Park Hotels & Resorts Inc 10-Q for FY2021 Q2
Park Hotels & Resorts Inc. (PK)
About this 10-Q
Park Hotels & Resorts Inc filed this 10-Q on August 6, 2021, covering the quarter ended June 30, 2021 (FY2021 Q2).
Headline figures
Quarter ended June 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $323M
- up 669.0% from $42M a year earlier
- Net loss
- $116M
- compared with a net loss of $259M a year earlier
- Diluted EPS
- -$0.49
- compared with -$1.10 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number
(Exact name of Registrant as specified in its Charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S Employer Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
(Registrant’s telephone number, including area code): (
Securities registered pursuant to Section 12(b) of the Act.
Title of each class |
Trading Symbol |
Name of exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares of common stock outstanding on July 30,
Table of Contents
PART I. FINANCIAL INFORMATION |
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Item 1. |
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3 |
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Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020 |
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4 |
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Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020 |
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6 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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28 |
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PART II. OTHER INFORMATION |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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30 |
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Item 5. |
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30 |
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Item 6. |
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31 |
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32 |
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2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
PARK HOTELS & RESORTS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share data)
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June 30, 2021 |
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December 31, 2020 |
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(unaudited) |
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ASSETS |
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Property and equipment, net |
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$ |
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Assets held for sale |
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Investments in affiliates |
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Intangibles, net |
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Cash and cash equivalents |
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Restricted cash |
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Accounts receivable, net of allowance for doubtful accounts of $ |
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Prepaid expenses |
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Other assets |
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Operating lease right-of-use assets |
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TOTAL ASSETS (variable interest entities - $ |
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$ |
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$ |
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LIABILITIES AND EQUITY |
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Liabilities |
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Debt |
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$ |
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Accounts payable and accrued expenses |
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Due to hotel managers |
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Deferred income tax liabilities |
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Other liabilities |
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Operating lease liabilities |
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Total liabilities (variable interest entities - $ |
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Stockholders' Equity |
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Common stock, par value $ |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
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Total stockholders' equity |
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Noncontrolling interests |
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Total equity |
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TOTAL LIABILITIES AND EQUITY |
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$ |
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$ |
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Refer to the notes to the unaudited condensed consolidated financial statements.
3
PARK HOTELS & RESORTS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited, in millions, except per share data)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2021 |
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2020 |
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2021 |
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2020 |
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Revenues |
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Rooms |
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$ |
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$ |
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$ |
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$ |
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Food and beverage |
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Ancillary hotel |
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Other |
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Total revenues |
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Operating expenses |
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Rooms |
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Food and beverage |
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Other departmental and support |
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Other property-level |
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Management fees |
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Impairment loss and casualty gain, net |
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Depreciation and amortization |
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Corporate general and administrative |
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Other |
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Total expenses |
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Gain on sales of assets, net |
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Operating loss |
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Interest income |
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Interest expense |
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( |
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Equity in losses from investments in affiliates |
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( |
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( |
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( |
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( |
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Other loss, net |
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( |
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( |
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( |
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( |
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Loss before income taxes |
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( |
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( |
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( |
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Income tax expense |
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( |
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( |
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( |
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Net loss |
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( |
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( |
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( |
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Net (income) loss attributable to noncontrolling interests |
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( |
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( |
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Net loss attributable to stockholders |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Other comprehensive (loss) income, net of tax expense: |
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Currency translation adjustment, net of tax expense of $ |
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Change in fair value of interest rate swap, net of tax expense |
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( |
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( |
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Total other comprehensive (loss) income |
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( |
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Comprehensive loss |
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( |
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( |
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( |
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Comprehensive (income) loss attributable to noncontrolling |
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( |
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( |
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Comprehensive loss attributable to stockholders |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Loss per share: |
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Loss per share - Basic |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Loss per share - Diluted |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Weighted average shares outstanding - Basic |
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Weighted average shares outstanding - Diluted |
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Refer to the notes to the unaudited condensed consolidated financial statements.
4
PARK HOTELS & RESORTS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in millions)
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Six Months Ended |
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June 30, |
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2021 |
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2020 |
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Operating Activities: |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to net cash used in operating |
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Depreciation and amortization |
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Gain on sales of assets, net |
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( |
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( |
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Impairment loss and casualty gain, net |
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Equity in losses from investments in affiliates |
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Other loss, net |
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Share-based compensation expense |
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Amortization of deferred financing costs |
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Distributions from unconsolidated affiliates |
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Deferred income taxes |
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Changes in operating assets and liabilities |
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( |
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Net cash used in operating activities |
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( |
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( |
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Investing Activities: |
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Capital expenditures for property and equipment |
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( |
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Proceeds from asset dispositions, net |
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Contributions to unconsolidated affiliates |
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( |
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( |
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Insurance proceeds for property damage claims |
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Net cash provided by investing activities |
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Financing Activities: |
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Borrowings from credit facilities |
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Repayments of credit facilities |
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( |
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( |
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Proceeds from issuance of Senior Secured Notes |
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Proceeds from issuance of mortgage debt |
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Repayments of mortgage debt |
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( |
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( |
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Debt issuance costs |
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( |
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( |
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Dividends paid |
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( |
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Distributions to noncontrolling interests, net |
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( |
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Tax withholdings on share-based compensation |
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( |
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( |
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Repurchase of common stock |
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( |
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Net cash (used in) provided by financing activities |
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( |
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Net (decrease) increase in cash and cash equivalents and restricted cash |
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( |
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Cash and cash equivalents and restricted cash, beginning of period |
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Cash and cash equivalents and restricted cash, end of period |
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$ |
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$ |
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Refer to the notes to the unaudited condensed consolidated financial statements.
5
PARK HOTELS & RESORTS INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(unaudited, in millions)
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Accumulated |
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Additional |
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Other |
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Non- |
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Common Stock |
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Paid-in |
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Retained |
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Comprehensive |
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controlling |
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Shares |
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Amount |
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Capital |
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Earnings |
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Loss |
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Interests |
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Total |
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Balance as of December 31, 2020 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Share-based compensation, net |
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— |
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— |
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( |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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— |
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( |
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( |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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Balance as of March 31, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Share-based compensation, net |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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— |
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( |
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Balance as of June 30, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Accumulated |
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Additional |
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Other |
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Non- |
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Common Stock |
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Paid-in |
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Retained |
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Comprehensive |
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controlling |
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Shares |
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Amount |
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Capital |
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Earnings |
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Loss |
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Interests |
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Total |
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Balance as of December 31, 2019 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Share-based compensation, net |
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— |
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— |
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( |
) |
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— |
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— |
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( |
) |
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Net loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
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( |
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Other comprehensive loss |
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— |
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— |
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— |
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— |
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( |
) |
|
|
|
|
|
( |
) |
|
Dividends and dividend equivalents(1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Distributions to noncontrolling |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Repurchase of common stock |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Balance as of March 31, 2020 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||||
Share-based compensation, net |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance as of June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|||||
(1)
Refer to the notes to the unaudited condensed consolidated financial statements.
6
PARK HOTELS & RESORTS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1: Organization and Recent Events
Organization
Park Hotels & Resorts Inc. (“we,” “us,” “our” or the “Company”) is a Delaware corporation that owns a portfolio of premium-branded hotels and resorts primarily located in prime city center and resort locations. On January 3, 2017, Hilton Worldwide Holdings Inc. (“Hilton”) completed the spin-off of a portfolio of hotels and resorts that established Park Hotels & Resorts Inc. as an independent, publicly traded company.
On May 5, 2019, the Company, PK Domestic Property LLC, an indirect subsidiary of the Company (“PK Domestic”), and PK Domestic Sub LLC, a wholly-owned subsidiary of PK Domestic (“Merger Sub”) entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) with Chesapeake Lodging Trust (“Chesapeake”). On September 18, 2019, pursuant to the terms and subject to the conditions set forth in the Merger Agreement, Chesapeake merged with and into Merger Sub (the “Merger”) and each of Chesapeake’s common shares of beneficial interest, $
We are a real estate investment trust (“REIT”) for United States (“U.S.”) federal income tax purposes. We have been organized and operated, and we expect to continue to be organized and operate, in a manner to qualify as a REIT. From the date of our spin-off from Hilton, Park Intermediate Holdings LLC (our “Operating Company”), directly or indirectly, has held all our assets and has conducted all of our operations. We own
COVID-19 Update
The novel strain of coronavirus and the disease it causes (“COVID-19”) have had and continue to have a significant effect on the hospitality industry and our business. The effects of COVID-19, including government restrictions such as mandated closings of non-essential businesses and travel restrictions, have severely reduced overall lodging demand. Since the beginning of March 2020, we have experienced a significant decline in occupancy and Revenue per Available Room (“RevPAR”) associated with COVID-19 throughout our portfolio, which resulted in a decline in our operating cash flow. As vaccination rates increased across the country, government restrictions, quarantining and “social distancing” mandates have been and are being removed, resulting in increased travel and hospitality spending during the second quarter of 2021.
