencumbered.
Tend to have perhaps a more.
Bidding audience, but thats not always true.
If it's a trophy asset I think those fully encumbered are expected. So it really depends on the submarket in the asset, but we're not we're not having any issues of resistance.
And transacting.
We've been as active as anybody we're thoughtful about it.
We go through a process, we certainly are committed to make to make sure that we're maximizing value for shareholders.
But we really are also committed to recycling capital and cleaning up the portfolio and it's it's been a lot of hard work people forget that we also have laundry platform that we have also disposed of and we had four we have four assets that we were self operated.
All of that has been cleaned up.
Great credit to Tom <unk>, our Chief investment Officer, and Nancy <unk>, Our general counsel.
The men and women on those teams have been working tirelessly over the last few years as we continue to reshape the portfolio. So it is a much stronger portfolio and where we were six six plus years ago. When we were spun out.
Got it thanks for the comments and I appreciate the time.
Now my pleasure to look forward to seeing you soon.
Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session.
And I would like to turn the conference to Mr. Tom Baltimore, Chairman, President and CEO for closing comments.
Thank you. We appreciate everybody taking time today, we look forward to seeing many of you at NAREIT and stay safe and we'll see you hopefully out in San Francisco.
Thank you.
Conference of Park hotels <unk> Resorts, Inc. Has now concluded. Thank you for your participation you may now disconnect your lines.
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Okay.
Yeah.
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