Q2 2023 Park Hotels & Resorts Inc Earnings Call
Formal presentation if.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded.
I'll now turn the conference over to your host Ian Weissman Senior Vice President corporate strategy. Thank you you may begin.
You operator, and welcome everyone to the park hotels <unk> resorts second quarter 2023 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 sub.
<unk> 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. Please refer to the documents filed by park with the SEC specifically the most recent reports on Form 10-K, and 10-Q, which identify important risk factors that could cause actual results to.
Differ from those contained in the forward looking statements. In addition on today's call, we will discuss certain non-GAAP financial information such as <unk> and adjusted EBITDA you can find this information together with reconciliations to the most directly comparable GAAP financial measure and yesterday.
<unk> 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.
Additionally, unless otherwise stated all operating results will be presented on a current basis and include all 41 consolidated hotels in some instances. However, we will be discussing results on a comparable hotel basis with comparable view, excluding the two Hilton San Francisco hotels.
That we anticipate will be removed from our portfolio as previously announced in early June .
This morning, Tom Baltimore, our chairman and Chief Executive Officer, who will provide a review of parks second quarter performance and highlight our strategic initiatives Shawn Diloreto, Our Chief Financial Officer, who will provide additional color on second quarter results and forward looking guidance as well as an update on our balance sheet and liquids.
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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.
Welcome everyone.
I am pleased to report another solid quarter for park.
We continue to benefit from ongoing improvements across our portfolio.
While executing on important strategic initiatives.
With strengthening our balance sheet.
And better position the company for long term growth.
On the operations front.
Our portfolio generated solid revpar gains versus last year fueled by nearly 400 basis point increase in occupancy during the quarter.
In particular, we were very encouraged by exceptional results from our two resorts in Hawaii.
Ongoing recovery across our comparable urban portfolio and the continuation of accelerating group fundamentals.
Additionally, as we have previously disclosed in June we.
Made the difficult, but necessary decision to cease making debt service payments on our $725 million nonrecourse, San Francisco <unk> loan secured by the Hilton San Francisco Union Square and the Parc 55, San Francisco.
And I'll review the city of San Francisco faces, an elongated recovery.
With an eventual return to 2019 peak levels that is uncertain for the two hotels.
Accordingly, we strongly believe this decision greatly improves our optionality.
It is in the best interest of shareholders.
It will significantly reduce our exposure to the city and.
And strengthen our balance sheet considerably.
Following the removal of these two assets from our portfolio.
San Francisco will account for just 3% of 2019 adjusted Hotel EBITDA.
On a comparable basis.
While our net leverage ratio will be reduced by almost a full turn.
And help further by freeing up nearly $200 million of capital earmarked for future renovations at both hotels.
I do want to emphasize that this decision is not intended to be a negotiating tactic.
And we continue to work with the servicer.
Divest these assets and alone.
As quickly as possible.
Q2, Revpar increased five 3% year over year for our portfolio.
As a strong start to the quarter in April and May was moderated by tougher year over year comps in June .
Our strength was led by solid results from our comparable urban hotels, which generated year over year revpar growth of over 14%.
As well as both of our Hawaii hotels, which exceeded expectations.
With nearly a 11% year over year Revpar gains.
These results were partially offset by softer than expected demand trends across the bay area and.
And certain resort markets, including key west where.
Where the disruption from our full scale renovation of our categories.
Which suspended operations and may.
Accounted for 140 basis point drag on comparable revpar growth in the quarter.
Turning to segmentation.
We expect group in urban demand to be key drivers of our growth and we are very encouraged by the ongoing improvements we are witnessing for both.
Q2 group revenues for the comparable portfolio increased 10% year over year to approximately $120 million.
As we benefited from strong short term pickup.
Adding approximately 45000 room nights for 2023 or.
$9 million of incremental revenue.
As a result full year 2023 comparable group revenue pace improved during the quarter.
Increasing approximately 150 basis points to 91% relative to the same period in 2019.
While 2023 comparable group ADR is projected to exceed 2019 by nearly 7%.
As we look out to 2024.
We are encouraged by the momentum in some of our larger group markets for 2024 comparable group revenue pace over 93% to 2019 at the end of the second quarter.
Healthy demand trends are being driven by strong convention in citywide bookings, especially in Chicago with.
With convention room nights projected to increase nearly 70% versus 2023 to nearly 800000 room nights exceeding the 2018 peak of 794000 room nights.
While in New Orleans Convention room nights are expected to increase nearly 14% next year to over 500000 room nights.
Just shy of the 2019 peak.
At our Bonnet Creek complex, where we expect to complete our $200 million plus comprehensive renovation and.
And meeting space expansion by early 2024.
Feedback from meeting planners has been incredibly positive.
Group business on the books for next year is pacing ahead of 2023 by 42% and is well positioned ahead of 2019 as high watermarks.
With Cigna up 47% and the Waldorf up 24% to 2019.
The complex is also witnessed solid pickup in group room nights for next year.
Up 76% through the first six months of this year relative to the same period for 2019.
Two 145000 room nights.
Strong forecasted rate gains of nearly 20%.
Coupled with a 65% projected increase in banquet and catering revenues.
Are expected to drive total revenue performance in excess of 2019 levels.
By approximately $22 million for the full year 2024.
Turning to our urban markets.
Eric City demand has returned.
And it's one of the strongest markets within our portfolio with the city generating year over year Revpar growth of 26% during the quarter.
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With all demand segments contributing to results.
Overall occupancy at the hotel increased.
An impressive 18 percentage points over last year to 87%.
Although hotel posted rate gains of 1% over 2022.
And 7% above 2019.
And Chicago year over year Revpar growth during the quarter was up 23% driven by both solid rate and occupancy gains.