We and our hotel managers have taken various actions to mitigate the effects of COVID-19, including temporarily suspending operations at certain of our hotels beginning in March 2020, limiting capacity at our open hotels, deferring approximately $
We are committed to using our liquidity to support our hotels’ operations during the COVID-19 pandemic and subsequent recovery, while being focused on continuing to maintain and enhance our stockholders’ value.
Note 2: Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
Principles of Consolidation
The unaudited condensed consolidated financial statements reflect our financial position, results of operations and cash flows, in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with U.S. GAAP. In our opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, including normal recurring items, considered necessary for a fair presentation of the interim periods. All significant intercompany transactions and balances within the financial statements have been eliminated.
These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2020 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on February 26, 2021.
7
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Interim results are not necessarily indicative of full year performance.
Reclassifications
Certain line items on the condensed consolidated statements of comprehensive loss and the condensed consolidated statements of cash flows for the six months ended June 30, 2020 have been reclassified to conform to the current period presentation.
Summary of Significant Accounting Policies
Our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 26, 2021, contains a discussion of the significant accounting policies. There have been no significant changes to our significant accounting policies since December 31, 2020.
Note 3: Dispositions and Assets Held for Sale
Dispositions
In April 2021, we sold the W New Orleans – French Quarter located in New Orleans, LA, for gross proceeds of approximately $
In February 2020, we sold the Embassy Suites Washington DC Georgetown and our interests in the entity that owns the Hilton São Paulo Morumbi for total gross proceeds of $
Assets Held for Sale
In June 2021, we executed an agreement to sell the Hotel Adagio, Autograph Collection, and the hotel was designated as held for sale in June 2021 as it met all held for sale criteria. The hotel was sold in July 2021 for gross proceeds of $
Assets held for sale related to the Hotel Adagio, Autograph Collection were as follows as of June 30, 2021:
|
|
(in millions) |
|
|
Assets: |
|
|
|
|
Property and equipment, net |
|
$ |
|
|
Total Assets Held for Sale |
|
$ |
|
|
|
|
|
|
|
8
Note 4: Property and Equipment
Property and equipment were:
|
|
June 30, 2021(1) |
|
|
December 31, 2020 |
|
||
|
|
(in millions) |
|
|||||
Land |
|
$ |
|
|
$ |
|
||
Buildings and leasehold improvements |
|
|
|
|
|
|
||
Furniture and equipment |
|
|
|
|
|
|
||
Construction-in-progress |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
||
(1)
Depreciation of property and equipment was $
For the three and six months ended June 30, 2021, we recognized $
For the six months ended June 30, 2020, we recognized $
Note 5: Consolidated Variable Interest Entities ("VIEs") and Investments in Affiliates
Consolidated VIEs
We consolidate VIEs that own
|
|
June 30, 2021 |
|
|
December 31, 2020 |
|
||
|
|
(in millions) |
|
|||||
Property and equipment, net |
|
$ |
|
|
$ |
|
||
Cash and cash equivalents |
|
|
|
|
|
|
||
Restricted cash |
|
|
|
|
|
|
||
Accounts receivable, net |
|
|
|
|
|
|
||
Prepaid expenses |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
Debt |
|
|
|
|
|
|
||
Accounts payable and accrued expenses |
|
|
|
|
|
|
||
Other liabilities |
|
|
|
|
|
|
||
Unconsolidated Entities
Investments in affiliates were:
|
|
Ownership % |
|
June 30, 2021 |
|
|
December 31, 2020 |
|
||
|
|
|
|
(in millions) |
|
|||||
Hilton San Diego Bayfront |
|
|
$ |
|
|
$ |
|
|||
All others (6 hotels) |
|
|
|
|
|
|
|
|||
|
|
|
|
$ |
|
|
$ |
|
||
The affiliates in which we own investments accounted for under the equity method had total debt of approximately $
9
Note 6: Goodwill
Note 7: Debt
Debt balances and associated interest rates as of June 30, 2021 were:
|
|
|
|
|
|
Principal balance as of |
|
|||||
|
|
Interest Rate |
|
Maturity Date |
|
June 30, 2021 |
|
|
December 31, 2020 |
|
||
|
|
|
|
|
|
(in millions) |
|
|||||
SF CMBS Loan(1) |
|
|
|
$ |
|
|
$ |
|
||||
HHV CMBS Loan(1) |
|
|
|
|
|
|
|
|
||||
Mortgage loans |
|
Average rate of |
|
|
|
|
|
|
|
|||
2019 Term Facility(4) |
|
L + |
|
|
|
|
|
|
|
|||
Revolver(4) |
|
L + |
|
|
|
|
|
|
|
|||
2025 Senior Secured Notes(6) |
|
|
|
|
|
|
|
|
||||
2028 Senior Secured Notes(6) |
|
|
|
|
|
|
|
|
||||
2029 Senior Secured Notes |
|
|
|
|
|
|
|
|
||||
Finance lease obligations |
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
||
Add: unamortized premium |
|
|
|
|
|
|
|
|
|
|
||
Less: unamortized deferred financing costs and |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
$ |
|
|
$ |
|
||
(1)
(2)
(3)
(4)
(5)
(6)
We are required to deposit with lenders certain cash reserves for restricted uses. As of June 30, 2021 and December 31, 2020, our condensed consolidated balance sheets included $
2029 Senior Secured Notes
In May 2021, our Operating Company, PK Domestic and PK Finance issued an aggregate of $
10
Indentures
The 2029 Senior Secured Notes are guaranteed by us and by the subsidiaries of our Operating Company that also guarantee indebtedness under our credit facilities, which guarantors also guarantee the obligations under the Company’s Senior Secured Notes on a first priority basis. The guarantees are full and unconditional and joint and several. The 2029 Senior Secured Notes are secured, subject to permitted liens, by a first priority security interest in all of the capital stock of certain wholly-owned subsidiaries of certain of the guarantors and PK Domestic, which collateral also secures the obligations under our credit and term loan facilities on a first priority basis. The indenture governing the 2029 Senior Secured Notes contains customary covenants that limit the issuers’ ability and, in certain instances, the ability of the issuers’ subsidiaries, to borrow money, create liens on assets, make distributions and pay dividends on or redeem or repurchase stock, make certain types of investments, sell stock in certain subsidiaries, enter into agreements that restrict dividends or other payments from subsidiaries, enter into transactions with affiliates, issue guarantees of indebtedness, and sell assets or merge with other companies.
Debt Maturities
The contractual maturities of our debt, assuming the exercise of all extensions that are exercisable solely at our option, as of June 30, 2021 were:
Year |
|
(in millions) |
|
|
2021(1) |
|
$ |
|
|
2022 |
|
|
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
Thereafter(2) |
|
|
|
|
|
|
$ |
|
|
(1)
(2)
11
Note 8: Fair Value Measurements
We did not elect the fair value measurement option for our financial assets or liabilities. The fair values of our other financial instruments not included in the table below are estimated to be equal to their carrying amounts.
The fair value of our debt and the hierarchy level we used to estimate fair values are shown below:
|
|
|
|
|
June 30, 2021 |
|
|
December 31, 2020 |
|
|||||||||||
|
|
Hierarchy |
|
|
Carrying |
|
|
Fair Value |
|
|
Carrying |
|
|
Fair Value |
|
|||||
|
|
|
|
|
(in millions) |
|
||||||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
SF CMBS Loan |
|
|
3 |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
HHV CMBS Loan |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
2019 Term Facility |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revolver |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
2025 Senior Secured Notes |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
2028 Senior Secured Notes |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
2029 Senior Secured Notes |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage loans |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
During the six months ended June 30, 2021, we recognized an impairment loss from the classification of the Hotel Adagio, Autograph Collection, as held for sale as the estimated selling costs are expected to reduce the gross proceeds below the net book value of the property. Refer to Note 3: “Dispositions and Assets Held for Sale” for additional information.
|
|
|
|
|
|
||
|
June 30, 2021 |
|
|||||
|
Fair Value |
|
|
Impairment Loss |
|
||
|
(in millions) |
|
|||||
Property and equipment(1) |
$ |
|
|
$ |
|
||
Total |
$ |
|
|
$ |
|
||
(1)
Note 9: Income Taxes
We are a REIT for U.S. federal income tax purposes. We have been organized and operated, and we expect to continue to be organized and operate in a manner to qualify as a REIT. To qualify as a REIT, we must satisfy requirements related to, among other things, the real estate qualification of sources of our income, the real estate composition and values of our assets, the amounts we distribute to our stockholders annually and the diversity of ownership of our stock. To the extent we continue to remain qualified as a REIT, we generally will not be subject to U.S. federal income tax on taxable income generated by our REIT activities that we distribute annually to our stockholders. Accordingly,
We will be subject to U.S. federal income tax on taxable sales of built-in gain property through January 3, 2022. In addition, we are subject to non-U.S. income tax on foreign held REIT activities and certain sales of foreign investments. Further, our taxable REIT subsidiaries (“TRSs”) are generally subject to U.S. federal, state and local, and foreign income taxes (as applicable).
