Park Hotels & Resorts Inc. Q4 FY2023 Earnings Call

Greetings, and welcome to the Park Hotels & Resorts, Inc. Fourth 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. Please note, this conference is being recorded. I will now turn the conference over to Ian Weissman, Senior Vice President of Corporate Strategy. Thank you. You may begin.

Thank you, operator, and welcome, everyone, to the Park Hotels & Resorts fourth quarter and full year 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 in forward-looking statements. Please refer to the documents filed by Park with the SEC, specifically the most recent reports on Form 10-K and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements. In addition, on today's call, we will discuss certain non-GAAP financial information, such as 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 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 a review of Park's fourth quarter performance and the outlook for 2024. Sean Dell'Orto, our Chief Financial Officer, will provide additional color on fourth quarter results, an update on our balance sheet and liquidity and further details on guidance. 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 and welcome, everyone. 2023 was a year of outstanding accomplishments for Park as we executed on our strategic objectives, exceeded our operational goals, and meaningfully strengthened our balance sheet while delivering sector-leading total returns for shareholders. Our strong operational performance was broad-based as we witnessed ongoing strength in Hawaii as well as an acceleration in group demand across several of our core markets, including New York, Boston, Denver, and Chicago, which helped to drive RevPAR growth of nearly 16% versus 2022 in our urban hotel portfolio. On the capital allocation front, we remain laser-focused on targeting the highest returns on our invested capital, having strategically invested nearly $300 million across our iconic portfolio at expected returns well above acquisition yields. We also took advantage of the spread between public and private market valuations, buying back nearly 15 million shares for $180 million in 2023 at a significant discount to net asset value. In addition, we returned over $450 million of capital to shareholders in the form of dividends with dividends from operations totaling $1.38 per share or an attractive 8.5% yield based on our most recent share price. I'm also incredibly excited about our relative position in 2024. The investments we made in our portfolio over the last two years, along with the repositioning achieved by the effective exit from the two San Francisco hotels combined with the current backdrop of a healthier than expected U.S. economy, strong convention and group activity in our key markets, and the ongoing resilience of leisure travel create a favorable setup for Park. Prudent capital allocation remains a top priority as we anticipate continuing our initiative to sell more non-core hotels with net proceeds used to reduce debt and reinvest in our core portfolio with an expected disposition target of $100 million to $250 million this year. Furthermore, we will continue to strengthen our balance sheet by extending maturities, all while maintaining sufficient liquidity to opportunistically acquire assets as capital market conditions improve. Turning to operations. As we previously reported, I am incredibly pleased with our results for both the quarter and full-year 2023 exceeded expectations. RevPAR growth increased 4.1% for the fourth quarter and 8.7% for the full year or 50 basis points higher than the midpoint of our full year guidance. Excluding the impact from renovation, primarily at Bonnet Creek and Casa Marina, RevPAR increased an impressive 6% and nearly 11%, respectively. Total RevPAR growth of nearly 5% in the fourth quarter was supported by an 8% increase in food and beverage spend driven by solid banquet and catering in our urban and resort markets, translating into an incremental $3.5 million increase in EBITDA in the fourth quarter. With respect to group, we saw a continued trend of accelerating performance throughout the quarter, with comparable group revenues for the fourth quarter are up nearly 9% year-over-year, or a sequential 12% improvement over the third quarter, while Q4 results represented the first quarter since the start of the pandemic for group revenue to surpass 2019's quarterly results. Looking ahead to 2024, we expect group to remain very healthy. Group revenue pace up 13% year-over-year and total group revenues forecasted to exceed 2019 levels this year, driven by a material pickup in group demand at our Bonnet Creek complex in Orlando, where our meeting space expansion project was completed recently, coupled with strong citywide calendars across several of our core markets including Chicago, Honolulu, New Orleans, San