Earnings Call Transcript - PK Q1 2021

Operator, Operator

Greetings. Welcome to Park Hotels & Resorts Inc. First Quarter 2021 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 that this conference is being recorded. I will now turn the conference over to your host Ian Weissman, Senior Vice President of Corporate Strategy. You may begin.

Ian Weissman, Senior Vice President of Corporate Strategy

Thank you, operator, and welcome everyone to the Park Hotels & Resorts first quarter 2021 earnings call. Before we begin, I would like to remind everyone that many of the comments made today are considered forward-looking statements under federal securities laws. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed and we are not obligated to publicly update or revise these forward-looking statements. In addition, on today's call, we may discuss certain non-GAAP financial information, such as adjusted EBITDA. You can find this information together with reconciliations to the most directly comparable GAAP financial measure in last night'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. This morning Tom Baltimore, our Chairman and Chief Executive Officer, will provide an overview of the industry, as well as a review of Park's first quarter performance. He will also provide color on recent demand trends and their impact on Park's portfolio. Sean Dell'Orto, our Chief Financial Officer, will provide a brief view of performance across several of our key markets, as well as more detail 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.

Tom Baltimore, Chairman and Chief Executive Officer

Thank you, Ian, and welcome, everyone. I hope that everyone is safe, healthy and well as we surpass one full year of living through an unprecedented pandemic. I believe I speak for many of us when I say that there is finally a light at the end of the tunnel. I'm pleased to report significant improvements across our portfolio in recent weeks including meaningful sequential occupancy growth, as well as achieving portfolio breakeven EBITDA in March. Overall, I'm very optimistic about our outlook going forward. To start, I've been encouraged by the pace of vaccinations across the U.S., which has helped to drive a dramatic increase in consumer confidence and greater mobility. On the economic front, there are several tailwinds that are fueling increased economic activity. State and local jurisdictions have begun lifting restrictions on travel and public gatherings, paving the way for increased mobility. Ongoing government stimulus, including President Biden's $1.9 trillion stimulus plan passed by Congress in March, has continued to provide relief for those most economically impacted by the pandemic, while also fueling increased savings for others. The U.S. savings rate now sits at approximately 28%, the second highest rate on record, while personal savings exceeded $2.5 trillion in March, up from $2.4 trillion recorded in February. Personal consumption expenditures are currently forecasted to reach 7% this year, which would be the strongest PCE growth since 1955 and business investment spending is expected to be close to 8%. Both forecasts materially higher than at the end of 2020. And if approved, proposed government infrastructure investments will be another major boost to the economy. As a result of these factors 2021 forecast the GDP is now averaging 6.4%, which is the highest projected level since 1984. All of this bodes incredibly well for our industry. Against this backdrop, we remain laser-focused on our key near-term priorities, which include returning to profitability by safely and efficiently reopening the balance of our portfolio and reducing our monthly burn rate. I'm pleased to report that our March burn rate was just $26 million, down from a high of $85 million at the start of the pandemic, with an eye toward breaking even in the second half of the year. In addition, we remain focused on continuing to reimagine the hotel operating model with another $15 million of identified labor savings, bringing the total annual cost savings to $85 million or nearly 300 basis points of margin improvement. Additional priorities include, further strengthening the balance sheet by deleveraging through asset sales and pushing out maturities, which Sean and I will provide more color on shortly. And finally, pivoting to offense. As we relaunch our Bonnet Creek meeting space expansion project and selectively pursuing attractive and value-enhancing acquisitions in our target markets. Turning to our first quarter results. I am pleased with the sequential quarter-over-quarter improvement, including a material pickup in demand trends in March. Overall, results were driven by strong performance at our hotels located in resort markets, as well as those with proximity to strong leisure demand generators. First quarter occupancy at our consolidated portfolio, which includes both opened and suspended hotels, increased from 21% in January to 33% in March. For our open hotels, occupancy reached 46% in March, with 17 of our hotels surpassing 60% occupancy compared to just seven in February. This improving demand trend coupled with our relentless pursuit of cost-saving measures and efficiencies, allowed us to reach breakeven EBITDA for our portfolio in March, well ahead of our initial expectations. We were able to break even. We were able to reach breakeven EBITDA from March with occupancy of 32% and average rate down 25% versus 2019 levels, well below the targeted breakeven occupancy range of 35% to 40%, along with rate declines of 15% to 20% we previously communicated, making our cost-saving measures and efficiencies all the more impressive. As a result of improving demand trends, we continue to make progress on hotel reopenings including the hotel Adagio and La Meridian in San Francisco and the Doubletree at the Seattle Airport. All of which were reopened toward the end of March, we now have just seven hotels that remain suspended, with the W City Center in Chicago expected to reopen next week in the 1,900-room Hilton San Francisco Union Square scheduled to reopen prior to Memorial Day weekend. The Chicago Hilton is scheduled to open in mid-June. In terms of our reopening our four remaining hotels, we currently expect these hotels to reopen by the end of the third quarter, as travel restrictions ease and demand recovers. From a segmentation perspective, leisure accounted for roughly two-thirds of our demand during the quarter. Rooms related leisure revenues nearly doubled from the fourth quarter of 2020. While we witnessed clear signs of pent-up consumer spending at several of our resort properties including the Hilton Bonnet Creek in Orlando, where outlet spend was $102 per occupied room or 23% higher than in Q1 2019. While at the Waldorf Astoria Bonnet Creek that figure was $180 or 43% higher than Q1 2019. In addition, golf and spa expenditures at the resort exceeded $122 per occupied room, more than double what we generated during the first quarter of 2019. Overall, total ancillary revenues excluding food and beverage, given that several of our outlets remain closed, exceeded Q1 2019 levels by more than 30% during the quarter. Business transient demand showed marginal improvement from last quarter, while group demand began to show signs of recovery with small group bookings in the quarter for the quarter, while lead volumes continued to increase up from 50% of 2019 levels in January to 80% of 2019 levels in April. Not surprisingly, our top-performing hotels for the quarter are located in leisure destinations with minimal travel restrictions in place. Each of our three hotels in South Florida averaged occupancy rates