Ladies and gentlemen, greetings and welcome to the Park Hotels & Resorts Inc. Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ian Weissman, Senior VP, Corporate Strategy. Please go ahead, sir.

Thank you, operator, and welcome everyone to the Park Hotels & Resorts third quarter 2022 earnings call. Before we begin, I would like to remind everyone that many of the comments made today are considered forward-looking statements under federal 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 in forward-looking statements. Note also that all comparisons to prior year periods are on a pro forma basis. Please refer to the documents filed by Park with the SEC, specifically the most recent reports on 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 FFO and adjusted EBITDA. You can find this information together with reconciliations to the most directly comparable GAAP financial measure in yesterday's earnings release, as well as in our 8-K filed with the SEC and the supplemental information available on our website at pkhotelsandresorts.com. This morning, Tom Baltimore, our Chairman and Chief Executive Officer will provide a review of Park's third quarter performance, an outline of Park's strategic priorities, and an outlook for the balance of this year. Sean Dell'Orto, our Chief Financial Officer will provide additional color on third quarter results, an update on our balance sheet and liquidity, and guidance for the fourth quarter. Following our prepared remarks, we will open the call for questions. With that, I would like to turn the call over to Tom.

Thank you, Ian, and welcome, everyone. I am pleased to report another strong quarter, where we delivered solid performance across our portfolio as we saw strength across all demand segments. Lodging fundamentals continued their positive momentum into the third quarter supported by a strong labor market and healthy consumer and corporate balance sheets, which translated into steady growth in business transient demand and stronger than expected group demand in the quarter, especially post Labor Day. We witnessed some broad-based return to office trends and despite headline risk over increasing macro uncertainty, we currently do not see weakness in our business with continued improvements to group, business transient, and international demand for the fourth quarter and beyond. Also for the quarter, we remain laser-focused on our capital recycling priorities, and I'm pleased to report that we closed on three non-core asset sales since July for total proceeds of approximately $58 million, taking our year-to-date net proceeds to approximately $317 million from the sales of our interest in seven hotels. Despite recent choppiness in the debt markets, interest in hotel real estate remains high, and we expect to execute on additional non-core asset sales, including potential deals in excess of $100 million, which would bring our total net amount of closed and pending dispositions for the year to over $500 million, well within our expanded target discussed last quarter. Once closed, our liquidity position would exceed $2 billion, which we believe will give us the optionality to pivot between defense and offense during these uncertain economic times. From an operations standpoint, we continue to benefit from the efficiency measures we implemented over the last two years, with total labor costs pacing below 2019 levels despite increases to both wage rates and benefits, translating into an expected 15% reduction in labor costs for the full year 2022 versus 2019. As we have noted before, we are confident that the $85 million of expense savings, nearly 300 basis points of margin improvement achieved over the last three years are permanent, leading to meaningful gains as the portfolio returns to prior peak levels. We also continue to focus on unlocking the embedded value of our portfolio through our value-enhancing ROI pipeline. At Bonnet Creek, our $110 million meeting space expansion includes two new stand-alone ballrooms. The ballroom at the Waldorf Astoria is scheduled to open next month, and initial feedback from meeting planners has been enthusiastic. And at the Signia Hilton, we are adding 90,000 square feet of multifunctional meeting space, which is expected to be ready for use by early 2024. In addition to the ballroom expansion, we plan to invest an incremental $80 million on a comprehensive renovation of the complex, which includes all 1,500 guest rooms, all public space, and updates to our signature golf course, with all work expected to be completed by early 2024. Overall, this considerable investment is expected to help solidify the complex's position as one of the best in Orlando. In addition, we have initiated plans for a full-scale renovation of the Casa Marina resort in Key West, a $70 million project, which will include a transformation of the public spaces, guest rooms, and the addition of a new oceanfront restaurant. We expect to start construction in May of next year, with a targeted completion date of early December 2023, in time for the peak holiday travel season. We are incredibly excited about the transformative ROI project for this iconic resort. Turning to our quarterly results, third quarter pro forma RevPAR increased 62% year-over-year, having recovered to nearly 91% of 2019 levels. Performance continues to be led by strong leisure trends, with RevPAR at our resort hotels finishing 14% above 2019 during the third quarter as rates exceeded 2019 levels by 23%. Occupancy was within 93% of 2019 levels. Our two Hawaii