Q4 2022 Park Hotels & Resorts Inc Earnings Call
Greetings and welcome to the Park hotels and Resorts, Inc. Fourth 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 is being recorded.
Now I'll turn the conference over to your host Ian Weissman you may begin.
Thank you operator, and welcome everyone to the park hotels, <unk> resorts fourth quarter and full year 2022 earnings call before we begin I would like to remind everyone that many of the comments made today are considered forward looking statements under federal Securities laws.
As described in our filings with the SEC. These statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed and we are not obligated to publicly update or revise these forward looking statements actual future performance outcomes and results may differ materially from those expressed.
And forward looking statements note also that comparisons to prior year periods on a comparable basis as defined in our earnings release.
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 risks 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 financial information available on our website at PK hotels and resorts Dot com.
This morning, Tom Baltimore, our chairman and Chief Executive Officer will provide a review of parks fourth quarter performance and outlook for 2023, Sean Dellorto, Our Chief Financial Officer, who will provide additional color on fourth quarter results and update on our balance sheet and liquidity and further details on <unk>.
Items following our prepared remarks, we will open the call for questions with that I would like to turn the call over to Tom.
Thank you Ian.
And welcome everyone.
2022 was an incredibly productive year for park as we witnessed widespread improvements in demand throughout the portfolio.
While continuing to strengthen the overall quality and flexibility of our balance sheet.
For the travel industry as a whole.
2022 was an important year as businesses returned to the office.
Conferences resumed.
And the majority of travel restrictions were lifted around the globe.
Allowing the industry to benefit from a broad based recovery across all demand segments.
For the park portfolio we.
We saw improving group and business transient demand throughout the year.
Which combined with ongoing strength in leisure demand too.
To deliver healthy results for the full year.
Looking ahead.
The continued increase in group demand and recovery in urban markets provides a favorable backdrop for park to outperform.
In 2022, we remain focused on our strategic priorities, including operational excellence in terms of realizing operational efficiencies.
Prudent balance sheet management and investing in value enhancing projects.
We continue to reap the benefits from the <unk> operational model developed during the pandemic with translated in to labor costs that were 16% lower in 2022 versus 2019.
And are expected to remain above our target of approximately 200 positions or a 9% head count reduction throughout 2023.
We also made substantial progress improving the overall quality of our balance sheet and 2022.
Raising our total liquidity to $1 9 billion.
An increase of approximately $300 million over the last 12 months due to both our capital recycling efforts and our debt modification initiatives.
On the capital recycling front, we sold interest in eight noncore hotels.
$435 million at <unk>.
12, seven times 2019, EBITDA since the start of 2022, including the recently announced sale of the Hilton Miami Airport for $118 million in early February .
Additionally.
We exited our covenant waivers and pushed out debt maturities with the recast and upsize of our $950 million revolver in December . Thanks to these incredible efforts by the team Park remains well positioned to execute on our internal and external growth initiatives with the flexibility to pivot.
Between offense and defense.
Certainly depending on market conditions.
In terms of our strategic priority to invest in our assets.
We spent $168 million across our portfolio in 2022, and we expect to increase to over $300 million. This year.
Nearly half for ROI projects, as we continue to unlock embedded value opportunities throughout our portfolio.
Excellent progress continues on our meeting platform expansion at Bonnet Creek with the opening of the new Waldorf Ballroom. This past December along with the completion of lobby renovations at the Cigna hotel with a full rooms public space and existing meeting space renovation at the Waldorf expected.
To be completed by the fourth quarter of 2023.
We expect to finish the Cigna meeting platform expansion along with the renovation of the Reece Jones Championship Golf course by Q1 2020 for completing a five year $220 million full scale renovation of this world class resort.
We are also finalizing plans to complete our curio conversion at our iconic Casa Marina resort in key West later this year, a $70 million investment, which will include a full rooms renovation and a re imagination of the public space, including its food and beverage outlets.
We also plan to implement climate change mitigation upgrades during a renovation.
Making the asset more resilient in the event of weather related issues.
We also completed phase two of the Tapa tower rooms renovation.
At Hilton Hawaiian village during the fourth quarter and expect to execute the third and final phase of the renovation at the 1000 room tower in the fourth quarter of this year, culminating.
Culminating an $85 million of total capex spend for the project.
Finally in 2022, we returned over $290 million of capital to shareholders in the form of common stock dividends and share buybacks.
Beginning in Q1, we reinstated our quarterly dividend generating a full year payout of 28 per share and.
In addition, given the ongoing dislocation between public and private valuations.
Bought back a total of $227 million of stock last year. In addition to another $30 million of stock. So far in 2023 for a total of over 15 million shares repurchased at a significant discount to net asset value.
Looking at fourth quarter results comparable Revpar increased 47% year over year, having recorded haven't recovered to 91% of 2019 levels and fully recovered.
Within 0.3% increased to 2019 for the fourth quarter, if we exclude San Francisco.
Results.
Were led by strong leisure demand in our resort markets and healthy group trends in markets like New York, Hawaii, and New Orleans.
Hawaii, our Hilton Hawaiian village Hotel reported fourth quarter Revpar that was 2% ahead of 2019 results with average daily rate, 11% above 2019.
The hotel reported its strongest group quarter since 2019 during the fourth quarter and finished 2022 with an annual EBITDA contribution of over $173 million.
Its highest amount in our company's history.
While we have been very encouraged by the strong fundamentals in Hawaii, We believe <unk> for continued growth remain.
With international demand still pacing, 70% below 2019 levels in.
In Japan off by over 95%.
As a reminder.