over 80% for the quarter on stronger-than-anticipated leisure demand. In many of these leisure markets, the demand pace has been so promising that our teams have been able to increase rates by yielding out lower-rated discounts for more profitable channels. Focusing on our top markets, our two hotels in Key West, the Waldorf Casa Marina and the Reach Curio collection continue to outperform and lead the way for our portfolio. Combined occupancy averaged an incredible 96% while combined revenues of $25 million for the quarter surpassed budget by nearly $9 million. The hotels reported a combined first quarter RevPAR of $440 not only grew 24% year-over-year, but it also surpassed their 2019 first quarter RevPAR by nearly 5%. Moreover, both hotels witnessed strong growth in ancillary spend with combined total revenue averaging $611 for the quarter. Outlet spend per occupied room hit a record $95 during the quarter which was up 28% from 2019 and was largely driven by the reach's successful new restaurant concept. While Key West has been one of the strongest hotel markets during the pandemic, our hotels have performed particularly well. With both hotels having consistently outperformed the Key West track and their respective competitive sets in RevPAR index. Given the phenomenal pace of demand growth and strong rates, we feel very optimistic about Key West for the balance of the year. In terms of our other strong markets, Miami was another top performer for the quarter with occupancy at our Royal Palm hotel increasing from 69% in January to 90% in March on strong spring break related leisure demand. Puerto Rico has also been a success story with demand at our Caribe Hilton ramping up strongly throughout the quarter to reach 72% occupancy in March. Given travel restrictions to the Caribbean and other tropical destinations, Puerto Rico has been a popular alternative especially for East Coast residents. Turning to Hawaii, both of our properties saw growing momentum during the quarter. Hilton Hawaiian Village averaged 21% occupancy with just three of five towers open while at the Hilton Waikoloa Village occupancy averaged 41%, reaching an impressive 60% occupancy in March with close to $300 in total RevPAR for the month generated by strong spa and recreation revenues. While travel restrictions in Hawaii remain in place, the ability to bypass quarantine restrictions with proof of a negative COVID test has been greatly facilitated by domestic airline carriers, many of whom offer rapid COVID tests either at home or at the airport. The real game changer for Hawaii will be when unrestricted pan-Pacific air travel is allowed for those fully vaccinated, which could happen as early as July 1. Recent demand to Hawaii has also been aided by expanding domestic airlift from Southwest and Hawaiian Airlines, as well as the introduction of additional wide-body service from United and American. The increased domestic airlift and corresponding demand is expected to offset anticipated weakness from East Asia travel in 2021 where vaccines have been slow to roll out and travel restrictions remain in place. Overall, we are confident about Hawaii's recovery this year, with occupancy at Hilton Hawaiian Village forecasted to reach 75% for the balance of the year, while we expect occupancy to average over 80% at our Hilton Waikoloa Village hotel. Looking ahead to 2022 in Hawaii, we are expecting a very strong year driven by continued demand strength, increased group bookings, and the return of East Asian travelers who will likely be hungry for international travel after two years of restrictions. Our group booking pace for Hawaii in 2022 currently sits at over 40% ahead of last year with incentive travel and East Asia group demand paving the way for recovery. Simply put, we believe Hawaii has the potential to experience the same impressive demand growth as we have seen in Key West and Miami over the past few quarters as restrictions are eased and pent-up leisure demand accelerates. On the capital recycling front, we are encouraged by the market interest and strong pricing we have received on assets that are currently being marketed for sale. Further supporting the ongoing demand for quality institutional lodging assets. Accordingly, we recently announced the sale of the 97-Room W New Orleans - French Quarter hotel for gross proceeds of approximately $24 million. We are pleased with the deal pricing, which translated into a 4.3% cap rate on the hotel's 2019 NOI inclusive of $8 million in anticipated CapEx. This transaction allowed us to pay down debt and it also reduced our exposure to a market in which we already have a strong presence. We have several assets in various stages of the disposition process and expect to report positive news in the coming weeks. As stated last quarter, we plan to sell upwards of $300 million to $400 million of non-core assets this year to reduce our overall leverage and continue with our portfolio evolution, and we remain on track to achieve this goal. Thinking about the operational landscape for the balance of the year, we are encouraged by the continuation of March's strength into April. With April occupancy averaging nearly 50% for our open hotels or a sequential monthly increase of over 500 basis points, while April RevPAR was $85 for open hotels or $11 higher than March. Digging deeper into demand, we expect to see strong leisure demand continuing through the summer. Furthermore, we anticipate that a large portion of the outbound US travel market which totaled 100 million travelers in 2019 will choose to focus on domestic travel, driving accelerated growth in markets like Hawaii, South Florida, Southern California, and potentially urban markets like San Francisco, Boston, and DC. We are not expecting to see any material changes in business travel until more employees return to the office with some companies targeting after Labor Day for this transition. On the group side, we expect to continue to primarily drive demand from localized short-term SMURF groups in the near term, although there is exciting momentum for the return of large groups as early as late Q3 in certain markets. We have every expectation that Salesforce will commit to holding their annual Dreamforce convention in person in San Francisco at the end of September. And the Annual UN General Assembly Conference in New York is currently expected to be held in person in mid-September. We have been seeing tremendous incremental lead volume for group business across our portfolio with meeting planners expressing participants' desire to meet and connect. As large gathering restrictions ease, we expect these leads to convert to actual bookings in 2022 and beyond. Looking further out, group bookings for 2022 have increased each of the past two quarters, growing by over 110,000 room nights or 13% since September 30, 2020. Before I hand the call over to Sean, I want to reiterate my excitement and optimism for Park's outlook in the coming quarters. We believe our portfolio is incredibly well-positioned to reap the benefits of strong leisure demand in the short term with markets like Hawaii and Florida leading the way, supplemented by healthy group demand over the next few years as conferences and meetings resume and people eagerly reconnect with colleagues and peers. With over $1.3 billion of liquidity available and less than 2% of debt maturing through 2022, we are well-positioned to execute on our strategic priorities and capitalize on the exciting pace of recovery and growth. And with that, I would like to turn the call over to Sean who will provide some more color on our results and an update on our balance sheet and liquidity.

