Greetings, and welcome to Park Hotels & Resorts Inc. First Quarter 2020 Earnings Conference Call. 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 & Resorts' First Quarter 2020 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. In addition, on today's call, we will discuss certain non-GAAP financial information, such as adjusted EBITDA. You will find this information together with reconciliations to the most directly comparable GAAP financial measure in this morning's earnings release as well as in our 8-K filed with the SEC and the supplemental financial information available on our website. This morning, Tom Baltimore, our Chairman and Chief Executive Officer, will discuss the state of Park as a company, including the proactive steps the company has taken to weather the pandemic and the team's deep experience during these difficult times. We will also provide an update on Park's current operations and the various contingency plans in place as well as a brief review of our first quarter 2020 operating results and thoughts on the industry moving forward. Sean Dell'Orto, our Chief Financial Officer, will provide detail on corporate-level measures that have been taken to ensure liquidity and viability for an extended period of time in addition to providing more details on our cash analysis. 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 want to start by saying that I hope all of you that are listening are safe, healthy, and well. It goes without saying that this is an unprecedented time for all of us. Life, as we know it, has been disrupted in an unimaginable way, and we are all adjusting and doing the best we can to navigate this crisis. Since our last call in early March, the impact of COVID-19 on the hotel industry has completely changed the operating landscape with stay-at-home orders issued across the nation, many of which are still in place. First and foremost, our top priority has been ensuring the safety of our employees and guests at our hotels, as well as our corporate employees in the midst of the fluid state ordinances and changing regulations. This has involved constant communication with our operating partners, reviewing local guidelines and restrictions, discussions with local union partners, and the implementation of various proactive measures at our properties. Our hearts are with those at our hotels who are either facing health or financial risk or have temporarily lost their jobs as a result of this pandemic. Second, I want to remind listeners that Park has a very experienced management team. We have navigated several disruptive events throughout our careers, including natural disasters, 9/11, and the Great Recession. Nothing has been more challenging than our current operating environment. However, once the scope of the global pandemic began to unfold domestically, Park was among the first hotel REITs to pivot and respond accordingly by shoring up our balance sheet and aggressively cutting costs across the portfolio, a trademark of a seasoned and experienced team. Sean will provide specifics later about our actions to increase liquidity and minimize our cash burn rate. But I would like to personally thank our banking group for their ongoing support throughout this crisis, evidenced by the unanimous vote we received from the syndicate group approving the credit amendments we announced last week. Overall, I have great confidence in our talented team of men and women as well as our essential operating and lending partners who have worked tirelessly to ensure the company's viability and ultimate success throughout this crisis. This is a moment in time. And while admittedly, it is a very challenging one, it is one that will pass, and we will get through it together. We entered 2020 with three key priorities. First, our primary goal was to realize synergies from the Chesapeake acquisition. Despite some of the broader industry challenges, we had already realized $20 million of the $24 million of expected year one synergies at the onset of 2020, and we're confident in our ability to complete this goal in a normal operating environment. Second, we remain focused on improving the overall quality of the portfolio through noncore asset sales. By February, we completed two more asset sales totaling $208 million, while completely exiting international markets with the sale of our Hilton Sao Paulo Hotel. Over the last two years, we have disposed of over 24 noncore assets for $1.2 billion, resulting in a significant improvement to the overall quality of our portfolio. And finally, we were focused on reducing debt. Following nearly $470 million of noncore asset sales, leverage was on track to return to 4.2x post the Chesapeake acquisition, down nearly half a turn since announcing the deal. Overall, we have made significant progress on key improvements to our company, and we believe our core three hotels, representing 87% of our pro forma EBITDA and 90% of our overall portfolio value, are as strong as any portfolio in the sector. We are confident that we have laid the foundation for long-term success. Next, I'd like to provide a brief update on Park's current operating environment. Currently, 22 of our 60 hotels remain open, yet many of our properties are operating at significantly reduced capacity with consolidated towers and closed floors. In total, only about 15% of our 33,000 total rooms are available to guests. The majority of the hotels that remained open are either airport or suburban properties housing airline crews or special circumstance groups. A small number of our urban hotels are operating with extremely limited capacity to house medical-related demand. We expect to resume operations at some hotels beginning in early June, subject to easing of restrictions and near-term demand. More specifically, we are looking to indicators such as the easing of stay-at-home orders in our drive-to leisure markets as well as the resumption of airline routes as we assess which hotels to reopen. While it is too early to quantify the pace of openings, medical solutions, such as therapies and vaccines, will undoubtedly accelerate the pace of recovery. Turning briefly to our first quarter results. We ended the quarter with a 23% RevPAR decline, fueled by a 64% decline in March. From a segmentation point of view, both group and business transient revenues were equally impacted, down 26% each, while leisure was down 22%. Our contract demand was up 1% for the quarter. This is not a trend that has continued as the vast majority of international flights have been canceled, and domestic air travel has slowed significantly. Our resort markets performed slightly better overall with RevPAR down 16% on average, as travel restrictions generally did not impact leisure travelers as early as they did business travelers or group attendees. Roughly 80% of our first quarter hotel adjusted EBITDA came from properties in resort locations, although this is no longer the case in the second quarter. Our airport and suburban assets also experienced less severe RevPAR declines, and this is a trend that has continued into the second quarter. However, as these hotels comprised only approximately 7% of hotel adjusted EBITDA during the quarter, their contribution is not significant. Looking ahead to the second quarter, we expect to see a continuation of the trends we saw in April for the remainder of the quarter. Our portfolio RevPAR was down well over 90% for the month of April, which mirrors the Smith Travel data we have been seeing for urban and resort hotels at the upper end of the chain scale. While the duration and extent of the impact of the pandemic remains unknown, we expect April and May to be the low point, with RevPAR declines of 90% or more in the second quarter overall to be the most challenged. While it is too soon to forecast what hotel demand will look like once travel resumes, we do have some general themes. We look for signs of improving conditions; we expect leisure travel to be the first segment to generate the highest demand, particularly in our drive-to markets in Florida, like Orlando, Key West, and Miami. We believe the leisure segment will help to gradually fuel confidence in travel, followed by a return to travel by business transient and association and social groups; and finally, corporate group. Overall, leisure-related revenues account for approximately 40% of our total revenues when considering that nearly all travel to our aligned properties has some leisure component, although demand in Hawaii is heavily dependent on the resumption of airlift. At this time, we are not expecting normal airlift to return until the end of June at the earliest, and this, of course, is subject to change as things continue to unfold. In terms of group demand for the balance of the year, group revenues are down approximately 55% with the second quarter being a virtual washout. Although at this point, the fourth quarter is holding up relatively well across several of our key markets. The situation, obviously, remains very fluid. So these numbers will most likely change as the path to recovery unfolds. In general, we are expecting a different operating model overall for our hotels when travel resumes. We have been in constant communication with our partners at Hilton, Marriott, and Hyatt about how the operating profile may change as hotels slowly begin to reopen. Based on these discussions, we do expect the brands to be accommodating and flexible as we reopen hotels and think about the various components that need to be reimagined to accommodate social distancing, such as food and beverage outlets or meetings and banquet programs and the changes that need to be made to emphasize our focus on guest and employee safety and cleanliness. We are also expecting housekeeping to be altered in a way that provides guests with added assurance that the guestroom is clean and sterilized. We could see a move away from daily housekeeping service and an increase in contactless check-in, for example, such as Hilton's Digital Key program. I have long been a vocal proponent of the need for a rebalancing between brands and owners. If there is a silver lining in this current crisis, I would speculate this will be one of them. The brands have not been immune to the value destruction of this pandemic. We have been very encouraged by the dialogue we have had with our brand partners. We welcome a more balanced approach to branded hotels and are glad to be part of the discussions of what this may look like. I look forward to sharing more with you on future calls. And with that, I'd like to turn the call over to Sean.