hotels recorded an average RevPAR increase of 13% over the third quarter of 2019, with the Hilton Hawaiian Village reaching average occupancies in the mid-90s, in July and August, and an all-time monthly high of $354 ADR for July and on pace to achieve a near-record EBITDA. This outstanding performance has occurred despite the lack of inbound international travelers, which has historically represented nearly 30% of the hotel's demand, with 60% of this international demand historically coming from Japan. As we look ahead to 2023, the recent easing of travel restrictions in Japan is expected to finally drive the return of Japanese guests to our Hawaii and West Coast hotels, providing a welcome tailwind for the portfolio. At our urban hotels, we continue to witness material improvements in demand, with occupancy increasing nearly 400 basis points sequentially over the second quarter to end the quarter at 68%. Our urban portfolio witnessed particularly strong performance post Labor Day, driven by return-to-office trends in major markets, which translated into average occupancy of approximately 71% in September. Corporate negotiated revenue continued to improve across the portfolio for the quarter, increasing to 72% of 2019 levels compared to 64% last quarter, driven almost exclusively by occupancy gains. We have been especially impressed with the robust recovery taking place in New York, with occupancy exceeding 74% during the quarter, up 500 basis points from the second quarter, while September RevPAR finished nearly 2% ahead of 2019 levels as occupancies surged to over 88%, and rate was over 10% above 2019 for the same time period. We expect the positive momentum to continue into the fourth quarter, driven in large part by a healthy pickup in group business, while Q4 transient pace on the books is now 95% of 2019 levels on a pro forma basis, up from 83% reported two months ago. In San Francisco, the recovery continues to take shape, with an improving outlook. Third quarter occupancy improved nearly 1,400 basis points sequentially to approximately 65%, driven in part to the nearly 40,000 Dreamforce attendees during the month of September, with the event viewed as a major success for the city and signaled the first major citywide event since the start of the pandemic. That said, rate continues to be challenged, trending 14% below 2019 due in part to the mix shift, which resulted in a third quarter RevPAR decline of 41% to 2019. Excluding our four assets in San Francisco, third quarter RevPAR for our consolidated portfolio would have been just 2% shy of 2019 levels, accounting for a 700 basis point drag on overall performance. Looking beyond the third quarter, the outlook for San Francisco continues to improve with fourth quarter occupancy forecasted to reach the upper 60s, while RevPAR against 2019 is expected to narrow to 29% of our 2019 levels by December, a vast improvement from the 90% RevPAR decline to 2019 recorded in January of this year. Looking to 2023, the outlook for San Francisco is encouraging, the city set to benefit from a much stronger convention calendar of close to 640,000 group room nights forecasted for next year, or a 63% increase over 2022. Looking more closely at the group segment, we continue to witness positive group trends across the portfolio, illustrated by incremental bookings and lead volume improvement with stronger conversion rates across the portfolio. This was especially evident post Labor Day, with September group pickup for 2023 coming in 106% ahead of the same period in 2019, with group ADR projected to be 40% higher. Generally speaking, group demand is coming more heavily from higher-rated corporate groups, with leads in this segment accounting for almost two-thirds of new demand, double the historic volume mix in 2019. Group pickup trends for future periods also continued to improve during the third quarter, with definite bookings for the fourth quarter increasing by $21 million, with more than half of the new bookings coming in September alone. Q4 2022 group pace currently sits at 77% of 2019, a pickup of 800 basis points since June, with definite bookings increasing by over 90,000 room nights since the second quarter. For the year, definite bookings increased sequentially by nearly 10% to over $1.7 million, over three times the amount for the same time last year. Looking ahead to 2023, citywide calendars continue to improve in most markets with Honolulu, Chicago, San Diego, Boston, San Francisco, Seattle, and Denver, all showing growth ahead of 2022 levels. As a result, we have witnessed a meaningful pickup in forward group bookings for 2023, with hotels adding over $51 million of group revenue into next year during the quarter. Currently, group pace for 2023 has increased to 75% of 2019 levels, or 300 basis points higher than what we reported during the second quarter. Looking over to the balance of this year, we remain very optimistic that the recovery remains on track. We continue to witness improving operating trends across our portfolio and believe our portfolio will continue to benefit from the broader demand trends that favor outsized growth in business transient and group demand. We expect to benefit from our reimagined operating model, ROI pipeline, and capital recycling efforts, all of which should help to support strong earnings growth over the next few years. And now, I'd like to turn the call over to Sean who will provide some additional color on operations along with an update on our balance sheet and guidance for the fourth quarter.

