Q3 2023 Park Hotels & Resorts Inc Earnings Call
Greetings and welcome to the Park hotels <unk> resorts third quarter 2023 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.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Ian Weissman Senior Vice President corporate strategy. Thank you you may begin.
Thank you operator, and welcome everyone to the park hotels, <unk> resorts third 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 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 forward looking statements. Please refer to documents filed by park with the SEC.
Typically 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 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 Yesterdays earnings release, as well as in our 8-K filed with the SEC and the supplemental financial information available on our website at Teekay 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 a comparable view, excluding the two Hilton San Francisco hotels. This morning, Tom Baltimore, Our chairman and Chief Executive Officer, who will provide an update on the status of our two San Francisco Hotels review, Clark's third quarter performance and near.
Turning to outlook and highlight our strategic capital allocation initiatives.
Sean Dellorto, our Chief Financial Officer, who will provide additional color on third quarter results and forward looking guidance as well as an update on our balance sheet and liquidity.
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.
I'm very pleased to report another solid and productive quarter for park.
The Q3 earnings exceeding expectations and tremendous progress being made against our capital allocation priorities.
Including entering the final stages of our transformative.
ROI projects at our Bonnet Creek, and Casa Marina resorts.
And repurchasing five 8 million shares for $75 million during the third quarter.
But let me first begin with an update on our two San Francisco Hilton hotels.
And their related nonrecourse <unk> debt.
Last week, the trustees for the loan filed a lawsuit against the borrowers.
Related to our ceasing debt payments since June.
And the court has appointed a receiver to take full control of the hotels.
The receiver has complete an exclusive possession of the hotels.
As well as all the income generated from their operations.
Which is to be used solely to pay all operating expenses and to cover all operating losses.
Any operating losses, where additional funds required to operate the hotels.
We'll be address between the receiver and the trustee.
As such.
No longer has any economic interest benefits or burden and the hotel's operations.
The receiver also has the power to market and sell the hotels during the receivership.
However, if the hotels are not under contract.
At September <unk> 2024, the receivership will conclude in a non judicial foreclosure.
By the end of 'twenty 'twenty four.
Now, let me be clear about what this means for park and its shareholders.
First.
While in receivership and through its conclusion.
Be it a stale or foreclosure.
Park, we're no longer be obligated to fund any shortfalls for working capital.
For payments on the loan.
Second.
We expect all operations at the hotels will remain intact.
So we'll continue to manage their hotels, which will continue to welcome guests.
<unk> services in line with brand standards and maintain its employee base.
Third as.
As we have committed to thus far we will continue to make ourselves available throughout the receivership is the special servicer will receive a request to effectuate a reasonable outcome for all stakeholders in a timely manner.
With no financial obligations.
Fourth there.
There will be some adjustments to our earnings guidance, which Sean will provide further details on his comments.
Finally.
We and our board of directors have determined that it is appropriate to pay a special dividend related to the taxable gain triggered by exiting the economic interest of these assets.
Therefore, I am pleased to report that as of October 27th 2023.
Board has declared a special cash dividend of <unk> 77.
First share to be paid on January 16th.
<unk> 24 a.
As shareholders of record as.
As of December 29th 2023.
As a reminder.
The removal of these assets from our portfolio materially reduces our San Francisco exposure.
Just 3% of rooms from 14%.
And meaningfully strengthens our balance sheet and credit metrics with net leverage improving nearly a full turn.
With the San Francisco market still facing an elongated recovery.
We still firmly believe this complicated with necessary exit.
When these two hotels is in the best interest of our shareholders.
Now turning to our third quarter results, which were driven by favorable favorable mix of accelerating group fundamentals.
Ongoing strength at our Hawaii resorts.
And strong resorts in key urban markets, such as New York.
Boston and Denver.
Revpar increased 3% over Q3 2022.
We're an impressive four 8%, excluding our Casa Marina resort hotel, where operations were suspended throughout the third quarter were a comprehensive renovation.
Despite facing difficult year over year comparisons in July our portfolio produced solid results with revpar, including Casa increasing three 2% during the month.
Hello by a seven 3% increase in August.
And a four 2% increase in September which were driven by improvements in both rate and occupancy.
Turning to group performance.
Our continued acceleration in group trends during the quarter.
And revenue for the comparable portfolio, improving 12% year over year to over $95 million, while strong banquet catering results.
Helped to drive performance, we continue to see solid short term pickup.
Adding approximately 112000 room nights for 2023.
For over $25 million of incremental revenue in the third quarter.
As a result full.
Full year 2023 comparable group revenue pace improved during the quarter.
Increasing nearly 180 basis points to 93% relative to the same period 2019.
While Q4 comparable group revenue pace is 99% relative to the same period 2019.
Group demand trends remain very healthy while 2023 comparable group ADR remains on track to exceed 2019 by nearly 8%.
So on a few key markets.
<unk> was once again driven by exceedingly strong performance in Hawaii, and New York.
Land in Hawaii continues to be driven primarily by solid domestic leisure demand.
With strong group trends.
Our two resorts generated three 5% revpar growth in the quarter compared to last year.
Fortunately, our hotels were negatively impacted by the devastating Maui wildfires.
We are proud of our hotel teams and their efforts to provide relief and support to their neighbors on the island of Maui.
And Hilton <unk> village hotel delivered over 4% Revpar growth in Q3 year over year and.
And 38% hotel adjusted EBITDA margins and impressive results given the difficult year over year comparison.
Overall, the hotel witnessed a pick up in demand generated by displace married residents.
And travelers during.
During the quarter, including an incremental $1 million in business expected in the fourth quarter from two groups moving their programs to the Big Island.