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted on March 27, 2020 and included several tax provisions that may impact us and our subsidiaries, including:
12
During the six months ended June 30, 2021, we recognized $
During the six months ended June 30, 2020, we recognized $
Note 10: Share-Based Compensation
We issue equity-based awards to our employees pursuant to the 2017 Omnibus Incentive Plan (“2017 Employee Plan”) and our non-employee directors pursuant to the 2017 Stock Plan for Non-Employee Directors (as amended and restated from time to time, the “2017 Director Plan”). The 2017 Employee Plan provides that a maximum of
Restricted Stock Awards
Restricted Stock Awards (“RSAs”) generally vest in annual installments between one and three years from each grant date. The following table provides a summary of RSAs for the six months ended June 30, 2021:
|
|
Number of Shares |
|
|
Weighted-Average |
|
||
Unvested at January 1, 2021 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
Unvested at June 30, 2021 |
|
|
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Performance Stock Units
Performance Stock Units (“PSUs”) generally vest at the end of a
Additionally, in November 202
13
|
|
Number of Shares |
|
|
Weighted-Average |
|
||
Unvested at January 1, 2021 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Unvested at June 30, 2021 |
|
|
|
|
$ |
|
||
The grant date fair values of the awards that are subject to the achievement of market conditions based on total shareholder return were determined using a Monte Carlo simulation valuation model with the following assumptions:
Expected volatility(1) |
|
|
% |
|
Dividend yield(2) |
|
|
|
|
Risk-free rate |
|
|
% |
|
Expected term |
|
|
||
(1)
(2)
Note 11: Earnings Per Share
T
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
|
(in millions, except per share amounts) |
|
|||||||||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss attributable to stockholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Earnings attributable to participating securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss attributable to stockholders, net of earnings |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average shares outstanding – basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unvested restricted shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average shares outstanding – diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loss per share - Basic(1) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Loss per share - Diluted(1) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
(1)
Certain of our outstanding equity awards were excluded from the above calculation of EPS for the three and six months ended June 30, 2021 and 2020 because their effect would have been anti-dilutive.
Note 12: Business Segment Information
As of June 30, 2021, we have
14
The following table presents revenues for our consolidated hotels reconciled to our consolidated amounts and net loss to Hotel Adjusted EBITDA:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
|
(in millions) |
|
|||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total consolidated hotel revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Other revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Other revenues |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Depreciation and amortization expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate general and administrative expense(1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Impairment loss and casualty gain, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gain on sales of assets, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Interest income |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Equity in losses from investments in affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Severance expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other loss, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other items |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Hotel Adjusted EBITDA |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
(1)
The following table presents total assets for our consolidated hotels, reconciled to total assets:
|
|
June 30, 2021 |
|
|
December 31, 2020 |
|
||
|
|
(in millions) |
|
|||||
Consolidated hotels |
|
$ |
|
|
$ |
|
||
All other |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
Note 13: Commitments and Contingencies
As of June 30, 2021, we had outstanding commitments under third-party contracts of approximately $
We are involved in litigation arising from the normal course of business, some of which includes claims for substantial sums, and may make certain indemnifications or guarantees to select buyers of our hotels as part of a sale process. We are also involved in claims and litigation that is not in the ordinary course of business in connection with the spin-off from Hilton. The spin-off agreements indemnify us from certain of these claims as well as require us to indemnify Hilton for other claims. In addition, losses related to certain contingent liabilities could be apportioned to us under the spin-off agreements. In connection with our obligation to indemnify Hilton under the spin-off agreements, we have reserved approximately $
15
Note 14: Subsequent Events
In June 2021, we entered into an agreement to sell the Le Meridien San Francisco for a gross sales price of approximately $
16
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of the financial condition and results of operations of Park Hotels & Resorts Inc. (“we,” “us,” “our” or the “Company”) should be read in conjunction with the accompanying unaudited condensed consolidated financial statements, related notes included elsewhere in this Quarterly Report on Form 10-Q, and with our Annual Report on Form 10-K for the year ended December 31, 2020.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). Forward-looking statements include, but are not limited to, statements related to our expectations regarding the performance of our business, our financial results, our liquidity and capital resources, including the expected reopening dates for our hotels and dates that our hotels will break even or achieve positive Hotel Adjusted EBITDA, the impact to our business and financial condition and that of our hotel management companies, measures (including through potential alternative sources of revenue) being taken in response to COVID-19, the effects of competition, the effects of future legislation or regulations, the expected completion of anticipated dispositions, the declaration and payment of future dividends and other non-historical statements. Forward-looking statements include all statements that are not historical facts, and in some cases, can be identified by the use of forward-looking terminology such as the words “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “projects,” “predicts,” “intends,” “plans,” “estimates,” “anticipates”, “hopes” or the negative version of these words or other comparable words. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect our results of operations, financial condition, cash flows, performance or future achievements or events. Currently,
All such forward-looking statements are based on current expectations of management and therefore involve estimates and assumptions that are subject to risks, uncertainties and other factors that could cause actual results to differ materially from the results expressed in the statements. You should not put undue reliance on any forward-looking statements and we urge investors to carefully review the disclosures we make concerning risks and uncertainties in Item 1A: “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, as such factors may be updated from time to time in our periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov, as well as risks, uncertainties and other factors discussed in this Quarterly Report on Form 10-Q. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
We have a diverse portfolio of iconic and market-leading hotels and resorts with significant underlying real estate value. We currently hold investments in entities that have ownership or leasehold interests in 56 hotels, consisting of premium-branded hotels and resorts with over 32,000 rooms, of which over 87% are luxury and upper upscale (as defined by Smith Travel Research) and are located in prime U.S. markets and its territories. Our high-quality portfolio includes hotels in major urban and convention areas, such as New York City, Washington, D.C., Chicago, San Francisco, Boston, New Orleans and Denver; premier resorts in key leisure destinations, including Hawaii, Orlando, Key West and Miami Beach; and hotels adjacent to major gateway airports, such as Los Angeles International, Boston Logan International and Miami International, as well as hotels in select suburban locations.
Our objective is to be the preeminent lodging real estate investment trust (“REIT”), focused on consistently delivering superior, risk-adjusted returns to stockholders through active asset management and a thoughtful external growth strategy while maintaining a strong and flexible balance sheet. As a pure-play real estate company with direct access to capital and independent financial resources, we believe our enhanced ability to implement compelling return on investment initiatives within our portfolio represents a significant embedded growth opportunity. Finally, given our scale and investment expertise, we believe we will be able to successfully execute single-asset and portfolio acquisitions and dispositions to further enhance the value and diversification of our assets throughout the lodging cycle, including potentially taking advantage of the economies of scale that could come from consolidation in the lodging REIT industry.
17
We operate our business through two operating segments, our consolidated hotels and unconsolidated hotels. Our consolidated hotels operating segment is our only reportable segment. Refer to Note 12: “Business Segment Information” in our unaudited condensed consolidated financial statements included elsewhere within this Quarterly Report on Form 10-Q for additional information regarding our operating segments.
Recent Events
During the second quarter of 2021, we sold three consolidated hotels, the W New Orleans – French Quarter, the Hotel Indigo San Diego Gaslamp Quarter and the Courtyard Washington Capitol Hill Navy Yard. The proceeds were used to fully repay the outstanding balance under our revolving credit facility (“Revolver”) and a portion of our term loan facility due in 2024 (“2019 Term Facility”). In July 2021, we sold the Hotel Adagio, Autograph Collection, in San Francisco, California for gross proceeds of $82 million and used the net proceeds to repay $77 million of the 2019 Term Facility. In June 2021, we entered into an agreement to sell the Le Meridien San Francisco for a gross sales price of approximately $222 million and the sale is expected to close during the third quarter of 2021. The gross sales price will be payable in cash at closing, subject to customary pro rations and adjustments. Net proceeds from the sale of the Le Meridien San Francisco will be used to repay a portion of the 2019 Term Facility.
COVID-19 Operational Update
The global outbreak of a novel strain of coronavirus and the disease it causes (“COVID-19”) have had and continue to have a significant effect on the lodging industry and our business. We cannot presently determine the extent or duration of the overall operational and financial effects that COVID-19 will have on our business. In March and April 2020, travel restrictions and mandated closings of non-essential businesses were imposed, which resulted in temporary suspensions of operations at a majority of our hotels, all except three of which have now reopened. Temporary closings of restaurants and hotels across entire regions also contributed to severely reduced overall lodging demand. The effects of COVID-19 continue to have a significant adverse effect on the hospitality industry, including our business; however, the increase in vaccination rates across the U.S., government and the lifting of restrictions, quarantining, and “social distancing” mandates have resulted in increased travel and hospitality spending. With the increase in leisure demand trends as well as an increase in group booking activity, we expect a broader based recovery over the second half of 2021 and into 2022.
