Greetings, and welcome to the Park Hotels & Resorts Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. 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 third quarter 2023 earnings call. Before we begin, I would like to remind everyone that many of the comments made today are considered forward-looking statements under federal securities laws. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed and we are not obligated to publicly update or revise these forward-looking statements. Actual future performance, outcomes and results may differ materially from those expressed forward-looking statements. Please refer to documents filed by Park with the SEC, specifically the most recent reports on Form 10-K and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements. In addition on today's call, we will discuss certain non-GAAP financial information such as 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 financial information available on our website at pkhotelsandresorts.com. Additionally unless otherwise stated, all operating results will be presented on a current basis and include all 41 consolidated hotels. In some instances, however, we will be discussing results on a comparable hotel basis with a comparable view excluding the two Hilton San Francisco hotels. This morning Tom Baltimore, our Chairman and Chief Executive Officer will provide an update on the status of our two San Francisco hotels, review Park's third quarter performance and near-term outlook, and highlight our strategic capital allocation initiatives. Sean Dell'Orto, our Chief Financial Officer will provide additional color on third quarter results and forward-looking guidance, as well as an update on our balance sheet and liquidity. Following our prepared remarks, we will open the call for questions. With that, I would like to turn the call over to Tom.

Thank you, Ian, and welcome, everyone. I'm very pleased to report another solid and productive quarter for Park with Q3 earnings exceeding expectations and tremendous progress being made against our capital allocation priorities, including entering the final stages of our transformative ROI projects at our Bonnet Creek and Casa Marina resorts and repurchasing 5.8 million shares worth $75 million during the third quarter. But let me first begin with an update on our two San Francisco Hilton hotels and the related non-recourse CMBS debt. Last week the trustee for the loan filed a lawsuit against the borrowers related to our ceasing debt payments since June and the court has appointed a receiver to take full control of the hotels. The receiver has completed an exclusive possession of the hotels, as well as all income generated from their operations, which is to be used solely to pay all operating expenses and to cover all operating losses. Any operating losses or additional funds required to operate the hotels will be addressed between the receiver and the trust team. As such Park no longer has any economic interest, benefits or burdens in the hotel's operations. The receiver also has the power to market and sell the hotels during the receivership. However, if the hotels are not under contract by September 1, 2024, the receivership will conclude in a non-judicial foreclosure by the end of 2024. Now let me be clear about what this means for Park and its shareholders. First, while in receivership and through its conclusion, be it a sale or foreclosure, Park will no longer be obligated to fund any shortfalls for working capital or for payments on the loan. Second, we expect all operations at the hotels will remain intact. Hilton will continue to manage the hotels, which will continue to welcome guests, provide services in line with brand standards and maintain its employee base. Third, as we have committed to thus far, we will continue to make ourselves available throughout the receivership, as the special servicer or receiver requests to effectuate a reasonable outcome for all stakeholders in a timely manner, but with no financial implications. Fourth, there will be some adjustments to our earnings guidance, which Sean will provide further details on in his comments. Finally, we and our Board of Directors have determined that it is appropriate to pay a special dividend related to the taxable gain triggered by exiting the economic interest of these assets. Therefore, I am pleased to report that as of October 27, 2023, the Board has declared a special cash dividend of $0.77 per share to be paid on January 16, 2024, to shareholders of record as of December 29, 2023. As a reminder, the removal of these assets from our portfolio materially reduces our San Francisco exposure to just 3% of rooms from 14%, and meaningfully strengthens our balance sheet and credit metrics with net leverage improving nearly a full turn. With the San Francisco market still facing an elongated recovery, we still firmly believe this complicated but necessary exit and these two hotels is in the best interest of our shareholders. Now turning to our third quarter results, which were driven by a favorable mix of accelerating group fundamentals, ongoing strength at our Hawaii resorts and strong performance in key urban markets such as New York, Boston and Denver. RevPAR increased 3% over Q3 2022, or an impressive 4.8% excluding our Casa Marina Resort hotel, where operations were suspended throughout the third quarter for a comprehensive renovation. Despite facing difficult year-over-year comparisons in July, our portfolio produced solid results with RevPAR including Casa, increasing 3.2% during the month followed by a 7.3% increase in August and a 4.2% increase in September, which were driven by improvements in both rate and occupancy. Turning to group performance. We saw a continued acceleration in group trends during the quarter in revenue for the comparable portfolio improving 12% year-over-year to over $95 million, while strong banquet catering results helped to drive performance. We continue to see solid short-term pickup, adding approximately 112,000 room nights for 2023 or over $25 million of incremental revenue in the third quarter. As a result, full year 2023 comparable group revenue pace improved during the quarter, increasing nearly 180 basis points to 93% relative to the same period in 2019. While Q4 comparable group revenue pace is 99% relative to the same period in 2019. Group demand trends remain very healthy, while 2023 comparable group ADR remains on track to exceed 2019 by nearly 8%. Focusing