At our Hilton Hawaiian village Hotel.
We are pleased to report the near completion of the multi phased renovation of the 1021 room Tapa tower to wrap up in December 2023.
With the newly renovated rooms in the tower commanding a $75 ADR premium to the other room types.
This strong performance is even more encouraging is inbound travel from Japan continues to recover.
Q3 production at our Hilton Hawaiian village Hotel.
<unk> improving to 24% of 2019 levels from 8% during the first six months of the year.
Conversations with our Japanese travel partners indicate improving sentiment and willingness to travel internationally.
And the expected increase in air lift to the islands Pan.
Also support better inbound trends into 2024.
With respect to Airlift Delta Airlines, just launch daily direct service to Honolulu.
Jeff <unk>.
Japanese carrier DNA Airlines announced that in order to accommodate.
A recent pickup in demand.
It has brought a third Airbus a 380 aircraft into service.
Tokyo in Honolulu.
Starting in early December <unk>.
Increasing its weekly round trips to 14 from 10.
According to the airline expansion sets a record receipt capacity on this route.
Reaching over 18000 seats per week in total and surpassing pre COVID-19 level.
Looking ahead to the fourth quarter we.
We expect revpar growth to remain very strong across both of our Hawaii hotels.
With low double digit year over year growth forecasted ranking among the top performing markets within our portfolio.
Turning to our urban performance.
Our comparable urban portfolio delivered 7% revpar growth during the quarter.
In particular.
Our Hilton New York, Midtown hotels delivered impressive results revpar up nearly 30% year over year or 8% above 2019.
Both results were driven by better than expected group trends, coupled with strong attendance at this year's U S open the UN General Assembly.
Overall group compression days translated into a 17% uplift transient ADR versus 2019, while the hotel achieved 44 sellout nights during the quarter.
Four fold increase over the prior period.
In addition.
Reduced supply across the city has also helped.
I had a very positive impact on performance with total room count down approximately 7% in 2019.
On New York's stricter regulation on short term rentals.
A positive impact on leisure transient trends across the city for the foreseeable future.
Looking ahead to the fourth quarter.
We anticipate that positive momentum to continue with the hotel.
On pace to generate a solid Q4 gains.
With preliminary October revenues of approximately $32 million.
The second highest monthly revenue in the property's history.
Especially <unk> briefly on the macroeconomic backdrop.
We have yet to witness any signs of an economic slowdown impacting transient demand outside of the normalization of.
Sunbelt leisure demand back we are very encouraged by the strong group trends heading into next year for 2024 comparable group revenue pace tracking 94% versus 2019.
Nearly 100 basis point improvement from last quarter, driven by double digit increases in convention room nights.
Across several of our core markets, including Chicago.
New Orleans.
San Diego <unk>.
Boston and D C and Hawaii.
In Chicago we.
We expect to benefit from a strong citywide calendar with convention room nights up 65% to a record 786000 room nights.
In New Orleans Convention room nights are expected to reach nearly 510000.
For a year over year increase of 11%.
Hawaii is slated for another solid year as international demand continues to build.
While both customer arena key west and our bond it.
Creek complex will benefit from easier year over year comparisons and newly renovated product.
As a reminder.
Castle Marina accounted for 110 basis points drag on Revpar performance in 2023.
Translating to $15 million of EBITDA disruption this year.
While the rooms renovation at Waldorf Orlando.
Tribute to almost $3 million of disruption in the second half of this year.
We are thrilled to introduce our newly renovated and upgraded Casa Marina resort, which partially reopen with nearly 60% of its room inventory in October the balance of rooms slated to open December 15th.
We are also introducing our new oceanfront restaurant in February 24, while Dorado, which will elevate the resort and offer an unparalleled dining experience on the island.
The Bonnet Creek.
We will wrap up our $220 million comprehensive renovation in January 24.
Which will include an additional 137000 square feet of meeting space.
Newly renovated guestrooms throughout the complex.
Refreshed public spaces and.
And a comprehensive renovation of our championship golf course.
2020 for group revenue was forecasted to be a record year for the complex with revenue.
On the books facing 38% of 2023.
Price of an even mix of room nights and average rate great beverages average rate gains.
In summary, I am optimistic about the setup for next year.
With our comparable portfolio well positioned to benefit from improved group in urban demand.
In addition to ongoing strength in Hawaii.
Coupled with expected tailwind from fully renovated hotels in both key west and Orlando.
In addition, the effective exit of our two San Francisco Hilton hotels meaningfully changes the park narrative, we remain on track to deliver sector leading earnings growth.
For the year and we remain laser focused on executing our internal growth strategies and capital allocation priorities we.
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 So overall, we're pleased with our third quarter performance.
Q3, Revpar for the portfolio was approximately $178 representing year over year growth of 3% driven primarily by occupancy gains of two five percentage points above last year.
Retail revenue was $657 million during the quarter, while hotel adjusted EBITDA was $173 million, resulting in a 26, 3% hotel adjusted EBITDA margin.
Margins were negatively impacted by a few factors, including the renovation disruption at our Casa Marina resort, which accounted for over a 60 basis point drag on portfolio performance and.
In addition to our two San Francisco Hilton hotels, which accounted for an additional 210 basis point drag on hotel adjusted EBITDA margins.
Excluding all three properties from our results hotel adjusted EBITDA margin would have exceeded 29% for the quarter were approximately 40 basis points above 2019 levels.
Q3, adjusted EBITDA was $163 million and adjusted <unk> per share was 51.
Both of which exceeded our expectations.