Thanks, Tom. Over the last several weeks, we have proactively undertaken several key initiatives to improve the company's liquidity and capital position, including fully drawing down on our $1 billion revolver in March. Suspending our quarterly dividend following the payment of our first quarter dividend, slashing our 2020 CapEx budget by roughly 75% to $50 million, reducing our corporate cash G&A by 13%, and working with our operators to aggressively cut hotel expenses by approximately 75% during the month of April when a majority of our hotels were suspended. Taking into account the significantly reduced cost structures of the hotels, short-term carrying costs for benefits for furloughed hotel employees, corporate G&A and debt service, we developed a burn rate estimate of approximately $70 million per month based on an extreme scenario where all of the company's hotels suspend operations. Taking the $1.2 billion of cash currently on the balance sheet against this burn rate estimate, we believe we have approximately 17 months of liquidity under the most extreme scenario. From a capital structure standpoint, I'm very pleased to report that we successfully amended our revolving credit facility and term loans, which were finalized last week. In the amendment, we accomplished three key objectives: first, we secured the extension options for the revolver, pushing its maturity to December 2021. Second, we suspended the testing of financial covenants through Q1 of 2021, with some additional flexibility to accommodate our portfolio's recovery after the suspension period over the subsequent four quarters and into 2022. And third, we built in flexibility to manage the business and access capital markets should we need additional liquidity. I would like to personally thank the members of our bank group for their continued support of the company and their efforts to provide us with this critical amendment as we navigate this extremely challenging environment. That concludes our prepared remarks. We will now open the line for Q&A.