Since the beginning of March 2020, we have experienced a significant decline in occupancy, Average Daily Rate (“ADR”) and Revenue per Available Room (“RevPAR”) associated with the COVID-19 pandemic throughout our consolidated portfolio, which has resulted in a decline in our operating cash flow. As distribution of the COVID-19 vaccine continues, we have seen sequential improvement in leisure traveler sentiment, and as a result, an improvement in occupancy, ADR and RevPAR in recent months. Changes in our 2021 pro-forma metrics, which exclude results from properties disposed of and include results from properties acquired as of August 6, 2021, as compared to the same periods in 2019 and 2020, respectively, and pro-forma occupancy are as follows:
|
Change in Pro-forma ADR |
|
|
Change in Pro-forma Occupancy |
|
|
Change in Pro-forma RevPAR |
|
|
|
|
|
||||||||||||||||
|
2021 vs. 2020 |
|
|
2021 vs. 2019 |
|
|
2021 vs. 2020 |
|
|
2021 vs. 2019 |
|
|
2021 vs. 2020 |
|
|
2021 vs. 2019 |
|
|
|
2021 |
|
|||||||
Q1 2021 |
|
(29.5 |
)% |
|
|
(31.2 |
)% |
|
|
(35.4 |
)% |
pts |
|
(51.2 |
)% |
pts |
|
(70.0 |
)% |
|
|
(76.7 |
)% |
|
|
|
26.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
April 2021 |
|
47.0 |
|
|
|
(21.3 |
) |
|
|
33.0 |
|
|
|
(47.8 |
) |
|
|
1,326.8 |
|
|
|
(65.8 |
) |
|
|
|
36.7 |
|
May 2021 |
|
75.3 |
|
|
|
(19.5 |
) |
|
|
35.5 |
|
|
|
(44.3 |
) |
|
|
1,351.1 |
|
|
|
(61.6 |
) |
|
|
|
40.4 |
|
June 2021 |
|
36.3 |
|
|
|
(12.8 |
) |
|
|
40.2 |
|
|
|
(38.3 |
) |
|
|
610.5 |
|
|
|
(50.7 |
) |
|
|
|
49.7 |
|
Q2 2021 |
|
44.6 |
|
|
|
(17.2 |
) |
|
|
36.2 |
|
|
|
(43.5 |
) |
|
|
909.7 |
|
|
|
(59.2 |
) |
|
|
|
42.3 |
|
We believe that imposed or re-imposed government restrictions and the economic contraction associated with COVID-19 will continue to significantly affect our business. We believe demand will remain significantly reduced as long as mandatory travel restrictions, “social distancing” and cost-saving measures, such as the postponing or cancelling of non-essential business travel, remain in place or if these restrictions tighten due to virus variants. Although we were able to recommence operations at most of our previously suspended hotels, there remains considerable uncertainty as to both the time it will take to see travel and demand for lodging and travel-related experiences to recover. Further, uncertainty as to the timing of when remaining restrictions will be removed generally will make it more difficult to execute on our external growth strategy.
The distribution of COVID-19 vaccines and the reports of their effectiveness have resulted in an improvement in traveler and general consumer sentiment. We believe that the continued distribution and acceptance by the public of COVID-19 vaccines will decrease the number of COVID-19 cases, as lead to an improvement in business and other consumer preferences for travel. Further, with all adults and certain age groups of children in the U.S. now eligible for the COVID-19 vaccines, coupled with the stimulus package passed in March 2021 and significant pent-up demand, we experienced accelerated growth during the second quarter and expect to experience continued growth during the second half of 2021. However, the uncertainties surrounding the COVID-19 pandemic recovery make it difficult to predict operating results for our hotels for the remainder of 2021, thus there can be no assurances that we will not experience further declines in hotel revenues or earnings at our hotels.
18
We and our hotel managers have taken various actions to mitigate the effects of the COVID-19 pandemic, including temporarily suspending operations at a majority of our hotels beginning in March 2020, limiting capacity at our open hotels, deferring approximately $150 million of capital expenditures planned for 2020, reducing budgeted capital expenditures for maintenance projects to approximately $40 million for 2021, suspending our dividend after the first quarter of 2020, and, as a precautionary measure to increase liquidity and preserve financial flexibility, drawing on our Revolver in 2020 and completing three corporate bond offerings totaling $2.1 billion in 2020 and 2021, the proceeds of which were used, in part, to repay a portion of the Revolver borrowings and the 2019 Term Facility, as well as fully repay our term loan due December 2021 ("2016 Term Loan"). Additionally, as discussed above in Recent Events, we have initiated or completed asset sales that have allowed us to fully repay our Revolver and further reduce borrowings under our 2019 Term Facility
Since originally suspending operations, we have commenced the phased reopening of all except three of our hotels and the timing of reopening our remaining suspended hotels will depend primarily on government restrictions imposed or re-imposed, recommendations of health officials and as demand recovers. The status of our hotels as of August 6, 2021 is as follows:
Status |
|
Number of Hotels |
|
|
Total Rooms |
|
||
Consolidated Open |
|
|
46 |
|
|
|
25,033 |
|
Consolidated Suspended |
|
|
3 |
|
|
|
3,216 |
|
Total Consolidated |
|
|
49 |
|
|
|
28,249 |
|
Unconsolidated Open |
|
|
7 |
|
|
|
4,297 |
|
Total Hotels |
|
|
56 |
|
|
|
32,546 |
|
In addition, the operating environment for us and our hotel managers has improved as government restrictions are lifted and demand for travel returns. Historically, economic indicators such as GDP growth, corporate earnings, consumer confidence and employment are highly correlated with lodging demand, and although these factors have seen improvement over the last year, these metrics have just begun to return to pre-pandemic levels. We expect the significance of the COVID-19 pandemic, including the extent of its effect on our financial and operational results, to be dictated by, among other things, its duration, the success of efforts to contain it, the emergence of virus variants, efficacy, availability and deployment of vaccinations and other treatments to combat COVID-19, including public adoption rates of COVID-19 vaccines, and the effect of actions taken in response (such as travel advisories and restrictions and social distancing), including the extent and duration of such actions.
The extent and duration of the effects of COVID-19 are not yet clear. Despite cost reduction initiatives, we do not expect to be able to fully, or even materially, offset revenue losses from the COVID-19 pandemic. In addition, as states and cities have begun to lift quarantines and other similar restrictions, the timing and approach differs in different locations and we cannot predict whether our reopened hotels will be forced to suspend operations again in the future or be subjected to operating restrictions following further outbreaks or variants of COVID-19.
Key Business Metrics Used by Management
Occupancy
Occupancy represents the total number of room nights sold divided by the total number of room nights available at a hotel or group of hotels. Room nights available to guests have not been adjusted for suspended or reduced operations at certain of our hotels as a result of COVID-19. Occupancy measures the utilization of our hotels’ available capacity. Management uses occupancy to gauge demand at a specific hotel or group of hotels in a given period. Occupancy levels also help us determine achievable ADR levels as demand for rooms increases or decreases.
Average Daily Rate
ADR represents rooms revenue divided by total number of room nights sold in a given period. ADR measures average room price attained by a hotel and ADR trends provide useful information concerning the pricing environment and the nature of the customer base of a hotel or group of hotels. ADR is a commonly used performance measure in the hotel industry, and we use ADR to assess pricing levels that we are able to generate by type of customer, as changes in rates have a more pronounced effect on overall revenues and incremental profitability than changes in occupancy, as described above.
Revenue per Available Room
RevPAR represents rooms revenue divided by the total number of room nights available to guests for a given period. Room nights available to guests have not been adjusted for suspended or reduced operations at certain of our hotels as a result of COVID-19. We consider RevPAR to be a meaningful indicator of our performance as it provides a metric correlated to two primary and key factors of operations at a hotel or group of hotels: occupancy and ADR. RevPAR is also a useful indicator in measuring performance over comparable periods.
19
Non-GAAP Financial Measures
We also evaluate the performance of our business through certain other financial measures that are not recognized under U.S. GAAP. Each of these non-GAAP financial measures should be considered by investors as supplemental measures to GAAP performance measures such as total revenues, operating profit and net income.
EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA
EBITDA, presented herein, reflects net income (loss) excluding depreciation and amortization, interest income, interest expense, income taxes and also interest expense, income tax and depreciation and amortization included in equity in earnings (losses) from investments in affiliates.