Looking ahead to the fourth quarter preliminary results in October looks strong with revpar growth on pace to be up 6% with results driven once again by Hawaii, and our urban core, including New York City, Boston and Chicago.
Overall preliminary comparable revpar for the month of October stands at $198 or 4% above 2019.
Turning to the balance sheet, our current liquidity is approximately $1 7 billion.
Including $726 million in cash.
Net debt at the end of Q3 was $3 9 billion and net leverage on a trailing 12 month basis was six times.
Excluding the two San Francisco Hilton hotels from our portfolio as park has no further financial exposure with these assets balance sheet metrics materially improve with net leverage decreasing by nearly a full turn to just under five two times and interest coverage improving by over half a turn to three two times.
With respect to our dividend on October 16th we paid our third quarter cash dividend of <unk> 15 per share.
And anticipate paying a fourth quarter dividend, which is subject to board approval in the range of 85 to 95 per share comprised of a quarterly cash dividend of <unk> 15 per share and an annual top off component of between $70 million 80 per share.
Including the San Francisco Special dividend, Tom discussed earlier, we expect total Q4 dividends the $1 67 per share at the midpoint of the top off range.
Excluding the special dividend 2023 dividends from operations will total $1 30 to $1 40 per share, which translates to roughly two thirds of adjusted <unk> per share based on the midpoint of our guidance.
<unk> is back in line with the payout ratio, we targeted prior to the pandemic.
The dividend yield between 11% to 12% based on current trading levels.
In total park is projected to return nearly $625 million of capital to shareholders in 2023, when considering the $445 million and expected cumulative dividend payments and $180 million of share repurchases for nearly 15 million shares executed since the start of the year.
Turning to guidance, let me first address how we expect to capture two San Francisco hotels, and <unk> in our financial statements.
As Tom noted earlier with the receivership in place really no longer control the operations of the hotels.
Therefore, the hotel operations will not be included in our consolidated P&L. The data hotels were placed into receivership.
The two assets for this purpose as if they were sold.
Interest expense and fees will continue to be in crude until the assets are sold or foreclosed upon.
Since we will not have any financial obligations for this nonrecourse debt, we will add back as expenses when presenting adjusted SFO.
Considering this treatment we are adjusting our full year guidance to reflect our revpar and adjusted EBITDA margin ranges based on our comparable portfolio with comparable revpar guidance in a range of $177 to $179 or year over year growth of seven 5% and 9%.
While comparable hotel adjusted EBITDA margin.
<unk> to fall within a range of 27, 7% to 28, 2% in.
An improvement of 170 basis points when accounting for the removal of both the San Francisco hotels.
With respect to adjusted EBITDA guidance has been increased to a new range of $644 million to $668 million to reflect better than expected results from the third quarter, partially offset by an adjustment to our Q4 outlook for additional $3 million of disruption at our Casa Marina and Waldorf Orlando renovate.
<unk> projects, which are expected to conclude before year end.
Adjusted <unk> per share guidance increases by <unk> <unk> at the midpoint to a new range of $1 92 to $2 <unk>.
With Q3 buyback activity and the add back of San Francisco <unk> interest expense contributing five of the 8% increase.
This concludes our prepared remarks, we will now open the line for Q&A.
Each of your questions. We ask that you limit yourself to one question and one follow up operator may we have the first question. Please.
Absolutely as a reminder, ladies and gentlemen, if you would like to ask a question at this time. Please press star one on your telephone keypad. Our first question is coming from the line of Floris Van <unk> with Compass point. Please proceed with your question.
Hey, Thanks, guys.
I think this morning for welcome.
Morning, Welcome reports I think.
And sort of validating some of the some of our beliefs here.
On you guys.
Tom.
Maybe if you could comment a little bit obviously, you have got some capital return.
Plans already outlined for the rest of this year, but youre still sitting on a big pile of cash your balance sheet metrics are significantly better.
Particularly if we look at 'twenty for EBITDA.
We're looking at a four handle in terms of leverage.
Should we should the market expect more share buybacks.
And or are you looking at.
Acquisitions going forward as well now that you urinate.
<unk>.
Better capital position.
Of course, it's a great. It's a great question I think the first thing is I want to just.
I reiterate the point that you made and I'll say it differently, we've eliminated the noise around San Francisco.
I could not be prouder, and I'd like to highlight Nancy <unk>, our general counsel and showing Delaware toe in and many of the men and women in inside and outside counsel that had been working with us since June.
To really find the right outcome and I believe we've done that so we are glad to to be moving forward.
There is a.
A clear path forward and really positive tailwind for park as we are.
As we look forward.
Hmm.
Look we continue to trade at a significant discount to both N V as well as replacement costs. So as we sort of look forward you can find us really continuing to focus on operational excellence.
These transformative renovations will continue to provide a tailwind for us.
There is a strong growth profile as you think about Hawaii, New York City, Chicago, having a record year next year in citywide New Orleans, having a record year D C being strong the Japanese traveler.
Turning as we pointed out in Hawaii, and again, Hawaii had a record year last year.
We're cautiously optimistic we'll have another record year this year, but with still a tailwind as we sort of look out. So we will we will continue to focus on selling non core assets as well.
Our top 25 assets account for about 90% of value in the portfolio.
And we will use those proceeds for share buybacks.
<unk> projects.
Projects and reducing leverage.
But again, we're in a much better positioned today at five two times than we were before and there's been a lot of great work done by this team I'm very very proud and we are hopeful and expect that the narrative around park changes that.
We don't have to answer question after question everyday on San Francisco.
That problem has been solved we have no economic benefit or burden of San Francisco, the two subject assets moving forward over finished.