Our first question comes from the line of Smedes Rose with Citi.

Could you discuss any changes to your strategy, particularly regarding the grouping of assets, including the Chesapeake property, as you transition to a different operating model? Additionally, how do you anticipate labor costs will evolve as the business begins to reopen?

I appreciate the question. Our core strategy for Park remains unchanged in the long term. We continue to reshape and improve our portfolio. Our top 30 hotels, which include urban, convention center, and resort locations, perform well compared to our peers and account for about 87% of our EBITDA and approximately 90% of our value. We believe there is long-term value in our core portfolio. Remember that we were spun out to leverage the natural advantages of our conventional hotels, allowing us to efficiently manage our transient operations. While we need to adjust to the current unprecedented circumstances, we see potential in our drive-to markets, which hold about 12,000 to 12,500 of our rooms. As we navigate this recession and recovery, we aim to remain competitive. We anticipate leisure travel will rebound first, followed by corporate transient, with group travel lagging. The pace of recovery will largely depend on advancements in medical solutions such as therapies and vaccines. Regarding labor, we are dedicating significant time to working with our operating partners and the industry to prioritize safety and cleanliness as we reopen. Social distancing will remain an issue, and we may need to change our housekeeping model, potentially eliminating services during stay-overs. Adjustments to room service and food and beverage offerings are also likely. Our focus is ensuring safety and cleanliness while finding ways to right-size our operational model. This presents a unique opportunity for balance as we move forward.

Our next question comes from the line of Anthony Powell with Barclays.

Just on that question on the balance between brands and owners and operating costs. Do you need to make progress on reducing operating cost for your hotels before some of them open? For example, in markets like New York where you're closed, do you need to have that kind of in place or kind of there will be an interim kind of step there?

Yes. Well, Anthony, you hit on obviously the most difficult, given the pandemic; the epicenter of it in the U.S. has been New York. Clearly, that's the most challenging operating environment. As we all know, it has underperformed this last cycle pretty dramatically. We clearly expect that the New York Hilton, probably would not be opening until late second quarter or third quarter. Clearly, rightsizing and finding the right operating model will be a critical component of that certainly before we reopen that asset. Many of the other assets, we have work plans already in place. We can reopen it in a matter of days. But you've got to make sure that, one, the stay-at-home orders have been lifted, any other local requirements have also been relaxed, and the corporate travel policies have sort of reopened visibility into current demand, what's on the books, what's in the pipeline, cancellation risk. All of that will go into the processes we reopen. We try to be very transparent in the added disclosures so that both investors and analysts understood exactly where we are today, but also understand that we have very detailed reopening plans that we're also in a position to reopen in a matter of days assuming the demand justifies. And when we reopen, that will be a slow ramp up. We don't expect that we'll be reopened to full capacity. So you've got to rightsize the business model to make sure that it makes economic sense. New York, of course, will be the most complicated just given the devastation that's occurred and the imbalance. There's been too much supply in New York; it is underperformed, there's no rate growth, there's no rate integrity. We have to make sure that the model makes sense in New York before we reopen the hotel there.

Got it. And on Hawaii, there's been some headlines about restrictions and other kind of, I would say, negative sentiment towards travel there. What's your sense of the governor and other authority positions on getting travel restarted to Hawaii, is that high on the priority list? And could there be a delay there if they take kind of an anti-travel approach?