Japan, historically represented nearly 20% of our demand at the village.
Turning to Florida.
<unk> was the only resort market within our portfolio that faced notable headwinds in the fourth quarter.
The entire island has seen demand moderate as a result of reduced compression.
While hurricanes, Ian and Nicole also negatively impacted the island in the quarter.
Accounting for 420 basis points of Revpar drag.
Looking ahead to 2023.
We expect revpar at our reach resort to likely be flat to down versus 2022, but still well in excess of prior peak levels.
While the transformative $70 million renovation of Casa Marina during the second half of the year is expected to account for approximately 105 basis points of full year Revpar disruption.
And $14 million of EBITDA disruption overall.
The recovery in urban markets with.
Was solid during the fourth quarter.
As we expect that rebound to accelerate this year.
We saw ongoing improvements in demand during the quarter and most of our urban markets.
Led by New Orleans, New York.
Boston and D C.
Performance at the New York Hilton was driven by better than expected group demand, which helped to drive both strong occupancy gains and subsequent rate compression with ADR, averaging nearly $365 for the quarter or 13% above 2019 levels.
As a result.
Hotel adjusted EBITDA increased sequentially over Q3 2022.
Over $19 million to more than $22 million for the quarter.
While hotel adjusted EBITDA margin was an impressive 27, 5% during the fourth quarter.
We expect that momentum to continue into 2023.
Both Revpar and hotel adjusted EBITDA margin expected to exceed 2019 levels in 2023 group pace to be above 2019 for the same period.
Turning to San Francisco.
Our Q4 performance was weaker than expected.
We're very encouraged by January's preliminary results following a successful Jpmorgan health care conference.
We see several encouraging green shoots that we believe will help support ongoing improvements in the city in 2023 and beyond.
First group is expected to continue to improve in 2023 with the Mosconi center expected to generate nearly.
700000 room nights of citywide demand this year.
Up from just 380002 thousand 22.
Second <unk>.
Several airlines have announced plans to return or expand key international routes throughout the year, bringing.
Bringing welcome economic activity is international spend was nearly three times domestic spend in the city in 2019.
Finally.
With political and business leaders are now more focused than ever to re imagine and reenergize the city.
Just two weeks ago, <unk> announced an economic recovery plan.
With nearly 50 initiatives, including taxes and incentives.
<unk> safety measures and designs to diversify the city's employer base.
San Francisco's fortunes will not change overnight.
We do expect to see continued recovery there.
Will lead to more meaningful contributions to parks earnings growth over the next few years.
In terms of revenue segments. The rebound in group demand is a strong tailwind for our portfolio.
We started to see in 2022 and expect to accelerate further in 2023.
Q4 group revenues exceeded our forecast by 9% or approximately $9 million in.
And showed a 12% incremental improvement over Q3.
While we continue to see robust short term group bookings. We are also encouraged to see the booking window a long game.
In Q4 $55 million of new business was booked for 2023.
With gains primarily concentrated in San Francisco, New York in Orlando and.
Group revenue pace for 2023 increased by 300 basis points to 78%.
Pre pandemic levels.
Group revenue pace is up 28% for the same time last year.
Nearly doubling during the quarter.
15% at the end of Q3.
We look out to 2024 over.
Over 70000 room nights were booked in December alone.
Led by San Francisco with over 15000 room nights.
Our over 21% at December pick up for the year.
Given these trends.
Park remains very well positioned to generate impressive year over year earnings growth driven by ongoing strength in resort markets like Hawaii, and Orlando, while pent up business travel and stronger citywide candle calendars should support accelerating demand across our core urban mark.
That's one.
Accordingly.
We are establishing full year revpar guidance.
Based on year over year growth of 7%.
14%.
With the wider than usual range driven by ongoing macro uncertainty.
With respect to earnings we anticipate <unk>.
Adjusted EBITDA to be in the range of $610 million to $690 million.
While hotel adjusted EBITDA margin is expected to range between 26, 7% in.
And 27, 3%.
A roughly 80 to 140 <unk>.
At this point improvement.
Over the prior year.
Adjusted <unk> per share guidance is forecasted to be between $1 60 to $1 99 per share.
As we look ahead to 2023 hours.
Our strategic priorities are unchanged.
We remain laser focused on operational excellence as.
As we continue to aggressively asset manage our portfolio and improve the operating model and we will continue to reshape.
And upgrade the portfolio by selling noncore assets and heavily reinvesting in the core portfolio with value enhancing renovations and ROI projects.
With that.
I'd like to turn the call over to Sean who will provide further details on our performance as well as providing additional details on first quarter expectations.
Thanks, Tom.
Overall, we are very pleased with our fourth quarter performance as Tom noted Q4 Revpar came in at approximately $163 is occupancy was just shy of 68%.
ADR was slightly stronger than we had expected at $241 or 8% above 2019 levels.
Overall comparable hotel revenue was $644 million during the quarter, our comparable hotel adjusted EBITDA was $166 million, resulting in comparable hotel adjusted EBITDA margin of nearly 26%.
Q4, adjusted EBITDA was $159 million and adjusted <unk> per share was <unk> 45.
Turning to the balance sheet, our current liquidity is approximately $1 9 billion.
On net debt currently stands at $3 9 billion or nearly $300 million lower since the beginning of 2022.
We continue to evaluate several opportunities to address our $725 million to MBS Mylan on our two San Francisco Hilton hotels, which matures in November .
And given our balance sheet and liquidity. We are confident we will have the matter addressed before the third quarter Youll.
We will keep everyone apprised of any developments over the coming months.