Diego, and Miami, all of which are expected to produce double-digit increases in convention room nights in 2024. Focusing on a few key markets. New York continued to benefit from impressive recovery of both group and leisure demand, which when combined with a nearly 9% decrease in hotel supply since 2019, translated into a material increase in compression room nights during the quarter. Specifically, our Hilton New York Midtown recorded 45 sellout nights in the quarter, almost double the same period last year and most notably, the highest quarterly revenue in the property's history, rounding out a great year for the asset, which grew RevPAR by over 30% versus 2022. Boston also delivered a very strong quarter with our Hyatt Regency Hotel benefiting from better-than-expected group demand, helping to lift rate with ADR up 10% year-over-year or 12.5% above 2019. Turning to our resort portfolio. Excluding disruption primarily from the Casa Marina and Waldorf Bonnet Creek renovation, RevPAR for the fourth quarter exceeded 2022 by over 6%, led once again by the sustained demand in Hawaii, specifically at the Hilton Hawaiian Village, RevPAR increased 5%, driven by increased group room nights and ADR improvements from continued domestic leisure strength. Total air available seats into Oahu grew by 11% over 2022 during the fourth quarter with domestic improving by 5% and international available seats increasing by nearly 30%, although still pacing 28% below 2019 levels. We saw particular strength at our Hilton Waikoloa Village, which achieved a 22% increase in RevPAR during the quarter, driven by exceptionally strong group demand. Group revenues were up more than 145% over 2022, including increased demand from several groups relocating their programs from Maui to Big Island during the fourth quarter. Even without the benefit of still recovering international demand, both hotels reported record profits in 2023. With Hilton Hawaiian Village, adjusted EBITDA up 15% over 2019 to $188 million, while Hilton Waikoloa Village exceeded 2019 by 12% to $56 million despite having 600 fewer rooms. Looking ahead to 2024, Park remains well positioned to generate solid year-over-year RevPAR gains driven by tailwinds from our ROI investments, the ongoing strength of our resort markets and an acceleration of group, business transient demand in markets which stand to benefit from a strong convention calendar. At our Bonnet Creek Orlando complex, feedback from meeting planners has been incredibly positive. 2024 group revenue is forecasted to be a record year for the complex with revenue on the books facing over 30% ahead of 2023 and hotel adjusted EBITDA forecasted to exceed 2023 by over 20%, while group revenue pace versus 2019 is currently ahead by 30%. At Casa Marina and Key West, momentum is building since the hotel fully reopened its rooms in mid-December, with revenue on the books for 2024 up 65%. The property is forecasted to generate full-year RevPAR growth in excess of 70%. Collectively, we expect renovation tailwinds from both the Casa and Bonnet Creek to add approximately 150 basis points lift to the full-year 2024 RevPAR to our overall portfolio. In Hawaii, we anticipate Hilton Hawaiian Village to have another strong year, driven by healthy domestic travel, while inbound tourism from Japan is expected to improve throughout the year. The latest forecast from the Hawaii Tourism Board suggests a material increase in airlift direct to Honolulu, with visitor arrivals expected to increase 50% this year and exceed 2019 levels by 2026. Between the two properties, we are forecasting our Hawaii hotels to deliver low single-digit RevPAR growth in 2024, partially impacted by phased room renovations at both resorts that Sean will discuss shortly. We are very bullish on the future outlook for both markets in Hawaii. Japanese travel should continue to build over the next 12 to 18 months. We anticipate increased domestic airlift to both islands up over 15% from 2019, which should help support ongoing strong domestic demand. Additional growth drivers in 2024 include strong performance across our urban portfolio with Boston, New York, Denver, and Chicago expected to deliver RevPAR growth in excess of 5% on average as both group and business transient demand trends continue to improve. In summary, in 2023, we accomplished some key objectives that have set us up to deliver solid growth, with the tailwinds from recent ROI investments and a meaningfully improved balance sheet. Additionally, continued strength in Hawaii, a well-positioned urban portfolio, supported by strong convention calendars, and encouraging momentum in our group business give us optimism in our outlook. With that, I'd like to turn the call over to Sean, who will provide further details on our performance as well as additional details on the first-quarter expectations.