Adjusted EBITDA, presented herein, is calculated as EBITDA, further adjusted to exclude:
Hotel Adjusted EBITDA measures hotel-level results before debt service, depreciation and corporate expenses for our consolidated hotels, which excludes hotels owned by unconsolidated affiliates, and is a key measure of our profitability. We present Hotel Adjusted EBITDA to help us and our investors evaluate the ongoing operating performance of our consolidated hotels.
EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA are not recognized terms under U.S. GAAP and should not be considered as alternatives to net income (loss) or other measures of financial performance or liquidity derived in accordance with U.S. GAAP. In addition, our definitions of EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA may not be comparable to similarly titled measures of other companies.
We believe that EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA provide useful information to investors about us and our financial condition and results of operations for the following reasons: (i) EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA are among the measures used by our management team to make day-to-day operating decisions and evaluate our operating performance between periods and between REITs by removing the effect of our capital structure (primarily interest expense) and asset base (primarily depreciation and amortization) from our operating results; and (ii) EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties as a common performance measure to compare results or estimate valuations across companies in our industry.
EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA have limitations as analytical tools and should not be considered either in isolation or as a substitute for net income (loss) or other methods of analyzing our operating performance and results as reported under U.S. GAAP. Some of these limitations are:
We do not use or present EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA as measures of our liquidity or cash flow. These measures have limitations as analytical tools and should not be considered either in isolation or as a substitute for cash flow or other methods of analyzing our cash flows and liquidity as reported under U.S. GAAP. Some of these limitations are:
20
Because of these limitations, EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA should not be considered as discretionary cash available to us to reinvest in the growth of our business or as measures of cash that will be available to us to meet our obligations.
The following table provides a reconciliation of Net loss to Hotel Adjusted EBITDA:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
|
(in millions) |
|
|||||||||||||
Net loss |
|
$ |
(114 |
) |
|
$ |
(261 |
) |
|
$ |
(305 |
) |
|
$ |
(950 |
) |
Depreciation and amortization expense |
|
|
71 |
|
|
|
75 |
|
|
|
145 |
|
|
|
150 |
|
Interest income |
|
|
— |
|
|
|
(1 |
) |
|
|
— |
|
|
|
(2 |
) |
Interest expense |
|
|
66 |
|
|
|
50 |
|
|
|
129 |
|
|
|
90 |
|
Income tax expense |
|
|
— |
|
|
|
3 |
|
|
|
1 |
|
|
|
13 |
|
Interest expense, income tax and depreciation and |
|
|
4 |
|
|
|
4 |
|
|
|
5 |
|
|
|
9 |
|
EBITDA |
|
|
27 |
|
|
|
(130 |
) |
|
|
(25 |
) |
|
|
(690 |
) |
Gain on sales of assets, net |
|
|
(6 |
) |
|
|
(1 |
) |
|
|
(6 |
) |
|
|
(63 |
) |
Acquisition costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
Severance expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
Share-based compensation expense |
|
|
4 |
|
|
|
4 |
|
|
|
10 |
|
|
|
6 |
|
Impairment loss and casualty gain, net |
|
|
5 |
|
|
|
— |
|
|
|
5 |
|
|
|
694 |
|
Other items |
|
|
3 |
|
|
|
5 |
|
|
|
— |
|
|
|
10 |
|
Adjusted EBITDA |
|
|
33 |
|
|
|
(122 |
) |
|
|
(16 |
) |
|
|
(40 |
) |
Less: Adjusted EBITDA from investments in affiliates |
|
|
(2 |
) |
|
|
4 |
|
|
|
— |
|
|
|
— |
|
Add: All other(1) |
|
|
11 |
|
|
|
10 |
|
|
|
22 |
|
|
|
23 |
|
Hotel Adjusted EBITDA |
|
$ |
42 |
|
|
$ |
(108 |
) |
|
$ |
6 |
|
|
$ |
(17 |
) |
(1) Includes other revenues and other expenses, non-income taxes on TRS leases included in other property-level expenses and corporate general and administrative expenses.
Nareit FFO attributable to stockholders and Adjusted FFO attributable to stockholders
We present Nareit FFO attributable to stockholders and Nareit FFO per diluted share (defined as set forth below) as non-GAAP measures of our performance. We calculate funds from (used in) operations (“FFO”) attributable to stockholders for a given operating period in accordance with standards established by the National Association of Real Estate Investment Trusts (“Nareit”), as net income (loss) attributable to stockholders (calculated in accordance with U.S. GAAP), excluding depreciation and amortization, gains or losses on sales of assets, impairment, and the cumulative effect of changes in accounting principles, plus adjustments for unconsolidated joint ventures. Adjustments for unconsolidated joint ventures are calculated to reflect our pro rata share of the FFO of those entities on the same basis. As noted by Nareit in its December 2018 “Nareit Funds from Operations White Paper – 2018 Restatement,” since real estate values historically have risen or fallen with market conditions, many industry investors have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. For these reasons, Nareit adopted the FFO metric in order to promote an industry-wide measure of REIT operating performance. We believe Nareit FFO provides useful information to investors regarding our operating performance and can facilitate comparisons of operating performance between periods and between REITs. Our presentation may not be comparable to FFO reported by other REITs that do not define the terms in accordance with the current Nareit definition, or that interpret the current Nareit definition differently than we do. We calculate Nareit FFO per diluted share as our Nareit FFO divided by the number of fully diluted shares outstanding during a given operating period.
21
We also present Adjusted FFO attributable to stockholders and Adjusted FFO per diluted share when evaluating our performance because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance. Management historically has made the adjustments detailed below in evaluating our performance and in our annual budget process. We believe that the presentation of Adjusted FFO provides useful supplemental information that is beneficial to an investor’s complete understanding of our operating performance. We adjust Nareit FFO attributable to stockholders for the following items, which may occur in any period, and refer to this measure as Adjusted FFO attributable to stockholders:
The following table provides a reconciliation of net loss attributable to stockholders to Nareit FFO attributable to stockholders and Adjusted FFO attributable to stockholders:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
|
(in millions, except per share amounts) |
|
|||||||||||||
Net loss attributable to stockholders |
|
$ |
(116 |
) |
|
$ |
(259 |
) |
|
$ |
(306 |
) |
|
$ |
(947 |
) |
Depreciation and amortization expense |
|
|
71 |
|
|
|
75 |
|
|
|
145 |
|
|
|
150 |
|
Depreciation and amortization expense |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(2 |
) |
|
|
(2 |
) |
Gain on sales of assets, net |
|
|
(6 |
) |
|
|
(1 |
) |
|
|
(6 |
) |
|
|
(63 |
) |
Gain on sale of investments in affiliates(1) |
|
|
— |
|
|
|
(1 |
) |
|
|
— |
|
|
|
(1 |
) |
Impairment loss |
|
|
5 |
|
|
|
— |
|
|
|
5 |
|
|
|
695 |
|
Equity investment adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Equity in losses from investments in affiliates |
|
|
2 |
|
|
|
8 |
|
|
|
6 |
|
|
|
9 |
|
Pro rata FFO of investments in affiliates |
|
|
— |
|
|
|
(4 |
) |
|
|
(2 |
) |
|
|
(3 |
) |
Nareit FFO attributable to stockholders |
|
|
(45 |
) |
|
|
(183 |
) |
|
|
(160 |
) |
|
|
(162 |
) |
Severance expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
Acquisition costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
Share-based compensation expense |
|
|
4 |
|
|
|
4 |
|
|
|
10 |
|
|
|
6 |
|
Other items(2) |
|
|
3 |
|
|
|
5 |
|
|
|
(1 |
) |
|
|
36 |
|
Adjusted FFO attributable to stockholders |
|
$ |
(38 |
) |
|
$ |
(174 |
) |
|
$ |
(151 |
) |
|
$ |
(117 |
) |
Nareit FFO per share - Diluted(3) |
|
$ |
(0.19 |
) |
|
$ |
(0.78 |
) |
|
$ |
(0.68 |
) |
|
$ |
(0.69 |
) |
Adjusted FFO per share - Diluted(3) |
|
$ |
(0.16 |
) |
|
$ |
(0.74 |
) |
|
$ |
(0.64 |
) |
|
$ |
(0.50 |
) |
(1) Included in other loss, net.
(2) For the six months ended June 30, 2020, includes $26 million of tax expense on hotels sold during the period.
(3) Per share amounts are calculated based on unrounded numbers.