Thank you, Tom. We are pleased with our third quarter results, which met our expectations. Leisure has been a strong performer, and we see continued improvements in our urban markets, a trend we anticipate will carry on into the fourth quarter and accelerate into 2023. Our pro forma RevPAR for the third quarter was $171, which is 8.8% below the levels from 2019, but we saw strong improvements in demand. Pro forma occupancy increased sequentially by 80 basis points to 71.7%, and pro forma rates improved to $239 for the quarter, or 7% higher than the same period in 2019. Looking to the fourth quarter, early results in October appear strong, with occupancy averaging around 74%, reflecting a nearly 200 basis point improvement from September. We expect the average daily rate for the month to be about $243, which is 4% above 2019. Overall, preliminary RevPAR for October is $179, which is less than 10% below the 2019 levels. However, excluding San Francisco, October RevPAR is 0.4% above 2019. Total pro forma hotel revenues for the portfolio in the third quarter reached $642 million, with pro forma hotel adjusted EBITDA of $166 million and a margin of nearly 26%. Margins faced pressure from weakened demand in San Francisco, where our hotels have higher fixed costs, resulting in a 200 basis point impact on the portfolio. Damage and disruption from Hurricanes Fiona and Ian were minimal, affecting Q3 RevPAR by 20 basis points and adjusted EBITDA by under $2 million. Our hurricane preparedness team successfully safeguarded our guests, employees, and assets, enabling us to resume operations swiftly after the storms. Regarding our balance sheet, we have enhanced our liquidity and financial flexibility. As Tom noted, our liquidity at the end of the quarter was about $1.9 billion, including over $900 million available on our revolver and $1 billion in cash, with total liquidity expected to exceed $2 billion after our pending asset sales. Our net debt is at $3.9 billion, which is nearly $300 million lower since the start of the year. We are working with our banking partners to extend our revolver, which we plan to finalize in the coming weeks, while also exploring options for our $725 million CMBS loan maturing next year. We have two smaller mortgage loans coming due next year, totaling over $100 million, which we plan to pay off with available cash as we aim for a more unsecured capital structure. For Q4 guidance, we are setting RevPAR expectations of approximately $163 to $166, or about 92% of 2019 levels at the midpoint. While we see improvement trends across several key urban markets, especially in New York, Boston, and New Orleans, we anticipate San Francisco will drag down Q4 RevPAR performance versus 2019 by about 850 basis points, partly due to the timing difference of the Dreamforce citywide event between this year and 2019. For the bottom line, we are projecting adjusted EBITDA between $140 million and $155 million, translating to AFFO per share of $0.35 to $0.43 for the quarter. Hotel adjusted EBITDA margins are expected to range from 24% to 25%, which is about 470 basis points lower than 2019 at the midpoint. It’s important to note that Q4 2019 margins included $21 million in business interruption insurance proceeds from Hurricanes Irma and Maria. Excluding those proceeds, the margin difference between Q4 2022 and Q4 2019 would be 270 basis points. Our guidance also reflects recently completed asset sales, which added about $1 million to our quarterly earnings and approximately $1 million in business interruption related to Hurricane Ian for the fourth quarter. Lastly, for our fourth quarter dividend, while it needs Board approval, we currently anticipate it to be between $0.21 and $0.26 per share. Around $0.07 to $0.12 per share is expected to come from operational distributions, with the remaining $0.14 per share linked to gains from asset sales this year. This concludes our prepared remarks. We will now take questions. Operator, can we have the first question please?

Our first question is from Smedes Rose from Citi. Please go ahead.

Hi, thanks. I just…

Hi, Smedes.

Good morning. You mentioned that the forward group bookings for '23 are running at about 75% of 2019 levels, a little bit of a sequential improvement. I was just wondering is that rooms on the books or is that a revenue number? And then could you just talk a little bit more about what you're hearing from corporate clients and kind of maybe a little bit about the booking window?

Great question, Smedes. I hope you're well. As we mentioned during the prepared remarks, group pace is up for '23 at about 75.4%. It's about a 300 basis points increase; that represents revenue. And if you think back to some of the markets, obviously San Francisco, Florida across our portfolio, New York, New Orleans, Chicago, Hawaii all continue to show really strong performance. So it's very encouraging from that standpoint. In terms of corporate negotiated rates, I mean obviously those are ongoing and occurring now. I know some of our peers have used numbers in the 7% to 9% range, and we certainly would find that to be reasonable. But again, those discussions are ongoing now as we prepare obviously for the budgeting season. But we're very encouraged by what we're seeing on the group side. And again, sequentially that's an improvement. And fully expect that that's going to continue to accelerate as we move out into later this quarter and certainly into 2023.

Okay. Thanks. And then Sean maybe could you just talk a little bit more about how you're thinking about the refinancing of the debt on the San Francisco assets? You mentioned it comes due next year. And maybe sort of help us think about the cost versus the 4% or so that's in place now?

Sure. Yes. We're certainly looking at a few different markets, Smedes, and some other options as well in terms of working with the current situation. So, I would say that as we look at the markets, whether it's bank financing or call it CMBS, anything that's kind of in that high single-digit debt yields, you're probably looking at kind of $350 million to $400 million over SOFR. So that's kind of in the ballpark of kind of the cost. And again, we're looking at more so probably a mortgage type of situation with unencumbered assets, like the Bonnet Creek complex, as a solution. Clearly, we'll continue to monitor the bond market as well. Obviously not pricing what we would be looking to do now. But if things kind of calm down and normalize a little bit maybe you can see that as an opportunity, but I think more focused on kind of a mortgage route going forward with the pricing I just discussed.

Okay. Thanks for that color.

Thank you. Our next question comes from the line of Dany Asad from Bank of America. Please go ahead.

Hey. Good morning, everybody.

Good morning, Dany.

Good morning, Tom. I have a couple questions. My first one is on RevPAR. You provided guidance for a decrease of 8% in Q4 RevPAR compared to 2019. Given that we already know October's performance, can you help us understand how you anticipate November and December to progress sequentially?

We've discussed a decline of 7% to 9%, Dany. We expect October to be down closer to 10%. As mentioned in our script, Francisco is a significant factor in this, and without it, we would see a slight increase. Looking ahead to November and December, we anticipate a sequential improvement down to the mid-single digits as we progress through the quarter.