We're moving forward.
Thanks, Tom.
That seems pretty clear maybe also can you just talk a little bit about.
Hawaii relative to other resort markets and why you remain you sort of talked about the fact that <unk>.
<unk> capacity.
The Japanese tourists is returning.
<unk>, Hawaii, maybe why your portfolio is.
Better position maybe than some of the other markets in.
In Hawaii and then also.
Your outlook on some of the markets that did really well during COVID-19 that are softening now, particularly south Florida.
But when will that stabilize in your view and how much of an impact will that be on.
On your earnings going forward.
I think.
Hawaii sort of speaks for itself for us if you think about you've got you've got inbound demand.
Averaged approximately 9 million to 10 million visitors.
About.
55% to 65% of that comes out of the U S.
Directly about 15% to 17% coming out of Japan, and you're seeing international growth certainly improve but it's historically been anchored by by U S and Japanese theres been more flight capacity and certainly more domestic travel coming out of the.
And it started a little bit in the pandemic and then afterwards.
And it just it just continues in our particular resort there Hilton Hawaiian village.
Upper upscale it's not ultra luxury it's got 60 plus years of history. So it's an icon it's a landmark.
And if you look over the last 30 years irrespective of where the yen was vis vis the dollar it's been consistent visitation interesting now the Japanese have been away largely for the last three years and as we as we cited we're encouraged as we sort of look out with what <unk> is doing obviously, adding a third.
<unk> hundred 80.
Aircraft between Tokyo in Honolulu in early December again, increasing capacity to 18000 per week, which again exceeds pre COVID-19.
Alta again, adding more capacity and having having the city like environment Euro.
Irreplaceable Beach is that you can't you can't replicate.
And then again, having international particularly the Japanese traveler, who generally we were averaging about 150 high end weddings. There a year I think we've been four to six I think the last couple of years and kind of post COVID-19. So we see all of that being a tailwind and we have an extraordinary team.
Led by Debbie Bishop on the Hilton side, who.
He is just continues to find the right mix of demand.
So we are excited about what we believe to be the acceleration of Japanese visitation, but even without that we certainly expect that you'll continue to see U S and other visitors as well.
It's different than some of those ultra high end luxury.
And given the size of it.
It's a unique positioning.
And if you look at what happened with the revenge spend I mean, all of that is sort of.
Moderator and a reversion back to the mean.
We didn't get that sort of.
Real acceleration, we were modest increases, but now I think that lift off for us looks better now.
We'll probably be low double digit here in the fourth quarter, but as we look out to 2024 and beyond we're very very encouraged and particularly of the Japanese traveler continues to accelerate.
Stay longer and spend more so we see that as another leg of growth for us in Hawaii.
We look forward.
Thanks, Tom I appreciate it.
Thank you.
Thank you. Our next question is coming from Smedes Rose with Citi. Please proceed with your question.
Hey, Smedes.
Hi, how are you.
Congrats on San Francisco.
Yes congrats.
Great to have incremental.
Color there.
I wanted to comment.
Yeah.
Going back to.
Bonnet Creek, it looks like kind of pre pandemic. The Waldorf Hilton combined did kind of in the low to mid $60 million range EBITDA.
Fair to assume that you would expect to surpass that going forward and maybe can you just talk about kind of.
Where do you think EBITDA can get at that property and kind of the timeline to get there.
Smedes. This is Sean I would say, yes, you are right on kind of pre pandemic levels and it's been floating with that.
Despite even some I would say disruption through the work we've been doing.
So I think as we think going forward clearly we expect.
Increases to that level pre pandemic level, we've added a tremendous amount of meeting space. There, we've gotten tremendous amount of interest from groups to bring in there we've upgraded the facility.
A good bit we were actually down with our board last week towards them around the site. It looks fantastic our D&C teams, an incredible job building out the extra meeting space and really the design team did a fantastic job upgrading the Waldorf side. So we certainly expect the team.
<unk> move forward with a great product and generate additional fee.
Far more group business Theyre going from about 50% I would say to about 60% group in the house and ultimately we can we have made a significant investment there we expect to return so I won't necessarily guide specific numbers, there, but you would imagine that you're spending $200 million now youre getting a good good return on that.
<unk> EBIT EBITDA.
I would say.
Good double digit growth.
Hey, Smedes the other thing that I would that I would I would comment on.
Unbounded by adding the additional capacity of 137000 square feet of meeting space, plus or minus we have the ability now to manage multiple groups. So it's a thousand room Hilton. It's a 500 room Waldorf. It's a championship golf course, we've got all of the amenities too.
Top restaurants that are on site and it's a complete renovation.
Public space.
Freshened up obviously.
The guest rooms expanded the meeting both the new ballroom adjacent to the Waldorf again a large.
Ballroom 100000 square foot ballroom, plus or minus over water I might add which is quite a marvel and quite a site. It is extraordinary and you think about the upside that we have there we're very confident we're trading at.
At.
200, a key plus or minus I think that four seasons traded at $1 $3 million, a key and its next door and it's fabulous all of that it's not six times better. So we are very confident on the upside here and are very bullish as we look forward and as Sean gave you we're already seeing our booking pace.
Far ahead of anything that we had seen historically, so we think there'll be real tailwind because of the optionality to be able to house multiple group and its 350 acres plus or minus so very bullish on that as we move forward see that and again another part of the park growth story and.
And the narrative as we move forward.
Can I get to ask Tom to just on Hawaii, perfect alignment positive there and you have a lot of confidence going forward and any thoughts on moving forward with the new tower, there thats kind of comment on some of your calls.