Sean Dell'Orto, Chief Financial Officer

Thanks, Tom. Overall, we were pleased with the first quarter performance with RevPAR increasing 49% over Q4 2020, driven by a 600 basis point sequential improvement in occupancy, while average daily rate neared $155 for a 15% quarter-over-quarter increase. As for the bottom line, operating losses tapered with negative adjusted EBITDA of $49 million, exceeding our internal estimates as solid performance across several of our resort properties and enhanced operating efficiencies across the portfolio helped to support results. For example at our Casa Marina Resort in Key West, both RevPAR and EBITDA exceeded prior peak up 5.1% and nearly 16%, respectively versus 2019 levels, while margins came in at roughly 51% for the quarter or nearly 600 basis points higher than Q1 2019. Looking ahead to the second quarter, we expect operating losses to narrow further as occupancy for our consolidated hotels is expected to increase another eight to 10 percentage points sequentially to the upper 30% range, while hotel occupancy for open consolidated hotels is forecast to exceed 40% for the quarter. Leisure demand is expected to continue to drive results across both drive-to and fly-to markets in Hawaii, Florida, Puerto Rico, and Southern California. Turning to the balance sheet, as of quarter end, our liquidity stood at $1.3 billion including $474 million available on our revolver while our net debt totaled $4.5 billion. Our monthly burn rate continues to shrink down from averaging $42 million during the fourth quarter to $38 million in the first quarter with March coming in at just $26 million. As we noted last quarter, we anticipate achieving breakeven over the second half of the year. And given the positive momentum we witnessed in March and April along with the improving macro trends Tom discussed earlier, we see a path to reach breakeven during the third quarter of 2021. With our portfolio expected to generate positive adjusted positive hotel adjusted EBITDA during the second quarter. From a balance sheet management perspective, our focus remains on reducing leverage through asset sales and organic growth, while further enhancing the balance sheet by extending maturities and reducing our reliance on bank debt to provide maximum financial flexibility as the industry begins to recover. The public debt markets remain open and constructive, and we will evaluate the potential for additional capital raises to further enhance the overall quality of our balance sheet as needed. Finally, I would like to highlight some of our recent ESG efforts and accomplishments. In January, we published our third annual corporate responsibility report reinforcing our ESG commitment to our stakeholders. We also recently announced that four of Park's hotels earned the prestigious Energy Star certification in 2020 for superior energy performance. We are extremely proud of our four hotels as only 26 hotels in the U.S. earned the certification last year. On the social side, our diversity and inclusion steering committee, which we created almost a year ago, continues to drive our company culture by emphasizing the central role that diversity, equity, and inclusion has played in Park since our formation. By establishing a formal committee, we are helping to demonstrate our commitment to diversity and inclusion to both our internal and external stakeholders, and we look forward to sharing additional information on this topic with you. We hope that by these efforts we can help move the industry forward and make it a more diverse and accepting place. We are also humbled to once again be recognized by Newsweek as one of America's most responsible companies in 2021 marking the second consecutive year Park has been recognized for ESG initiatives. This concludes our prepared remarks. We will now open the line for Q&A.