on a few key markets. Performance was once again driven by exceedingly strong performance in Hawaii and New York. Demand in Hawaii continues to be driven primarily by solid domestic leisure demand, coupled with strong group trends. Our two resorts generated 3.5% RevPAR growth in the quarter compared to last year. Fortunately, our hotels were not negatively impacted by the devastating Maui wildfires. We are proud of our hotel teams and their efforts to provide relief and support to the neighbors on the Island of Maui. At Hilton Waikoloa Village, the hotel delivered over 4% RevPAR growth in Q3 year-over-year and 38% hotel adjusted EBITDA margins, impressive results given the difficult year-over-year comparison. Overall, the hotel witnessed a pickup in demand generated by displaced Maui residents and travelers during the quarter, including an incremental $1 million in business expected in the fourth quarter from two groups moving their programs to the Big Island. At our Hilton Hawaiian Village Hotel, we are pleased to report the near completion of the multiphase renovation of the 1021 room Tapa Tower, slated to wrap up in December 2023, with the newly renovated rooms in the tower commanding a $75 ADR premium to the other room types. This strong performance is even more encouraging as inbound travel from Japan continues to recover with Q3 production at our Hilton Hawaiian Village hotel improving to 24% of 2019 levels from 8% during the first six months of the year. Conversations with our Japanese travel partners indicate improving sentiment and willingness to travel internationally, and the expected increase in airlift to the islands will support better inbound trends into 2024. With respect to airlift, Delta Airlines just launched daily direct service to Honolulu, while Japanese carrier ANA Airlines announced that in order to accommodate a recent pickup in demand, it has brought a third Airbus A380 aircraft into service between Tokyo and Honolulu starting in early December, increasing its weekly round trips to 14 from 10. According to the airline, the expansion sets a record for seat capacity on this route, reaching over 18,000 seats per week in total and surpassing pre-COVID levels. Looking ahead to the fourth quarter, we expect RevPAR growth to remain very strong across both of our Hawaii hotels, with low double-digit year-over-year growth forecasted, ranking among the top performing markets within our portfolio. Turning to our urban performance. Our comparable urban portfolio delivered 7% RevPAR growth during the quarter. In particular, our Hilton New York Midtown hotel delivered impressive results, with RevPAR up nearly 30% year-over-year or 8% above 2019. Results were driven by better-than-expected group trends, coupled with strong attendance at this year's US Open and the UN General Assembly. Overall, compression days translated into a 17% uplift in transient ADRs versus 2019, while the hotel achieved 44 sellout nights during the quarter, a fourfold increase from the prior period. In addition, reduced supply across the city has also helped had a very positive impact on performance with total room count down approximately 7% in 2019 due to New York's strict regulations on short-term rentals which could have a positive impact on leisure transient trends across the city for the foreseeable future. Looking ahead to the fourth quarter, we anticipate the positive momentum to continue with the hotel on pace to generate solid Q4 gains, with preliminary October revenues of approximately $32 million, the second highest monthly revenue in the property's history. Touching briefly on the macroeconomic backdrop. We have yet to witness any signs of an economic slowdown impacting transient demand outside of the normalization of Sunbelt leisure demand. In fact, we are very encouraged by the strong group trends heading into next year the 2024 comparable group revenue pace backing 94% versus 2019, a nearly 100 basis point improvement from last quarter, driven by double-digit increases in convention room nights across several of our core markets including Chicago, New Orleans, San Diego, Washington D.C. and Hawaii. In Chicago, we expect to benefit from a strong citywide calendar, with convention room nights up 65% to a record 786,000 room nights. While in New Orleans, convention room nights are expected to reach nearly 510,000 or a year-over-year increase of 11%. Hawaii is slated for another solid year as international demand continues to build, while both Casa Marina in Key West and our Bonnet Peak complex will benefit from easier year-over-year comparisons and newly renovated product. As a reminder, Casa Marina accounted for a 110 basis point drag on RevPAR performance in 2023, translating to $15 million of EBITDA disruption this year, while the rooms renovation at Waldorf Orlando contributed to almost $3 million of disruption in the second half of this year. We are thrilled to introduce our newly renovated and upgraded Casa Marina Resort, which partially reopened with nearly 60% of its room inventory in October. The balance of rooms is slated to open by December 15. We are also introducing our new oceanfront restaurant in February 2024, El Dorado, which will elevate the resort and offer an unparalleled dining experience on the island. At Bonnet Creek, we will wrap up our $220 million comprehensive renovation in January 2024, which will include an additional 137,000 square feet of meeting space, newly renovated guestrooms throughout the complex, refreshed public spaces and a comprehensive renovation of our Championship Golf Course. 2024 group revenue is forecasted to be a record year for the complex, with the revenue on the books facing 38% of 2023, priced for an even mix of room nights and average rate gains. In summary, I'm optimistic about the setup for next year, with our comparable portfolio well positioned to benefit from improved group and urban demand. In addition to ongoing strength in Hawaii, coupled with expected tailwinds from fully renovated hotels in both Key West and Orlando. Also, the effective exit of our two San Francisco Hilton Hotels meaningfully changes the Park narrative. We remain on track to deliver sector-leading earnings growth for the year and we remain laser-focused on executing our internal growth strategies and capital allocation priorities we are confident will create long-term shareholder value and position the company for success. With that, I will turn the call over to Sean.