As the city benefitted from a strong convention calendar during the quarter.
While in Boston, and Denver, Revpar growth for the quarter reached 11% and 12% respectively versus 2022.
Conversely.
San Francisco continued to weigh on results.
Excluding the Parc 55 hotel, which was closed for a portion of second quarter 2022.
The three remaining hotels, we're at 701 175 basis point drag on the Q2 portfolio Revpar growth.
Comparison to the same period last year.
Our resort portfolio demonstrated the continued strength.
Our unique assets, particularly Hawaii, which once again delivered impressive year over year results.
Our Hilton Hawaiian village delivered the strongest Q2 revpar results in history.
Bolstered by the best June performance on record.
Revpar increased 12% during the quarter.
As the same period last year.
Driven by a nearly six percentage point increase in occupancy and ADR gains in excess of 5%.
For the first time since the start of the pandemic.
Occupancy during the quarter exceeded 2019, while ADR was up 14%.
Above the 2019 peak.
Q2 occupancy averaged 96% during the quarter and impressive result, with Japanese demand still pacing, 92% below 2019 levels.
At our Hilton <unk> village hotel Revpar during the quarter increased 6%.
Over last year, driven by a 770 basis point increase in occupancy to 81, 3% our highest Q2 occupancy level at the hotel since spinning out from Hilton in 2017.
And average daily rate at 57% above the second quarter of 2019.
The performance of our Hilton <unk> village Hotel.
Has been impressive since 2019, when we reduced the size of the hotel and transferred over 600 keys to Hilton Grand vacations to convert to timeshare.
Over that period through year end 2022, total revpar has increased by nearly 49%.
Margins have expanded by 775 basis points to 39% and.
And EBITDA per key is improved from 45 to.
To over 83000.
Making the hotel one of our most profitable assets in our portfolio.
Market share continues to be the success story at both hotels.
With Hilton Hawaiian village.
Running at a 24% revpar premium to the comp set.
<unk> lower revpar premium exceeded 15% for the second quarter.
Looking out over the balance of the year.
Domestic demand is likely to continue to drive performance in Hawaii.
With low to mid single digit year over year Revpar growth forecasted over the back half of the year, Although we are encouraged.
By the expected increase in the number of direct flights from Japan to Honolulu scheduled over the balance of the year.
Increasing to 175 flights per week by December from just 100 flights in July .
Turning to guidance, despite ongoing strength in Hawaii, and an acceleration in group trends.
We're moderating our full year 2023, adjusted EBITDA expectations.
By 2% at the midpoint.
To a new range of $619 million to $679 million.
Largely driven by the continued underperformance of the two Hilton San Francisco hotels, which are now expected to breakeven in 2023.
The $15 million of combined hotel adjusted EBITDA that was included in our prior guidance.
And to a lesser extent by some small pockets.
Of transient softness across select markets.
Expected during the third quarter despite.
A small change we remain optimistic that the law.
Lodging recovery remains on track.
And that and improve macro backdrop, we will continue to support solid consumer trends and ongoing improvements in business travel.
Over the latter part of this year.
Additionally, we remain committed to executing our strategic goals.
We believe will create long term value for shareholders and position the company for success on.
On the capital allocation front, we are maintaining our goal of $200 million to $300 million of noncore asset sales this year.
Including the $118 million sale of Miami Airport, which closed during the first quarter.
Proceeds from noncore asset sales are expected to be used to further reduce leverage.
To reinvest back in our portfolio through leverage neutral stock buybacks.
To fund, our robust capex and redevelopment pipeline.
Which is in excess of $350 million this year.
As with all strategic initiatives, we will continue to update the market on our progress.
In summary.
I want to reemphasize that we have a well positioned portfolio and will continue to benefit from improved group in urban demand and.
In addition to ongoing strength in Hawaii.
Our team remains laser focused.
On executing our internal growth strategies and capital allocation priorities.
We are confident will create long term shareholder value and position the company for success.
With that I will turn the call over to Sean.
Thanks, Tom overall, we were pleased with our second quarter performance Q2, Revpar for the portfolio was approximately $183 representing year over year growth of five 3% with occupancy at 74, 4% and ADR at $246 or 8% above 2019 led.
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Hotel revenue was $692 million during the quarter.
Hotel adjusted EBITDA was $191 million, resulting in a nearly 28% hotel adjusted EBITDA margin.
Margins were negatively impacted by renovation disruption at our Casa Marina resort, which suspended operations in mid may for a full scale renovation account.
Accounting for nearly 40 basis point drag on portfolio performance.
Q2, adjusted EBITDA was $187 million and adjusted <unk> per share was <unk> 60.
Turning to the balance sheet, our current liquidity is over $1 7 billion.
Including over $840 million in cash.
Net debt at the end of Q2 was $3 8 billion and.
And net leverage on a trailing 12 month basis was six times.
When accounting for the eventual removal of the two San Francisco Hilton hotels from our portfolio balance sheet metrics materially improve with net leverage decreasing by nearly a full turn to five two times and interest coverage improving by half a turn to three seven times.
Also as a reminder, in June we fully repaid the $75 million mortgage loan secured by the W. Chicago City Center, which was set to mature in August .
Adding another property to our unencumbered portfolio.
Turning to guidance as Tom noted earlier, we are making adjustments to reflect weaker than expected results in San Francisco and softer transient demand.
Both of which are negatively impacting both top line and margins in the near term.
Accordingly, Revpar has been lowered slightly to a full year range of $168 to $177 representing.
Representing impressive year over year growth of between 7% and 13% All hotel adjusted EBIT margin has been decreased by approximately 80 basis points at the midpoint.
To a range of 26% to 26, 5%.
But the midpoint 35 basis points above the prior year.