Yeah, We continue Tom Moran, our Chief investment Officer, and his team are doing an extraordinary job.
Working through the final entitlements. There we are excited about adding another 550 keys, plus or minus and keep in mind. When you look at Hilton Hawaiian village, it's still running.
Over 90% occupancy for a hotel with a 2900 rooms.
So we think clearly it'll be absorbed and are excited and continue to add another elevated product to the campus. There. It's also worth noting that we the Hilton Waco Lola again, we.
Shrunk that as part of the spend half of that went to HCV and timeshare, but we're more profitable today is 600 room hotel than we were as a 200 room hotel. We also have the ability to add approximately 180 to 200 keys, there as well so when we look out to Hawaii and that being <unk>.
35% plus or minus of current EBITDA, we see growth.
Not only in the Wahoo, but also on the Big Island as well so again part of the growth story for park as we move forward.
Thanks for the time.
Alright. Thanks.
Thank you. Our next question is coming from the line of Duane <unk> with Evercore ISI. Please proceed with your question.
Hey, good morning Duane.
Maybe just to zoom out a little bit.
Kind of across the portfolio all the renovation and ROI work you were doing this year.
And displacement that you absorbed this year sort of how would you quantify that in total and what would the tailwind across the portfolio be in 2024.
I think just from a disruption standpoint, when you think about cost.
And I'd say Orlando and.
In the Bonnet Creek resort.
Outlined in our guidance in the earnings release about $15 million just specific to cost itself. We've talked in the script about about a few more million Bucks that we think is disruptive to Orlando more so not only giving rebates to customers with the noise or anything going on with redoing the rooms, but I think just business staying away. So we think I think you can easily.
That upwards dumping of running up to $20 million of sell a disruption.
In the portfolio as being kind of think about an add back for next year.
Thank you.
Clearly we've got the backed up again I don't want get too ahead of ourselves and we got into the budgeting process, but would still have an expectation of driving those great renovations forward in realizing the returns we had on it but like I said, probably you would expect to start seeing us ramp towards that double digit growth on that investment, we've made which we've outlined for folks on those assets.
Yes.
Thanks.
And not to ask another Hawaii question, but my guess is youre going to get more of them going forward.
Can you just walk through the trends you've seen.
Since the tragic wildfires in Maui.
Thank you picked up some benefit from from Maui kind of book away.
So was there a surge which is now settling down like how would you characterize booking patterns into into fourth quarter and early next year.
I wouldn't say, it's Julian Hawaiian village I wouldn't say, we've seen any dramatic I mean, more so because we couldn't really take a dislocation we were at 97% occupied so while there are 100 groups looking for hundreds of rooms, we supply will be could there. We did pick up a couple of groups that relocated from Maui to the Big Island, which helped.
For Q4 that that 1 million Bucks for group and I'd say it wasn't dramatic across our two assets combined.
That I think we continue to see strong organic.
<unk> growth into those markets that I wouldn't necessarily say, it's because people are opting to go there besides maui.
I think the other thing kind of talking about Hawaii as you go into next year too as well, we don't talk a lot about Hawaiian village as a group box, it's not traditionally about 20%.
Group, it's about 40%, 45% up next year in pace. So again another demand driver for for that complex that we think as soon as they are another positive tailwind for for next year.
I'll also say, we we have parts of that towers that are from the timeshare business and having that kind of the marketing channels that they come through and bring people in as well as the stickiness of their owners that come through and just another way if we generate revenue demand into that complex.
Thanks, Sean.
Thank you. Our next question is coming from Danny Assad with Bank of America. Please proceed with your question.
Hi, good morning, everybody.
Good morning, Tom.
So San Francisco coming out of the portfolio now just looks like we're looking at our portfolio. It's a lot more stabilized today. So I don't know how much color you can give yet but any early reads on how much revpar growth, we would need to get operating leverage on the core portfolio, that's kind of left in 2024.
Okay.
Yes, Danny again looking ahead, we don't want to get ourselves kind of seeking to any kind of guidance for next year at this point, we're getting to the budgeting process, but I.
I agree you're starting to see these things stabilized expenses stabilized. If you look at the last couple of quarters, you've seen expenses that really ranged in a 3% to 4% range year over year.
So is that kind of really just work yourself thrill.
Clearly you can kind of.
Assume that we're going to be working hard with our operators to make sure that we are getting that operating leverage we are matching.
Any potential growth the growth of any kind of needs on the cost side.
Right and as well as other revenue generation ideas to make sure that we're continuing to kind of improve our margins I think we've done incredible job.
As it maintains an incredible job of holding the line.
In terms of the positions, we talked we've taken out and we've talked about extensively.
And I think we certainly feel like we've done a really good job of holding down that counts still down 19% and staffing.
And realized if you were to kind of hold flat.
19 levels of wages, I think there's about $150 million of savings.
And that compares against $85 million, we've discussed in the past. So again, there's some still some occupancy to get at with the portfolio and that will include a little bit of cost that comes up but I think we're in that zone, where you had set north of 70% occupancy trying to get to 80, and that's I think a pretty profitable.
Set up.
Pretty profitable range to be in when you start building back and just dealing with that a little bit of variability in terms of the interims.
Terms of the expense add.
So I think we feel pretty good I mean, I think <unk> talking about why again is a great case study where occupancy is certainly within the ZIP code of where it was 2019 rates up well, but it's not above inflationary rates in selling our margins up over 200 basis points. So I think again that speaks to the work that's been done in the portfolio to manage the cost side.
Other side of that Danny I would add is when you think about our growth profile.