Got it. My other question is about margins. If we account for the BI proceeds in 2019, it appears that in Q4, margins are approximately 100 basis points lower compared to Q3, relative to 2019. Can you help us understand how much of this is due to seasonality? How much is related to the recovery of urban areas and any potential mix shift? Also, how should we expect this to evolve going forward?

Yes. As you consider the mix shift, we are approximately down 300 basis points in the group compared to Q2, which was down 140. That was definitely a stronger quarter in terms of shifts similar to 2019, like Q3. However, as we look at the flow-through, we anticipate continued improvement as we increase occupancy. Overall, we are optimistic about market trends, but it is a challenging comparison due to Q4 and the impact from San Francisco, as well as the BI we experienced with CreeBay, particularly in Q4 2019 as you noted.

Got it. Thank you.

Thank you. Our next question comes from the line of Dori Kesten from Wells Fargo. Please go ahead.

Thanks. Good morning, everyone.

Good morning, Dori.

Hey, Tom. What would you expect to spend over the next two years on maintenance and ROI? And what returns are you expecting on the ROI projects you mentioned in your prepared remarks?

Generally, we're on a normalized basis, Dori, about 6% of revenue. We've always been on the higher end, just given the nature of the portfolio. Revenue is that one starting point. Obviously, that was disrupted during the pandemic. If you think about what's in the pipeline right now. Obviously, we're wrapping up Bonnet Creek. There's another $80 million that we talked about in the $70 million. So you're a few hundred million. Back of the envelope, I think would be a good planning for what's in the pipeline. We are laser-focused as we've said in terms of priorities. Selling non-core, we're making really good progress there. You'll continue to hear more about that in the coming weeks and using those proceeds to delever, but at the same time reinvest back into the portfolio, particularly with our ROI projects and quite optimistic and really encouraged by that. And then of course, we'll look for other capital allocations that could also include buybacks on a leverage-neutral basis. But obviously, the priority is getting down the leverage and certainly reinvesting back into the portfolio. So a few hundred depending on how many other projects we launch. We've got the DoubleTree project in San Jose, and converting that. It's in a planning phase now. Given the uncertainty, we clearly are committed to getting the Bonnet Creek resort and that expansion done; it's well underway. And as we mentioned, the Waldorf ballroom will open next month. And obviously, the Hilton, Signia in about another 13 months plus or minus. And then we're also completely renovating the guest rooms, the public space, and of course our world-class golf course as well. Casa Marina, we've had enormous success with the reach to the sister property there. We expect that we will have at least that if not better with a complete renovation of the Casa Marina as well.

Okay. Thanks. And just digging into two of your larger markets. Given what you know about the convention calendar in San Francisco for next year and hopefully, the pending return of Japanese travelers to Honolulu, what kind of tailwinds do you imagine that there could be as a result in RevPAR for 2023?

It's a great question. If you consider San Francisco, there's a lot of excitement surrounding it. I have been out there many times and I'm headed out west again. We are cautiously optimistic. The Park 55 didn't reopen until May this year, and the Hilton reopened at the end of 2021, so both locations are gradually ramping up. At the beginning of the year, RevPAR was down 90%. We expect that RevPAR will decrease to probably around 30% by the end of this year, which shows a positive trend. There are 640,000 expected room nights for city-wide events, which is about 63% of the all-time high in 2019, along with approximately 130,000 room nights already booked at that complex. We are expecting a significant increase there. With a market consisting of only 30,000 rooms, and our complex representing 10% of that, the combination of city-wide events coupled with internal group bookings gives us a great opportunity to boost transient revenue. I can't provide a specific RevPAR figure today, but the outlook is favorable for a strong tailwind. In Hawaii, specifically the Hilton Hawaiian Village, it remains one of our most valuable assets. Although we haven't seen the return of Japanese travelers, we expect to maintain RevPAR this year close to an all-time high in EBITDA. Domestic travel has been robust, along with some international visitors. Typically, international travelers make up about 30% of our audience at this asset; however, this year it's only around 10%. The absence of the Japanese traveler, who historically stays longer and spends more, presents a significant opportunity ahead. Waikoloa has seen a RevPAR increase of 20% to 30%, while Hilton Hawaiian Village ended the third quarter up about 7%. We anticipate that by year-end, it will be around flat to slightly negative. Nevertheless, I expect a double-digit increase in RevPAR going forward, assuming the economy remains stable, which is our current belief unless significant changes occur.

Okay. Thank you.

Thank you.

Thank you. Our next question comes from the line of Anthony Powell from Barclays. Please go ahead.

Hi, good morning.

Good morning, Anthony.

Good morning, Tom. Just a question on New York. I mean, I think you highlighted how the market is recovering very strongly and the revenues are coming back very quickly. Question on margins there, I still see that the margins are trailing. What's the opportunity left there to, kind of, maybe improve the operating structure of that property? I know that was a big topic of discussion pre-COVID. So where are we in that process now?