To dispel any doubts please note that Revpar and hotel adjusted EBITDA margin guidance continues to include the operating results for both of the San Francisco Hilton hotels.
With respect to adjusted <unk> per share guidance, followed by <unk> <unk> per share at the midpoint to a new range of $1 76 to $2 <unk>.
As default interest and late payment fees associated with a default on the nonrecourse San Francisco <unk> filing will be excluded from <unk>.
Finally, one additional item to note as of June 28, the ground lease under the 182 room Embassy suites Phoenix Airport Hotel was terminated by the owner prior to its exploration in November 2031.
Guidance. However, it has not materially impacted as this noncore asset was expected to make minimal contributions to the portfolio over the balance of the year.
As a reminder, since spinning out of Hilton in 2017, we have successfully sold or disposed of 40 hotels for $2 1 billion, while materially improving the overall quality of our portfolio.
This concludes our prepared remarks, we will now open the line for Q&A.
Yes, each of your questions. We ask that you limit yourself to one question and one follow up.
Operator, do we have the first question please.
Thank you.
And to ask a question at this time press star one on your telephone keypad.
The confirmation tone will indicate that your line is in the question queue. You May press Star two if you would like to remove yourself from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
And once again, please limit yourself to one question and one follow up.
Our first question today comes from.
Floris van <unk> with Compass point, please state your question.
Thanks for taking my question guys.
Good morning Floris.
Good morning, Tom So I know that you guys have been yes.
Yes, I am sure that.
With that.
CBS returning weighing.
Weighing on all of you guys, but it is also weighing on your results clearly still.
Maybe if you can touch upon it sounds like things have deteriorated significantly in San Francisco, where you've actually lowered your guidance because EBITDA is going to lead the system there.
I guess it shouldn't really matter.
Year.
More interested in hearing about what's happening at your other hotels in San Francisco and maybe if you can give a little bit of impact on why the situations there might be a little different and also.
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Should we be penciling in a 14th.
Increase in earnings next year based on the <unk>.
Using these two these two hotels with the associated debt.
Yes.
Lot to unpack, there Floris I guess.
Thing is look we as.
As we've said in the prepared remarks, we made the difficult but necessary decision.
We continue to work with the servicer to give back the keys is.
As quickly as we can we're certainly discussions are constructive.
And we're cautiously optimistic that that will have more to report here in the coming months, our hope would be to get this done as quickly as possible, but as you know we don't control the process. So we want to be careful.
Probably shouldnt say more than that.
We thought long and hard about this decision in San Francisco and I think you know and I think many of the listeners know that.
In terms of the REIT Ceos and I would respectfully submit even this the C Corp. Ceos I spent as much time in San Francisco as anybody.
The key takeaways were that the recovery period, there would be extended we thought one to three years I can tell you being on the ground as early as 10 days ago.
It's probably five to seven years office vacancy continues to rise, it's north of 30% now an all time high.
The convention calendars.
<unk> continues to weaken your 40% below the pre pandemic level and Thats, probably 875000 room nights now down to.
530000, and perhaps dropping if you think about 'twenty three.
About 675000 room nights in city Wides in <unk>.
Most of that is back loaded in the second half of this year next year. The current outlook is about 450000.
San Francisco travel the critical marketing organization is going through a leadership change in.
That leader that new leader has not been identified and he or she has not been able to build out their team that probably doesn't that transition probably doesn't happen until the latter part of this year.
The narrative that we all know the sort of Doom loop.
Is real and it is not helpful and despite the fact that I think the city leadership and others are working very hard to change it it's going to take time.
So it's been a consistent revpar drag on the overall portfolio of 7%.
And a 700 800 basis points.
I would if you look at the two subject properties there.
Group pace just.
Revpar.
For this year is probably 48% to 52% below 2019 levels and if you compare that to say in New York, where we expect to end the year relatively flat.
To perhaps 2% down you can see that San Francisco is a real outlier. Our other two assets are faring better there are smaller properties one in the Fisherman's wharf, one and obviously the <unk> Marriott there.
Square, but they too are still down to 2019 levels, probably in that 20% to 30% range. So.
The market is challenged.
It.
It's not helpful to the overall narrative for park that we continue to have to talk about San Francisco, but we realize until it is completely removed from the portfolio and still in guidance, we still have to address it so.
If you take that out and that was the lion's share.
The reason that we had a modest 2% reduction here and guidance to the midpoint. It is San Francisco.
We'd rather talk about Hawaii and the <unk>.
Closer of growth, we're seeing given the fact, we still don't have the Japanese traveler in the other parts of our portfolio, both group and urban which continue to accelerate so overall very encouraged the San Francisco story will play out I like many others believe that San Francisco will recover.
It just going to take longer and there are real structural impediments and challenges there that that we're all aware of but they're not going to end anytime soon and hence the reason, we made the difficult but necessary decision.
And.
Alright.
Sean maybe you want to touch on the earnings impact.
Of that potentially next year or is that too early in your view.
Well, obviously it kind of speaks to the timing that Tom spoke to that we're certainly doing what we can to opening and removed you would assume that it was I mean, clearly you would think that you are looking at properties that we're basically earning nothing this year essentially and ultimately carrying.
Just at the stated rate.
Of interest of $39 a year. So yes, we certainly expect a pretty decent uptick in earnings <unk> <unk> per.
For sure.
Thanks.
Our next question comes from Smedes Rose with Citi. Please state your question.
Yes.
Hi, Thank you just a.
A quick follow up on San Francisco, Hi, Good morning.
To follow up on San Francisco is the is the lower kind of outlook through the back half of the year reflect.
Actual group fallout that was on the books that is now not coming are you just seeing less.