Another way to help mitigate obviously the impact of of those rising expenses and to Sean's point I think we've done as well as anybody in the sector at keeping those costs down a lot of credit to our asset management team, but when you've got a backdrop of strong demand and growth in Hawaii looking out.
In New York City, again up 30% and given some of the constraints down in New York City.
Again, having the second best month in the history there.
And with the restrictions on on short term rentals with supply coming out New York looks very different Chicago are going to have a record year next year.
The convention front, New Orleans, having a near record.
Boston, San Diego D C being strong so given the diversified portfolio. We have obviously anchored obviously in resorts and leisure, but certainly very strong on the group side as well and as business transient continues to recover none of us know ultimately where that's going to set up I like or I like our positioning as we look.
To 'twenty four and beyond.
Very helpful. Thank you for that and then in the press.
Third remarks, we talked about.
We are back to pre COVID-19 target levels for dividend payout it looks like Casa Marina and Bonnet Creek are looking for yearend completion, so look beyond that how should we think about just the.
The mix of capital allocation ROI projects capital needs going forward afterwards.
Okay.
We've historically been in.
A 200 plus million range, obviously pre pandemic youll see this ramp that up a little as we continue to take advantage of these strategic ROI projects.
As Sean as Sean noted.
You can expect obviously a <unk>.
Payout to be in that two thirds.
We're quite proud and we hope shareholders are pleased as well with <unk>.
Turning over $625 million in return of capital this year sizable it's significant.
And you can expect that the <unk> team is laser focused on continuing to create value for shareholders as we move forward.
Thank you very much.
Thank you. Our next question is coming from Bill Crow with Raymond James. Please proceed with your question.
Hey, good morning, guys, Hey, Bill.
Morning.
Couple of questions first of all it looks like your Chicago assets benefited to the tune of about $10 million from kind of.
Property tax benefits.
Back to business.
The payments.
Was that in prior guidance I don't recall discussing that last quarter.
No well with not in prior guidance I, certainly don't know what the outcomes are going to be.
Okay.
And then the second question is more philosophical in New Orleans, and I'm just wondering.
You said the group up 11% next year, which is terrific, but it's coming off of a really really low base and is that a market that.
As <unk> seen more secular than cyclical challenges you think as we think about the west coast markets is that one of those markets since you've kind of.
Maybe losing something to the new markets, Austin, and Nashville, and Miami and whatnot.
It's a fair question Bill just a couple of points of clarification.
Based on what we see on room nights and city Wides in New Orleans is about 450002 thousand 23, and looking at about 505 510000 next year. So it's not as bad.
Base I would say, obviously third quarter there were no citywide so hence the reason it was softer there.
It's a complex market you do have the harrah's converting to a Caesars you have.
Inefficient investment being done there, particularly around the water <unk>.
<unk> got obviously the mall has a new owner adjacent to.
Our our complex there the convention centers, putting in I think about $550 million in improvements.
It has historically as you know been a strong leisure it's been a strong convention market.
Its gap has always been in the corporate side.
That certainly would help but I'm.
I'm more encouraged its.
Pro growth.
Not labor is reasonably priced.
And it doesn't have the same challenges as we see them and some of those other cities that I know you are referring to.
So we're cautiously optimistic.
Whether that's a long term hold for us we will see but we certainly don't see the secular challenges there that I think we are seeing in some of the other cities.
Yes, Okay, Hey, Tom I've been doing this for a while I don't think I've ever said this but congratulations on the default.
And with that I'm done.
Bill.
I appreciate that the team appreciates as I said in our June prepared statement and in follow up meetings.
Difficult, but necessary and to get it to where it is today from June to early.
Early November was just working around the clock to get to the right outcome and I think we got to the right outcome move.
Moving forward for park our shareholders.
And San Francisco will recover its just going to take many years.
Car couldn't wait anymore, and we couldnt afford to continue to carry those two hotels as you know.
Yep. Thanks, a lot appreciate it.
Thank you.
Okay.
Thank you. The next question is coming from Dori Kesten with Wells Fargo. Please proceed with your question.
Good morning.
Alright.
Can you can you do a full bridge on the old EBITDA guide to the new addressing what you thought the San Francisco EBITDA would be November December and then Chicago property tax Bill just noted anything else.
So relative to the prior guidance we gave in August we had thought at the San Francisco would pretty much be.
<unk>.
Breakeven.
So I wouldn't say, it's really any impact noticeable impact as we think about updating for our guidance. This go around in terms of Chicago, We did not as I mentioned, though we did not had that in our guidance that was certainly a combination of an appeal that.
Affected prior year, 'twenty, two as well as allowing us to kind of catch up this year in our accruals for our property tax there so that was.
The tune of I think of about $5 million was kind of prior year than the rest of is kind of catch up I think bill noted about $10 million total which is about accurate.
Okay.
There was nothing else then.
No.
Okay, and then I know.
Early for 'twenty, four, but just very broadly between business transient group and leisure, which do you think you would.
I will be your strongest revenue growth engine over the next year.
Yes.
I mean, certainly group for us, we like 18% pace right now.
And with some additional I think we're about 200, our mix is about 200 basis points less than it was in 19, So I think again room for improvement.
Leisure again, just given the discussions around Hawaii remained strong on top of that costs are coming back.
A lot of excitement from people, who are looking to return back to the resort there. So.
Hard to kind of really says I think they are all three going in the right direction for us.
Laurie I think it's I think it's one of the benefits of a diversified portfolio. So I would I would say we lean.
Forward, a little bit on the group for all the reasons that we've outlined but a leisure again given.
Given Orlando given key west given Hawaii, we expect also to be strong and and for business transient.