Hawaii is a complex situation. It relies heavily on airlift capacity. There's currently a 14-day quarantine for visitors, which was put in place in late March. This may be lifted by the end of May, with possible reopening around mid-June. Some airlines are planning to resume operations by early to mid-June, which is crucial. Hawaii serves as a good example of the current state of our country. There have been about 630 COVID-19 cases and only 17 deaths in the islands. While any loss of life is tragic, 17 is relatively low compared to other areas. Unemployment is increasing, reaching 40% to 50%, and the state deficit has reached $1.5 billion and is growing. We need to strike a better balance. I believe the governor, along with support from business leaders, will facilitate the reopening. Historically, Hawaii attracts 8.5 to 9 million visitors, with over 60% from the U.S. and about 17%, or 1.5 million, from Japan. This pattern has remained stable for nearly 30 years. There is substantial pent-up demand. We are optimistic as we approach the third and fourth quarters, believing Hawaii may exceed expectations. Of course, effective leadership is essential for the reopening process. I want to emphasize that this situation illustrates the need to balance health concerns with economic pressures, which could help accelerate the reopening.

Our next question comes from the line of Rich Hightower with Evercore ISI.

So back to the question earlier related to the relationship between owners and brands. So everybody is operating in an environment right now sort of in extremis, and you make decisions in that light that might change as the world reopens. So Tom, how do you view some of those extreme cost-cutting measures that are allowed by the brands at this particular moment? How do you view that evolving over time as the world reopens and amenity creep or whatever you want to call it, what's going to be the balance 12 months from now, 24 months from now versus what we see today and what you envision, if you could expand on that?

Yes. Rich, thanks. I think it's a great question. And I think it's not going to surprise you and the other listeners that the business has been out of balance. I would respectfully submit that certainly the brands based on their need and all the actions to raise additional liquidity. Their business models don't work if they don't have a healthy owner community. I also think that they also got a bit of a wake-up call when your business model doesn't work, when your owners have no revenue, therefore, no fees. There is a natural reset and a reboot, if you will, that's really forced them and owners to come together and talk about ways that, one, we can address the immediate concerns, which are safety and cleanliness that have to be addressed as quickly as possible. There’s probably an incremental cost to raise that level of cleanliness. So therefore, how do we take out incremental costs? I think housekeeping is a natural area where you've got really a consensus building throughout the industry that perhaps no additional, you get a clean room, it's certified or whatever various the brands are going to use thereafter that. There could be no one else entering your room for the duration of that stay unless you opt in or some other benefit as part of that. If you think about food and beverage, the same issue. Room service typically is not profitable and a very high cost center. We at the New York Hilton, given our urban kitchen, certainly one of the first to eliminate room service and do more of a delivery and using biodegradable and other environmentally friendly measures there. I think that’s a model that I think you could see getting expanded throughout. Think of buffets probably going away. Food and beverage as we think about social distancing, hopefully, that's temporary in the interim and not permanent. But how do we then serve and implement that in that kind of framework given what we're likely to see over the next few months? I think it starts with, first and foremost, Rich, because the industry has been so decimated and because everybody is feeling that heat, everyone recognizes we have to come together to try to rightsize the model. I hear some of my peers talk about going on offense. In my view, what's most important in this industry right now is making sure that we can rightsize the operating model so that it's sustainable and economic and makes economic sense for all the stakeholders, while addressing those primary concerns that the traveling public has. We need to provide an environment where they're going to feel the trust and the safety, and then they will begin to come back to us. We all believe in this great country. We know they're going to come back. We’ll get through this. Obviously, vaccines and medical solutions will accelerate that. There’s no doubt that, in order to get through this, we’ve got to really begin to address a number of these issues. I expect that year out cost per occupied room to clean the hotel would be less. I expect the brand amenities will be pulled back a little bit. You would expect other costs in the business to be more flexible, with more access to digital key and bypassing the front desk all of those things make sense. They address customer concerns. But they also begin to get costs out of the business. So that's a real focus on where I think a lot of the energy needs to be. There are a lot of task forces that are being formed and a lot of dialogues occurring. Owner groups have come together, the brands have come together. There's an open dialogue occurring on multiple levels in the business that I find encouraging. We have to deliver. But I think given the stark reality of where we find ourselves right now, we have to address these issues.