Operator, Operator

Our first question is from David Katz with Jefferies. Please proceed with your question.

David Katz, Analyst

Hi everyone. Thanks for all the detail. I wanted to address the negative aspect first. There are still a few larger hotels that remain closed. When they reopen, do they need to ramp up their operations more slowly than the smaller hotels? I'm asking this in light of the recent positive progress we've seen almost on a weekly basis.

Tom Baltimore, Chairman and Chief Executive Officer

It's a fair question David. Let me try to put it in perspective for you. And let's use Hawaii as an example. We opened one tower then a second tower now three. But if you just look at the performance and how quickly things are snapping back, Hilton Hawaiian Village we were about 13% occupancy in January, moved that to 34% in March. We're expecting to be close to 60% in the second quarter, and again as we've said probably high 70s in the third quarter and continuing that into the fourth quarter. We could not have predicted that. I mean, this is a fly-to market; you've got testing requirements that are still in place. But again, the pent-up demand, the revenge spending that we're seeing, is really snapping back – and certainly quicker than we could have anticipated. So let's then fast forward and look at San Francisco. We did not expect candidly to reopen the Hilton San Francisco till probably later in the year. And what we're finding, much to our surprise here as we sort of look out is that, we're going to open before Memorial weekend. The state of California obviously is set to open everything around June 15. As of May 6, they've started to relax reopening for bars and meetings and receptions. And we look at our group pace. And we also look, what's happening, whether it's going to be both on the leisure front maybe its small groups, maybe it's on the business transient side. But we're seeing our hotels there, if you take the JW Marriott and our Fisherman's Wharf Hyatt there, again, began the year at 16%, already ramping up to Q1 in the mid-20s, and we expect to be in the high 30s and in one probably in the low 50s. So our asset management team under Sean's leadership and the extraordinary men and women that we have there have just worked so incredibly hard think about where we were a year ago, when we had a burn rate across this portfolio. And admittedly, we have a lot more big boxes and a lot more exposure. A burn rate in that $85 million to $90 million range, and we've gotten it down to $26 million. And it's just relentless work of reimagining the business, thinking about things differently, working with our operators and taking permanent cost out of the business. So we are – every day we are more encouraged as we sort of look out. And so we're certainly more confident today as we think about reopening San Francisco, and the same thing is applying to Chicago. We're seeing the same sort of buzz and excitement. And people have people want to reclaim and recapture their lives, not only from a leisure standpoint but to reconnect with their colleagues from a business standpoint. So we're seeing some of the same green shoots in Chicago, as well that are also encouraging, admittedly, I'd say, New York is the most complex. So, that's one that we will continue to study and monitor carefully and determine the right opening date. But even in New York, they're trying to reopen much faster than we originally thought. So your questions are very fair questions. But I would tell you, look at the performance, look at what we've done, look how we've handled, candidly as a situation probably more difficult than most of our peers just given our footprint and our distribution, but the other side is this is a very seasoned team of men and women. We knew what to do, we knew how to do it and we reacted accordingly.

David Katz, Analyst

I would agree. And if I can just follow up quickly on sort of the above property expense interactions, because I think you touched on that a bit in your answer. But progress that you've made with your operators, the brands on – and how much of that is permanent?

Tom Baltimore, Chairman and Chief Executive Officer

Yeah. It's another great question. And obviously, being someone that's been in the business a long, long time, and I know there are going to be skeptics out there that look and say we've been to the movie before. We take cost out in a recessionary environment. And then as soon as things come back, we have the arms race, the brands start adding all of their amenities. And then the cost creep starts. Here's the difference. And for the listeners remember, I worked for multiple Marriott companies, and I worked for Hilton twice, so obviously before launching my first company, and of course taking this assignment, which by the way, this is the fifth week – fifth-year anniversary that I rejoined Hilton to spin out Park and have enjoyed every bit of this extraordinary team we put together. Obviously, the last year has certainly been testing for all of us. But the difference is Hilton and Marriott given how paternalistic, given how careful they are with their workforces. But think about how they have retooled and taken out 20%, 30%, 40% of their cost at the corporate level. I have never seen that before over a long career. So I use that as sort of evidence number one. And then number two, we've all had to think about the business differently. We never could have imagined that we could have gotten to breakeven in March at 32% occupancy across this entire portfolio given the carrying cost, we're still carrying Chicago, New York, San Francisco that are closed. So it's just phenomenal work by this team by really digging in and looking at every line item how we can take cost out of the business. The challenge for all of us is as we pivot and move forward that we make it permanent, that we think about the business and that we respond to the changing customer preferences that are out there. So we're confident; we're going to have to continue to be disciplined about it and really push and partner with our operators. But I hear different tone and a different level of communication coming from those brands and our operating partners as well, saying we've always got to think about the business differently. We've got to make these 300 basis points of margin benefit, the $85 million that we've taken out. We've got to make that permanent, so that we can have a more viable business and candidly more attractive to investors as we move forward.

David Katz, Analyst

I appreciate it. Thank you very much.

Operator, Operator

And our next question is from Smedes Rose with Citi. Please proceed with your question.

Smedes Rose, Analyst

Hi, thanks.