That's a great question, Anthony. We have devoted significant time to our asset management team, collaborating with our operating partners to find ways to enhance our operations. A prime example is room service, which has become more streamlined. While we have extensive food and beverage options for group meetings and banquets, we are rethinking our business approach. The pandemic has compelled us to communicate and collaborate more effectively across brands and management companies. We've achieved notable savings of $85 million and eliminated 1,200 jobs, predominantly in food and beverage, reducing assistant managers and cutting sales and marketing expenses that had accelerated over time. As occupancy increases, we will fully realize the benefits of these margin improvements, but we are operating under a new structure compared to before. We are optimistic about developments in New York. It’s important to remember that many had written off New York, San Francisco, and other urban markets six months to a year ago during the pandemic. However, New York offers a strong example of recovery, with occupancy rising significantly from the low 30s in the first quarter to 69% in the second, and reaching 74% in the third quarter. We expect Q4 occupancy to be in the low to mid-80s. This upward trend is encouraging. Regarding San Francisco, while it is lagging as noted, New York is rebounding vigorously and the city is fully active. Owning one of only three large hotels in the city gives us a competitive edge. Thus, we hold a positive outlook for New York moving forward.

And I would just quickly add that we certainly expect things to improve for Q4. As Tom mentioned with occupancy, kind of, improving. We saw occupancy down 26 points in Q3 and we expected to be down more closer to 11 points in Q4. So getting the occupancy up will certainly improve the margins. I think we'll still slowly have a gap. But also, as we look at Q4, we're still down 20% on group revenue. So you got to get the occupancy up and got to get the group mix more normalized to kind of get to the margins. But I would say that we're looking at middle to high double digits, or teens, I should say, for Q4 margins versus what was kind of high single digits for Q3.

Thanks for that. And maybe on San Francisco. Can you remind us how important business transient is to that market? And where BT is right now could there be any risk of some headwinds there next year? We keep seeing layoff, kind of, announcements from Twitter strike and whatnot there's maybe a BT kind of slowdown or reversal in the market could that maybe offset some of the strength you're seeing in group next year?

Yes. I think, Anthony, if you look, historically, I mean I think the real benefit of San Francisco was having obviously supply constrained, a great convention market and following, having a strong leisure and a strong business transient. So I wouldn't say, it's clearly one-third, one-third, one-third. So I don't have the data in front of me. But if you look historically, it's been a strong market as any. And particularly as I think back to 2006 through 2019, certainly was among the top three markets. And really it was those strong sources of demand. No doubt that given what's happening on the tech-side, certainly will be felt a little more in San Francisco. But the fundamentals of getting the convention market back getting kind of return to office. We know that that's lagging. I know that the mayor and others are really pushing, but I wouldn't write off San Francisco over the intermediate and long-term. I've said that before, and so we stand by it. We continue to monitor and study the market carefully. And we're not bearing our head in the sand. We are out there and we are seeing some green shoots and some positive things. We certainly want to see that accelerate in 2023 and beyond.

Thank you.

Yes.

Thank you. Our next question comes from the line of Duane Pfennigwerth from Evercore ISI. Please go ahead.

Hi. Thank you for the time.

Hey, Duane, good talking to you.

Hey. Same here, thank you. On the Japanese inbound traveler, I wonder historically, are there any differences in sort of the peak seasonality of that traveler, or does it line up pretty closely with peaks in Hawaii overall?

Duane, it's a great question. If you think historically, it's been about $9 million to $10 million, let's use $9 million as kind of inbound into why about 60%, 62% coming from the US second largest market really coming out of Japan, kind of $1.5 million plus or minus. And look, it's been consistent for 30 years plus or minus, particularly into that asset. And you've got generations coming they tend to stay longer and pay more. In terms of seasonality, I think it's been pretty consistent. I don't know, whether Sean's got additional data on it. But obviously, the tour operators have been a good, good part of it. But I think it really dovetails nicely. And given the capacity, we clearly have the capacity to accommodate that demand whenever it comes.

I think you see a little bit of a blip in the spring around Golden Week on Japan. But I think, as Tom said, generally pretty consistent across travel normal kind of vacation times.

Thanks. The reason I ask is we’ve seen some airlines try and launch Hawaii service, some successfully, some less successfully. And it just tends to be – I think the learning is it tends to be a longer lead time purchase consideration. To your point, you don't go to Hawaii for a weekend most of the time you go for a longer period of time. And so I would expect, there's a longer lead time in those purchase decisions as we think about travel restrictions going away. So it may just be a little too early to measure the success or failure of those easing travel restrictions. My follow-up –

Duane, if I could just to unpack that a little bit. I think it's a great point. But as I said, you've got north of 30 years, if not more, are really consistent. I mean if you look at those travel patterns coming out of Japan, it's been a loyal, consistent, easy-to-get-to on a relative basis. And so when you look at that pattern now this will have been the third year where they've been virtually shut out. So I mean I would respectfully submit that as we saw in the US, with that sort of pent-up demand, I would expect similar behavior. So the airlines will respond to that demand as we saw certainly respond here in the US, although some did it better than others, but we're quite encouraged. And despite that, I mean obviously we've got a resort here that continues to be an extraordinary performer. And we would expect when we get the Japanese traveler back that we will – it will continue to accelerate that RevPAR growth. And we really haven't seen the RevPAR growth at some of our other leisure markets that other of our peers have seen. So we see that as a real tailwind for Park as we move into 2023 and beyond.