Thanks, Tom. Overall, we were very pleased with our fourth-quarter performance. Q4 RevPAR was $178, with occupancy up 150 basis points to 71% and with ADR increasing nearly 2% to $251 or 15% above 2019. Q4 comparable hotel revenue was $619 million, while comparable hotel adjusted EBITDA was $171 million, resulting in comparable hotel adjusted EBITDA margin of 27.5%. Q4 adjusted EBITDA was $163 million and adjusted FFO per share was $0.52. Turning to the balance sheet. Our current liquidity is over $1.3 billion, including approximately $350 million in cash, while net debt currently stands at $3.4 billion, or down over $500 million compared to where we stood over a year ago. With net debt to adjusted EBITDA lower by 1.5 turns to under 5.2x following our effective exit from the two Hilton San Francisco hotels. Overall, our balance sheet is in great shape with just over $700 million of debt maturing through 2025 or less than 20%, including our $650 million 7.5% corporate bonds that come due in June 2025. With respect to balance sheet priorities, we continue to evaluate options to push out in pending maturities while using proceeds from potential asset sales to deleverage and provide further financial flexibility. Furthermore, I'm delighted to announce that S&P Global recently upgraded Park Hotel's corporate credit rating by two notches, elevating it from a single B rating to BB minus. This marks a significant advancement for the company and reflects the agency's acknowledgment of our dedicated efforts over the past four years to strengthen our balance sheet and credit metrics. Turning to capital expenditures. We substantially completed several strategic projects in 2023, including the $220 million full-scale renovation and meeting space expansion at our 1,500-room Cigna and Waldorf Astoria Bonnet Creek Resort Complex in Orlando, as well as the $80 million renovation of our Casa Marina resort in Key West, the $85 million complete rooms renovation of the 1,021 room Capa tower at Hilton Hawaiian Village, the $11 million complete rooms renovation of the 455 room Riverside tower at our Hilton New Orleans hotel, and the $5 million renovation of a 30,000 square foot grand ballroom at the New York Hilton. In total, we spent nearly $300 million on capital in 2023, one-third of which were targeted ROI projects. In 2024, our total CapEx spend will be approximately $230 million to $250 million, of which nearly 60% will be focused on guest-facing areas, including renovations for nearly 850 rooms. Key projects this year include multiphase room renovations at Hilton New Orleans Riverside, where we will renovate all 1,167 keys in the main tower over the next few years with 250 keys targeted for completion in 2024. In addition, we will also launch phased room renovations at both of our Hawaii hotels, including approximately $45 million to be spent at Hilton Hawaiian Village, where we will renovate nearly half of the 796 rooms in the Rainbow Tower this year while adding 26 keys with the balance expected to be completed in 2025. We also plan to renovate nearly half of the room product in the 400-room Palace Tower at Hilton Waikoloa Village for a total investment of $31 million, also adding 11 keys with the balance of the rooms expected to be completed by early 2026. Renovation displacement in Hawaii this year is expected to be approximately $8 million, placing nearly a 180 basis points drag on Hawaii RevPAR performance or a 40 basis point drag on total portfolio results, while negatively impacting total portfolio margin by 20 basis points for the year. Turning to guidance, we are establishing a full-year 2024 RevPAR guidance of $185 to $188 or a year-over-year growth of 3.5% to 5.5%, while hotel EBITDA margin is expected to be between 26.8% and 27.8%. With respect to earnings, we are forecasting adjusted EBITDA to be in the range of $645 million to $685 million and adjusted FFO per share guidance is forecasted to be between $2.02 to $2.22. With respect to full-year hotel adjusted EBITDA margin, which is forecasted to be down 50 basis points at the midpoint, prior year comparisons will be impacted by last year's favorable property tax appeals and other non-repeating items, which will negatively impact margin by approximately 40 basis points. The first quarter had an exceptional start with RevPAR growth up 13.4% in January, and positive trends continued in February with preliminary RevPAR forecast to be up over 8% or a pickup of over 250 basis points of year-over-year growth relative to our forecast at the beginning of the month. We have witnessed solid performance across much of the portfolio, with outsized gains driven by our urban core, including New York, Chicago, New Orleans, and Denver. While we expect RevPAR in Hawaii to increase by 10% through the first two months of this year. Additionally, renovation tailwinds at both Casa Marina and Signia Bonnet Creek are translating into solid RevPAR gains at these properties, with results in January and estimates for February projected up 20% and 19%, respectively. Looking ahead to March, we have tougher year-over-year comparisons, especially on the group side, which witnessed exceptionally strong performance last year. While the Easter calendar shift is an additional headwind to March performance. Consequently, we currently anticipate low single-digit RevPAR growth for March to balance out the quarter, yielding expectations for Q1 RevPAR growth in the range of 6.3% to 7.3%. Turning to the Q1 dividend. Given our positive outlook for the year, we recently declared a quarterly dividend of $0.25 per share, which is a 67% increase over the $0.15 quarterly dividend paid last year and translates to an annualized dividend yield of 6.2% based on recent trading levels. As we stated last quarter, we expect to resume our targeted payout ratio in the range of 65% to 70% adjusted FFO per share for the full year, which based on our current guidance would translate into an incremental top-off dividend at the end of the year. 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?