Looking ahead to the first quarter, we expect to see the greatest improvement across our urban portfolio with continued strength in Hawaii, Orlando, Miami and Southern California.
All of these leisure markets forecasting year over year gains.
Softer citywide calendars in key markets, such as Chicago, New York during the first quarter, we will present, some headwinds with software group trends expected. However, we project a sharp rebound beginning in Q2 with the acceleration of solid group trends expected to be a meaningful driver performance for the remainder of 2023.
Accordingly, we are establishing Q1 guidance with revpar forecast to range between $156 and $162.
For year over year growth of 37% at the midpoint of the range.
Adjusted EBITDA is expected to range between $124 million and $140 million, while hotel adjusted EBITDA margin is expected to range between 22, 8% and 23, 4%.
A roughly 400 to 460 basis point improvement over the prior year.
This margin improvement will be negatively impacted by outsized cancellation income recorded during Q1 2022 relate home across.
Accounting for approximately 100 basis points of drag versus prior year.
Finally, adjusted <unk> per share should range between 30.
<unk> 37.
Note that both Q1 and full year guidance considers the recently announced sale of our Hilton Miami Airport Hotel.
Which removes nearly $4 million and $12 million from expected earnings for these respective time periods.
Turning to the Q1 dividend based on current forecast, we are targeting a recurring quarterly dividend of <unk> 15 per share, which aligns with our more constructive use of the recovery and full year guidance.
While remaining prudent given the ongoing macro uncertainty.
Note that the actual amount of the first quarter dividend is subject to board approval, which is expected to occur by mid March.
Finally, as Tom noted in his comments over the past year Park has bought back over $250 million of stock.
A significant discount to NAV.
We continue to believe that there is currently no better use of our capital and reinvesting in our company is still a widespread between public and private market valuations.
Accordingly, I am pleased to report that the board approved a replenishment of parks stock buyback program.
Given the company the ability to buy back up to $300 million of common stock over the next two years.
Which we will prudently execute on a leveraged neutral basis.
This concludes our prepared remarks, we will now open the line for Q&A to address each of your questions. We ask that you limit yourself to one question and one follow up.
Operator may we have first question. Please.
Okay.
Sure. Thank you and again as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question from the queue with.
All participants using speaker equipment, it may be necessary to pick up your hand.
Before Sandy Star Keys.
Our first question comes from the line of Louis made Jackup fleet.
Compass point.
Proceed with your question.
Thanks for taking my question good morning, Tom.
Good morning.
111, thank you for providing.
'twenty three guidance as well as first quarter guidance and obviously.
That appears to be.
Please.
The <unk>.
We're not going to go through a hard landing recession I just wanted to maybe get a sense of your if you could talk a little bit about some of the economic backdrop that you're envisioning for the hotel sector.
And then specifically I mean, one of the things.
I'm amazed by the.
The performance of your Hawaii assets and.
It seems like.
And maybe if you can comment a little bit more in your outlook on Hawaii as well because.
20% of the demand essentially what hasn't been there and yet you still are in Hawaiian village at $173 million of EBITDA.
Is it feasible that this hotel will get to $200 million of EBITDA.
B.
Hawaii traveler come back in.
In 'twenty three maybe if you start with that.
Well, thank you for the questions a lot obviously.
Sort of unpack, but I'll start with Hawaii.
I would I would say if you step back during the pandemic.
We were crystal clear given the facts and circumstances and what we were faced with that we really needed to work hard to re imagine the operating model you.
<unk> heard me talk about it call after call.
I think we can continue to see this as an example of that having labor costs across the entire portfolio there were 16% lower.
Think about obviously the 1200 jobs.
That had been eliminated again.
These are not these are across the board both management and hourly but its really areas, where there were certainly redundancies, where we thought we could be more efficient so working collaboratively and in partnership with our operating partners and our and our very talented asset management team really taking cost out of the <unk>.
Business as you think about Hawaii.
It is a world class resort there is not in my humble opinion, another REIT asset.
Across any any other sector, maybe the Empire state building would be comparable.
Worth more.
That has as much in a storied history.
As as much of following where people continue to go back generation after generation.
We are investing a ton of money there as we mentioned the tapa tower, which we're renovating that thousand room tower. We're also working on the six tower. There. So clearly a lot of pent up demand, but that pent up demand really being met by U S. Travelers and you correctly pointed out that the Japanese traveler, who have been going for <unk>.
30 years, or more and consistently and it accounted for about 15% to 17% of the demand and there are about.
And while they stay longer they also spend more so to your thesis of could it be.
$200 million of more absolutely and I think as we continue to invest and upgrade and continue to improve the experience there.
There really isn't anything comparable for that traveler and that.
That scale and that side. So we are really encouraged really excited about Hawaii, but we're also excited about what we're doing in Orlando you heard me talk about obviously, the $200 million that we're putting in 200 plus million.
For the Bonnet Creek resort.
Going to be thrilled to have that.
Completed at the end of this year first quarter of next year, and we'll make sure that we have an event and an opportunity for investors and analysts to see it truly world class.
We're completing their regarding your question about economic backdrop I'd.
I'd make a couple of observations.
We're in a time of great uncertainty I think we all know that.
There are.
Whether it's inflation interest rates geopolitical.
The war in Ukraine, with all of that but despite all of that the consumer remains resilient.
Really strong labor market.
And there are a few things that I think.
<unk> improved the outlook.
Inflation appears to be past peak.
Doesn't mean that we're through it completely but I think most of the experts believe we're sort of past.
So that's a positive.
The drag from Europe .
Is less than feared.
Think about what everyone was thinking about in terms of a really deep recession, there, but the warmer winter.