That makes sense. Thank you for those thoughts. And then just I apologize, if you've covered this in another question. But Sean, could you maybe just give us CapEx or capital spending for 2022 and 2023?

I mean, ultimately, Tom covered that. I'll let Tom kind of –

Yeah. We've certainly, Duane, always had 6% of revenues certainly higher than normal in part just given the nature of this portfolio. And as I said, we've got pending ROI projects that are active. And I said for planning, it's certainly a few hundred million dollars is a good base number to use, and that can flex depending on when we accelerate the Casa Marina, with the complete transformation that we're planning for next summer. And of course, closing out the additional $80 million to finish up Bonnet Creek, which is going to be a complete redo of the golf course, which we're quite excited about as we really position that world-class resort there in Orlando and certainly be as competitive as any other property there.

Thanks very much.

Thank you.

Thank you. Our next question comes from the line of Chris Woronka from Deutsche Bank. Please go ahead.

Hi, good morning, guys. Thanks for all the detail –

Good morning, Chris.

Detail – morning. First question was I don't know, maybe we can zoom in on San Francisco Group a little bit, Tom. I think you've given us a lot of data points and some encouraging, but I think on the rate side right now, where we want it to be. Is this some kind of structural issue where San Francisco from a group perspective has become more of a value city and the higher dollar has gone to Vegas? And the question in that is, it kind of matters for you guys, right? You need you want the higher-rated premium groups to really drive the EBITDA recovery there.

Yes, I don't entirely agree with that perspective, Chris. Vegas works for certain groups, but when you consider high-end educational pharmaceutical events and the audience in San Francisco, historically, it has performed well. If we look back at the years from 2006 to 2019, Vegas was still doing well, but San Francisco also held its own. I believe the pandemic and the negative narrative surrounding the city have affected it. However, I think the city is starting to improve, whether it's in terms of street conditions, homelessness, or safety and security issues. Many business leaders, including myself, have spent time there, and I believe the city recognizes these challenges and is making progress. In a market with 30,000 hotel rooms in the central business district, there’s natural opportunity for significant demand, especially compared to New York, which has over 120,000 rooms. For our portfolio and complex, it makes sense to host large events backed by in-house groups, allowing us to effectively manage transient demand as well. We're optimistic; this year, the pace for group bookings is around 30%, and next year, it’s projected to exceed 50%, equating to about 130,000 room nights. The number of citywide events we're seeing is around 640,000, which represents about 63% of the peak performance in 2019. That’s encouraging. We need the performance in San Francisco to keep improving. It’s also important to note that Park 55 was closed for 27 months and only reopened in May of this year. There were predictions that cities like New York and San Francisco wouldn’t rebound until 2025 or later, but based on what we’re observing in New York and the early signals in San Francisco, we believe a recovery will occur sooner than that.

Yes, I would add that if you look at the first quarter of 2023 compared to pre-pandemic levels, we increased our pace by about 8% in that segment. This is very encouraging considering where we have been. Additionally, the activity we observed in September for bookings in San Francisco for 2023 was also promising, comprising about 14% of the total rooms added that month and contributing 20% to the revenue. We achieved average booking rates of $433 for San Francisco for all of 2023. Some of this is likely going into the first quarter for JPMorgan. Overall, this average rate of $433 is 30% higher than what we are seeing at the 8% pace I mentioned. It's encouraging and indicates progress on the group side in San Francisco.

Sure. Great. Super helpful. Just as a follow-up how do we think about some of the puts and takes on margins going forward? I mean we're going to have higher occupancy next year hopefully. Rate mix could be I guess depends on your perspective could be positive or could be negative. And really what I'm asking is whether it's kind of group margins on some of the ancillary stuff or even some brand initiatives I don't know if you're continuing to work with Hilton and I guess the other brands to a lesser extent on further things whether it's cost of loyalty or other that could be helpful going forward?

I believe there are several factors at play. If we consider the recovery process, occupancy is hovering around 70%. At this level, many of our fixed costs are essentially layered, and with increased volume, we can manage that more effectively. We're also seeing rate growth in specific markets. Take San Francisco, for example, which has been a challenge, but its recovery will definitely support our revenue per available room and rates compared to 2019. As we look at our business flow-through, bringing in more group business—currently about 300 basis points below 2019 levels—will also contribute positively, particularly through banquet and catering revenue. There's substantial potential for growth, especially as we surpass our 2019 performance, aided by the operational and staffing adjustments we've implemented. So, while we recognize ongoing macroeconomic considerations, we are confident in a pathway to achieve higher margins than what we are currently experiencing.