Our first question is from Floris Van Dijkum with Compass Point.

I'm impressed with the results. However, I still see a $47 million hotel EBITDA gap. I'm curious when you expect the portfolio to surpass 2019 levels. The $47 million relates to your hotel EBITDA compared to 2019. Could you also discuss Hawaii Village? That asset is performing well and is close to reaching $200 million in EBITDA. Even with the anticipated disruption in '24, achieving 6% EBITDA growth would get you over the $200 million threshold. Is it feasible to reach that within the next calendar year?

It's great to talk with you. As mentioned earlier, the performance in Hawaii has been strong. Although Japanese travelers haven't returned yet, last year saw about 600,000 visitors compared to an average of 1.5 million over the last 30 years, which puts us at around 50% to 60% below normalized levels. We believe that visitor numbers will likely reach 1.5 million again by 2026, which will continue to support our growth. The Hilton Hawaiian Village, with its expansive 22 acres and five towers, attracts generations of guests due to its appealing nature. It's not ultra-luxury, making it accessible to many. As for surpassing 6% or $200 million in EBITDA, I’m not certain if it will happen this year or next, but I’m confident it’s in our future. This year, we expect low single-digit growth as we complete half of the Rainbow Tower renovation. The renovation of the Tapa tower yielded an additional $75 in ADR, and we're optimistic about achieving similar or better results with the Rainbow Tower. We're very positive about Hawaii and Hilton Hawaiian Village, but we must also acknowledge Hilton Waikoloa, which saw a 146% increase in group revenue last year, despite having half the inventory compared to pre-spin. The EBITDA generated per guest room is impressive, and our asset management team, along with our operating partners, is doing an outstanding job. We’re also progressing on the entitlement for a sixth tower in Hawaii, which signals more potential growth. What we have at Hilton Hawaiian Village is unique and can't be easily replicated. This does not account for the 1,000 timeshare units we don’t own, and we often host 10,000 to 11,000 guests on-site. It's truly an iconic property, unmatched in its ability to generate EBITDA among REIT assets. Regarding your question about the portfolio and the existing gap, January illustrates an interesting point. In the fourth quarter, we reported a 16% increase in group revenue, but January showed urban growth at 20% and resort growth at 10%. Our group pace for January was up 29% and 26% for February, with broad-based increases in various cities, such as Chicago up 38% and New Orleans up 52%. Despite last year's 31% overall increase, we're observing a strong return of urban groups along with positive trends in the upper-scale market. While March may see a slowdown, we're very optimistic about 2024 and beyond.

Our next question is from Dany Asad with Bank of America.

Tom, I wanted to discuss your RevPAR guidance. In your remarks, you indicated that renovations will contribute an additional 150 basis points to RevPAR. It seems like the two to four range you're suggesting is a bit lower compared to the 6% to 7% expected in the first quarter. Is there some conservatism in your projections for the rest of the year? What factors are influencing this potential deceleration relative to the first quarter?

A couple of points of clarification, Dany. We're guiding for RevPAR growth of 3.5% to 5.5%, which puts the midpoint at around 4.5%. We expect about a 150 basis point boost from Casa, as well as from Bonnet Creek. It's important to note that January and February were exceptionally strong based on current trends. However, we anticipate a slowdown in March for various reasons we've previously discussed. Group bookings are expected to decline, and the Easter shift will also have a clear impact. Therefore, the performance in January and February doesn’t dictate the entire year, and we have built in conservatism. Nonetheless, we are pleased with the current situation. We are seeing pent-up demand from leisure travel post-pandemic, and group urban travel is gaining momentum, which is not surprising. Additionally, looking at our portfolio, New York serves as a prime example. There has been a 9% reduction in supply in that market, and many have written off the city, but we believe there's upside. There are only three large hotels capable of accommodating sizable groups. We view New York as having more potential, particularly as we look ahead, and we believe we are exceptionally well positioned there.