Thanks Tom. Overall we are pleased with our third quarter performance. Q3 RevPAR for the portfolio was approximately $178, representing year-over-year growth of 3% driven primarily by occupancy gains of 2.5 percentage points above last year. Hotel revenue was $657 million during the quarter, while hotel adjusted EBITDA was $173 million, resulting in a 26.3% hotel adjusted EBITDA margin. Margins were negatively impacted by a few factors, including the renovation disruption at our Casa Marina resort which accounted for over a 60 basis point drag on portfolio performance. In addition, our two San Francisco Hilton Hotels accounted for an additional 210 basis point drag on hotel adjusted EBITDA margins. Excluding all three properties from our results, hotel adjusted EBITDA margin would have exceeded 29% for the quarter or approximately 40 basis points above 2019 levels. Q3 adjusted EBITDA was $163 million and adjusted FFO per share was $0.51, both of which exceeded our expectations. Looking ahead to the fourth quarter, preliminary results in October look strong with RevPAR growth on pace to be up 6%, with results driven once again by Hawaii and our urban portfolio including New York City, Boston and Chicago. Overall, preliminary comparable RevPAR for the month of October stands at $198 or 4% above 2019. Turning to the balance sheet. Our current liquidity is approximately $1.7 billion, including $726 million in cash. Net debt at the end of Q3 was $3.9 billion and net leverage on a trailing 12-month basis was six times. Excluding the two San Francisco Hilton Hotels from our portfolio, since Park has no further financial exposure with these assets, balance sheet metrics materially improved with net leverage decreasing by nearly a full turn to just under 5.2 times and interest coverage improving by over half a turn to 3.2 times. With respect to our dividend, on October 16, we paid our third quarter cash dividend of $0.15 per share. We anticipate paying a fourth quarter dividend, which is subject to Board approval, in the range of $0.85 to $0.95 per share, comprised of a quarterly cash dividend of $0.15 per share and an annual top-off component of between $0.70 and $0.80 per share. Including the San Francisco special dividend, Tom discussed earlier, we expect total Q4 dividends to be $1.67 per share at the midpoint of the top-off range. Excluding the special dividend, 2023 dividends from operations will total $1.30 to $1.40 per share, which translates to roughly two-thirds of adjusted FFO per share based on the midpoint of our guidance, bringing us back in line with the payout ratio we targeted prior to the pandemic. The dividend yield is expected to be between 11% to 12% based on current trading levels. In total, Park is projected to return nearly $625 million of capital to shareholders in 2023, when considering the $445 million in expected cumulative dividend payments and $180 million of share repurchases for nearly 15 million shares executed since the start of the year. Turning to guidance. Let me first address how we expect to capture the two San Francisco hotels and CMBS debt in our financial statements. As Tom noted earlier, with the receivership in place, we will no longer control the operations of the hotels. Therefore, the hotel operations will not be included in our consolidated P&L. The two hotels were placed into receivership, treating them for this purpose as if they were sold. Interest expense and fees will continue to be incurred until the assets are sold or foreclosed upon. However, since we will not have any financial obligations for this non-recourse debt, we will add back these expenses when presenting adjusted FFO. Considering this treatment, we are adjusting our full year guidance to reflect RevPAR and adjusted EBITDA margin ranges based on our comparable portfolio, with comparable RevPAR guidance in a range of $177 to $179, or year-over-year growth of 7.5% to 9%, while comparable hotel adjusted EBITDA margin is expected to fall within a range of 27.7% to 28.2%, an improvement of 170 basis points when accounting for the removal of both San Francisco hotels. With respect to adjusted EBITDA, guidance has been increased to a new range of $644 million to $668 million, reflecting better-than-expected results from the third quarter, partially offset by an adjustment to our Q4 outlook for an additional $3 million of disruption at our Casa Marina and Waldorf Orlando renovation projects, which are expected to conclude before year-end. Adjusted FFO per share guidance increases by $0.08 at the midpoint to a new range of $1.92 to $2.03, with Q3 buyback activity and the add-back of San Francisco CMBS interest expense contributing $0.05 of the $0.08 increase. This concludes our prepared remarks. We will now open the line for Q&A to address each of your questions. We ask that you limit yourself to one question and one follow-up. Operator, may we have the first question please?

Absolutely. Our first question is coming from the line of Floris van Dijkum with Compass Point. Please proceed with your question.

Hey, thanks guys.

Good morning, Floris.

Good morning. I think this welcome report sort of validates some of our beliefs here on you guys. Tom, maybe if you could comment a little bit, obviously, you've got some capital return plans already outlined for the rest of this year, but you're still sitting on a big pile of cash. Your balance sheet metrics are significantly better particularly if we look at 2024 EBITDA, I mean, we're looking at a floor handle in terms of leverage. Should the market expect more share buybacks and/or are you looking at acquisitions going forward as well now that you're in a better capital position?

Floris, it's a great question. I think the first thing is I want to just reiterate the point that you've made and I'll say it differently, we've eliminated the noise around San Francisco. I could not be prouder and I'd like to highlight Nancy Wu, our General Counsel; and Sean Dell'Orto and many of the men and women inside and outside counsel that have been working with us since June to really find the right outcome. I believe we've done that. So, we are glad to be moving forward. There is a clear path forward and really positive tailwinds for Park as we look forward. Look, we continue to trade at a significant discount to both NAV and replacement costs. So, as we look forward, you can find us really continuing to focus on operational excellence. These transformative renovations will continue to provide a tailwind for us. There is a strong growth profile as you think about Hawaii, New York City, Chicago having a record year next year in citywide events, New Orleans having a record year, and D.C. being strong. The Japanese traveler returning, as we pointed out in Hawaii. And again, Hawaii had a record year last year. We're cautiously optimistic that we will have another record year this year, but with still a tailwind as we look out. So, we will continue to focus on selling non-core assets as well. Our top 25 assets account for about 90% of value in the portfolio. And we will use those proceeds for share buybacks, ROI projects, and reducing leverage. But again, we're in a much better position today at 5.2 times than we were before. And there's been a lot of great work done by this team and I am very proud. We are hopeful and expect that the narrative around Park changes so that we don't have to answer question after question about San Francisco every day. That problem has been solved. We have no economic benefit or burden of San Francisco moving forward.