Okay, very good. Thanks guys.

Thank you. Our next question comes from the line of Neil Malkin from Capital One Securities. Please go ahead.

Thanks. Good morning everyone.

Hey Neil. Good morning.

Good morning. Could you please provide some clarity on the potential additional disposals you've mentioned? Are these primarily the non-core assets, possibly not the upper upscale full service? Are they one-off market joint ventures or perhaps a reconfiguration of the portfolio to decrease exposure to struggling unionized markets? Any insights on this would be greatly appreciated.

Neil, it's a fair question, but let me also just say, we've got a number of people in the queue here, and we want to try to answer as many questions as we can. I know we're stacked up with a lot of other companies reporting today.

Respect for the time.

Yes. No team has sold and moved more assets than we have since the spin. We're up to 38 assets now and $2 billion international 14 of those as you know South Africa, Brazil, Germany, seven in the UK, a joint venture in Dublin. I mean we've seen it all and done it all. So we've worked on a lot of credit to our men and women on our development team and investment team and have worked really hard. Every one of the deals has legal tax and other complexities. So it's a combination. We are constantly working on reshaping the portfolio. So I would say that there are assets over $100 million. They're non-core to what we would say long-term holding. We are not looking at this point if your question is about some of the big urban boxes, we don't think now is the time. They're big, they're complicated. There are tax and legal issues with the debt markets where they are. We think there are other assets that are marketable non-core, plenty of debt sources in private equity and/or owner operators and family offices. And I think we've shown a real skill in being able to sell and also do it efficiently and at pricing that makes sense. We're not a distressed seller. We're doing this thoughtfully and prudently, and we set a goal of $200 million to $300 million. We've already exceeded that. We've raised it now to $500 million and we're confident we'll be able to deliver that and continue to use those proceeds to certainly delever and reinvest back into the portfolio.

Okay. Thanks.

Okay. Thank you.

Thank you. Our next question comes from the line of Robin Farley from UBS. Please go ahead.

Great. Thanks.

Hi, Robin.

I just wanted to ask how you are. In your release, you talked about the asset sales and noted that since you've successfully sold more than you initially targeted, you might switch between a defensive and offensive strategy. I'm curious if this implies you are considering acquisitions, or if it is more related to reducing leverage and reinvesting. It sounds like this shift could indicate that you might be open to making an acquisition.

Yes. We'd love to make an acquisition at the right time, Robin. Remind listeners again we've sold the 38 assets for $2 billion. We obviously bolted on Chesapeake for those 18 hotels for $2.5 billion. So we've really been a net acquirer. It's just been silent here as we work through the pandemic. The priorities are again getting the revolver done. Sean and team are making great progress there, selling non-core, reinvesting back into our portfolio. And then, again as I said, we will look at buybacks depending on where the share price is. And clearly, we trade at a huge discount today. And if we can do some buybacks on a leverage-neutral basis, we'll certainly continue to look there. And not lost on us given all of the uncertainty. Part of the reason why we want to continue to build tremendous liquidity is that there will be a time when pivoting to go on offense makes sense, and Park will be ready and Park will be active at that time. We don't think that that is necessarily today this quarter.

Okay. Great. Thank you.

Thank you.

Thank you. Our next question comes from the line of Patrick Scholes from Truist. Please go ahead.

Great. Good afternoon, everyone.

Good afternoon.

There've been a number of sizable acquisitions amongst your public REIT peers over the last several quarters. I noticed your folks have not been terribly active in the acquisition market. And I'm just curious as to your thoughts and rationale, why you've decided to perhaps take a pass. And again this is not saying that's right or wrong. I'm just curious as to what is your internal thinking of why you have not been active in that.

Yes. Well thanks, Patrick. As you know I'm not going to comment on other deals, and I'll let them speak for themselves. I think we've been pretty, pretty consistent in what the priorities are for Park. And we really wanted to use the pandemic and the post-pandemic to reimagine the operating model. As Sean pointed out, as we get occupancy back and we get later in this recovery, we are confident that we're going to see permanent savings and real value there. We want to continue to reshape the portfolio in selling and recycling that capital, and we've sold 38. We'll continue to sell some of the non-core. Our top 27 assets really account for about 90% of the value of the portfolio. So cleaning it up, we think that makes sense. And the highest and best use of those proceeds is really reinvesting back into our portfolio whether that's through the ROI or that's through targeted buybacks on a neutral – leverage neutral basis. There will come a time when we will be a buyer. We just don't think that time makes sense right now for Park. And if you think about since the spin, we really have been more of a net buyer than seller, given the fact that we bought $2.5 billion versus selling the $2 billion. And then also obviously, we've had a ton of buybacks over that period of time as well. So I'll stop there and hopefully that answers your question.

It does. Thank you for the color, yes.

Thank you. Our next question comes from the line of Bill Crow from Raymond James. Please go ahead.

Good morning, Tom.

Good morning, Bill. How are you?