Better planning by the leaders there have certainly helped mitigate that China doing the you turn on the Covid policy also I think helps to restart and hopefully we can have better relations.
But getting that and the impact of possible positive impact on supply chain. In addition to travel I think we're also.
Really encouraging signs so net net.
It's fair to say I think of.
Sluggish or.
Certainly a soft landing and not a deep recession, we're certainly not forecasting a deep recession.
But certainly a slower period is a I think a fair base case with even with that Mark has as a number of green shoots in tailwind given the diversification of our portfolio that I think really our pace and provide for accelerated earnings growth. Hence the reason.
We've got a revpar of 7% to 14% year over year I don't think many of our peers are going to be in that range. So we had a tougher period, but I think the outlook for park as we look out in 'twenty three and beyond is very strong and very optimistic. So we are very encouraged over the intermediate term.
The long term.
Thanks, and my follow up and this may be for Sean Sean.
Why would you not consider using the spare cash on your balance sheet.
To pay off the maturing CBS loan completely.
And what would that do to your earnings expectations, because presumably that is not in guidance, but that would be.
Again, you're earning less on your on the cash on your balance sheet and you are paying on the debt I would assume.
Well ultimately I would say, it's pretty close in terms of what's being earned that debt is at four 1%.
Clearly with cash on balance sheet, let's say at scale as part of our overall liquidity $1 9 billion and certainly.
More important is how can we think about paying that down $225 million certainly a lot of money, it's going to be certainly part of the solution.
I wouldn't say that we're looking to pay it off completely today with that cash that we have on our balance sheet.
Hey, Floris I would also add that look.
The beauty of where we sit right now is we have the balance sheet is strong.
You saw the measures that we've taken again over the last few years, we have optionality, we're going to study the situation carefully but rest assured we will have it solved.
By third quarter, if not sooner.
And we've got Optionality, we can put that on an asset or a combination of assets.
Could extend we could reach out to the servicer a number of different things that we can do here. So we are not at all alarmed.
We're going to be thoughtful we're going to be measured and we're going to get to the right outcome and I use. This example at the beginning of the pandemic.
When everything was closed we had debt maturities and the world thought park wasn't going to be around much longer we didn't panic. We did three bond deals we pushed out maturities we paid off now.
Paid of 98% of the bank that.
You'll note that when we went to recast our revolver.
The bank's welcomed us with open arms.
Quickly efficiently and we were one of the few that were able to upsize in that environment. So you have got a very seasoned and experienced team here.
We know how to handle the situation, we will study it carefully and we will get to the right outcome.
Thanks, guys.
Okay. Thank you.
Our next question comes from the line of Duane <unk> with Evercore ISI. Please.
Proceed with your question.
Hey, Thanks, good morning.
Good morning, gentlemen.
Thanks, Tien tsin.
Just on labor cost inflation.
Im wondering if youre relative flexibility and geography, so essentially operating in higher cost urban markets, where rates were already high.
Makes you less exposed to labor rate increases versus your peers is having less flexibility on labor actually a good thing right now.
It's a great question and I think you are spot on.
One we have labor piece, we've been working with.
Our Union partners.
And as a result of the fact that we had perhaps higher wages.
<unk> gives us a benefit and there's another part to it as well because of seniority.
Because of a call, but recall rights, we didn't suffer in half.
To challenge and shaves labor to the extent that perhaps some of our peers add to that doesn't mean that we didn't have challenging markets Orlando has been a market a challenging market for everyone key west was a particularly challenging market, but for many of our markets having that embedded relationship was an advantage for us.
I appreciate those thoughts and maybe just to expand a little bit on the on the Japanese traveler returning to Hawaii.
Do you have a view just given seasonality of the year and maybe some of the incentives that they continued to run in the first part of this year when when would you expect that to kind of meaningfully pick up.
It's the second half of the year.
We remain in contact with the tour operators and your observation is right. There's a lot of incentives to.
Keep some of those dollars over in keeping some of those yen over over in Japan, right now, but we fully expect you know three years.
Of not having that Japanese travel and I can't remember the number of weddings, Sean can remind me, but I want to say 150.
That we were doing.
But.
Annual based on annual basis, obviously have not occurred so we fully expect that we will get more than our fair share and then when they come back they will come back with.
Uh huh.
Significant energy and we would expect certainly longer stays and more spend so we're very excited about that despite that as you heard in the prepared remarks and the question. It was a record year.
Now after a record year of one property in about the size of that amount of EBITDA about the size of some of our peers. So just sort of put it in perspective.
With huge upside at that World class resort.
Okay I appreciate the thoughts.
Thank you.
Our next question comes from the line of Anthony Powell with Barclays. Please proceed with your question.
Hi, good morning.
Good morning, gentlemen, good.
Morning, Tom a question on asset sales that you made a lot of progress last year and start this year with asset sales maybe update us on.
What are you still looking to achieve this year with in terms of incremental sales.
Great question, Anthony would look if you just.
To step back now we've sold since.
Since the spin sold or disposed of 39 assets about $2 1 billion.
And we are.
Laser focused on continuing to reshape and improve and upgrade the portfolio and we also bolted on the 18 hotels from the from the Chesapeake deal as part of that but keep in mind, our top 27 assets account for about 90% of the value of the company, we want to continue to improve.
Upgrade the portfolio. So this year, we're targeting another $2 million to $300 million Theres nothing.
We've been able as we did last year.
To include Miami receive $435 million. So those eight asset sales we're confident.
But we'll be able to continue to make progress there and again, we will use those proceeds to invest back into the company or buy back stock on a leverage neutral basis.