Transient business than maybe you had initially anticipated.
Yeah.
I think it's a combination of boats made some youre clearly seeing.
Some washout in some of the groups, obviously again the narrative doesn't doesn't help.
There is the APAC conference, which is terribly important because youre.
They expect 21 world leaders are up to 21 world leaders.
So I have to believe that.
The city with support from other local municipalities and perhaps even the federal government and others will ensure that the.
The appropriate safety measures are in place so I would expect that that.
Hopefully we will be.
Well received and be productive in and outperform but but the reality of the numbers that I gave you are real and I could give you more it's just going to be an elongated recovery. Hence the reason of the decision that we made.
We were only expecting a $15 million contribution as Sean noted in his remarks.
Today, we would see that being flat to slightly negative. So we've watched that we've removed that we've essentially derisked.
San Francisco and look.
Far prefer to talk about all of the other exciting things that are happening, particularly again the extraordinary performance that we're seeing in Hawaii and other parts of the portfolio.
Okay and then just.
I wanted to follow up on Hawaii as you noted that Revpar was pretty healthy across both properties.
EBITDA was down at both properties and I was just wondering if you could comment on kind of what youre seeing on the expense side and maybe how youre thinking about expense growth going forward or maybe if there were something kind of one time in the quarter that weighed on margin maybe some com.
Commentary around that.
Yes needs Shawn <unk> in for Q2, specifically for Hawaiian village, we had some accruals baked through.
First half of last year and ultimate carried over from some 21 related to kind of the extensions we're doing with the union contracts. So those were ultimately released in Q2.
Certainly ultimately helped out.
Reduced to kind of reduce expenses.
For for that property, so it's a onetime thing.
Okay. Thank you.
Smedes so despite that please keep in mind in Hawaii.
Hilton Hawaiian village again, as we reported is running.
24% Revpar premium of Hilton <unk> running a 15% revpar premium so despite the fact, where I think many in our sector are seeing.
Slowdown in leisure, we continue to see strong outperformance in Hawaii, and we still don't have the Japanese traveler, which again had been.
Historically, 20% of our business.
It's down about 90%, we expect it'll be down 60% to 70% by the end of 'twenty, three and hope that thats reduced.
Probably down to about 30% by the end of 2024 so.
We remain very very bullish in Hawaii and look we had a record year of EBITDA last year.
We certainly expect that we are trending towards another very strong year this year as well.
Great. Thanks.
Our next question comes from Ari Klein with BMO capital markets. Please state your question.
Thanks, and good morning.
Good morning, just following.
Maybe just follow up following up on that last point.
Tom You mentioned earlier the flight uplift in the back half of the year.
From Japan to Hawaii are you starting to see that translate into better bucking trends that kind of give you the confidence that youll see that improvement.
Or is it still too early there.
We're seeing some green shoots it's still a little early but as we pointed out just given the flights alone going from.
100, a week to a 175 million.
We're very encourage you probably also saw that the Japanese government and officials had meetings with the Hawaiian tourism officials as well so they have.
They have connected.
Accelerated discussions and so we remain very optimistic and if you look historically over the last 30 years.
Visitation from Japan has averaged about $1 5 million.
So that's been down for three three and a half years.
Thats been among our most loyal.
Customer they stay longer they spend more and historically, we had we would average about 150 sort of high end weddings I think last year, we were down two to four or five so we're very encouraged as we look out in <unk> and just given the dynamics and certainly given the iconic nature.
Hilton Hawaiian village I mean, it is one that <unk>.
Generations of families have been visiting four for 60 years. So we fully expect that it's not only going to continue to recover but really continue to grow and really outperform.
Okay. Thanks, and then on the demand mix Gordon seat group seems pretty positive while lesions are weaker than it has been normalized.
What are you seeing on the on the business transient side as we're now halfway through the year.
And even at urban markets have performed well have you been somewhat underwhelmed in the business.
Recovery and what are your expectations moving forward there.
This is our this is Sean I think we certainly I think we could see a little bit more out of that business transient, but I think ultimately.
As we kind of went through the quarter we saw.
Pretty strong in April and then kind of lightened up through May and June , but still kind of a knee in the mid single digits year over year as we kind of ended the quarter and we still certainly see expect to see that.
Continue in the back part of the year. So I mean, obviously as we kind of look at business transient the rack rate.
<unk> be part of that and Thats kind of a one where are you seeing the pressure from year over year, the compression leading elsewhere and I would say, it's more of a leisure element that plays into it to the rack rate. So when you kind of really look at the peer business transient.
I think we are continue to see local and government perform well and even the corporate negotiating and while it's still.
It was 40% below its kind of grinded up to 35% of 19 levels in Q3, and certainly have expectations of that grinding forward.
Taking ultimately be positive year over year in the back half of the year.
Appreciate the color.
Our next question comes from Anthony Powell with Barclays. Please state your question.
Hi, good morning, everyone.
Good morning.
Morning, following up on that question on transient Amy you called out transient softness in the third quarter.
Ladies and any specific markets or segments, maybe expand on that comment.
And the guidance would be helpful.
Sure I mean, I think what Youll see continued absolutely clearly San Francisco, which.
In Q3, while <unk> gotten some group activity and better than you had in Q2, I think just reliance that market of needing a transient.
It's just not been coming together, so I'd say, there and then I think particular weakness in terms of some markets are Chicago, New Orleans, Chicago lines had some big group and citywide activity in the first half of the year.
But we are seeing in the back half of the year.
Far less citywide there so when we kind of.
Knowing that we've got some good in house group pace free in Chicago and in Q4 up 20% like in Q3, both both markets are.
Neutral to down.
Year over year, So I think that's where we're kind of in line on the transient lift in the forecast originally and again just see that <unk> seen some softness across the board, we're taking derisking that a little bit as well in those markets.