Results of Operations
The following items have had a significant effect on the year-over-year comparability of our operations and are illustrated further in the table of Hotel Revenues and Operating Expenses below:
22
Hotel Revenues and Operating Expenses
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
|||||||||||
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|
Change from |
|
|
Change |
|
|||||
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
||||||||
Rooms revenue |
|
$ |
207 |
|
|
$ |
21 |
|
|
$ |
186 |
|
|
$ |
3 |
|
|
$ |
183 |
|
Food and beverage revenue |
|
|
54 |
|
|
|
3 |
|
|
|
51 |
|
|
|
— |
|
|
|
51 |
|
Ancillary hotel revenue |
|
|
50 |
|
|
|
15 |
|
|
|
35 |
|
|
|
— |
|
|
|
35 |
|
Rooms expense |
|
|
59 |
|
|
|
20 |
|
|
|
39 |
|
|
|
1 |
|
|
|
38 |
|
Food and beverage expense |
|
|
42 |
|
|
|
14 |
|
|
|
28 |
|
|
|
— |
|
|
|
28 |
|
Other departmental and support |
|
|
101 |
|
|
|
60 |
|
|
|
41 |
|
|
|
— |
|
|
|
41 |
|
Other property-level expense |
|
|
52 |
|
|
|
56 |
|
|
|
(4 |
) |
|
|
— |
|
|
|
(4 |
) |
Management fees expense |
|
|
14 |
|
|
|
— |
|
|
|
14 |
|
|
|
— |
|
|
|
14 |
|
(1) Change from other factors primarily relates to the effects of COVID-19.
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
|||||||||||
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|
Change from |
|
|
Change |
|
|||||
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
||||||||
Rooms revenue |
|
$ |
313 |
|
|
$ |
383 |
|
|
$ |
(70 |
) |
|
$ |
(4 |
) |
|
$ |
(66 |
) |
Food and beverage revenue |
|
|
76 |
|
|
|
164 |
|
|
|
(88 |
) |
|
|
(2 |
) |
|
|
(86 |
) |
Ancillary hotel revenue |
|
|
79 |
|
|
|
72 |
|
|
|
7 |
|
|
|
(1 |
) |
|
|
8 |
|
Rooms expense |
|
|
94 |
|
|
|
132 |
|
|
|
(38 |
) |
|
|
(1 |
) |
|
|
(37 |
) |
Food and beverage expense |
|
|
63 |
|
|
|
137 |
|
|
|
(74 |
) |
|
|
(1 |
) |
|
|
(73 |
) |
Other departmental and support expense |
|
|
179 |
|
|
|
232 |
|
|
|
(53 |
) |
|
|
(2 |
) |
|
|
(51 |
) |
Other property-level expense |
|
|
100 |
|
|
|
116 |
|
|
|
(16 |
) |
|
|
(1 |
) |
|
|
(15 |
) |
Management fees expense |
|
|
21 |
|
|
|
25 |
|
|
|
(4 |
) |
|
|
— |
|
|
|
(4 |
) |
(1) Change from other factors primarily relates to the effects of COVID-19.
Group, transient, contract and other rooms revenue for the three and six months ended June 30, 2021, as well as the change for each segment compared to the same periods in 2020 are as follows:
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
|||||||||||
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|
Change from |
|
|
Change |
|
|||||
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
||||||||
Group rooms revenue |
|
$ |
16 |
|
|
$ |
2 |
|
|
$ |
14 |
|
|
$ |
— |
|
|
$ |
14 |
|
Transient rooms revenue |
|
|
176 |
|
|
|
13 |
|
|
|
163 |
|
|
|
3 |
|
|
|
160 |
|
Contract rooms revenue |
|
|
12 |
|
|
|
5 |
|
|
|
7 |
|
|
|
— |
|
|
|
7 |
|
Other rooms revenue |
|
|
3 |
|
|
|
1 |
|
|
|
2 |
|
|
|
— |
|
|
|
2 |
|
Rooms revenue |
|
$ |
207 |
|
|
$ |
21 |
|
|
$ |
186 |
|
|
$ |
3 |
|
|
$ |
183 |
|
(1) Change from other factors primarily relates to the effects of COVID-19.
23
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
|||||||||||
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|
Change from |
|
|
Change |
|
|||||
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
||||||||
Group rooms revenue |
|
$ |
23 |
|
|
$ |
120 |
|
|
$ |
(97 |
) |
|
$ |
(1 |
) |
|
$ |
(96 |
) |
Transient rooms revenue |
|
|
263 |
|
|
|
226 |
|
|
|
37 |
|
|
|
(3 |
) |
|
|
40 |
|
Contract rooms revenue |
|
|
22 |
|
|
|
28 |
|
|
|
(6 |
) |
|
|
— |
|
|
|
(6 |
) |
Other rooms revenue |
|
|
5 |
|
|
|
9 |
|
|
|
(4 |
) |
|
|
— |
|
|
|
(4 |
) |
Rooms revenue |
|
$ |
313 |
|
|
$ |
383 |
|
|
$ |
(70 |
) |
|
$ |
(4 |
) |
|
$ |
(66 |
) |
(1) Change from other factors primarily relates to the effects of COVID-19.
Other revenue and Other expense
During the second half of 2020, we permanently closed operations at all three of our laundry facilities resulting in a decrease in both laundry revenue and laundry expense. The increases in support services revenue and expense are due to the reopening of our hotels that have service arrangements with Hilton Grand Vacations (“HGV”), which were suspended during the first half of 2020.
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||||||||||
|
|
2021 |
|
|
2020 |
|
|
Percent Change |
|
|
2021 |
|
|
2020 |
|
|
Percent Change |
|
||||||
|
|
(in millions) |
|
|
|
|
|
(in millions) |
|
|
|
|
||||||||||||
Support service revenue |
|
$ |
12 |
|
|
$ |
3 |
|
|
|
300.0 |
% |
|
|
20 |
|
|
|
20 |
|
|
|
0.0 |
% |
Laundry revenue |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
(100.0 |
) |
Total other revenue |
|
$ |
12 |
|
|
$ |
3 |
|
|
|
300.0 |
% |
|
$ |
20 |
|
|
$ |
22 |
|
|
|
(9.1 |
)% |
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||||||||||
|
|
2021 |
|
|
2020 |
|
|
Percent Change |
|
|
2021 |
|
|
2020 |
|
|
Percent Change |
|
||||||
|
|
(in millions) |
|
|
|
|
|
(in millions) |
|
|
|
|
||||||||||||
Support services expense |
|
$ |
13 |
|
|
$ |
2 |
|
|
|
550.0 |
% |
|
$ |
20 |
|
|
$ |
19 |
|
|
|
5.3 |
% |
Laundry expense |
|
|
— |
|
|
|
2 |
|
|
|
(100.0 |
) |
|
|
— |
|
|
|
6 |
|
|
|
(100.0 |
) |
Total other expense |
|
$ |
13 |
|
|
$ |
4 |
|
|
|
225.0 |
% |
|
$ |
20 |
|
|
$ |
25 |
|
|
|
(20.0 |
)% |
Corporate general and administrative
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||||||||||
|
|
2021 |
|
|
2020 |
|
|
Percent Change |
|
|
2021 |
|
|
2020 |
|
|
Percent Change |
|
||||||
|
|
(in millions) |
|
|
|
|
|
(in millions) |
|
|
|
|
||||||||||||
General and administrative expenses |
|
$ |
12 |
|
|
$ |
9 |
|
|
|
33.3 |
% |
|
$ |
24 |
|
|
$ |
20 |
|
|
|
20.0 |
% |
Share-based compensation expense |
|
|
4 |
|
|
|
4 |
|
|
|
— |
|
|
|
10 |
|
|
|
6 |
|
|
|
66.7 |
|
Acquisition costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
(100.0 |
) |
Disposition costs |
|
|
— |
|
|
|
1 |
|
|
|
(100.0 |
) |
|
|
— |
|
|
|
1 |
|
|
|
(100.0 |
) |
Severance expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
(100.0 |
) |
Total corporate general and |
|
$ |
16 |
|
|
$ |
14 |
|
|
|
14.3 |
% |
|
$ |
34 |
|
|
$ |
30 |
|
|
|
13.3 |
% |
Impairment loss and casualty gain, net
During the three and six months ended June 30, 2021, we recognized an impairment loss of $5 million related to one of our hotels classified as held for sale as of June 30, 2021.
During the six months ended June 30, 2020, we recognized a net loss of $694 million primarily as a result of $607 million of impairment losses related to our goodwill and $88 million of impairment losses primarily related to one of our hotels, and our inability to recover the carrying value of the asset because of COVID-19.
Gain on sales of assets, net
During each of the three and six months ended June 30, 2021, we recognized a net gain of $6 million primarily as a result of the sale of three of our consolidated hotels.
24
During the six months ended June 30, 2020, we recognized a net gain of $63 million primarily as a result of the sale of two of our consolidated hotels.