But it will be a common for us to continue to recycle and continuing to reshape and upgrade the portfolio.
Thanks, and it's kind of a related question I think on the Capex guidance for the year 300 to 325 I think is the highest since you've been a public company a lot of ROI projects with which I view as positive. So this.
This is name that you may cycle more ROI projects over time and.
Maybe it's your approach of.
ROI projects versus buybacks and capital allocation.
Yes, great Great question, and Anthony will seek to find that right balance look when youre trading at this kind of discount to NAV you can certainly expect that we'll be buying back stock.
No better investment as Shaun said in his prepared remarks.
The investing back in the portfolio. So we'll find that balance of buying back stock on a leverage neutral basis, but at the same time investing in the portfolio.
Just a few the bonnet Creek that we mentioned in the north of $200 million, we're putting in there we completed the reach resort, which is a sister properties of the Casa Marina and key west which is a huge success.
We're now going to complete the castle Marina project.
Probably close the property for about five months plus or minus we've given but we think will be the disruption as well as the EBITDA impact that is baked into our guidance.
We have an extraordinarily talented design and construction team led by Carl Mayfield best in the industry seasoned.
We know how to handle this.
With extensive hurricanes major projects.
So we've we've got it teed up.
And we're confident we will get that done this year, we'll also be able to get the final phase of the tapa tower in Hawaii. So look we obviously paused a little during the pandemic for obvious reasons.
But we are being very thoughtful very strategic we're planning well, making sure that all of the supply chain issues are addressed.
We know how to handle it and we know how to handle the large complicated projects as well as anybody in the sector.
Alright, thank you.
Thank you.
Our next question comes from the line.
Smedes Rose with Citi. Please proceed with your.
Hi, good morning.
Hi, I wanted to just.
Kind of circle back a little bit on your revpar outlook and margin expectations, because it looks like after.
After the first quarter.
The remaining three quarters of the year at the low end or kind of maybe slightly.
Slightly down to maybe up mid single digits at the high end.
And I guess on the margin expansion I mean would you expect that to be more sort of packed into the first quarter and then it sort of flattens out as we move through the year or do you think even looking more sort of tepid revpar growth through the balance of the year that you think you can still achieve.
Expansion margin expansion.
Hey, Smedes, Sean Yes, certainly I think as you look at kind of the back half of the year in that range I assume that you're kind of talking obviously more a little bit more.
Year over year comparison.
Ultimately, yes, ultimately think yes, we think we can ultimately we feel pretty good about holding margins at least.
At a steady level relative to prior year in the back half of the year as we kind of look at it clearly we move forward.
A good amount of it relies on our picking up the group. We certainly think it's a great group year for us size as Tom alluded to the remarks that paces year over same time last year was strong.
We actually think it's getting stronger and so we feel pretty good about being able to right size some of the margin, especially on the F&B side.
To kind of drive home that our flow through as we kind of bring bringing the banquet and catering that comes along with group.
The next over the next year or the back half of the year essentially while we have for the most part a lot of the other types of cost generally fix we've talked about labor and now we feel like we're positioned now we're not looking to add positions.
So in the end I think we're pretty well set on our cost structure. So I think we can actually see a decent flow through even if it's a little bit on the revpar side.
Little bit lower than expected.
Okay and just in your composition of Revpar I mean, it's fair to say that it may be more occupancy driven.
This year versus rate driven seems to be sort of athene and the industry declining if you're thinking that way as well.
Exactly.
We're thinking about as well certainly a lot more opportunity than rate.
Okay.
Okay. Thank you.
Our next question comes from the line of Patrick.
<unk> with twist. Please proceed with your question.
Thank you operator, good morning, everyone. Good morning, Pat.
Okay.
When we think about the full year Revpar guide, 7% to 14%.
Going down a little bit more of our customers.
Okay.
That specifically the leisure travel.
Revpar would.
Look in that range would be towards the lower end of a 714 or how would you think about that thank you.
In terms of the of Revpar improvement year over year, certainly on the lower end I mean, you can imagine.
<unk> got some moderation in the markets like southern Southern Florida, where you've had some tremendous uplift and so while we're still well ahead of 19 levels I think from a year over year comparison, there continue to be.
<unk> comps we've seen as.
As well some moderation in places like our Santa Barbara that again has performed tremendously, but I would say still will continue to have some positive growth, but on the lower end of the range.
I still I think strong and during the first half of last year. It was still trying to ramp up so we still have some.
So I think easier comps for that market as grades has been I think it was still kind of see that pretty pretty strong in the first half of the year and ultimately we'll face tougher comps in the back half of the year. So put it all together I think certainly you see the leisure and being a little bit lower on the <unk> versus some of the urban where we have tremendous growth year over year certainly in <unk>.
One is certainly as you build through the rest of the year.
Okay.
That's it for me thank you for the color.
Thanks, Patrick.
Our next question comes from the line.
Klein with BMO capital markets. Please proceed with your question.
Thanks, and good morning.
Maybe I missed on that.
Maybe just on San Francisco, you mentioned improving.
Group outlook, there what about business transient standpoint, what are you seeing there and then I think you did about flattish EBITDA in 2022, what do you think that could look like this year.
Okay.
Flattish EBITDA in San Francisco.
For the I think in 2002, I think that's what it did for the full year.
You said flattish it was certainly zero.
Yes.
Yes, yes.
Certainly being diplomatic and we appreciate it.
Let's all be honest.
The situation.
Tuition in San Francisco is.
It has certainly been incredibly complex.
It's interesting if you if you look at if you look at trends and.