Dany, quickly, I want to mention that there is a 50 basis point renovation impact on RevPAR this year, primarily affecting Hawaii, as we have noted. This impact will be more significant in the latter part of the year. Therefore, as you consider the rest of the year and any cautious outlook, we can expect a greater effect in the second half.

Got it. Got it. And then if I could just follow-up. Your outlook for like total RevPAR, let's call it, the hotel revenues outside of the HGV portion of it, is about 50 basis points ahead of your RevPAR outlook. How should we think about the incremental growth that flows through from that to the bottom line?

Yes. Overall, from a total revenue perspective, I would estimate an addition of about 30 to 50 basis points from out-of-room spending or beyond RevPAR. It's quite balanced, with a higher share of outlet revenue compared to banquet and catering, especially in the early part of this year. The flow-through for this is somewhat lower than what we typically see with banquet and catering. We are not anticipating as many cancellations, which normally would provide a full flow-through. Therefore, I would indicate that we shouldn't expect significantly more incremental flow-through from that additional 30 to 50 basis points added to RevPAR.

Our next question is from Smedes Rose with Citi.

I just wanted to ask a little bit about what you're layering in for wages and benefits expectations for 2024 across the portfolio? And maybe specifically, if you talk about those assumptions in Hawaii, if they're meaningfully different from the broader portfolio?

Yes. Smedes, as you can imagine, there will be some negotiations, and we certainly don't want to forecast where we think those negotiations will end. I think if you look sort of last year, wage increases were in that sort of 4% to 5% range. But to forecast anything beyond that would really be inappropriate at this point. Look, we have enjoyed, I think, very strong relations with our partners. We've got labor peace, if you will. And I think we had a very successful outcome in 2023, and we would expect something similar here in 2024 and beyond as we look out.

Okay. So we'll wait and see on that front. But it sounds like in your guidance that 4% to 5% is what's kind of factored in at least for right now until we have better information. Okay. And then can I just ask you, you mentioned hoping to execute on sales in the range of $100 million to $250 million. Just broadly, what sort of EBITDA would you expect to be selling in that range? I guess, either multiple or absolute dollar amount? Or how should we think about that, which I assume is not factored into guidance?

Yes. A couple of things to keep in mind. Since the spin, we have disposed of nearly 42 assets for just under $3 billion. Last year, we had one asset sale and another small leasehold interest that we sold as well. We’ve set a target of $100 million to $250 million. Tom Morey and his team have done an exceptional job every year. We’re not desperate sellers, so we’ll be disciplined and thoughtful about this. We will look to recycle that capital and are confident in our ability to sell assets, which we have consistently demonstrated. We intend to use those proceeds to finance ROI projects, reduce leverage, possibly make opportunistic asset purchases if the pricing is right, or buy back shares. This approach has been our strategy for the last several years. Additionally, it's important to note that our top 25 assets account for about 90% of the company's value, so the remaining 10% will only encompass a small portion of that $100 million to $250 million target.

Our next question is from Patrick Scholes with Truist Securities.

Give a little bit more color on the strength in groups. What changes have you seen as far as the composition of these groups and related to that propensity or lack of propensity, but it sounds like it's propensity to spend outside of the room. What types of groups are sort of shipping in and what are being shifted out?

Yes, Patrick, it's Sean. I think you're continuing to see, I think, for one, groups are getting bigger as we kind of naturally thought as we came out of the pandemic, we started with the small groups and now gone to larger in-house groups. You now got to the point where convention is, I think, the leader in the clubhouse as we look at this year in terms of growth. We've talked a lot about the convention calendars being in our favor in a lot of our markets with Chicago, up strong 65%; D.C., up almost 50%; Honolulu is up 30% and so down the line between New Orleans and San Diego and other markets are also kind of either flat or slightly up to about 20% up. So again, all across the board, I think we're seeing convention being much stronger in this. So I think it's leading to larger certainly room blocks for us. I think corporate remains strong through this year. And I think that certainly leads itself to, again, just getting bigger and they're outperforming. We're seeing revaluations up. I think that's contributed to some of the strength we've seen in January and February. So more are showing up than we anticipated, and that's leading to better certainly F&B spend. I would say the characteristics, I think kind of leading aside from just the size of them getting larger. I think it's just more getting into more traditional, what it is professional technology, the kind of the more traditional groups we've had in the past are kind of coming back. And importantly, too, if you think about some of the success recently here as we're picking up things like Tom had just briefly mentioned, but Apple has been a big contributor now in the short-term pickup in our market out in the Bay Area. So it's been encouraging to see a place like Cupertino, and our Juniper Cupertino and then to some extent, San Jose picking up some short-term group business as I think these technology firms are coming back more and bringing people back to the office and bringing people together to kind of train and ultimately get back to normal business.