Tom Baltimore, Chairman and Chief Executive Officer

Hi Smedes.

Smedes Rose, Analyst

Hi. I just wanted to follow up a little bit on that with the larger hotels that I think have a larger group component and it sounds like your leads are accelerating and sounds very positive. But just in general, are you hearing any feedback or hesitancy from on the group side or even the corporate transient side that companies are looking to reduce their overall travel budgets having enjoyed a year without having spent any money on that front? And any updated thoughts you have on this idea that business travel will be permanently impaired?

Tom Baltimore, Chairman and Chief Executive Officer

It's a great question, and I can address it in a few ways. The honest answer is that we won't really know until cities, schools, and offices are fully opened and people return to establish a new rhythm. There's no doubt that business travel will be somewhat affected. I'm not suggesting it will be a permanent impairment of 10%, 15%, 20%, or 30%. However, I do think people will be more selective about their travel. On the other hand, enabling remote work and allowing employees to work from various locations could offset some losses, as people might travel back to corporate headquarters for training and other activities. The need for companies to gather their teams in safe environments for training and team-building will always exist. We'll have to see how this impacts business travel, but I don't believe it will be as significant as some predict. Sales and marketing teams may think they can rely solely on virtual presentations, but they risk losing business to competitors who are present in person and demonstrating their commitment. Many of us are participating in virtual meetings because we have to, but they lack the same intensity, engagement, and collaboration that come from in-person interactions. We have a small team in the office since the pandemic, and while remote workers are doing a great job, we all miss the time spent together. I'm confident that, similar to trends in leisure travel, we're seeing signs of a desire to return to the office and get back on the road to connect with others.

Smedes Rose, Analyst

Okay, all right. Appreciate it. Thank you.

Tom Baltimore, Chairman and Chief Executive Officer

Thank you.

Operator, Operator

And our next question is from Rich Hightower with Evercore. Please proceed with your question.

Rich Hightower, Analyst

Hi, everybody.

Tom Baltimore, Chairman and Chief Executive Officer

Good morning.

Rich Hightower, Analyst

Tom, I want to go back to the $85 million annualized expense target, the 300 basis points of margin improvement. Remind us, if we go back maybe six months ago or sometime last year. How has that target? Are those targets? How have they evolved over that period of time? And then how does the current sort of labor bottleneck constraints? How does that factor into that target as well?

Tom Baltimore, Chairman and Chief Executive Officer

Let me start, Rich, and then I'll let my partner Sean jump in. This is largely due to the excellent work by Sean, our asset management team, and our FP&A team. Initially, we aimed for $70 million in non-union costs, involving around 1,100 employees, including about 375 in management and approximately 600 hourly workers, with around 100 positions that we weren’t planning to replace. Over time, we became a bit complacent and developed some unnecessary layers in our structure. We collaborated with our operating partners to eliminate costs and reassess what was truly essential for our business operations. Recently, Sean and the team revisited this and identified an additional $15 million in potential savings. We're confident it’s imperative for us to keep pushing forward. As I mentioned earlier, the brands also had to adapt in response to the challenges they faced, and they were impacted as well. Certain business models struggle when their franchises and owners generate no revenue and don’t pay any fees. While the capitalized business model offers some advantages, it’s not ideal if our partners lack revenue. This situation has prompted them to consider making lasting cost reductions in their operations. I'll pause here and let Sean provide further insights.

Sean Dell'Orto, Chief Financial Officer

We started by assessing the baseline for each property, focusing on staffing and management levels across areas like food and beverage. Taking this opportunity to reevaluate, we identified potential savings of $70 million. As we examined our food and beverage operations, we recognized that we could reduce redundancies, such as consolidating the management of multiple restaurants under one manager instead of having one for each location. Additionally, there were some positions we decided not to fill. This reflects our ongoing effort to rethink our model and work creatively with our partners. We believe these changes will be permanent. We estimate an additional $5 million in savings through a different approach to our sales team. For instance, we had our outstanding General Manager from Hilton Hawaiian Village take on the leadership role overseeing two hotels instead of filling the General Manager position at Waikoloa Resort. This decision allowed us to save about $500,000 by utilizing qualified hotel managers under the main Regional Director for Hawaii. Overall, we are finding new ways to adapt and believe this approach will work for us moving forward.

Rich Hightower, Analyst

That’s helpful. Yeah.

Tom Baltimore, Chairman and Chief Executive Officer

In response to your question about labor challenges, there are individuals who cannot return to work due to having school-aged children at home, especially with schools not yet reopened. This contributes to the current employment gaps. Additionally, the significant unemployment benefits are also a factor, with numbers reported around $20 to $23 an hour in full benefits. This provides a support system for some until September. We anticipate that as vaccination rates increase and people gain more confidence, we will see a return to offices this fall, along with kids back in school. This should give us a clearer picture of the labor market. We expect many of our union employees with recall rights will be eager to return, and we will welcome them back as we believe demand will keep rising.