That seems pretty clear. Could you discuss Hawaii in comparison to other resort markets and explain why your portfolio is better positioned than some of the other markets in Hawaii, especially considering that flight capacity and Japanese tourists are returning? Additionally, what is your outlook on the markets that performed well during COVID but are now softening, particularly South Florida? When do you think that will stabilize, and what impact do you anticipate it will have on your earnings going forward?

I think Hawaii sort of speaks for itself for us. If you think about, you've got inbound demand that's averaged approximately 9 million to 10 million visitors, about 55% to 65% of that comes out of the US historically, about 15% to 17% coming out of Japan, and you're seeing international growth certainly improve, but it's historically been anchored by US and Japanese. There's been more flight capacity and certainly more domestic travel coming out of the US, and that started a little bit in the pandemic and then afterwards. It just continues in our particular resort there, Hilton Hawaiian Village, upper upscale, it's not ultra-luxury; it's got 60-plus years of history. So it's an icon, it's a landmark. And if you look over the last 30 years, irrespective of where the yen was vis-à-vis the dollar, it's been consistent visitation. Interesting now, the Japanese have been away largely for the last three years. And as we cited, we're encouraged as we sort of look out with what ANA is doing, obviously adding a third A380 aircraft between Tokyo and Honolulu in early December, again increasing capacity to 18,000 per week which again exceeds pre-COVID. Delta again adding more capacity. And having the city-like environment with irreplaceable beaches that you can't replicate and then having international, particularly the Japanese traveler who generally we were averaging about 150 high-end weddings there a year. I think we've been down to four to six I think in the last couple of years post-COVID. So, we see all of that being a tailwind. And we have an extraordinary team led by Debbie Bishop on the Hilton side who just continues to find the right mix of demand. We are excited about what we believe to be the acceleration of Japanese visitation, but even without that we certainly expect that you continue to see US and other visitors as well. It's different than some of those ultra-high-end luxury, and given the size of it, it's a unique positioning. And if you look at what happened with the revenge spend, I mean all of that has moderated and reverted back to the mean. We didn't get that sort of real acceleration; we were modest in increases, but now I think that lift-off for us looks better. Now, we'll probably be low double-digit growth here in the fourth quarter. But as we look out to 2024 and beyond, we're very, very encouraged and particularly if the Japanese traveler continues to accelerate. They stay longer and spend more, so we see that as another leg of growth for us in Hawaii as we look forward.

Thanks Tom. Appreciate it.

Thank you. Our next question is coming from Smedes Rose with Citi. Please proceed with your question.

Hi. Congrats on San Francisco. I guess congrats. Great to have incremental color there. Going back to Bonnet Creek, it looks like kind of pre-pandemic the Waldorf combined did kind of in the low to mid-$60 million range EBITDA. Fair to assume that you would expect to surpass that going forward? And maybe can you just talk about kind of where you think EBITDA can get at that property and kind of the timeline to get there?

Smedes, this is Sean. I would say yes, you're right on kind of pre-pandemic levels and it's been floating with that despite some, I would say disruption through the work we've been doing. So, I think as we think going forward, clearly we expect increases to that level pre-pandemic level. We've added a tremendous amount of meeting space there. We've generated a tremendous amount of interest from groups to bring in there. We've upgraded the facility a good bit. We were actually down with our Board last week touring them around the site. It looks fantastic. Our design and construction team has done an incredible job building out the extra meeting space and really the design team did a fantastic job upgrading the Waldorf side. So we certainly expect the team to sort of move forward with a great product and generate additional far more group business there going from about 50% I would say to about 60% group in the house. And ultimately, we made a significant investment there. We expect to return. So, I won't necessarily guide specific numbers there, but you would imagine that you're spending $200 million there, you're getting a good return on that and increase net EBITDA by, I would say, a good double-digit growth.

Smedes, the other thing that I would comment on Bonnet is that by adding the additional capacity of 137,000 square feet of meeting space plus or minus, we have the ability now to manage multiple groups. So, it's a 1,000-room Hilton, it's a 500-room Waldorf. It's a championship golf course. We've got all of the amenities, two top restaurants that are on site, and it's a complete renovation with public space freshened up, obviously, the guestrooms expanded, and the meeting facilities as well as the new ballroom adjacent to the Waldorf. Again, a large ballroom, about a 100,000 square foot ballroom plus or minus over Waldorf I might add, which is quite a marvel and quite a site. When you think about the upside that we have there, we are very confident. We're trading at $200 a key plus or minus. I think that Four Seasons traded at $1.3 million a key in its next door and it's fabulous. All of that, it's not six times better. So we are very confident on the upside here and are very bullish as we look forward. As Sean gave you, we're already seeing a booking pace far ahead of anything that we have seen historically. So, we think there will be real tailwinds because of the optionality to be able to house multiple groups and it's 350 acres plus or minus. So, very bullish on that as we move forward. See that again as another part of the Park growth story and changing the narrative as we move forward.