Do you think back.
A year ago.
And what people thought of kind of New York.
San Francisco and Chicago.
Everyone thought in the case of New York and San Francisco in particular, you'd be years before they would ever recover.
Look at what happened in New York in the first quarter, we didn't open the New York Hilton until October 21.
We were down 55% in Q1, and Revpar down 22% in the second quarter down, 16% plus or minus third quarter, and then up 2% in the fourth quarter. So just think about how quickly that recovered.
San Francisco was not that story.
We're down.
Well first of all we didn't reopen Parc 55 until may.
The Hilton was the latter part of the end of 'twenty, one so they were down 82% NIM.
And then down 47% and down 40% and then rallied back up a little bit at 52%. So no doubt it's been.
A lagging in and certainly it's been frustrating, but we are encouraged.
A few things give us.
Signs to be optimistic.
One the Jpmorgan conference was a big test.
Pass the test.
There are 700000 room nights expected city wise this year versus the $3 80 last year. It is a market with only 32000 rooms, there's no market that's smaller more compressed.
Which gives it in good times.
<unk> two to have real pricing power.
You also finally I believe have an alignment not only between the political leaders business leaders and I think listeners know that I have been out there more than 10 times and I'm going out again in March and we will continue to go up but the mere put forward a plan that we referenced there are number.
There are real initiatives underway to make whether it's <unk>.
Cleanliness crime tax incentives.
Imagining.
Buildings and converting.
To figuring out ways, how they can re activate the city so very encouraging from that standpoint, and then we continue to get green shoots of more and more.
Group business coming back to the city I think we've got 150000 room nights just self.
Self contained within the complex that we have there the Hilton and the Parc 55.
The big unknown is the business transient, but if you can get the base there and get it anchored with citywide group and get the leisure going and you get the flywheel effect there San Francisco now do I think it's going to recover as quickly as the New York story that I shared with you.
I do not I think you lay the foundation this year, but we certainly are more encouraged as we look out in 'twenty four 'twenty five and beyond.
Hopefully that gives you a good framework to think about it.
Yes, and I appreciate it and then maybe just following up on the IRI project I think you've previously talked about the potential for new tower.
And helping Hawaiian village can you just update us on the timelines around that.
I think you've also mentioned potentially bring in outside capital.
On that and where that might stand.
Yes, it's too way too early to talk about how we're going to capitalize it other than to say that.
We've got options on two sites that we.
We are going to move forward on we're working through the entitlement process is certainly a few years out.
It's not something that will require capital and in.
In 'twenty, three or 'twenty four.
Leave it at that other than to say, adding another tower.
To that World class resort, coupled with the 1000 rooms of timeshare. In addition to the nearly 3000 rooms, we have and the incremental amenities are being talked about will only continue to strengthen it.
For generations to come.
Thanks for all the color.
Thank you.
Our next question comes from the line of.
Chris <unk> with Deutsche Bank. Please proceed with your question.
Hey, guys. Good morning, Hey, good morning, guys. Good morning, Tom.
Question <unk>.
Question is kind of on.
We like to focus on margins a lot right, but a lot of talk about re imagining the operating model such.
And Theres also been a lot of course, pluses and minuses, mostly minuses on on inflation.
How do you look at this thing heading into this year and even beyond where you have you is there is the re imagination of the operating model done.
Do we ever get to a point, where now we're bringing back a little bit more housekeeping or a restaurant hours.
Just a question of is the <unk> back in I understand your margin guidance for this year and it's <unk>.
To be honest, but.
With more of that coming back in the service oriented.
Things coming back.
How do you get.
Is there any more to go or is this just we have to get all the group business back we have to get all the arc back and that's what gets us back to where we want it to be in 2019 on margin.
Yes, it's Greg it's a great question.
Chris you and I, both have we've been around the block a little bit in Europe .
Initially you started out going down what I call the.
The amenities creep.
And every time.
Tying things start to look better the brands want to add back more.
I do think the pandemic forced all of us to think about the business differently.
Using technology, whether it's digital key.
Whether it's.
<unk> room service with a knock and drop which had been widely accepted and I think appreciated by by guest my.
I believe in and the Marriott.
Call.
<unk> made reference to different levels of housekeeping service and Matt now being.
Finding the right balance with both.
Stakeholders, whether thats employees and whether its guests and so I think youre going to see permanent changes.
And I think what we've got to do as an organization and as an industry is to continue to be relentless and figuring out what drives customer satisfaction.
And intend to return, but also figure out a way to make sure that we've got an operating model that makes economic sense. None of us want to go back to the days of 16, 17, 18, 19, where were anemic growth at the topline and no margin growth wasn't fun for you guys to analyze the business and it certainly wasn't fun for us is.
As owners.
And in our case operators since we have the self op a few hotels as well.
I think that these changes are here, there will be pressure points and youre right. Once we can get group back.
To the levels in <unk>.
Transient so there'll be some add ons from here and there, but I think the.
The abuse in the amenity creep that we've seen for generations in my view.
That game is over.
Just doesn't make sense in an environment, where we're going to continue to have cost pressures.
<unk> seen us, we're giving you guidance where.
We're expanding margins.
In part because of the great work done by the men and women at park and our partners to really work hard to take cost out of the business. So.
We're going to continue to fight and find ways to continue to find those efficiencies.
Okay very helpful. That's all I had thanks.
Okay. Thank you.
Our next question comes from the line of David Katz with Jefferies. Please proceed with your question.
Good morning, everyone. Thanks for taking my questions.