Rich Hightower, Analyst

Great. I appreciate all the detail there. And maybe just a quick follow-up on Hawaii. If we look at the fact that Key West for instance is essentially at least for the first quarter back to a 2019 run rate and given some of the comments you mentioned earlier just on the ramp-up in Hawaii, acknowledging that there are some differences in terms of inbound demand and all that sort of stuff. But what do you think the path to prior peak might be timing-wise for Hawaii?

Tom Baltimore, Chairman and Chief Executive Officer

It's a great question, Rich. And if you look at Hilton Waikoloa Village, I was spending some time on this yesterday, because it was so astonishing and I think really a great example. We were January, about 24% occupancy, finished the first quarter up 41% and we expect the second, third and fourth quarter, as I said during the prepared remarks to be well into 80% if not above for the balance of the year. Now remember, we shrunk half the hotel, made it a 600-room property as part of the deal of the spin with Hilton Grand Vacations. And so if you think about rates, so our average rate in that second quarter will be about 7% higher than 2019. The third quarter will be slightly below that; we had a couple of big buyouts in 2019. Insurance buyouts. So it was a little skewed. But in the fourth quarter of this year, we expect our average daily rate to be 15% higher in that fourth quarter. So it's not inconceivable that we're back next year. And part of the earlier question just trying to show that is a far greater snapback than any of us could have projected. I think the thing that people with all due respect are missing is that this is a global health crisis. It's not a typical normal cycle. And we're solving the crisis, demand is going to snap back faster and we're seeing evidence of that. I also think that people thought there was going to be all of this distress, there's not. We're going to see some; there'll be in the pockets. There'll be conversions and there'll be people that are undercapitalized and will have a tough time, but it's not going to be this SNL crisis that we – that some of us saw 30 years ago. I just don't think that's the scenario. And there is a need and a desire to be connected. People want to get out of the bunker. And I think we're going to see it across all the demand segmentations. Yes, business transient will lag, but it will lag until people are back in the office and people want to get on the road. I've been traveling. I've been fully vaccinated for several months and I have been traveling and eagerly and excited to. And I think you're seeing more and more people that have that desire.

Rich Hightower, Analyst

Okay. Thanks, Tom.

Operator, Operator

Our next question is from Neil Malkin with Capital One Securities. Please proceed with your question.

Neil Malkin, Analyst

Hey, everyone. Good morning.

Tom Baltimore, Chairman and Chief Executive Officer

Good morning, Neil.

Neil Malkin, Analyst

First question regarding staffing and margins: can you provide insight into the EBITDA or margin impact from the challenges in finding labor? Additionally, as employees return from the unemployment benefits you mentioned, how might we expect fixed costs to change? What should we anticipate in terms of a rebound in costs or how should we approach this?

Tom Baltimore, Chairman and Chief Executive Officer

Let me try to clarify a few things. When we consider our union operations, we're offering wages and benefits that exceed the established thresholds, so that's really not a concern. As you look at our business, customer preferences are shifting. Guests prefer to use a digital key or a similar method to bypass the front desk for more privacy in their rooms, and not everyone is opting for daily cleaning. Therefore, we need to strike the right balance. For instance, regarding food and beverage services, room service will likely be limited in most cases, except for some luxury hotels, as guests prefer not to have staff enter their rooms. This presents a chance to rethink our business approach based on these changing preferences. We remain confident in our goal of delivering that $85 million, and we will continue to collaborate closely with our operating partners to achieve it, without any signs of retreat. The brands recognize this shift. While there may be some gradual increase in amenities during the ongoing competition, I believe that we will see less of that following this crisis compared to previous cycles.

Neil Malkin, Analyst

Sure. I was wondering if you expect to see a gradual increase in the third quarter, even taking into account your savings. I'm thinking about when people start to return and everyone has noticed how expenses have aligned with the sequential increase in demand and revenues. However, is it reasonable to say there might be a lag effect, and we should anticipate a significant rise in fixed costs as we approach that time of year? That's more of what I was inquiring about.

Tom Baltimore, Chairman and Chief Executive Officer

Yes, you could see some margins affected. However, we anticipated a significant increase in insurance costs, but we now believe they may remain flat or even decrease slightly. We'll see how pricing develops. In many areas experiencing impairment, property taxes could provide some relief in the short term, as operators and owners have not generated income. You're correct that certain markets might require some incentives due to ongoing labor challenges, and we'll evaluate those situations individually. I don't have any specific data to share today, but we aren't currently observing those challenges. Many people are eager to return, though some are held back by health concerns or childcare issues. Everything is interconnected, and we will need to wait and see how it all plays out. However, we are confident in our position, especially with the $85 million we are eliminating from the business.

Neil Malkin, Analyst

Great. And my other question is you guys are seeing good progress right in 2022. Just maybe as you sit here today, could you give us a sense of what you think the sort of run rate relative to 2019 will be for the large association, citywide group performance in, let's just call it, the first half of 2022, I guess compared to 2019, would you kind of think, as you sit here today, and you kind of see what the booking trends look like and rebooking from cancellations look like?