I am good. There's little I'd like to discuss better with you than some of the big picture issues. I'm just curious whether we might be talking about group and the recovery in San Francisco or Chicago or D.C., if that's not maybe missing the point here that we might be undergoing a larger paradigm shift and where groups might be heading. And I'm thinking about markets like Tampa, Nashville, Austin, Denver and whether we're thinking about some of these old entrenched group markets. Maybe that's just wrong going forward. I'd just love to get your opinion on that.

Yes. Bill, I'd love and I'd love to schedule a follow-up and you have this discussion with you. I just don't think they're mutually exclusive. I mean I don't disagree with you that there are some really compelling things happening in Nashville or Phoenix and Austin. As you know we – our past life, one of the largest owners of hotels in Austin, so I know it well. But I would also say that there are true and tried markets and infrastructure capacity in Chicago, in Boston, in San Francisco and Atlanta that have worked and are really part of the rotation DC. And there are reasons why those associations and/or those groups need to be or want to be in those markets with great airlift and other reasons. So, I don't think they're mutually exclusive. And I think we're going to have to see over time. And I would respectfully submit that if you look historically at some of those top markets and I put Orlando in that there's a cycle and a rotation, and I would fully expect the Bostons and DCs in San Franciscos and Chicagos to continue to be part of that. Now, there's no doubt and we won't get an argument here, Bill about there are some structural challenges in some of these cities that need to be addressed. No doubt about that. And I think you and I have had it. And I would respectfully submit that I've tried to be constructive and I've been a voice and written letters and made lots of comments on the subject I think as you know.

No I do. And I appreciate your advocacy for the industry. So that was it for me. I appreciate the time.

But I will schedule time will you be able to continue this.

All right. Sounds good.

All right. Good. Be well and always good talking with you.

Thank you. Our next question comes from the line of Jay Kornreich from SMBC. Please go ahead.

Hey, thanks very much. Good morning. Can you provide some additional color on how you see the F&B revenue trending in Q4 and then, the strength you see in this segment in 2023 as group demand and the convention calendar continues to ramp up?

I lost the first part of the question. We couldn't hear you. So if you could just repeat the first part again?

I was asking if you can provide some additional insight into how you see the F&B revenue trending in Q4 and the strength of F&B in 2023 as group demand and the convention calendar continue to ramp up.

F&B is expected to perform better in Q4 compared to Q3, especially with the holiday season approaching, which typically boosts banquet and catering activities. We anticipate F&B revenue will begin to rival Q2 levels. As the group mix normalizes, we expect to see year-over-year improvements in our pace. While our current numbers are down due to the absence of this group mix, we believe that as we move into next year, the group mix will stabilize, bringing F&B revenues closer to 2019 levels.

Okay. Thanks so much. I'll stop there.

Thank you.

Thank you. Our next question is from the line of Chris Darling from Green Street. Please go ahead.

Thanks. Good morning. Tom, I appreciate the comments you gave on the transaction market already, but I'm just curious, whether you could comment on any value changes you may have seen over the past couple of months, obviously, being an active seller in the market. And then I wonder, if possible, if you could delineate any of those changes across some of your major markets.

Yes. It's a fair question. Obviously, given rising rates, cap rates come in, they expanded 25 basis points maybe 50 basis points depending on, but we're still seeing a really healthy market for hotel real estate. I know the private equity funds and I may be off a little bit on my numbers, but I think are sitting on about $400 billion of capital. You've got family offices. You've got owner-operators. So there's clearly demand. And as you look for yield, I would believe that lodging and expect the lodging is going to continue to be an attractive asset class. You can’t do so many industrial residential three cap deals you can do, and I think they get harder to do given where rates are. So we haven't seen any sort of slowdown. I do think that deals that have a story that also have an opportunity that, for perhaps with management or unencumbered, tend to have perhaps a more bidding audience, but that's not always true. If it's a trophy asset, I think those fully encumbered are expected. So it really depends on the submarket and the asset, but we're not having any issues or resistance in transacting. And I think we've been as active as anybody. We're thoughtful about it. We go through a process. We certainly are committed to make sure that we're maximizing value for shareholders. But we really are also committed to recycling capital and cleaning up the portfolio, and it's been a lot of hard work. People forget that we also had a laundry platform that we've also disposed of, and we had four assets that we were self-operating. All of that has been cleaned up, and great credit to Tom Morey, our Chief Investment Officer, and Nancy Vu, our General Counsel, and the men and women on those teams have been working tirelessly over the last few years as we continue to reshape the portfolio. So it is a much stronger portfolio than where we were six plus years ago when we were spun out.

Got it. Thanks for the comments and appreciate the time.

No, my pleasure. Look forward to seeing you soon.

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the conference to Mr. Tom Baltimore, Chairman, President, and CEO, for closing comments.

Thank you. We appreciate everybody taking time today. We look forward to seeing many of you at NAREIT and stay safe, and we'll see you hopefully out in San Francisco.

Thank you. The conference of Park Hotels & Resorts Inc. has now concluded. Thank you for your participation. You may now disconnect your lines.