You covered a lot of detail I just wanted to go back to the credit markets and it obviously plays in a couple of different ways. Sean's comments, you talked about some of the alternatives for refi ing, but we have seen some improvement in the credit markets lately how important is.
Is that in order for you to be able to sell two or 300 million.
Of assets are you embedding some expectation that it will continue to improve.
And there what's your thoughts on on how that all plays into what you've talked about so far.
Dave is a great great question I'll take the first part of it I think we've shown as I said earlier look we've we have sold 39 assets since the spin.
For over $2 billion of different quality and with all with tax legal joint ventures.
Some very attractive assets, some less attractive and we've continued to get it done right in the middle of the pandemic, we sold two assets in San Francisco for.
Very.
Very aggressive pricing. So there is there is an abundance of capital out there as you know $400 billion in private equity just on the real estate side fan.
Family offices owner operators.
Regional banks are still open for business clear.
Clearly the big money center banks are being more constrained and being a little more careful but I think we've demonstrated time and time again.
Whether it's.
And we haven't been able to use seller financing, we haven't been we haven't needed to use seller financing.
<unk> been able to.
Raise the necessary capital to get deals done so we're confident and obviously with once the tightening cycle and there is better visibility there the banks are going to be back in business, we're in a 4% to 5% range.
For those of those of us that are older that of.
They've got more scars and a 4% to 5% is not that bad.
The problem is we've got a generation of people that <unk> been dealing with free money.
With all due respect the free moneys over and so you got to work a little harder and I think thats going to play to two parks benefit over the intermediate and long term to be to be candid, but the debt markets will be back there will be liquidity there'll be there'll be the ability to be able to get good deals financed.
It's not just a phone call anymore, you got to do a little bit of work.
But we certainly think there'll be plenty of capital for transactions.
Okay. Thank you.
Alright, thank you.
Our next question comes from the line of Robin Farley with UBS. Please proceed with your question.
Great. Thank you.
What's going on.
Thank you Wayne.
Just given what's going on with business transient and Keith looking at your urban Revpar, which maybe is a good way to think about this is transient.
It seemed like.
Almost a rounding error in terms of sequential improvement in Q4 from Q3, right where occupancy relative to 19, Don 18 points.
It went down 17 point to Q4 is slightly better than the down 18 point.
Q3, but I guess.
Lastly, it seems like a rounding error I guess I wonder if you could talk a little bit about what you think is going on with business transient just sort of surprising that that didn't maybe show a little bit more.
And certainly youre not the only hotel company, where I think we're not seeing as much of that that I'm curious what you think is happening with business transient.
Yes.
I think business with business transient we certainly have seen we've tried it test it through looking at.
Maybe we got tenancies throughout the year and we certainly saw a tremendous improvement.
Our occupancy sequenced sequentially.
We especially like in an urban portfolio is a little skewed in a sense of again, San Francisco, you coming back to it but there was definitely some.
Some shifts in a big citywide there when you look at 19 that caused a lot of.
After a hard comps as you think about Q3 and Q4 and looking at sequentially. So ultimately you kind of normalize for that I think you see you would see a little bit improvement in arc.
And that portfolio from Q3 to Q4.
Going into Q1, it's only been a little slower.
We're certainly focused on some of the big corporate accounts and kind of they are coming back. It's certainly as you think through <unk>.
Technology and whatnot with the layoffs that you you're seeing a little bit of hesitation. It hasnt seen travel and lack of travel there.
So the other verticals have been strong.
Through through the end of the year, but financial services and alike are little bit lighter clearly transaction activity and other things are light right. Now we do expect that those are kind of take to continue to kind of rightsize and pick up some more though you certainly had some disruption around holiday events in the holiday weeks and in Q4, and so I think we kind of get.
Beyond can it get to a normal cadence here as we get into March I think we'll see that pick up again, certainly one we're monitoring it's one we certainly feel better about group and lease holding on than business transient.
But I feel pretty good that we're going to see still a recovery there this year.
Okay, great. Thank you and just a quick follow up you did already alluded to the fact that San Francisco wasn't cash flow positive again, and I know you.
Sorry about that.
All through last year.
Are you at a point in recovery, where it's starting to be cash flow positive or is that not necessarily something you expect for right now.
Robin we do we are we are encouraged.
Certainly believe it's going to be cash flow positive do we expected back to 19 levels and peak, we do not at this time, but we certainly are.
Turning the corner and expect it to be cash flow positive.
Okay.
Okay, great. Thanks.
Thank you.
Our next question comes from the line of Bill Crow with Raymond James. Please proceed with your question.
Yeah. Thanks, Good morning, Hey, good morning Bill.
Well thank you Tom.
Sean I want to start with you and following up on Robin's question about the urban properties and I'm just curious what you are.
Revpar index trends are within those properties.
We have the.
The trends on <unk>, certainly for I would say for San Francisco.
Lagging we would probably typically see 90% Revpar index 95, I mean, its definitely bigger boxes to fill.
And relative to its location relative to others in the comp set to the convention center certainly fulfill disadvantage.
It is now I would say kind of in that mid 60 to 70.
We certainly expect that to improve as we get better and compression.
But that one that one is lagging.
<unk> is I think on par of what we've seen in past that actually a little bit better.
And then we saw a 19.
And ultimately Chicago as a box is a big box in Chicago, we're seeing that hold its index relative to 19, probably would probably within that 5% to 10% of where it was <unk> 19.
And then ultimately New Orleans, we feel is pretty much right there a little bit above where it was in the past again given its proximity to convention center I think it's certainly been helpful for that asset those probably that probably the key markets pointing to bill for a few.
Next.
Hey, Bill Hey.