Patrick, I want to add that I agree with everything Sean mentioned. There’s a natural need to gather people for training or celebrations. It really makes sense. Initially, everyone was focused on the pent-up demand for leisure, but now, as people return to the office, the need for them to come together is evident. What’s encouraging is that while we expected this, we're starting to see it accelerate across the board. Citywide is leading this trend, but there's also progress on the group side, particularly in-house. It’s very promising as we look ahead.

And my follow-up question actually has to do with booking out. Any initial observations or perhaps statistics that you can give on how '25 is pacing at this point?

Yes. I would just say '25 group pace is about 97% of 2019 levels as we look out right now and with rate very strong, an increase in rate near double-digit increase in rate.

I would say 10% right now.

You say pace, just to be clear, that's a revenue pace for next year versus 2024, 10%?

Yes. You look out at the same time, the same kind of time frame for 2025, you’re up 10% for revenue base, yes.

Our next question is from Duane Pfennigwerth with Evercore ISI.

On group revenue pace, I just wanted to try and ask the question in a different way. What percentage of the group revenue that you expect to generate this year is on the books? And if you have it, how does that percentage compare to this time last year into 2023?

What we have compared to our forecast shows that 78% is accounted for based on what we have already booked. This is an improvement from 74% last year. Looking at the first half of this year, we are currently 90% booked for our expectations.

That's super helpful. And then just Hawaii, I guess, a longer-term question. It's obviously off to a strong start. I think you've commented in the past like expectations for the year. How should we be thinking about Hawaii in its entirety for the year?

We mentioned earlier that we expect low single-digit growth for Hawaii. As Sean pointed out, we're coming off a strong year, but we also have renovations planned later in the year. Currently, we're seeing a 10% increase, and while things are progressing well, we still anticipate more of a low single-digit growth for the year.

Our next question is from Dori Kesten with Wells Fargo.

I know you just laid out your '24 CapEx plans, but can you give us a sense of what's on deck for '25? And just should we be considering '25 a year still with net renovation tailwinds?

Yes. It's a great question. Obviously, we began Rainbow Tower, obviously, a key tower in Hawaii, expect to finish that next year, sort of in the queue as we're working on Royal Palm, obviously, in Miami and South Beach, Bullseye real estate, about 393 keys. So our design and construction team are working on another transformative renovation for certainly that asset. Santa Barbara is another one that we're working with our partner, adding potentially going through the entitlement process, but adding another 80 keys there as we look out and clearly, continuing the renovation on New Orleans, but also be in the queue as well. So just a few of the assets, but we are really focused, Dori, laser-focused on spending money where we're making money. And you can see already the benefits that we're getting and really, we think candidly better than acquisition yields and what we can get in the marketplace.

Okay. And I may have missed this, but how apprised are you kept on the plans for your two former San Francisco assets at this point?

Again, we have the receivers in control. As a courtesy, I know that Sean occasionally and other members of the team are reaching out. If they have questions or anything that we can do, but the reality is that we're not involved in the day-to-day. We have no economic benefit and no economic risk moving forward. And I think given how San Francisco has played out, I think we would all agree that that was a very wise and very prudent decision, while difficult, certainly the right decision for Park and for our shareholders.

Our next question is from Jay Kornreich with Wedbush Securities.

Just to follow-up on the strong start to the year. RevPAR growth in the fourth quarter was about 4%, January jumped to 13%, February was up 8%. So I'm just curious what caused this kind of upward hockey stick level of growth to start the year? And is this something you foresaw? Or did it kind of come by surprise at all?