Can I ask you Tom to just on Hawaii? It sounds like a positive there and you have a lot of confidence going forward. Any thoughts on moving forward with the new tower there that's kind of been commented on before on some of your calls?

Yes. We continue. Tom Morey, our Chief Investment Officer and his team are doing an extraordinary job working through the final entitlements there. We are excited about adding another 550 keys plus or minus. And keep in mind, when you look at Hilton Hawaiian Village, it's still running over 90% occupancy for a hotel with 2,900 rooms. So we think clearly it will be absorbed and are excited to add another elevated product to the campus here. It's also worth noting that we shrunk that as part of the spin; half of that went to HCV and timeshare, but we're more profitable today as a 600-room hotel than we were as a 1,200-room hotel. We also have the ability to add approximately 180 to 200 keys there as well. So when we look out to Hawaii and that being 35% plus or minus of current EBITDA, we see growth not only in Oahu but also on the Big Island as well. So again, part of the growth story for Park as we move forward.

Thanks for the time.

Our next question is coming from the line of Duane Pfennigwerth with Evercore ISI. Please proceed with your question.

Hey. Good morning.

Hey, Duane.

Maybe just to zoom out a little bit, kind of across the portfolio and all the renovation and ROI work you were doing this year and displacement that you absorbed this year. Sort of how would you quantify that in total? And what would the tailwind across the portfolio be in 2024?

I think just from a disruption standpoint when you think about Casa and I'd say Orlando in the Bonnet Creek resort, we've outlined in our guidance in the earnings release about $15 million just specific to cost itself. We talked in the script about a few more million bucks that we think is disruptive to Orlando more so, not only are we giving rebates to customers with the noise everything going on with doing the rooms, but I think just business staying away. So, we think you can easily think that upwards of running up to $20 million or so of disruption in the portfolio as we kind of think about an add back for next year. I think clearly, we've got the backdrop again. I don't want to get too ahead of ourselves and we are getting into the budgeting process, but we certainly have an expectation of driving those great renovations forward and realizing the returns we had on it. But like I said, we probably would expect to start seeing us ramp towards that double-digit growth on that investment we've made which we've outlined for folks on those assets.

Thanks. And not to ask another Hawaii question, but my guess is you're going to get more of them going forward. Can you just walk through the trends you've seen since the tragic wildfires in Maui? Do you think you picked up some benefits from Maui kind of book away? So was there a surge which is now settling down? Like how would you characterize booking patterns into fourth quarter and early next year?

I wouldn't say we saw anything dramatic in Hawaiian Village. We were 97% occupied, so we couldn't really accommodate all the demand. While there are many groups looking for rooms, we provided what we could. We did manage to secure a couple of groups that moved from Maui to the Big Island, which contributed about $1 million to group revenue for Q4. Overall, I don’t think we’ll see dramatic changes across our two assets. We continue to experience strong organic growth in those markets, though I wouldn’t say it’s solely because people are choosing those locations over Maui. Regarding Hawaiian Village, it's typically about 20% group bookings, but we expect that to increase to around 40% or 45% next year, which is another positive factor for that property. Additionally, we have parts of the tower that are linked to the timeshare business, which helps bring in guests through various marketing channels and maintains a loyal customer base, contributing to revenue generation for the complex.

Thanks, Sean.

Thank you. Our next question is coming from Dany Asad with Bank of America. Please proceed with your question.

Hi. Good morning, everybody. Good morning, Tom. So with San Francisco coming out of the portfolio now, it just looks like we're looking at a portfolio that's a lot more stabilized today. So, I don't know how much color you can give yet but any early read on how much RevPAR growth we would need to get operating leverage on the core portfolio that's kind of left in 2024?

Yes. Dany, again looking ahead we don't want to get ourselves kind of speaking to any kind of guidance for next year at this point. We're getting into the budgeting process. But I agree, you're starting to see these things stabilize. If you look at the last couple of quarters, you've seen expenses that really have ranged in the 3% to 4% range year-over-year. So as that kind of really just works itself through, I think clearly you can kind of assume that we're going to be working hard with our operators to make sure that we are getting that operating leverage. We are matching any potential growth in occupancy with the growth of any kind of needs on the cost side with rate as well as other revenue generation ideas to make sure that we're continuing to kind of improve our margins. I think we've done an incredible job. Our asset management team has done an incredible job of holding the line in terms of the positions we've taken out we've talked about extensively. And I think we certainly feel like we've done a really good job of holding down that count still down 19% in staffing and realized, if you were to kind of hold flat 19% levels of wages. I think there's about $150 million of savings when you look and that compares against the $85 million we've discussed in the past. So again, there's still some occupancy to get at with the portfolio and that will lead to a little bit of cost that comes up. But I think we are in that zone where you're north of 70% occupancy trying to get to 80%, and that's a pretty profitable range to be in when you start building an occupancy back and just dealing with a little bit of variability in terms of the expense add. I think we feel pretty good. I mean, I think HHV talking about Hawaii again is a great case study where occupancy is certainly within the zone where to have 19% rates up, but it's not above inflationary rates on selling, and our margin is up over 200 basis points. So I think again that speaks to the work that's been done in the portfolio to manage the cost side.