Non-operating Income and Expenses
Interest expense
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||||||||||
|
|
2021 |
|
|
2020 |
|
|
Percent Change |
|
|
2021 |
|
|
2020 |
|
|
Percent Change |
|
||||||
|
|
(in millions) |
|
|
|
|
|
(in millions) |
|
|
|
|
||||||||||||
SF and HHV CMBS Loans(1) |
|
$ |
21 |
|
|
$ |
21 |
|
|
|
— |
% |
|
$ |
42 |
|
|
$ |
42 |
|
|
|
— |
% |
Mortgage Loans |
|
|
7 |
|
|
|
6 |
|
|
|
16.7 |
|
|
|
12 |
|
|
|
11 |
|
|
|
9.1 |
|
2016 Term Loan |
|
|
— |
|
|
|
5 |
|
|
NM(2) |
|
|
|
— |
|
|
|
11 |
|
|
NM(2) |
|
||
2019 Term Facility |
|
|
4 |
|
|
|
4 |
|
|
|
— |
|
|
|
9 |
|
|
|
10 |
|
|
|
(10.0 |
) |
Revolver |
|
|
3 |
|
|
|
7 |
|
|
|
(57.1 |
) |
|
|
8 |
|
|
|
8 |
|
|
|
— |
|
2025 Senior Secured Notes(3) |
|
|
12 |
|
|
|
4 |
|
|
NM(2) |
|
|
|
24 |
|
|
|
4 |
|
|
NM(2) |
|
||
2028 Senior Secured Notes(3) |
|
|
10 |
|
|
|
— |
|
|
NM(2) |
|
|
|
21 |
|
|
|
— |
|
|
NM(2) |
|
||
2029 Senior Secured Notes(3) |
|
|
5 |
|
|
|
— |
|
|
NM(2) |
|
|
|
5 |
|
|
|
— |
|
|
NM(2) |
|
||
Other |
|
|
4 |
|
|
|
3 |
|
|
|
33.3 |
|
|
|
8 |
|
|
|
4 |
|
|
|
100.0 |
|
Total interest expense |
|
$ |
66 |
|
|
$ |
50 |
|
|
|
32.0 |
% |
|
$ |
129 |
|
|
$ |
90 |
|
|
|
43.3 |
% |
(1) In October 2016, we entered into a $725 million CMBS loan secured by the Hilton San Francisco Union Square and the Parc 55 Hotel San Francisco (“SF CMBS Loan”) and a $1.275 billion CMBS loan secured by the Hilton Hawaiian Village Waikiki Beach Resort (“HHV CMBS Loan”).
(2) Percentage change is not meaningful.
(3) In May and September 2020, Park Intermediate Holdings LLC (our “Operating Company”), PK Domestic Property LLC, an indirect subsidiary of the Company (“PK Domestic”), and PK Finance Co-Issuer Inc. (“PK Finance”) issued an aggregate of $650 million of senior secured notes due 2025 (“2025 Senior Secured Notes”) and an aggregate of $725 million of senior secured notes due 2028 (“2028 Senior Secured Notes”), respectively. Additionally, in May 2021, our Operating Company, PK Domestic and PK Finance issued an aggregate of $750 million of senior secured notes due 2029 (“2029 Senior Secured Notes,” collectively with the 2025 Senior Secured Notes and 2028 Senior Secured Notes, the “Senior Secured Notes”).
Interest expense increased during the three and six months ended June 30, 2021 compared to the same periods in 2020 as a result the issuances of $2.1 billion of Senior Secured Notes during the second and third quarters of 2020 and May 2021, partially offset by a decrease in interest expense as a result of the full repayment of the 2016 Term Loan in September 2020, partial repayment of the 2019 Term Facility in May 2021, and partial repayments of our Revolver of $399 million in 2020 and $588 million in 2021.
Income tax expense
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||||||||||
|
|
2021 |
|
|
2020 |
|
|
Percent Change |
|
|
2021 |
|
|
2020 |
|
|
Percent Change |
|
||||||
|
|
(in millions) |
|
|
(in millions) |
|
||||||||||||||||||
Income tax expense |
|
$ |
— |
|
|
$ |
3 |
|
|
|
(100.0 |
)% |
|
$ |
1 |
|
|
$ |
13 |
|
|
|
(92.3 |
)% |
During the three and six months ended June 30, 2021, we recognized $1 million of income tax expense, which was comprised primarily of an adjustment of the benefit recognized in 2020 from utilizing the NOL carryback provisions of the CARES Act.
Income tax expense for the six months ended June 30, 2020 includes $26 million of income tax expense from hotels sold during the period, partially offset by a TRS income tax benefit of $16 million from utilizing the NOL carryback provisions of the CARES Act.
Liquidity and Capital Resources
Overview
We seek to maintain sufficient amounts of liquidity with an appropriate balance of cash, debt and equity to provide financial flexibility. As of June 30, 2021, we had total cash and cash equivalents of $909 million and $35 million of restricted cash. Restricted cash primarily consists of cash restricted as to use by our debt agreements and reserves for capital expenditures in accordance with certain of our management agreements.
As a result of the economic uncertainty resulting from the effects of COVID-19, including decreased occupancy, ADR and RevPAR at our hotels, as described above under “Recent Events”, we expect our cash flows for the remainder of 2021 to be
25
significantly lower than prior to COVID-19. We have taken several steps to preserve capital and increase liquidity, including drawing $1 billion from our Revolver in March 2020 (which we subsequently fully repaid), issuing $650 million of 2025 Senior Secured Notes in May 2020 (a portion of which was used to partially repay amounts outstanding under our Revolver and 2016 Term Loan), issuing $725 million of 2028 Senior Secured Notes in September 2020 (a portion of which was used to repay the 2016 Term Loan in full as well as a portion of the Revolver), issuing $750 million of 2029 Senior Secured Notes in May 2021 (a portion of which was used to partially repay the Revolver and the 2019 Term Facility), suspending our dividend following the payment of the first quarter 2020 dividend and implementing various cost saving initiatives at our hotels including temporary suspension of operations at certain hotels and selected restaurants and other businesses and outlets and reductions in budgeted capital expenditures for maintenance projects to approximately $40 million for 2021. We will continue to assess when the deferred capital expenditures will resume or if any of the deferred expenditures will be cancelled.
During the second quarter of 2021, we sold three consolidated hotels, the W New Orleans – French Quarter, the Hotel Indigo San Diego Gaslamp Quarter and the Courtyard Washington Capitol Hill Navy Yard. The proceeds were used to fully repay the outstanding balance under the Revolver and a portion of the 2019 Term Facility. In July 2021, we sold the Hotel Adagio, Autograph Collection, in San Francisco, California, for gross proceeds of $82 million and used the net proceeds to repay $77 million of the 2019 Term Facility. In June 2021, we executed an agreement to sell the Le Meridien San Francisco for a gross sales price of approximately $222 million. The sale is expected to close during the third quarter of 2021, and the gross sales price will be payable in cash at closing, subject to customary pro rations and adjustments. Net proceeds from the sale of the Le Meridien San Francisco will be used to repay a portion of the 2019 Term Facility.
We generated positive Hotel Adjusted EBITDA during the quarter ended June 30, 2021. With the availability under our Revolver and existing cash and cash equivalents as a result of net proceeds from the offering of our Senior Secured Notes and the proceeds from the sales of two consolidated hotels during the first quarter of 2020 and the sale of four consolidated hotels in 2021, we have sufficient liquidity to pay our near-term debt maturities and to fund other short-term liquidity obligations. We are maintaining higher than historical cash levels due to the continued uncertainty surrounding COVID-19, and we intend to do so until markets stabilize and demand in the lodging industry significantly recovers. In addition, we also may take other actions to improve our liquidity, such as the issuance of additional debt, equity or equity-linked securities, if we determine that doing so would be beneficial to us. However, there can no assurance as to the timing of any such issuance, which may be in the near term, or that any such additional financing will be completed on favorable terms, or at all. In 2020, we amended our credit facilities, which in addition to providing enhanced liquidity, extending the maturity of the Revolver and extending the waiver period for the testing of the financial covenants, placed certain restrictions on the Company, including limitations on our ability to make dividends and distributions (except to the extent required to maintain REIT status, the ability to pay a $0.01 per share per fiscal quarter dividend and certain other agreed exceptions).
Our known short-term liquidity requirements primarily consist of funds necessary to pay for operating expenses and other expenditures, including reimbursements to our hotel manager for payroll and related benefits, costs associated with the operation of our hotels, interest and scheduled principal payments on our outstanding indebtedness, capital expenditures for renovations and maintenance at our hotels, corporate general and administrative expenses, and, when resumed, dividends to our stockholders. Many of the other expenses associated with our hotels are relatively fixed, including portions of rent expense, property taxes and insurance. Since we generally are unable to decrease these costs significantly or rapidly when demand for our hotels decreases, the resulting decline in our revenues can have a greater adverse effect on our net cash flow, margins and profits. Our long-term liquidity requirements primarily consist of funds necessary to pay for scheduled debt maturities, capital improvements at our hotels (to the extent not cancelled or deferred), and costs associated with potential acquisitions. Despite the impact of COVID-19 on the global economy and our business, we were able to access the debt capital markets during the past year to complete three separate offerings of our Senior Secured Notes.