Okay. That's very helpful, Tom. Shifting gears for a moment, let's consider the current hotel transactions market. How do you view the impact on unlevered asset values comparing mid-February to today? Any insights on that?

Yes, it's a great question. Rich, you know that we've had a lot of success in selling our noncore. It was a real priority since we were spun out. Really proud that we sold 24 assets and clearly the 14 international and reminding listeners those were deals in South Africa, two in Germany, seven in the U.K., Brazil, a joint venture in Dublin. Every one of those deals had tax, legal, tons of heir on them. But we were able to successfully get through that and it allowed us to continue to reshape this portfolio. Continuing to sell noncore is still a priority for Park. We have been engaged with all of the natural buyers, sovereigns, private equity, family offices; all of the types of buyers, private equity, all of those that can move quickly and also they don’t need debt and they can close all-cash. I would say that to be brutally honest, the COVID-19 discount gap is too wide right now. I think you see sellers who would probably like to sell with a 10%, perhaps even 15% discount depending on their individual needs. But I think buyers are looking for somewhere north of 30%, even 40%. So I think there's plenty of liquidity trying to get in the sector, recognizing that now is a good window to begin to build up a portfolio. But I think the gap is too wide to really expedite any sort of transaction, as you've seen the number of deals that have blown up here in the last few weeks. I think in the next couple of months, as we begin to get more operating clarity, you will begin to see that market reopen. A priority for Park will be to continue to explore noncore asset sales. We have significant liquidity. We’ve got runway room. We don't feel the need and desire to sell at huge discounts and to sell it at values that don’t make sense for our shareholders. So we will be thoughtful and wait for more clarity before we really think a lot of those deals will start to move forward.

Our next question comes from the line of David Katz with Jefferies.

Tom, obviously, the commentary around balancing between owners and brands is now topical and engaging. I wanted to just follow on that from the perspective that the third-party management industry is sort of moving in a direction, and we have seen instances with other owners where assets have switched from brand management to third party. Just broadly speaking, how do you think about the dynamics in that market and sort of driving competition, if you will? And where that's really all headed one day?

It's a great question, David. I want to highlight a few points. The Chesapeake deal has provided us with significant advantages, including brand and operator diversification as well as geographic diversification. We now work with eight operators. Gaining insights and best practices from both brand operators and independent third-party operators has always been important to me, and the team at Park shares that view. Competition is beneficial. In our portfolio, there are instances where it makes sense to have brand management for large convention centers or major resort hotels due to national sales and complex purchasing dynamics. Conversely, there are other hotels that operate more flexibly, like those under autograph or lifestyle brands, which do not cater to large groups. An independent operator could be just right for those business opportunities. We continuously evaluate this, and it's one of the advantages of having a diverse portfolio. I believe that the big brands should focus on certain areas, such as convention and luxury hotels, which align with their strengths, while more agile opportunities exist elsewhere. This trend is likely to accelerate moving forward.

Our next question comes from the line of Patrick Scholes with SunTrust.

There's some industry chatter out there that we could see many hotel rooms in major markets, especially New York, convert to affordable housing for homeless housing as the highest and best use. What are your thoughts on that?

I think it's a fair question. I would think markets like New York would probably be the most likely. As we all know, New York has badly underperformed and it has underperformed because there's too much supply. If you think back nine years ago, 2011, New York had 141 what we call super compression days, where market demand was over 95%. I think we ended 2019 with about 30, and we were forecasting 2020 in sort of low single digits. The amount of supply, and the brands are largely responsible, has decimated that market. Given the core nature of what's happening operationally, the fact that it probably remains closed, it would not surprise us at Park if you had many hotels that never reopen and perhaps converting those to other uses would make a lot of sense, particularly given the incredible need right now, and that those could make more economic sense. You would need, in many cases, the brands to cooperate and work, and I would encourage them to do so to help reduce the supply, the pain, and suffering that's occurring to owners in that market.

I guess, taking the follow-up step on that, would that possibly happen to one of your hotels in New York?

We own the New York Hilton, obviously the second largest hotel in the market and one of the big convention center hotels. We think we have a natural role there and that over the intermediate and long term, it can regain its place and be a significant contributor and be a strong platform. In this environment right now, as I've said earlier, given the devastation that's occurred and being at the epicenter of COVID-19 here in the U.S., we would expect that that would be among the last in our portfolio to reopen. But again, we will continue to manage the health, what we hear, both from the governor, from the city, from health providers, and get a sense for demand patterns as the reopening process begins in New York.