The other thing Anthony Anthony that I would point out is.
As Sean noted earlier said.
We had really tough comps both in June and July . So if you think about last year.
Both of those both of those months were about 4% below 2019 levels.
And Ah versus 10% for the previous months. So we always expected that June and July obviously, the ended up coming in a little softer than we expected MVC April we were up 9% of Revpar may up 10% June down about one 5%, we're expecting July it would probably be.
Up around 1% in the quarter, probably somewhere in the.
2% to 3% plus or minus.
But really looking at a strong fourth quarter and a lot of that as Sean noted as well.
While we lose a little bit of the group in the third quarter, we pick that up in the fourth quarter. So in addition to <unk>.
Strong transient expectations in markets like New York, So we're still.
Very encouraged when you think about them kind of 7% to 13% up in Revpar I mean, we're not this is this is not a downer. This is not negative revpar growth as we look out for the balance of the year. So still encouraged the market is still choppy. There is some issues of uncertainty out there, but it's hard to tell.
See a near term recession, when you have that type of top line growth as we look out.
Okay. Thanks, and then maybe going back to Hawaii.
Leisure demand their demand.
Yes.
Jeremy and very strong growth very strong result in Hawaii on the back of that and at the customer and that's great. But we have seen that's a very I guess competitive market.
How do you make sure that these customers who were travelling Hawaii keep coming back to that when you have the Japanese travelers coming back.
Can actually yield at the property and generate incremental growth rather than just replacing.
Yes, U S customers with Japanese customers.
Yes, it's a great question.
Got it to Shawn to our asset management team and then the extraordinary.
Leader, Debbie Bishop and her team that will run both Hilton Hawaiian village.
And Hilton like Aloha and I, just think when you have got two iconic assets like that Anthony.
And generations of travelers and finding that right mix.
Just done an extraordinary job. So I think the Revpar premiums really show evidence of that when Youre looking at Hilton Hawaiian village up 24% in <unk>.
<unk> up 15% they've continued to outperform when candidly I think a lot of our peers are showing much softer performance in Hawaii, and other markets of Hawaii, including including a wahoo. So we feel very good.
But it's a daily battle and the Plainfield is competitive every day and we don't take anything for granted.
Sure.
Thank you.
Our next question comes from Chris <unk> with Deutsche Bank. Please state your question.
Hey, good morning, guys, Hey, good morning, Tom.
So youll, San Francisco going away and that effectively free for you guys as a market and that's I think what the big group boxes. That's been part of your kind of ecosystem. So to speak for the portfolio. You don't have really any group exposure in some of these markets were San Francisco groups are going so.
With Las Vegas.
Phoenix, Scottsdale, and San Diego and Denver.
Does that make you look any harder at potentially gaining bigger group exposure in those markets.
In terms of another play to make sure I understand the question, Chris Yes of another asset.
Yes, it's interesting.
In some ways kind of.
Hesitate to say replace the business because it's asset specific but.
This does walking away from San Francisco changes your portfolio composition, a little bit and maybe it's better for the short term, but longer term you have some of these western U S markets, where you don't have a lot of exposure, particularly on the on the group side. So does it make you any more likely to take.
Take a peek at things that might become available.
Yes, I mean, obviously you never want to speculate about the future I would say look at look at our balance sheet.
Look at the positioning after we've unloaded these two assets we've got much better optionality as we said in the.
In our prepared remarks.
A lot more liquidity.
I would not read line San Francisco in any way shape or form it's just going to take time and the issues are complex and the resolve not only of the pandemic, but many other policy and other decisions.
Many years ago, and so that recovery is going to be elongated.
Very comfortable with the two remaining assets that we'll have there as you know we sold to other assets in the early days of the pandemic at very attractive pricing. It is a market that only has 32000 rooms. So.
It will come back and look.
We will we will follow the job growth will follow the opportunities.
<unk>.
Where we can generate the returns so we certainly wouldn't rule out San Francisco and I don't think we'll be at any any disadvantage because I think we will be able to whether it's assets in in San Diego. We're in other markets out West will still will continue to evaluate and look where they make sense.
Right now San Francisco is a very very difficult set of circumstances.
I think we have communicated that.
Well and I think as you recall.
Back to NAREIT, we provided an investor deck with 40 pages in great detail as to why the decision was made that we made in and are very confident it was the right decision.
Yes understood. Thanks, Thanks, Tom and then second question is kind of.
Longer term I'm not going to ask you for any kind of multi year guidance, but.
It's really on Capex and maybe the question is where do you see.
Capex needs for the portfolio. If we just think about what percentage of your <unk>.
Top top 2025 assets.
Thank you might like to or need to put capital into over the next several years.
Yes, it's a great. It's a great question look we've we also mentioned Bonnet Creek, which we.
We can't wait to host investors and analysts.
Some of that next year, when we reopened the Bonnet Creek, obviously, a completed its open today, but when we when we show off the expanded meeting space both for the Waldorf as well as for the Cigna.
A complete lobby redo the renovation of the golf course in all of the Guestrooms and again north of $200 million.
Im very encouraged by what we're seeing there.
We're trading at who knows 200, a key and so you get a 350 acre resort resort with 500 rooms in world class amenities and pretty excited about the upside there.
We've got the Casa Marina, which is closed in key west we had already renovated the reach and this is the system property.
We expect a partial reopening this fall and then a completed product.
At the end of this year very very excited about that.
Obviously, the tapa tower.
Renovation in Hawaii will also be completed this year.
The Royal Palm resort that we have in Miami.
And that will be.
Next on the list and we certainly continue to plan and study that as well.
Look to put additional capital there and we think obviously thats going to yield.