The other side of that, Dany, I would add is, when you think about our growth profile another way to help mitigate obviously the impact of those rising expenses. And to Sean's point, I think we've done as well as anybody in the sector at keeping those costs down; a lot of credit to our asset management team. But when you've got a backdrop of strong demand and growth in Hawaii looking out, New York City again up 30%, and given some of the constraints down in New York City, it's looking very different. Chicago is going to have a record year next year on the convention front. New Orleans having a near record year, Boston, San Diego, D.C. being strong. Given the diversified portfolio we have, obviously, anchored in resorts and leisure, but certainly very strong on the group side as well. And as business transient continues to recover, none of us know ultimately where that's going to set up, I like our positioning as we look to 2024 and beyond.

Very helpful. Thank you for that. And then in the prepared remarks we talked about we're back to pre-COVID target levels for dividend payouts. It looks like Casa Marina and Bonnet Creek are looking for year-end completion. So look beyond that how should we think about just the mix of capital allocation ROI projects, and capital needs going forward afterwards?

We've historically been in that say $200-plus million range obviously pre-pandemic. You'll see this ramp that up a little as we continue to take advantage of these strategic ROI projects. And as Sean noted, you can expect obviously AFFO payout to be in that two-thirds range. We're quite proud and we hope shareholders are pleased as well. We are returning over $625 million in return of capital this year. Sizable, it's significant. And you can expect that the Park team is laser-focused on continuing to create value for shareholders as we move forward.

Thank you. Our next question is coming from Bill Crow with Raymond James. Please proceed with your question.

Hey, good morning, guys.

Good morning.

Couple of questions. First of all, it looks like your Chicago assets benefited to the tune of about $10 million from kind of property tax benefits and back-to-business payments. Was that in prior guidance? I don't recall discussing that last quarter.

No. Bill, it was not in prior guidance. I don't certainly know what the outcomes are going to be.

Okay. And then the second question is more philosophical in New Orleans. And I'm just wondering, you said that group is up 11% next year, which is terrific, but it's coming off of a really, really low base. And is that a market, Tom, that is facing more secular than cyclical challenges you think? And as we think about the West Coast markets is it one of those markets that's just kind of maybe losing something to the new markets like Austin and the Nashvilles and Miamis and whatnot?

It's a fair question, Bill. Just a couple of points of clarification, based on what we see on room nights and citywides in New Orleans, is about 450,000 in 2023 and looking at about 505,000 to 510,000 next year. So, it's not as bad a base. I would say obviously in the third quarter there were no citywides. So hence the reason it was softer there, but it's a complex market. You do have the Harris converting to Caesars. You have significant investment being done there, particularly around the water. You've got obviously the mall has a new owner adjacent to our complex, and the convention center is putting in I think about $550 million in improvements. It's historically, as you know, been a strong leisure market and it's been a strong convention market; its gap has always been in the corporate side. That certainly would help. But I'm more encouraged; it's pro-growth, labor is reasonably priced, and it doesn't have the same challenges as we see in some of those other cities that I know you're referring to. So we're cautiously optimistic. And whether that's a long-term hold for us, we'll see, but we certainly don't see the secular challenges there that I think we're seeing in some of the other cities.

Yeah. Okay. Tom, I've been doing this for a while. I don't think I've ever said this, but congratulations on the default. And with that, I'm done.

Bill, I appreciate that. The team appreciates it. As I said in our June prepared statement and then follow-up meetings, it was difficult but necessary to get it to where it is today from June to early November. It was just about working around the clock to get to the right outcome, and I believe we got to the right outcome moving forward for Park, our shareholders, and San Francisco will recover. It's just going to take many years, and Park couldn't wait anymore, and we couldn't afford to continue to carry those two hotels, as you know.

Thank you. The next question is coming from Dori Kesten with Wells Fargo. Please proceed with your question.

Hey, guys. Can you do a full bridge on the old EBITDA guide to the new just addressing what you thought San Francisco EBITDA would be in November and December and then Chicago property tax that Bill just noted? Anything else?

Compared to the guidance we provided in August, we initially expected San Francisco to be around breakeven. Therefore, I wouldn't characterize it as having a significant impact as we consider our updated guidance this time. Regarding Chicago, that was not included in our previous guidance. It was really a mix of an appeal that affected the previous year, 2022, and allowed us to align our property tax accruals this year. This amounted to about $5 million compared to the prior year, and then there was an additional catch-up of around $10 million in total, which Bill mentioned is fairly accurate.

Okay. And there was nothing else then?

No.

Okay. And then I know it's early for 2024, but just very broadly between business transient, group and leisure, which do you think would be your strongest revenue growth engine next year?

We currently see a growth pace of 18% for the group segment. Our current mix is approximately 200 basis points lower than it was in 2019, indicating there is still room for improvement. The leisure segment remains robust, particularly with ongoing discussions about Hawaii and the excitement surrounding people wanting to return to the resort there. Overall, I believe all three segments are progressing positively for us.