Our next question comes from the line of Bill Crow with Raymond James.

I'm going to focus on New York for a moment. We are hearing from some office brokers that tenants are considering a return to the office after Labor Day, and there are indications that Broadway may not reopen until January or possibly during the Christmas season in December. If these reports are accurate, how does that influence your plans to restart operations in New York, specifically at the Hilton, which you mentioned might be toward the end of June?

Yes, that's a great question, Bill. Let me clarify. I thought I mentioned that we are likely to open in New York around the third quarter, considering the current situation. The information you provided is very important. We need to pay attention to what the governor and the mayor are saying about their stay-at-home orders and how that develops, along with travel patterns, bookings, and local events like the later reopening of Broadway. Companies might continue to allow remote work, which is understandable given the significant challenges faced in the area. I anticipate that the New York Hilton will be one of the last properties in our portfolio to reopen. We have been working for many years to adjust and optimize that business. One of our challenges has been limited food and beverage options. We have the urban kitchen and room service. Several initiatives are in progress at that hotel, but the operating environment remains very difficult and damaging. If the city stays closed—and if we extend your timeline to the third or fourth quarter—it emphasizes that many operators with significant debt levels might not reopen. Park benefits from a large, diversified portfolio and substantial liquidity. We will navigate through this and emerge on the other side, which provides us with more options. As for finding new sources of demand, everything is possible depending on universities' decisions. They are contacting hotels about accommodating students based on their reopening plans. There are pockets of demand, but the group segment will lag, as we've discussed. New York is likely to be the most challenging market in the coming months for various reasons.

Our next question comes from the line of Neil Malkin with Capital One Securities.

Just first question, I wanted to focus on the group side, obviously a pretty sizable part of your business. Can you give us a sense of what first half 2020 cancellations have rebooked either for the back half of this year or early next year? And then secondly, are there any indicators or things that you look for that would allow you to ascertain the likelihood that the second half of this year, group reservations will actually wind up coming and not just canceling later?

Neil, it's Sean. I hope you're doing well here. Just kind of to your first question about activity and rebooking. We had at a certain point in time, about $130 million of room revenue from group that was, again, primarily in March through June, that canceled. I would say about 40% of that is in various stages of booking, have booked or are in discussions going on right now. I would say the majority of that is beyond 2020. There might be some that have rebooked into Q4. But I'd say the majority is beyond this year. There's probably about 50% of that that has kind of been in a waiting stage, and certainly could be booked in the future. The majority of this work is obviously going through Hilton sales in marketing and in process. But we're certainly hopeful that they will continue to place that back into our hotels in other stages. In terms of how we think about the back half of the year, the numbers on the books haven't changed dramatically. I think it's probably consistent with others that have talked about this, where people are having options here, and they can kind of wait to see how things materialize. We don't place quite honestly a lot of faith in the back half, certainly Q3 bookings that are there for group. Clearly, as Tom mentioned, solutions around vaccines and medicines, treatments play a role to this. How the brands come together and put the cleanliness programs in place, I think really gives us an advantage to retain those groups or attract others for future business. But as we look at this and see how over the last several weeks and even months, we've seen kind of a window here where, say, six to eight weeks out, you start seeing degradation as a group business. I think that holds for a while. So I don't think we have a lot of faith in what's on the books right now in the back half of the year.

Okay. My next question is about a broader or longer-term perspective. When you consider the differences between the coastal markets and the Sunbelt, and take into account the governors in those regions and their readiness to revive the economy amidst various challenges, does that influence your thoughts on the portfolio? Specifically, how do your allocation priorities for the next five years look in terms of possibly favoring Sunbelt markets over the more challenging unionized coastal areas?