Sean Dell'Orto, Chief Financial Officer

Yes. The rebooking trends show that we have about $500 million in cancellations through the first quarter due to the pandemic. We're managing to rebook approximately 25% to 26% of that amount, and we have more in the pipeline that we’re looking to place. A lot of these rebookings are for 2021, 2022, and 2023. From a citywide perspective, we see strong bookings in certain markets, with Hawaii performing exceptionally at over 200% compared to pre-pandemic levels, and Chicago also showing strength above 100%. Cities like Washington D.C., San Diego, Seattle, Boston, and Denver are doing well, while some markets like Orlando and Miami are lagging behind, likely due to earlier recovery in other areas. Miami is somewhat unique due to the Super Bowl. Overall, 2022 looks promising when assessed citywide, and we've seen a solid uptick in bookings since the vaccines were announced in November. We’ve picked up around 110,000 rooms and are pacing at 80% of 2019 levels in April, up from 50%. The trend is positive, and as other cities like New York and Chicago reopen, I expect to see increased conversion activity, especially as capacity restrictions are lifted. We're already observing more group activity in areas like Orlando, which have opened up.

Neil Malkin, Analyst

Thank you.

Operator, Operator

And our next question is from Anthony Powell with Barclays. Please proceed with your question.

Anthony Powell, Analyst

Hi. Good morning. Just a question on New York. So I'm sitting in my office and I'm looking outside and I see tourists on the double-decker buses, restaurants reopening, museums are reopening. It could be a pretty leisure travel season in New York in the summer. So why not open the hotel there now as opposed to waiting until the fall, where there may or may not be corporate travel coming back?

Tom Baltimore, Chairman and Chief Executive Officer

Well, Anthony, great to hear from you and I hope you're doing well. And thanks for the question. The New York situation is certainly the most complicated. We are hearing and seeing some evidence now. It looks like the mayor and the governor are aligned with the city reopening. The subway is going to reopen. I think that's a start. Keep in mind that based on the work that we've done, 16% of the office workers in the New York region went into the office kind of the last week of April. So that's also a pretty good sign. UN General Assembly, we understand, will have their conference in September. Broadway is going to open probably in September as well. And keep in mind, New York was probably the most broken, given the epicenter of COVID and what happened. You've got 30% to 40% I think of the city's inventory of hotels remain closed. Our belief is, some portion of those will not open, or will be converted. There's some proposed legislation to restrict future hotel development, needing sort of a special permit; so we're studying the market in the situation carefully. Like we've done with the others, when we open, we don't want to shut down again. And so we want to make sure candidly that it's viable and that we will lose less money and then quickly begin to ramp up to make money and not lose more money by reopening. And just given the complexity of that operation, as one of two largest hotels and given the staffing requirements there, we just want to make sure that it makes economic sense. We've I think demonstrated time and time again, given the complexity of our portfolio and our distribution, and given where we were last year at $85 million a month and the great work that the team has done to get it down into the mid-20s, and New York is candidly the highest part of that burn. So it's one that we want to continue to study. And I would not bet against New York long term. We are big believers that that great city will come back. But it's certainly a tough environment right now that we want to stay a little bit.

Anthony Powell, Analyst

All right. And I guess, moving to Puerto Rico, you mentioned a few times in the prepared remarks, it seems like that market has gained some mind share among travelers during the pandemic. Have you seen that in your numbers? And has that changed your view of the potential of that asset and how it fits into your portfolio long term?

Tom Baltimore, Chairman and Chief Executive Officer

Yes. In the prepared remarks, we indicated it is over 70%. This aligns with our observation that international travel is changing. Historically, inbound travel to the U.S. was about $79 million in 2019, while outbound travel was around $100 million. However, we believe fewer Americans will travel internationally, choosing instead to stay domestic, particularly in regions like the Caribbean and Hawaii. This trend positively impacts our Park portfolio. After experiencing the effects of Hurricane Maria a few years back, we have made a $200 million investment into a complete renovation. The asset in Puerto Rico is now exceptional, especially with ample airlift availability. Given its connection to the U.S., it's an accessible and economical trip. We are optimistic and will continue to observe this growth. We have always thought of this particular asset as a core holding with significant potential, especially for leisure travel.

Anthony Powell, Analyst

All right. Thank you.

Tom Baltimore, Chairman and Chief Executive Officer

Thank you.

Operator, Operator

And our next question is from Robin Farley with UBS. Please proceed with your question.

Robin Farley, Analyst

Hi. Good morning. Most of my questions have been asked. I just wanted to follow up with a quick one on group. You're giving a lot of step. Is there sort of an overall 2022 room nights on the books in terms of group compared to 2019 or the same time that year?

Sean Dell'Orto, Chief Financial Officer

We currently have about 956,000 room nights booked, which is approximately 83% compared to the same time in 2019. When we look at the total for the year compared to the final figures from 2019, it’s around 40%.

Robin Farley, Analyst

Okay. Great. Thanks.

Operator, Operator

And our next question is from Chris Woronka with Deutsche Bank. Please proceed with your question.

Chris Woronka, Analyst

Hey. Good morning, guys.

Tom Baltimore, Chairman and Chief Executive Officer

Good morning, Chris.

Sean Dell'Orto, Chief Financial Officer

Good morning.