Dori, I think it's one of the benefits of a diversified portfolio. So I would say we lean forward a little bit on the group through all the reasons that we've outlined, but leisure, again given Orlando, given Key West, given Hawaii, expect also to be strong and for business transient and urban to be recovering. So that certainly would lag a little bit and perhaps be a little slower. But I think that's one of the real benefits of the growth profile of Park as we move forward.

Okay. Thanks.

Thank you. Our next question is coming from Ari Klein with BMO Capital Markets. Please proceed with your question.

Thanks, and good morning. On the CapEx front, you noted the disruption headwinds this year. Is there anything notable for next year that we should be thinking about? And then one of your peers announced a broader CapEx program alongside of their brand. Obviously, Park has many Hilton Hotels. Is something of that a potential in the future for you?

We are not in discussions with Hilton about any kind of broader CapEx program. Hilton is a great partner and we work closely with them. Those programs show well and sound good; there’s always complexity behind them, and we are not in discussions with Hilton on that front. Regarding next wave of ROI projects, we look at our Royal Palm Resort in South Beach on the oceanfront just fabulous real estate that's one that our design and construction team are beginning to spend additional time on as we move forward. Obviously, we are looking at another tower that will renovate Hilton Hawaiian Village. But I wouldn't say that there's anything material that's going to be very disruptive in 2024 as we look out right now. We're very careful trying to minimize our disruption to really 100 basis points of RevPAR approximately. Sometimes that will be a little more, a little less. But we're very thoughtful about making sure that these strategic ROI projects, no doubt the investments that we've made and that have been communicated are going to provide great tailwinds for us as we move forward, but we're going to continue to reinvest where we make the money. And certainly, Hawaii is a great example as we look out for some of those bigger projects. We're also looking at expanding our resort, our property in Santa Barbara, adding additional keys there. So the embedded ROI opportunities within the portfolio over the next several years are significant and we're pretty excited about that.

Thanks. And just maybe following up on Hawaii. You noted the Japan seat capacity picking up pretty meaningfully going forward. Are you seeing that translate into bookings yet?

Again as we said for fourth quarter we're looking at Hawaii being kind of low double-digit growth. So the answer is we are encouraged and yes optimistic as our team there also works with some of the tour operators and as the Japanese traveler comes back is very exciting. That will be again another tailwind for Hawaii as we look out.

Appreciate it. And I'll echo the congrats on the deal.

Great. Thanks.

Thank you. Our next question is coming from Anthony Powell with Barclays. Please proceed with your question.

Hi, good morning.

Hi, Anthony.

Question on New York. In a few I guess reach with a lot of exposure there which is sort of positive here. That property did about $50 million of EBITDA pre-pandemic margins in the mid-teens. Shouldn't you be able to exceed that now given the structural changes in that market? And are there any more cost savings you can maybe get out of that property?

Yes, that's a great question, Anthony. Reflecting on the pandemic, there were predictions that New York would take a long time to recover, possibly until 2026, 2027, or 2028. However, we expect to be close to pre-pandemic levels this year in 2023. We're experiencing a 30% increase in the third quarter, and the forecast for October is likely around 12% to 15%. We're anticipating a strong fourth quarter and a significant overall increase for the year, highlighted by 44 sellout nights in the third quarter, which is four times what we had last year. In 2019, we had around 60. We're very optimistic. As Sean mentioned earlier, the October revenue is projected to be about $32 million, just $2 million below the all-time high from May 2018. Additionally, with supply contracting and short-term rental regulations leading to an 80% decrease in Airbnb units—from 23,000 to 3,000—New York's situation appears much different now. We only own one asset in that market, but we feel encouraged as we look ahead. The group pace for 2024 is projected at about 109% of 2019 levels. Given that there are only three primary assets able to accommodate group business in New York, we're cautiously optimistic and see an opportunity to continue to refine operations and enhance efficiencies. Our outlook there remains positive.

Thanks. And maybe just on asset sales. There have been a few deals in Boston, San Francisco, and some other markets. Are you marketing properties? And then what's your view on dispositions for this year and next?

Yes. We've closed on one sale. Obviously, we're not a desperate seller. We're going to remain disciplined on our pricing expectations. And with that backdrop we continue to focus on selling non-core, but we'll be disciplined about it. Those transactions under $100 million are easier to certainly execute, but again our Chief Investment Officer, Tom Morey and his talented team are working hard and we're confident we'll put some points on the board here if we have not done by the end of this year certainly into early next year. But you'll continue to see us with the same playbook continuing to reshape the portfolio. Listeners may forget now, but we have sold and disposed of 42 assets for about $2.7 billion including international laundry facilities. We have cleaned up and reshaped this portfolio significantly since the spin, and I'm really proud of the team and the great work that's been done.

All right. Thank you.

Thank you. Our next question is coming from Jay Kornreich with Wedbush. Please proceed with your question.

Hi, good morning.

Good morning.

Just going back to capital allocation for a moment. You talked a lot about the internal growth story and ROI. I guess from an external growth story, it's been a while since you had made an acquisition and now with the removal of the San Francisco assets maybe there's a desire to smooth out the demand profile and look a little bit away from Hawaii as a fantastic market. Can you just provide any comments as to your ability and desire to acquire at this stage? And maybe what you'd be looking for if so?