Tremendous returns for us so they are there.
Other assets in the portfolio, where we've got really embedded growth opportunities.
The Santa Barbara resort that we have out in California is another that we're looking at adding.
Additional keys, there we've got Hilton Hawaiian village, we're adding look to add the six tower and we're going through the entitlement process Hilton <unk> village, we have the opportunity to add another 160 to 200 keys. There. So all of those Chris would be on the list.
Sometimes we hear comments of.
Significant deferred maintenance and the park portfolio I would respectfully submit it's really it's a bit of nonsense.
We're investing $350 million and this year will be somewhere in that range next year.
Obviously, the big asset that did have deferred maintenance, obviously was the Parc 55 in San Francisco, but thats one of the two assets that we're shedding as we've as we've already communicated.
Okay.
Okay very helpful. Thanks, Tom.
Thank you.
Your next question comes from Duane <unk> with Evercore ISI. Please state your question.
Hey, Thank you.
Can we just okay. How are you can we just play back the monthly trends over the course of <unk>.
Your original expectations for <unk> in the month of June specifically.
How how June played out relative to your initial expectation and obviously a lot of commentary around San Francisco I think we all understand that San Francisco was weaker.
But ex San Francisco, what else played out differently in the month of June versus your initial thinking at the outset of the quarter.
Yes, I mean, it certainly seems to go ahead Ed.
Big.
Impact on June and the quarter in general.
I think it kind of through the expectations for June going in versus where we came out in the rest of portfolio I would say, it's kind of in the neighborhood of.
Call It a 300 basis points or so drop in in the month versus the only came into the month. So you certainly saw that.
So we saw I think through people are pricing that to the star data week to week.
For the better part of the month and even probably into the first part of July as well we have seen.
Things turned for the better in the back part of July So that's encouraging as we go into the rest of the third quarter.
I would say, yes, I would say in general three.
300 to 400 basis points.
And impact in June kind of versus expectations.
Yes, it was definitely a little bit of it.
In a way and disappointment, but again I think things are turning around and I think we certainly see a better kind of.
Tone from a macro standpoint leads us to think we've got some more encouraging.
Go ahead.
Thanks, John for that detailed any specific markets you'd call out underlying that 300 to 400 basis points.
I think you certainly see where again, you're seeing the compression of last year play out where people are going elsewhere. So the markets like South, Florida, where you have Miami and in southern Southern California, Santa Barbara will.
We'll continue to see pressure in certainly on the right side as.
As they lapped last year.
I would say.
I'd say those are probably the bigger.
The resort areas are the bigger contributors.
Thanks, and then just for my follow up on New York.
Why do you think New York is having such a strong recovery.
And what do you view as kind of the underpinnings of that strength as we think about sustainability into next year.
I'd make a couple of observations look there are.
There are only three hotels in New York that really have large meeting footprint in this space to be able to accommodate large groups.
We would respectfully submit that we've got the best hotel in.
And the Hilton Midtown there.
The city is back.
I think many people thought it would not recover until.
'twenty five 'twenty six 'twenty seven.
Reality is it'll be back and we'll be back to 19 levels.
Effectively this year I think we would expect to be within 2% of of 2019 plus or minus.
As you look at sort of the group forecast group forecast I think in Q3 is up.
19%, 20%.
Even transient as we look out is up.
And Ah <unk>.
2014% to 16% plus or minus.
And then as you sort of look at Revpar up 26% in the second quarter.
I think July we were up 26% of Revpar.
As we look out for the balance of the year, a very strong third quarter in a very respectable fourth quarter. So I feel very good about it.
International has played an important part there.
It's up.
I think it's about 19%, 20% and then obviously the group pace in 23 again about 187000 room nights.
In New York, So I mean, all of that contributes and with a hotel that size being relocated having the meeting space footprint in.
Again, a talented team of men and women there.
And again, not having a lot of competition for the big groups you really have.
Two other options and again, we believe confidently we've got the best meeting footprint to be able to accommodate those large groups and take multiple groups at a time.
Thanks for the thoughts.
Alright, thank you for the questions.
Our next question comes from Bill Crow with Raymond James Please state your question.
Hey, Good morning, Tom Sean Good morning, Bill.
Good morning.
I'm going to go back to what I think was Anthonys question about Hawaii, but a lot of it all off.
Asking if thats fair to draw parallels between the international outbound travel and domestic travel to Hawaii in other words, there's been there's pent up demand and later recovery.
International problem and apparently long haul.
Domestic travel to Hawaii, but theres also some expectations.
That just like U S mainland.
Leisure demand that we might see some normalization next year in longer haul travel.
My question is.
Is there anything out there in your core bookings that give you confidence in Hawaii.
<unk> doesn't materialize.
You think it will.
We're not going to be sitting here talking about tough comps and normalization in Hawaii next year.
Yes, I mean, it's a.
Fair question Bill.
I think the first data point would really be the last in the last couple of years I mean, you've added.
A lot more air lift domestic air lift.
Southwest and other carriers into Hawaii.
And those have been.
Candidly.
Tractive rates, which I think has also been I think a real positive catalyst and look at you.
For many people.
So it's a.
Once in a lifetime trip I think for many others. It's a repeat trip that that people have become quite accustomed to and I think Hilton Hawaiian village is just a great example of that.
You've also got the inter island traffic that has also accelerated and picked up so theres nothing that we see.
It's been very encouraging.
You have to believe that the Japanese traveler again as the yen continues to strengthen.
And <unk>.
Being away.
And we're seeing it we're seeing it obviously with a lot of U S. Traveling to Europe . This summer you get the pent up demand you want to recapture those experiences that and our.
People, who hadn't been to Europe in two three years.