Chris Woronka, Analyst

Good morning, guys. Thanks for all detail again. Tom, you did mention the word offense in your prepared remarks. I was hoping maybe we could spend a minute on that. And kind of my question there is obviously, you have some terrific properties in these big markets that were significantly impacted by COVID, but some of them had some kind of structural issues right whether fly or labor or other expenses before COVID. So when you do go back on offense, I mean are you willing to go deeper in some of these same markets, or do we see you go into smaller markets and this more broad-based focused on resorts? And we did see you sell the New Orleans French Quarter, which is a small hotel. So it sounds like there are carrying costs, you're not necessarily going to look at small hotels. So just a few words maybe on where you go from here? Thanks.

Tom Baltimore, Chairman and Chief Executive Officer

Well, thank you Chris for the question. Look, we've got clear priorities for 2021 and it's reopening our hotels profitably and as quickly as we can, continue to reduce obviously our cash burn which you're seeing evidence there, continuing to reimagine the operating model. We're making great progress there. Selling non-core assets, the W there and is the first of others that you will see and read and hear about. And as I said in the prepared remarks, we're active and we're confident we're going to be able to sell $300 million to $400 million of assets. We're going to work hard to continue to strengthen the balance sheet by pushing out maturities. Obviously, terribly important from there and really begin to pivot to offense. Bonnet Creek is just a fabulous resort. We've got the 1,500 rooms there. Obviously, the 1,000-room Hilton coupled with the Waldorf. We're going to expand the meeting footprint. We're going to upgrade Hilton to Signia. We're 200 acres there with a championship golf course. So we see that as a really important offensive move. And we have so many embedded ROI opportunities within our portfolio that we're going to continue to evaluate and activate. And then we will continue to look for single assets portfolios as well. And look, it's not lost on us. As you think about what's happening and we'll follow the demand generators, we'll follow the population changes. So you would have to get to your direct question, you would certainly expect us in at the phoenixes of the world and parts of Texas that continue to grow Austin stands out in Nashville. Clearly Central and South Florida continue to boom and we don't see that changing. We're not going to redline the other markets. We certainly believe that the great cities of New York and Chicago and San Francisco while certainly a tougher operating model, we will continue to evaluate on a case-by-case. Not inconceivable for us to lighten our a little in San Francisco just given our exposure there, but there are also huge barriers to entry there, and there's still the epicenter of capital and venture capital and we don't see that changing. So there are markets there that will continue to really watch and monitor the demand patterns carefully.

Chris Woronka, Analyst

Okay. Very helpful. Appreciate all your thoughts Tom.

Operator, Operator

Our next question comes from Lukas Hartwich with Green Street. Please go ahead with your question.

Lukas Hartwich, Analyst

Thanks. Good morning.

Tom Baltimore, Chairman and Chief Executive Officer

Hey, Lukas.

Lukas Hartwich, Analyst

Hey, Tom. So there's a debate around how the hotel industry might see a demand shift due to what's happened over the past year. And I was just hoping for Park's portfolio, can you provide maybe a sense of how ADR compares across the various segments of business transient leisure and group?

Sean Dell'Orto, Chief Financial Officer

Compares right now to 2019, or kind of just how they compare with to each other and kind of a normal setup?

Lukas Hartwich, Analyst

Yes, how they compare to each other. So maybe looking back in 2019 maybe on an index basis, how do they compare to each other?

Sean Dell'Orto, Chief Financial Officer

Yes. I mean, overall, I mean, clearly kind of the business transient would be kind of the highest and I would probably say, you'd probably say about $250 business transient group on average about call it $225 million and leisure about $200 million. So, kind of as you work kind of backwards from that $200 million, $225 million, $250 million between leisure, group, and business transient respectively.

Lukas Hartwich, Analyst

Great. And then my other question is just it's interesting that RevPAR performance is similar across several hotels and markets. With some doing better on rate others on occupancy, I was just hoping you could talk through how operators think about those dynamics whether to focus on holding rates or focus on gaining occupancy what are the levers that they're looking at?

Sean Dell'Orto, Chief Financial Officer

I think it's essential to comprehend and capture the demand that exists. We're still in the process of analyzing whether RevPAR trends are consistent. Ultimately, certain aspects of contract business are becoming a larger part of the overall mix, which will influence our reporting. For instance, we have an asset in New Orleans, which we've mentioned in previous calls, and it's been beneficial for us as it generated a positive EBITDA while increasing occupancy at a lower rate. Many hotels are focusing on driving the demand that is available to them, but we are not in a typical market environment, so it varies by case. The most stable locations seem to be like Key West, which is heavily leisure-focused and successfully pushing rates due to their pricing power. In contrast, many other markets are centered around finding discounted leisure small group business, as Tom mentioned regarding finding demand where possible.

Lukas Hartwich, Analyst

Awesome. Appreciate it. Thank you.

Operator, Operator

And we have reached the end of our question and answer session. I will now turn the call over to Tom Baltimore for closing remarks.

Tom Baltimore, Chairman and Chief Executive Officer

Thank you, operator. We really appreciate all of you taking time today. We look forward to talking with you in the coming weeks, and we look forward to seeing you in person. We hope sometime this summer and early fall. I hope all of those stay safe and well.

Operator, Operator

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.