Urban to be recovering so thats, certainly with lag a little bit and perhaps be a little slower, but I think that's one of the real benefits of the growth profile of park as we move forward.
Yes.
Okay. Thanks.
Thank you. Our next question is coming from Ari Klein with BMO capital markets. Please proceed with your question.
Thanks, and good morning.
On the Capex, Brian you noted the disruption headwinds. This year. There is there anything notable for next year that we should be thinking about.
And then one of your peers announced the broader Capex right Ryan.
Brian obviously ARPA, many Hilton hotels, it's something of that Bill.
A potential in the future.
We are not in discussions with.
Hilton about any kind of broader Capex program.
It is a great partner and we work closely with them.
Of those.
Those programs are.
Show well in sound, good Theres always complexity behind them.
We are not in discussions with Hilton on that front.
Regarding sort of mix kind of wave of ROI projects.
And we look at our Royal Palm resort.
And in South Beach on the Ocean front, just Fabulous real estate, that's one that our design and construction team are beginning to spend additional time on as we move forward.
Obviously, we are looking at another tower that will that will renovated Hilton Hawaiian village.
I wouldn't say that there's anything material, that's going to be very disruptive in the in the 'twenty four as we look out right now we're very careful trying to minimize our disruption to really a 100 basis points of Revpar.
Approximately sometimes that'll be a little more a little less.
But we're very thoughtful about making sure that these strategic ROI projects no doubt the investments that we've made and that had been communicated are going to provide great tailwind for us as we move forward, but we're going to be continuing to reinvest where we make the money.
And certainly Hawaii is a great example, as we look out for some of those bigger projects. We're also looking at expanding our resort our property in Santa Barbara, adding additional keys there.
So the embedded ROI opportunities within the portfolio over the next several years are significant and we're pretty excited about that.
Thanks, Andrew.
And following up on Hawaii.
The Japan, and the Japan trial.
The Japan.
Our capacity picking up pretty meaningfully going forward are you seeing that translate into.
Bookings yes.
Hi.
Again, as we said four for fourth quarter. We're looking at is why being kind of low double digit.
So the answer is we are encouraged and yes optimistic.
As the team there were also works with some of the tour operators and as the Japanese.
Travel comes back very exciting.
That will be again, another tailwind for Hawaii as we look out.
Appreciate it and I'll echo the congrats on the default.
Great. Thanks.
Thank you. Our next question is coming from Anthony Powell with Barclays. Please proceed with your question.
Hi, good morning, Anthony.
Hi, Tom a question on New York.
You wanted a few I guess reached with a lot of exposure. There I was just wondering into positive here.
That property did about $50 million of EBITDA pre pandemic margins in the mid teens.
Can you be able to exceed that now given the structural changes in that market and are there any more cost savings you can maybe get out of that property.
Yes, it's a great question Anthony I will tell you we are.
Think back to the pandemic and how the abundance thought New York would either never come back.
Or it would be 26 27 28.
We will largely be back to pre pandemic this year and 23.
We're up 30% in the third quarter.
I think October forecast, plus or minus is probably in the 12% to 15% range.
Looking at a solid fourth quarter and we're looking at.
A significant increase for the year, but we had 44 sellout nights in the third quarter four times, what we had last year and I think Vince in 2019, it was around 60 plus or minus.
So we're very encouraged as I think as I said earlier.
Sean May have had in his prepared remarks about October revenue of about $32 million, which is about $2 million south of the all time high. So I think it was in May of 2018, and then when you look at supply contract and you look at short term rental regulations again, causing about an 80% reduction.
And I think an errand.
Airbnb from 23000 down to 3000 units, New York looks very different now again, we only own one asset there in that market.
But we are very encouraged as we look out group paces for 'twenty four is about 109% I believe of 2019 levels. So.
New York is and given that asset and you've only got three big assets that can handle group business.
We're cautiously optimistic and we do think theres an opportunity to continue to retool it in and continue to improve efficiencies. So we're our outlook there is encouraging.
Thanks, and maybe just on asset sales that there've been a few deals in Boston, San Francisco and some other markets.
Are you marketing any properties and what's your view on dispositions for this year and next.
Yes.
Closed on one sale, obviously, we were not a we're not a desperate seller.
Going to remain disciplined on our pricing expectations.
And with that with that backdrop.
We continue to focus on selling noncore, but we'll be disciplined about it.
Those transactions under $100 million are easier to certainly execute.
But again, our chief investment officer, Tom oriented.
His talented team are working hard and we're confident we'll put some points on the board here.
Not done by the end of this year is certainly enter into early next year, but youll continue to see us with the same playbook continuing to reshape the portfolio.
Listeners may forget now, but we have sold and dispose, including including San Francisco now 42 assets for about $2 7 billion.
And thats, including International law.
Laundry facilities, we have cleaned up and reshape this portfolio significantly since the spin.
Really proud of the team and the great work that's been done.
Okay.
Alright, thank you.
Okay.
Thank you. Our next question is coming from Jay Kornreich with Wedbush. Please proceed with your question.
Hi, good morning.
Just.
So just going back to capital allocation for a moment you've talked a lot about.
Internal growth during the high ROI I guess from an external growth story. So while since you guys made an acquisition and now with the removal of the San Francisco handsets, maybe there is a desire to smooth out the demand profile look a little bit away from Hawaii, and that's a fantastic market.
Can you just provide any comments as to your ability and desire to acquire at this stage than maybe what you'd be looking for it so.
The ability and desire would.
Would be high.
I think the question is sort of at the right price and the right time.
At this point, given where we're trading at these huge discount obviously to two both replacement costs in ATV.