We feel the same way and get the same signals about people wanting to go to Hawaii. So feel as strong on the domestic front I think the air lift and the capacity is an important part of that at reasonable prices.
The other thing to keep in mind about Hilton Hawaiian village.
It's an upper mid market hotel, it's not the ultra luxury.
So.
It's.
Great experience at a great value and consistently I think it has shown that and we didn't get the huge spikes that.
Perhaps some of our peers that saw.
50, 60, 70% increase in Revpar, we did see some of that in key west and the Caribbean wasn't an option and clearly.
Cruise operators were suspended and not sailing.
It's not the case here so it's on a it's on a steady path and then we've also been able to retool the operation.
As Sean pointed out there were a couple of one times last year, but we're still running nearly 40% margins there.
With a great management team and feel very good about the outlook as we look out today.
Things can happen we're in a.
In a business that you and I both know we've been around a long time, but we certainly see nothing on the forefront now that concerns us.
Tom what's the booking window in Hawaii, how does that compare to typical mainland hotel.
Okay.
From a mainland.
From a mainland customer.
It could be a pretty.
Short window.
A lot of people can last minute can make those cuts out there so.
You certainly would imagine that if youre looking at in mainland kind of hotel in general in the booking window is 30 to 60 days out youre going to be more elongated and thinking about Hawaii by a little bit, but I wouldn't say dramatically to the mainland clearly more international would be longer dated.
Exercise call it four to six months so.
Clearly you're going to see certain elements, whether known known peak times youre going to see that booking pattern net window b.
A longer length of time, its eagle plan, whether it's around the holidays in December whatnot, but I think in general, let's say, it's maybe a few weeks more than what you might see from mainland as you talked about the mainland customer I'd just add one thing to Tom's know two things about looking at next year group.
Group pace as you think about incentive travel and other group tourist activity coming back to Hawaii is up.
16%, so again, another kind of layer demand without a Japanese but there is some of that incentive travel and people winning the ability to with your sales. The sales teams will not winning that they reward travel to go to Hawaii is picking up as well.
No that's great.
Sean what's the percentage of the group makes up in Hawaii.
It's about 20% it's not big.
Okay.
That's it from me thank you.
Thank you.
Your next question comes from Dori Kesten with Wells Fargo. Please state your question.
Thanks, Good morning.
Can you talk more enduring.
Okay.
And eventually reducing your exposure to Hawaii.
Is it on your list of priorities.
And is there any interest from Hilton Grand and taking on more rooms.
But let me let me start with the last question first I mean, I haven't talked to him.
Hilton Grand Vacations, I think we've got a.
A wonderful working relationship today at Hilton like Aloha.
It turned out I think to be a win win as we've noted I mean, we are more profitable today is.
As a 600 room hotel than we were as a 200 room hotel and plus we get the benefit of of there.
Guests using our outlet so it's been a win win for both.
We think really that's the optimal mix for that property and as we look to expand it.
We would focus more on adding more guest rooms.
Perhaps suites and other amenities there as we look to expand Hilton Michael over the future.
Hilton Hawaiian village is just it's.
It's a jewel I am not sure that there is any REIT asset.
That generates as much EBITDA or as as is valuable.
So we're.
We'd like to grow the company's such that Hawaii is is less of a contributor but we're certainly not looking to sell or to joint venture also both of those assets have a very low tax basis. So it makes it very complicated and will require a pretty big.
Distributions, so the preference would be to grow other markets, but certainly not look to sell of the joint venture out of those two properties at this time.
Got it thanks, and then just on your intention is now thank you Harry to 300 million in Apple. This year is there any update you can give.
The market for sale, how youre thinking of that and how close you may be.
Very helpful.
Constantly working on and I think <unk> as we as we mentioned in our.
People.
We've sold disposed of 40 hotels for over 2 billion since the spin.
That's 14 International Thats joint ventures, I mean, thats been some heavy lifting that's in addition to getting rid of some self operated hotels as well as laundry facilities, which are included in that in those 40, so really proud of the work and all the.
And all the effort and continuing to reshape the portfolio.
We sold I believe eight hotels over the last 15 months plus or minus for about $435 million.
We are constantly in discussions, but we're not.
We're not a distressed seller.
We're going to have maintained price discipline, Tom <unk>, our chief investment officer and his team are working hard and we've got a number of active listings right now and as we said we're confident that we'll get.
Somewhere between that $2 million to $300 million.
And again, we will use those proceeds to <unk>.
Pay down debt or on a leveraged neutral basis.
We buy back stock and obviously the best investment we can make right now is buying back our stock.
And if this kind of discounting.
You can certainly expect that we will be looking at that in the future.
Okay. Thanks, Tom.
Okay. Our next question comes from Robin Farley with UBS. Please state your question.
Great. Thanks, and I just wanted to circle back to you.
Hi, how are you.
Your commentary on group I know you gave a lot of great color sort of by region by cities.
I don't know if I heard.
So sort of total 2024.
Compared to 2019, how that works.
Whether it's revenue pace or a room night pace for 'twenty for overall compared to 19, and then do you have that excluding San Francisco, which sounds like would look a lot better than.
With the total company wide.
Yes, yes, so group pace for 2024 revenues about 93.
1% and that does versus $29.
Does exclude San Francisco.
And I was reading center.
Alright, Okay. Thank you and that was versus 19 right that.
Thanks.
Okay, Great. That's it for me that's it for me Thanks, Sean.
Thank you.
Our next question comes from David Katz with Jefferies. Please state your question.
I appreciate it.
You worked.
Hi.
Good day everyone.
Good day.
I appreciate all the commentary and you talked about.
The amount of investment capital, we should be expecting going forward and just thinking about.
Post the San Francisco returns.