Yes. It's a great question. I think the reality is that if you think historically about this business, no different for Park than and our peers, we really want to follow the demand. We are well positioned overall. When you think through the fact that we are in center city, iconic assets impossible to replicate, we’re probably trading today at 185,000 keys plus or minus, and to rebuild our portfolio, replacement cost is somewhere probably north of $700,000 from Hawaii or San Francisco, L.A., Chicago, DC, Boston, etc. So it's hard to imagine that we're in a world where you still don't have significant job growth, and therefore, the sources of revenue. Having said that, there's no doubt that there are very investor-friendly markets. Nashville is one, Austin is another, although the secret of Austin is certainly out. You can see other parts of Texas over time; some might say San Antonio, Houston always tends to sort of ebb and flow depending on what's happening with oil. We’re now seeing the pain there, and that probably continues. Florida continues to explode as you look at the population growth there. I would say you see a balancing, but at the end of the day, it really is about where is the demand, where the barriers to entry, and where can you generate the appropriate risk-adjusted returns.

Our next question comes from the line of Brandt Montour with JPMorgan.

I understand I might be getting into the details here, but regarding the monthly cash burn estimate you provided, considering that some of the larger brands mentioned that nationwide trends in the U.S. may have leveled off, could you provide an estimate for cash burn in April? Or what your current outlook is if today's trends persist?

Yes, when we first assessed the situation, we conservatively estimated about $90 million in March. However, based on April's results, we've reported a figure closer to $70 million. To clarify, the initial $90 million estimate included capital expenditures, whereas the $70 million does not. The difference is about $15 million, with $10 million stemming from hotel operations. We evaluated our preliminary estimates in detail, considering scenarios such as low ask levels against shutting down operations. For instance, we analyzed our Caribe Hilton property, which was shut down after Hurricane Maria, and assessed the holding costs for that asset. Our goal was to arrive at a reasonable estimate while remaining conservative. April will serve as a valuable indicator since we anticipate having 38 suspended assets, and those still operating aren't generating significant revenue but remain marginally profitable. We now estimate a burn rate of $70 million a month, with $50 million related to hotels and around $10 to $20 million for corporate and debt service fixed costs. We believe there’s potential for improvement as we move forward, with May presenting the next opportunity for evaluation.

Our next question comes from the line of Chris Woronka with Deutsche Bank.

I was hoping to get your view on how directionally you think the recovery ultimately unfolds on the rate side because I think what's different in this downturn versus prior ones, maybe not totally different, but you have a significant downturn right in group and corporate that might continue for some time, but you might have pretty solid leisure demand, which a lot of times leans into the third-party channels, yet the brands have done a ton of work to build loyalty and get reservations directly. So how do you see that all playing out on the rate front? Do you think there can be any rate integrity as we start to see demand recover?

Chris, it's a great question, and I certainly hope so. To the point you made, if you think back, in fact, this is the week that I rejoined Hilton four years ago to partner with Sean and the team and spin out Park. If you think then, Hilton had 53 million members in their loyalty program. I think now they're at 106 million plus or minus, and they're getting north of 60% of their occupancy from members. I think Marriott is somewhere in the 140 million range. When you think about the strength of the brands, and the access that they add to those customers to induce demand, to have direct conversation, and to be able to stimulate, you hope that and their desire, the same as our desire to make sure that we are getting the appropriate and the highest possible rate that we can. I do think that there's an opportunity there. However, if you look historically in this business, sometimes we have the race to the bottom with people, heads and beds, and trying to fill at any price. I think given the devastation and the fact that people are working together and understand how critical revenue is, that hopefully we'll have more rate integrity. I would also say when you think about the recovery, a lot of it's going to depend on the medical side. As we know right now, it really is about safety and cleanliness and trust. Brands and well-run brands are about trust and a promise. I think they understand the need to address those immediate issues, but I have to believe, as Warren Buffett said, 'Don't bet against America, we will get through this.' The fact that we have this global race underway to find the medical solutions really are the game changer. Once we have those in place, it erases a lot of the fear. We have so much fear today. I think people want to get out. They want to get out of the bunker. You're seeing it all over the country. You're seeing the reopening process. It's going to be uneven. It's going to be choppy. But I do think that we could get back to '19 levels. It wouldn't surprise me if we were back in '22. I know some push it out to '23, '24, '25. We’re not believers in that. We think that it will ramp up sooner.

Great. I appreciate that, Tom. And just a quick follow-up. What percentage of your hotels in Florida are kind of drive-to demand?