I see it as a pleasant surprise. As we pointed out, obviously, group was up 16%, obviously, in the fourth quarter. We saw sequential, I think, about a 12% increase between the third and fourth quarter. And I think we've all been talking about and expecting obviously the group in urban would really begin to accelerate. So I think it's a natural progression. We just sort of got the pickup a little sooner in terms of its acceleration in January and February. As Sean noted, and I noted earlier, obviously, Apple and Cupertino is a great example of we got some short-term business there. Obviously, you had some one-time events of the Sugar Bowl in New Orleans. But again, New Orleans was up north of 50%. Look at San Jose, obviously, had an event, but up 35%. So you're really starting to see obviously that those business travelers really getting back on the road. Again, that need to connect to be together, build those relationships that need is never going to go away. So really, this is a natural progression. And given the fact that if you think about our portfolio, we've got such small and certainly below the long-term average in terms of supply impact, that's going to continue to benefit us as we move forward. New York, again, you're taking supply out of the market. There hasn't been, I think, a permit approved since 2021. So we look at New York and are very, very bullish. And obviously, we had a great '23 and very encouraged about ‘24 as we look out, just to give another example. Chicago, again, we knew there was going to be a very strong citywide almost near record and up 65%, close to about 780,000 room nights as we look out there, but there was a strong group business in January, which also gave us an additional tailwind there. So it is a broad win.

Our next question is from Anthony Powell with Barclays.

I guess a question on your remaining, I guess, California exposure. Two hotels in San Francisco, two in Silicon Valley that Sean talked about and one Downtown L.A., the Hilton Checkers, I think all of the gap versus '19 is that those via properties. So maybe talk about what you're seeing there? And are those hotels still core to your portfolio?

Yes, Anthony, that's a great question. We currently have a 3% exposure in San Francisco, and it's crucial to maintain a diversified portfolio. In my opinion, groups that focus solely on leisure might find that approach unsustainable, just as those concentrating on urban and group markets might. Having a diverse mix is providing us with significant advantages. Regarding San Francisco, I anticipate that the market will eventually recover, although the process will be prolonged for the two properties we have there, the JW Marriott and the Hyatt Centric. We plan to hold onto these assets as we also consider our properties in San Jose and Cupertino, which are both appealing. However, the situation in Downtown L.A. is different and presents its own complex challenges, similar to those in San Francisco. We will keep assessing that submarket and determine our next steps.

Got it. I think Tom, you also talked about acquisitions. If the capital markets just cooperate, can you maybe expand on that? What do you mean by capital markets? Is it equity, debt capital and remind us what your target leverage ratio is right now?

Yes. I mean, look, we've always said from the moment of the spin that we wanted to be leveraged kind of 3x to 5x and we'd certainly like to be closer to 4x. I think in the context of capital markets, it's really beginning to get rerated EBITDA multiple and getting our stock up and something close to the net asset value. I think even the worst of times, we didn't do a dilutive equity raise. We're not going to do one now. We’ve been, I think, passionate and laser-focused on recycling capital. We’ve sold assets. We’ve used that to reinvest back in the portfolio and to buy back stock and reduce leverage. I’d say that we would be anchored in those same goals and principles, but we’re always looking opportunistically. And if there are unique situations that are accretive, we certainly are going to continue to underwrite and explore. But we’ll see. We’ll see how the year unfolds, but we certainly want to be on offense at the appropriate time. Right now, and last year was a great example of that buying back 15 million shares at an average price of $12 or inside of that was a very prudent decision for shareholders in our view.

Our next question is from David Katz with Jefferies.

We've been hearing obviously, from peers and other sources, right, that there isn't a lot to buy in the market these days. And it sounds like you have what to buy. What is your assessment of the market at the moment? Is there a bid-ask spread issue? Underwriting conviction should be better, I would think, but I'd love to hear yours.

Yes, it's great to talk with you, David. I believe that uncertainty hinders decision-making. We all expect that the Fed's tightening cycle is over and are anticipating reductions in interest rates, whether that's three this year or more. People are looking for changes and certainly expect debt markets to continue to open up. While banks face regulatory challenges, there is still a considerable amount of private capital, especially in private credit. Deals are being made, although at a slower pace, but as we gain better visibility in the second half of the year, things should begin to open up. Many believe there will be significant distress, particularly in the office sector compared to lodging, which will lead to some assets needing recapitalization. However, this situation is not comparable to the financial crisis we experienced previously. We will remain thoughtful and continue to reinvest in our portfolio, aiming to generate higher yields. If the gap between our share price and NAV persists, we will recycle capital and buy back shares. We have no intention of raising equity in the current market, given our trading position. We hope that our ongoing outperformance will be recognized and will positively influence our stock price.