Best capital allocation decision would be selling noncore assets and buying back our stock or reinvesting in our portfolio, having said that we are actively.
Looking.
Youll see us certainly we to their pockets and geographies, where we're less represented.
Clearly Nashville is a market of Florida, adding more in the Miami area would certainly for Lauderdale would certainly be be of interest to us Phoenix is an area in Scottsdale that we certainly would be open to Austin.
Probably not in the near term given what's happening with the convention center and the work that's being done but thats certainly on our list as well so sunbelt remains high.
But I think that area is also moderating it's had.
Quite a run up and obviously with.
That reversion back to the mean I think hopefully that'll that'll give the opportunity for better pricing, but no doubt. We are we're in this to grow the business.
And our deal team continues to underwrite participate in and we have the capacity to do something if something is priced right in the right situation.
Thanks, I appreciate that commentary and then I guess just as a follow up now that leverage is coming down a low five handle from five two times I believe you mentioned.
Is that a level you're comfortable with or do you have your eyes on a specific range or a number you'd like to get that leverage too.
As we've as we said from the spin we were we were always in that three to five times.
Obviously, we had to go over that obviously, given the pandemic and what happened, but getting getting certainly in the four times is certainly a target for us but.
We feel a whole lot better and we certainly think the narrative should change and will change with the recent actions and where we are now in the low five times for net debt to EBITDA and given the the outlook as we see growth in EBITDA next year and beyond as we move forward.
Yes.
Got it okay, well that's it for me thanks very much.
Thank you.
Thank you. Our next question is coming from Chris <unk> with Deutsche Bank. Please proceed with your question.
Hey, guys. Thanks, Greg.
Hey, good morning, congratulations on.
Could something happen this past quarter.
I appreciate the comment.
Wanted to kind of drill down on group rates, a little bit if we could I mean people focus on leisure resort pricing and how that.
I don't think we are.
Sorry to see that it is not.
At the end of the World.
Our groups.
We are on.
Groups being able to willing to absorb a higher price.
Okay.
Before in 'twenty, one 'twenty two.
Q4.
We're optimistic about what group pricing looks like for 'twenty five 'twenty six 'twenty seven just trying to get a broad sense as to how much more momentum that might be there.
Yes, let me.
You were breaking up a little bit Chris, but I think I got the gist of your question about <unk>.
So if you look at it group if you look at 24 as an example, and I'll just give ranges.
Your room nights, probably in that 85% to 90% range of 19.
If you look at rate, it's probably in the 105% to 110% approximately of 19. So rate is strong and we're not seeing any hesitation look in this sort of hybrid world, where things are evolving and the importance of group and our people are willing to spend more whether that's for our meetings or.
Celebrations incentives and getting the need to bring their people together. So we're not we're not seeing hesitation, if anything we see that as a.
Another lines of business, and certainly better flow through and better utilization of our property, so and given the fact that you lose the last time you saw group a large group hotel get constructed not happening very often we also see that as a real benefit for the park portfolio as we move.
Forward.
Okay very helpful. Thank you.
Thank you.
Okay.
Thank you. Our next question is coming from Chris <unk> with Green Street. Please proceed with your question.
Thanks, Hey, Chris.
Tom can you dig into business transient demand and how that's trended in the past Labor day, and then whats your sense of what's happening with the larger corporations have you seen any positive momentum in that regard.
Okay.
This add Kristen as Sean I mean, I would think we have seen better than expected.
Results coming out of out of Labor day I.
I think again some of the key components of business transient being.
Being corporate negotiated.
Ultimately outperformed expectations.
Yes.
Coming in Q3, and I think we will continue to do that as we get into kind of early stages of Q4.
That said I would think we're still kind of looking to see that that corporate negotiated.
Segment sub segment, that's dominated by those bigger business the bigger corporates.
Come back still certainly <unk>.
20% to 30% down relative to 19.
Part of that part of that now is I think understanding if it's just more of a focus now by our operators to just go after some of the smaller businesses that there wasn't really pay attention to these led off with larger groups and now they are finding better balance and so we are trying to read through that to understand okay is this kind of really just permanent.
Permit.
Secular kind of shift of this type of demand or is this more of a strategic move to kind of balance out.
That those segments. So I think in the end we're still.
We're seeing good travel going and ultimately I think we see it through the rest of the quarter as well.
Okay. That's very helpful. And then maybe switching gears just curious what's the appetite to use seller financing to effectuate any incremental asset sales.
Look it's not it's not ideal but in the right situation, we'd certainly be open to it.
There's plenty of debt capital out there.
Be a little.
Obviously the banks are.
Im going to probably have more regulatory pressure on them, but if you look at the private credit market continues to accelerate and grow and we don't expect that's going to change.
Haven't had any problem getting deals done and and our buyers have been able to find.
Certainly that were necessary and most have the ability to be able to.
<unk> if necessary, but it's a fair point, particularly if we were going to try their moves.
Our larger asset, but even the recent deal that got done in Boston you find the right buyer, who has that that capacity. They certainly have the ability to take it down or cash or.
Or put more equity in if necessary.
Okay I appreciate the time thank you.
Thank you Chris.
Thank you. It appears we have no further questions at this time I would like to pass the floor back over to Tom Baltimore for concluding remarks.
Thank you all for taking time today.
I hope that we can.
Change the narrative regarding park, we are excited to have the noise of San Francisco behind US we're excited about the future.
There is a strong growth profile for park as we move forward and look forward to seeing.
Many of you if not all of you added NAREIT.
Thank you ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation and you may disconnect your lines at this time.
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