I don't have the exact figure for Florida right now, but I estimate it's around 12,000 to 12,500 rooms, which is approximately 40% of our total rooms located in leisure markets. This includes Key West, Miami, Orlando, Santa Barbara, California, Los Angeles, and San Diego. You could also consider Chicago a great destination, especially during the season when people tend to drive and gas prices are low. I believe that as people adapt to current circumstances, they may extend their usual driving times of 6 to 8 hours until medical solutions are available and they feel more at ease. I anticipate that many will be open to longer drives. There's definitely strong demand for vacations and for people to get away with their families.

Our next question comes from the line of Robin Farley with UBS.

Great. This maybe is a little too early to ask, but do you see with all the changes going on in the world that maybe there's an opportunity for consolidation among modern REITs?

As you know, Robin, I've certainly been among the most vocal advocates for that for north of a decade, and we, at Park, are laser-focused on the priorities we've outlined: cash preservation, our burn rate, showing up the balance sheet, working with the brands and our operating partners to make sure that we can rightsize the business as we reopen. It would not surprise me, but you will not see Park in that dialogue right here in the near term. It wouldn't surprise me coming out of this depending on the individual situations of keys on companies, whether they chose to find a partner.

But you're saying Park not interested in those discussions on either end? Is that correct?

Park is not interested in that at this time. We are laser-focused on all the initiatives we've outlined; laser-focused on getting through the recession so that we are well-positioned when the recovery begins.

And then maybe just one follow-up. You talked about the transaction market for assets, and you talked about kind of waiting to sell some noncore things because you're not in a hurry, you don't need to sell at a big discount. Do you have any thoughts on like, are there opportunities for assets that you might want to buy that are cheaper now and maybe on your radar screen?

Yes. But again, we're more focused on the balance sheet and cash preservation and rightsizing the operating model. I think there will be plenty of time as the process unfolds for single assets, small portfolios that may be available, but not a focus for Park at this time to be a buyer.

Our next question comes from the line of Lukas Hartwich with Green Street Advisors.

I'm just curious, Tom, do you have any thoughts on the potential for a lasting impact on hotel demand as a result of this pandemic?

As I said earlier, Lukas, I mean obviously, we are all living through unprecedented circumstances that none of us planned for. You see the devastation that's occurring and the ultimate shutdown that we're all living through, which has never happened before. I believe in our great country; I believe in our American Spirit. I do believe we'll get through this. Clearly, there are going to be industries that are going to be disrupted, possibly impaired. I do think as we think about lodging and the role that we play, lodging survives. I don't know about listeners, but I can speak from my own experience being on so many Zoom calls and WebEx. I can't wait until the days that we have board meetings and industry meetings in person. I can't wait to be able to resume the normal life of vacations and business travel that we all appreciate, and everywhere, all the people I'm talking to feel the same way. Clearly, in the interim, life is going to change and it's going to get adjusted as we work through making sure that people are safe, the cleanliness issues are addressed, social distancing is adhered to. When we get on the other side of this, people are excited about beginning to resume their lives. No doubt, there will be secular industries where I think there will be some permanent change. I do think there are certain markets in lodging, where there's too much supply. New York, we've talked about extensively in this call, where there are hotels in New York and other markets that probably will not reopen, and perhaps alternative uses will be the best outcome for them.

Great. And then just maybe thinking out a couple of years when the transaction markets function again. I'm just curious, do you think there will be an increased risk premium applied to hotel real estate? Do you think cap rates will be permanently wider relative to other asset classes as a result of this? I mean this is the third downturn in a row now where it's just been a severe impact to hotel fundamentals. And perhaps the private market pricing has historically not reflected the risk of hotel real estate. So I'm curious, do you think there'll be a lasting impact on cap rates and valuation?

I do not, Lukas. I would also say, as you know, rates have been coming down for a long time and are likely to remain low indefinitely. For pensioners who need yield, real estate, and in particular hotels, offers a great alternative. I don't believe that demand will decline. It has certainly been a difficult environment over the last 20 years. However, there is still significant value to be created in both public and private markets, and we have seen a steady stream of inquiries and discussions. There is plenty of liquidity looking for hotel real estate.

That is all the time we have for questions. I'd like to hand it back to Tom Baltimore for closing remarks.

Thank you very much. It was great to talk to all of you today. Stay safe, be well. We look forward to our next earnings call, and hopefully, we can meet in person at some point over the next few months.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.