Our next question is from Bill Crow with Raymond James.

The two W hotels in Chicago, I'm interested in because W seems like they're really trying to rebuild the brand, and it's a very different product type than the traditional Ws. Do you have any immediate plans to either kind of reinvest in those properties or divest those properties?

Yes, it's a great question, Bill. Look, we know, obviously, given the work that Marriott is doing that they're trying to reinvent, if you will, and I think to elevate the W brand, and we certainly support that. We're not sure that either of those assets are what we would call as pure Ws as we move forward. And we are actually in discussions about repositioning. And we think a soft brand play may make the most sense there. And I'll stop there. But we are carefully exploring our options and ways to create more value with those two well-located assets.

Great. And then the other one I wanted to ask you about was I look forward to your event down in Orlando. I'm wondering what the one or two things you're hoping the Street takes away from that event?

Yes, it's a great question. I could not be prouder, Bill, when you see just the magnitude of the work done and the complete transformation of not only adding 100,000 square feet over suspended over water for the Signia ballroom, but then to see the event lawn and to see, obviously, the additional ballroom that we added adjacent to the Waldorf and now the ability to be able to layer in groups and accommodate multiple groups and to have a few hundred thousand square feet of meeting space there, and a renovated golf course. That complete experience and to have really a world-class resort, 350 acres. And Bill, you've heard me say this before. I mean, we're right next to the Four Seasons, which is a fabulous asset, best in the market. I'm not sure what was paid for it, $1.3 million, $1.4 million a key. We're trading at $250,000 a key, maybe slightly above that. I think we’re a pretty good value. So I think that’s something else I’d like and hope that shareholders take away, but we hope you can join us, and we look forward to seeing you.

Our next question is from Chris Darling with Green Street Advisors.

I just have one follow-up question on guidance. When I look at what's implied by the 2024 outlook, I calculate expense growth for the year between 5.5% and 6% at the low and high end, which is just a $10 million range, it looks like. Can you help me understand what gives you confidence in projecting that relatively tight range of outcomes?

I think it's important to consider the various aspects involved when discussing elevated growth on both room production and out-of-room production. Ultimately, as revenues decrease, you will need to cut expenses. I feel generally comfortable with our guidance, which is at the higher end of 5% nominally. It's worth noting that we are facing increased expenses this year due to the reopening of Casa, and we are also comparing against some one-time benefits from last year in Q3, including a prior year tax appeal in Chicago. This brings our growth perspective to about high 4s, which reflects a more sustainable rate.

And our final question is from Keegan Carl with Wolfe Research.

Just wondering if we could kind of dive in a little bit more to your expected contribution from Hawaii in the first quarter of the year and then full year '24. It would be really helpful.

As Tom mentioned, it's low single digits for Hawaii, which has seen varied performance. Hawaiian Village aligns more closely with the overall portfolio performance. Adjusting for expected disruption later in the year, Waikoloa is projected to be down over 30 percent for the year, leading to a mid-single digits decline. This does put pressure on Hawaii as a market overall. Looking at the second half of the year, we expect group performance in Waikoloa to be lower alongside the disruption. However, the first half of the year has shown better performance than anticipated. We expected Waikoloa to be weaker at the start of the year, yet it has performed well and picked up in the short term, partly due to displacements from Maui. In terms of airlift, we're seeing a 5% increase domestically and a 50% increase from Japan to the Big Island for the first half of the year. Honolulu, while slightly down domestically, is up nearly 100% in forward airline bookings. Overall, we feel optimistic about the first half of the year, although we anticipate some softening in the second half. Looking ahead to 2025, we expect Hawaii's performance to rise by 25%, with Honolulu also up 25%, and Waikoloa expected to increase by 55%. A rebound is anticipated as we head into 2025 for these locations.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Tom Baltimore for closing remarks.

I appreciate all of you taking time today. Look forward to seeing many of you at the Citi Conference next week. Safe travels.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.