The ability and desire would be high. I think the question is sort of at the right price and the right time. At this point, given where we're trading at these huge discounts obviously to both replacement cost and NAV, the best capital allocation decision would be selling non-core assets and buying back our stock or reinvesting in our portfolio. Having said that, we are actively looking. You'll see us certainly in geographic pockets where we're less represented. Clearly, Nashville is a market of Florida and adding more in Miami area would certainly be of interest to us. Phoenix is an area in Scottsdale that we certainly would be open to; Austin, probably not in the near term given what's happening with the convention center and the work that's being done but that's certainly on our list as well. So Sunbelt remains high, but I think that area is also moderating. It's had quite a run up, and obviously, with that reversion back to the mean, I think hopefully, that will give the opportunity for better pricing. But no doubt we are in this to grow the business. And our deal team continues to underwrite, participate, and we have the capacity to do something if something is priced right in the right situation.

Thanks. Appreciate that commentary. And then I guess just as a follow-up. Now that leverage is coming down to low around 5.2 times as you mentioned, is that a level you're comfortable with? Or do you have your eyes set on a specific range or number you'd like to get that leverage to?

As we said from the spin, we were always in that three to five times. Obviously, we had to go over that obviously given the pandemic of what happened. But getting certainly in the four times is a target for us. But we feel a whole lot better, and we certainly think the narrative should change and will change with the recent actions and where we are now in the low five times for net debt to EBITDA and given the outlook as we see growth in EBITDA next year and beyond as we move forward.

Got it. Okay. Well, that’s it for me. Thanks very much.

Thank you.

Thank you. Our next question is coming from Chris Woronka with Deutsche Bank. Please proceed with your question.

Hey, how are you? Congratulations on a lot of good stuff that happened this past quarter. Appreciate the comment. I wanted to kind of drill down on group rates a little bit if we could. I mean people focus on leisure, resort, pricing and how that are mobilized. I think we're to see that it's not the end of the world on groups, where do you think you are on groups of being able to – willing to absorb higher price points than we saw in 2021, 2022 and before. I mean are you more optimistic about what group pricing looks like for 2025, 2026, 2027? Just trying to get a broad sense as to how much more momentum might be there.

Yes. Let me – you were breaking up a little bit, Chris, but I think I got the gist of your question about group pricing. So if you look at group, if you look at 2024 as an example, and I'll just give ranges, your room nights are probably in that 85% to 90% range of 2019, but if you look at rate it's probably in the 105% to 110% approximately of 2019. So rate is strong and we're not seeing any hesitation. And look in this sort of hybrid world where things are evolving and the importance of groups, people are willing to spend more, whether that's for meetings or celebrations, incentives and getting the need to bring their people together. So, we're not seeing hesitation. If anything, we see that as another line of business and certainly better flow-through and better utilization of our properties. And given the fact that you – when was the last time you saw a group hotel get constructed? Not happening very often. We also see that as a real benefit for the Park portfolio as we move forward.

Great. Very helpful. Thanks.

Thank you.

Thank you. Our next question is coming from Chris Darling with Green Street. Please proceed with your question.

Hi, everyone.

Hi, Chris.

Tom, can you dig into business transient demand and how that's trended as we move past Labor Day? And then what's your sense of what's happening with the larger corporations? Have you seen any positive momentum in that regard?

Chris, this is Sean. I mean I would think we have seen better-than-expected results coming out of Labor Day. I think again, some of the key components of business transient being corporate negotiated ultimately outperformed expectations coming in Q3 and I think we'll continue to do that as we get into kind of early stages of Q4. That said, I would think we're still kind of looking to see that corporate negotiated subsegment that's dominated by those bigger businesses and bigger corporate come back certainly 20% to 30% down relative to 2019. Part of that now is I think understanding, if it's just more of a focus now by our operators to just go after some of the smaller businesses, that they wouldn't really pay attention to this. They just lived off of the larger groups and now they're finding better balance. And so, we're trying to read through that to understand, okay, is this kind of really just permanent secular kind of shift of this type of demand? Or is this more of a strategic move to kind of balance out those segments? So, I think in the end we're still seeing good travel going, and ultimately I think we see it through the rest of the quarter as well.

Okay. That's very helpful. And then maybe switching gears. Just curious, what's the appetite to use seller financing to effectuate any incremental asset sales?

Look, it's not ideal, but in the right situation, we'd certainly be open to it. Look there's plenty of debt capital out there. Could be a little pricey. Obviously, the banks are going to probably have more regulatory pressure on them. But if you look at the private credit market, it continues to accelerate and grow, and we don't expect that's going to change. We haven't had any problem getting deals done, and our buyers have been able to find certainly what were necessary, and most have the ability to be able to over-equitize if necessary. But it's a fair point, particularly if we were going to try to move a larger asset. Even the recent deal that got done in Boston, you'll find the right buyer who has that capacity; they certainly have the ability to take it down all cash or put more equity in if necessary. Thank you, Chris.

Thank you. We have no further questions at this time, so I'd like to pass the floor back over to Tom Baltimore for closing remarks.

Thank you all for taking time today. And I hope that we can change the narrative regarding Park. We are excited to have the noise of San Francisco behind us. We're excited about the future. There is a strong growth profile for Park as we move forward, and I look forward to seeing many of you, if not all of you, out in Maui.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation and you may disconnect your lines at this time.