Does that lead you to accelerate how that capital the amount of capital that's being deployed in and does it raise the bar or broaden our standard of where you might put some of that capital to work.
Without question.
David.
The beauty is it gives us a lot of optionality.
Balance sheet will be stronger.
We're sitting on nearly $4 of cash.
Per share today.
Whether that's buying back shares whether that's investing back in strategic ROI whether thats.
Distressed opportunities that could emerge I mean, we all know theres a lot of debt to mature between 23% and 25 across various asset classes.
We fully expect that we're going to be a participant.
Today, we'd say the highest and best use is to continue to sell noncore.
Invest back in our portfolio in and buyback our stock on a leveraged neutral basis, but we clearly will continue to be opportunistic.
We're seeing a lot of deal flow look like many of our peers.
We we will have a seat at the table, particularly when we're sitting with.
A $1 7 billion in liquidity so.
It's certainly a much brighter outlook for park as we look forward.
Okay that was what I wanted to talk about I appreciate all the detail today. Thank you.
Thank you.
Your next question comes from Gregory Miller with <unk> Securities. Please state your question.
Hi, good afternoon.
Taking our questions.
Yeah.
So first question I had is on business transient.
Just following up on John's commentary on.
Business transient room rates at this point, how do you see 2020 for negotiated corporate rate growth materializing.
Mid single digit growth is reasonable or perhaps above that.
Great Hey, it's Sean I mean, I'd, certainly think we're too early in that process.
It certainly doesn't have really had my discussions with with our operators and certainly the big brands.
Those negotiations currently you see a lot more clear that a lot more activity going into the fall.
Late fall, but certainly our expectation is to be.
And then mid single digits range.
I think it's unreasonable.
Okay.
And then on the.
Second question I had is on the F&B departments and on margins in particular, how is pricing for your F&B outlets and banquet grasp.
<unk> in the back half of the year or even more specifically.
F&B pricing trending.
Relative to operating cost growth.
Yes.
Yes, I think for the quarter I think you see a stabilization.
On versus what you see between Q1 and Q2.
F&B profitability will probably dip down slightly in Q3.
Just again, we don't have as much group as we have in other quarters and specifically Q4, I think is going to be a strong group quarter. So I think we'll get again with that higher rated or higher.
One higher rated as well as higher margin.
Banquet and catering business I think we will see our margins kind of get more in the higher <unk> versus the net <unk> <unk> in Q3 for F&B profitability.
So I think it's generally tracking it certainly.
From a profitability standpoint, right now below.
Below the FERC year to date kind of below 19 by a little bit, but I think as we kind of look at how 19 ended in the back half of the year I think we're kind of be more commensurate with it. So I think we're kind of catching up in a way as you think about group and Keith just in general the rates that are contracting are getting higher we've gone from Neil.
It was probably this time last year little later kind of flat to 19 to getting upwards of of higher single digits against 19. So you kind of layer. There was higher rated contracts in place over time here I think obviously getting better at getting better pricing in the F&B as well to kind of catch up and you kind of get the margins more in line.
Yes, that's great.
Thank you. Our next question comes from Chris Darling with Green Street. Please state your question.
Thanks, Good morning, Hey, Chris.
Morning.
Good morning, Tom.
Related to the embassy suites in Phoenix can you disclose who own the land or whether it's public or private entity and then are there any other early termination options related to other ground leases that we should be aware of.
I don't have that information available Chris will.
Follow up with you to make sure you have it.
Look we have 45 hotels now in the portfolio.
There are seven joint venture there are.
Several short term leases that we continue to monitor and to work on.
Our top 25 27 assets as we've communicated before and accounts for about 90% of the value of the company.
So it's back to that earlier point of just the <unk>.
Heavy lifting that the team has done over the last six seven years.
And really reshaping the portfolio, so could not be prouder of their work and their commitment each one has its.
One set of challenges.
This was an asset that wasn't obviously a significant contributor it was.
Non core and we've been working for some time to find the right solution and we certainly got to the right outcome here, particularly with <unk>.
So many with short years remaining on the on the ground lease there.
Okay.
Fair enough and certainly recognize the relative size of that property, maybe switching gears just curious Jack thinking about Orlando do you have an estimate for the disruption caused by the what's going on in that market. This year.
I'm, just trying to get a sense for how the comparable portfolio might start to ramp thinking and can't really 24, as you consider that market as well.
We will.
Yes that market has been one where you certainly we've got you've got a couple of other factors going on I mean, clearly people are trying to understand with Disney and that demand driver, whether it's some political elements. There you've certainly seen some groups shipped out of the Convention center.
Relative to politics.
<unk> also seen I think I think our product combination Disney is raising its rates maybe.
Aggressively combined with the fact that people have again people have other options to go places now whether it's Europe or in cruises. They didn't have last year. So I think you do see something that normalizes morph Orlando.
For us.
Clearly our story for next year is bonded Tom in the prepared remarks spoke to.
<expletive> meeting space, which we're seeing tremendous amount of interest in booking into that space in that in that complex. So I certainly we're really encouraged about layering in that.
We talked about $22 million in that asset relative to 19, so far in terms of what we've kind of booked into the new space.
Innovative products. So I think we're certainly very encouraged.
It's certainly a fair at this point to talk about 'twenty, four and kind of uplift from that market was certainly expected.
It could be the contributor to comparable portfolio next year.
Alright appreciate it that's all for me.
Thanks.
Okay. Thank you and Thats all the questions. We have today I'll now hand, the floor to Tom Baltimore for closing remarks.
We appreciate everyone, taking time and have a great remainder of your summer and we look forward to seeing many of you in.
In September the various conferences.
Great Summer.
Thank you. This concludes today's conference all parties may disconnect have a good day.