Hey, Bill the other thing I would add to that if you looked historically.
Going to date myself here, but if you probably went back and looked 10 20 years or more.
Good bet, the San Francisco complex ran.
Between 90, and 100% and part of it is.
The size of the facility in the complex.
Also the location.
So clearly well below that and I think there are reasons for it as it's ramping back up but just to put it in context and to frame that for you we are well aware.
One of our projects is going to be and we've been completely transparent about this we were going to renovate Parc 55.
'twenty, obviously, the pandemic, but the model rooms are done.
The capital is allocated is just a matter of when we're going to.
We're going to begin that we're going to wait we will figure out how we refinance the asset.
And then that will be one one package, but we clearly are going to get that done and that certainly is going to help the overall complex.
Hey.
I was just wondering if that's helpful.
Yes.
Tom you remain bullish on our optimistic I should say in San Francisco, which I appreciate.
I think there has been some progress made on the grounding of written that.
And you and I've talked about that but the economic aspects of it has gotten worse.
Downtown is kind of turning into a little bit of a dose towns. So what would make you less optimistic.
J P Morgan announced a relocation when their contract ends.
Is that a turning point for the market.
Yes.
A few things Bill I mean, obviously, you and I.
Good.
We probably could spend an afternoon talking about it I think what happened in San Francisco as a sort of a narrative got away from them I think we all saw it may read that city conditions.
Better than I think people expected.
No doubt they are lagging and I think you know I've been out there as much as anybody but.
But I think in fairness. There are there are some embedded advantages to San Francisco.
Just the geography, the beauty I don't need to share that with you, but when you think about the education base. When you think about what's happening in the.
Yeah.
In the technology space, if you look at what's happening in the AI.
Is six times the money being spent.
Cisco than any other market in the country. So look a lot of the uniforms, where we're getting money in.
Spending like drunken sailors those days are over so youre going to see that market right size.
But.
The foundation of venture capital of of that innovation. It still is going to be in a very important part of that growth and then Don.
Forget lose sight of the close connection to Asia that will reconcile at some point.
They take a little while and as we pointed out that spend and that Asian traveler really nearly three times, what we see on the domestic side. So there are there are fundamental.
Benefits I think to be encouraged over the intermediate and long term, we're not pollyanna ish about this we've been living through this like no one else.
Given the fact that we've got obviously that 3000 room complex, that's really the big drag once you get that anchored in that.
And that recovery given the the operating leverage it could come back faster than people realize you probably heard the New York story I gave right, where we were 55% in the first quarter and up 2% in the fourth quarter. None of US would have predicted that I'm not sure that was in your Crystal ball in your Crystal ball is probably as good as any.
Got it.
So I would I wouldn't write it off.
Source of frustration I think for many.
But safety security is important and you've got to have.
Political leadership, but you also have to have business leaders and I think.
The women and men leaders. They are also stepping up so youre seeing them far more engaged as you talk about tax incentives other incentives to re imagine the city. So it's going to take time, it's not going to happen in 'twenty three but I do think that foundation can be laid in some things to be encouraged about.
<unk> thousand 425.
The fundamental issue for US is do we believe that the intrinsic value of that real estate is higher than the debt and the debt is at $2 50, a key or inside of $2 50, a key we sold alarm iridium for north of 600000, a key in the middle of the pandemic.
So.
We believe there is an embedded value here.
Not going to be adding a lot more hotel product in San Francisco, particularly with the market with 32000 rooms, youre not going to get not going to see what happened in New York.
With.
The onslaught of all of the select service hotels.
Peppered in under and undermine the market youre not going to see that in San Francisco. So there is some fundamental benefits there.
But over the intermediate and long term today painful, but we certainly believe.
Worth hanging in there.
As we said we're going to carefully study, how we're going to refinance it but we will get it done.
Like we've gotten everything else done through the worst of it through the pandemic and through the recast last year I think we've demonstrated time and time.
It's a very experienced team and we know how to handle it.
Well I appreciate the time as always thank you Tom.
Thank you.
Okay.
And our next question comes from the line of Jay Corners, SMB C. Do you foresee with your question.
Hey, Thanks, good morning, guys.
Hi, Good morning, just wanted to just one for me on the group side it looks like T plus one group bookings at the end of the year, where 74% of what they were in 2018, so clearly picking up and I'm sure. A good portion of that is coming from San Francisco, but can you break down at all if you are seeing the same type of group's return in similar sizes and markets.
Or if there is a different type of group customer that's showing up currently stronger than what you saw before the pandemic.
I wouldn't say it looks drastically different I mean, certainly we're starting out with smaller groups.
On peak than we have had passed and haven't really gotten to the point, where you got those 800000 room.
Peak behemoth, but.
That's growing and ultimately the booking window is lengthening here honestly seen plenty of activity booking for 24 in December and January as well, so clearly while it remains that in the quarter for the quarter I'd say, that's a big difference clearly if the a lot of short term in smaller groups, but youre starting to see.
Through the pipeline.
Larger groups coming through planning ahead.
Group that might have done something yet last year, if you went back and ultimately being bigger, but I wouldn't say that.
The demographics of that group or the breakdown of those scripts look much different just kind of the sizing of it is they are starting smaller but then we expect and we expect them to get bigger as we go along.
Okay I appreciate it thanks for all the color guys.
Hey, guys.
And we have reached the end of the question and answer session and I will turn the call back over to Tom Baltimore for closing remarks.
Really appreciate everybody taking time today, we look forward to seeing you in.
In the coming weeks and perhaps many of you at the Citi Conference.
Have a great day.
And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
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