Our commitments to fund capital expenditures for renovations and maintenance at our hotels will be funded by cash and cash equivalents, restricted cash to the extent permitted by our lending agreements and cash flow from operations. We have established reserves for capital expenditures (“FF&E reserve”) in accordance with our management and certain debt agreements. Generally, these agreements require that we fund 4% of hotel revenues into an FF&E reserve, unless such amounts have been incurred. As a result of COVID-19, our hotel managers have temporarily delayed contributions to the FF&E reserve accounts and in addition, have allowed our hotels to utilize, as needed, their FF&E reserve for operating expenses at the respective hotels, as long as the hotels remain in compliance with debt agreements.
Our cash management objectives continue to be to maintain the availability of liquidity, minimize operational costs, make debt payments and fund our capital expenditure programs and future acquisitions. Further, we have an investment policy that is focused on the preservation of capital and maximizing the return on new and existing investments.
26
Stock Repurchase Program
In February 2019, our Board of Directors approved a stock repurchase program allowing us to repurchase up to $300 million of our common stock over a two-year period, which ended in February 2021. We have not renewed the stock repurchase program at this time. Stock repurchases were made through open market purchases, in privately negotiated transactions, or in such other manner that complied with applicable securities laws. The timing of stock repurchases and the number of shares repurchased were dependent upon prevailing market conditions and other factors. During the three months ended March 31, 2020, we repurchased 4.6 million shares of our common stock for a total purchase price of $66 million. No common stock was repurchased during the three months ended June 30, 2020.
Sources and Uses of Our Cash and Cash Equivalents
The following tables summarize our net cash flows and key metrics related to our liquidity:
|
|
Six Months Ended June 30, |
|
|||||||||
|
|
2021 |
|
|
2020 |
|
|
Percent Change |
|
|||
|
|
(in millions) |
|
|
|
|
||||||
Net cash used in operating activities |
|
$ |
(161 |
) |
|
$ |
(158 |
) |
|
|
(1.9 |
)% |
Net cash provided by investing activities |
|
|
154 |
|
|
|
150 |
|
|
|
2.7 |
% |
Net cash (used in) provided by financing activities |
|
|
(30 |
) |
|
|
931 |
|
|
NM(1) |
|
|
(1) Percentage change is not meaningful.
Operating Activities
Cash flow from operating activities are primarily generated from the operating income generated at our hotels.
The $3 million increase in net cash used in operating activities for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 was primarily due to an increase in cash paid for taxes of approximately $29 million, primarily associated with built-in gains from an asset sold in 2020, an increase in cash paid for interest of $36 million, mostly offset by an in increase in cash from operations as a result of the increase in occupancy as our hotels begin to recover from the effects of COVID-19.
Investing Activities
The $154 million in net cash provided by investing activities for the six months ended June 30, 2021 was primarily attributable to $168 million of net proceeds from the sale of three of our consolidated hotels, partially offset by $13 million in capital expenditures.
The $150 million in net cash provided by investing activities for the six months ended June 30, 2020 was primarily attributable to the $207 million in net proceeds received from the sale of hotels, partially offset by $56 million in capital expenditures.
Financing Activities
The $30 million in net cash used in financing activities for the six months ended June 30, 2021 was primarily attributable to $775 million of debt repayments and $15 million of debt issuance costs, partially offset by the issuance of $750 million of 2029 Senior Secured Notes and the $14 million mortgage loan secured by the Doubletree Spokane.
The $931 million in net cash provided by financing activities for the six months ended June 30, 2020 was primarily attributable to borrowings of $1 billion from our Revolver as a result of COVID-19, the issuance of our $650 million 2025 Senior Secured Notes, partially offset by $392 million of debt repayments, $241 million in dividends paid and the repurchase of 4.5 million shares of our common stock for $66 million.
Dividends
As a REIT, we are required to distribute at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain, and after utilization of any NOL carryforward to our stockholders on an annual basis. Therefore, as a general matter, it is unlikely that we will be able to retain substantial cash balances that could be used to meet our liquidity needs from our annual taxable income. Instead, we will need to meet these needs from external sources of capital and amounts, if any, by which our cash flow generated from operations exceeds taxable income. However, as a precautionary measure in light of COVID-19, after the payment of the first quarter dividend in 2020, we suspended our quarterly dividend.
Debt
As of June 30, 2021, our total indebtedness was approximately $5.1 billion, including approximately $2.1 billion of our Senior Secured Notes, as disclosed above, and excluding approximately $225 million of our share of debt of investments in affiliates.
27
Substantially all the debt of such unconsolidated affiliates is secured solely by the affiliates’ assets or is guaranteed by other partners without recourse to us. Refer to Note 7: “Debt” in our unaudited condensed consolidated financial statements included elsewhere within this Quarterly Report on Form 10-Q for additional information.
Off-Balance Sheet Arrangements
Our off-balance sheet arrangements as of June 30, 2021 included construction contract commitments of approximately $55 million for capital expenditures at our properties. Our contracts contain clauses that allow us to cancel all or some portion of the work. If cancellation of a contract occurred, our commitment would be any costs incurred up to the cancellation date, in addition to any costs associated with the discharge of the contract.
Critical Accounting Policies and Estimates
The preparation of our financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of our financial statements, the reported amounts of revenues and expenses during the reporting periods and the related disclosures in our condensed consolidated financial statements and accompanying footnotes. We have discussed those policies and estimates that we believe are critical and require the use of complex judgment in their application in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission on February 26, 2021. There have been no material changes to our critical accounting policies or the methods or assumptions we apply.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risk primarily from changes in interest rates, which may affect our future income, cash flows and fair value, depending on changes to interest rates. In certain situations, we may seek to reduce cash flow volatility associated with changes in interest rates by entering into financial arrangements intended to provide a hedge against a portion of the risks associated with such volatility. We continue to have exposure to such risks to the extent they are not hedged.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management has evaluated, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, the effectiveness of the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), as required by paragraph (b) of Rules 13a-15 and 15d-15 of the Exchange Act. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of June 30, 2021, our disclosure controls and procedures were effective to ensure that information we are required to disclose in reports filed or submitted with the Securities and Exchange Commission (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
28
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The information contained under the heading “Legal Matters” in Note 13: "Commitments and Contingencies" in our unaudited condensed consolidated financial statements included elsewhere within this Quarterly Report on Form 10-Q is incorporated by reference into this Item 1. We are involved in various claims and lawsuits arising in the ordinary course of business, some of which include claims for substantial sums, including proceedings involving tort and other general liability claims, employee claims and consumer protection claims. Most occurrences involving liability, claims of negligence and employees are covered by insurance with solvent insurance carriers. For those matters not covered by insurance, which include commercial matters, we recognize a liability when we believe the loss is probable and can be reasonably estimated. The ultimate results of claims and litigation cannot be predicted with certainty. We believe we have adequate reserves against such matters. We currently believe that the ultimate outcome of such lawsuits and proceedings will not, individually or in the aggregate, have a material adverse effect on our consolidated financial position, results of operations or liquidity. However, depending on the amount and timing, an unfavorable resolution of some or all of these matters could materially affect our future results of operations in a particular period.
Item 1A. Risk Factors.
There have been no material changes from the risk factors previously disclosed in response to “Part I – Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020.
Item 2. Unregistered Sales of Equity Securities.
2(a): Unregistered Sales of Equity Securities and Use of Proceeds
None.
2(b): Use of Proceeds from Registered Securities
None.
2(c): Purchases of Equity Securities
During the six months ended June 30, 2021, repurchases made pursuant to our repurchase program were as follows:
Record Date |
|
Total number of |
|
|
Weighted average |
|
|
Total number of |
|
|
Maximum number |
|
||||
January 1, 2021 through January 31, 2021 |
|
|
3 |
|
|
$ |
17.15 |
|
|
|
— |
|
|
$ |
234 |
|
February 1, 2021 through February 28, 2021 |
|
|
95,565 |
|
|
$ |
20.91 |
|
|
|
— |
|
|
$ |
234 |
|
March 1, 2021 through March 31, 2021 |
|
|
392 |
|
|
$ |
21.15 |
|
|
|
— |
|
|
$ |
— |
|
April 1, 2021 through April 30, 2021 |
|
|
230 |
|
|
$ |
21.82 |
|
|
|
— |
|
|
$ |
— |
|
May 1, 2021 through May 31, 2021 |
|
|
58 |
|
|
$ |
22.31 |
|
|
|
— |
|
|
$ |
— |
|
June 1, 2021 through June 30, 2021 |
|
|
50 |
|
|
$ |
20.52 |
|
|
|
— |
|
|
$ |
— |
|
|
|
|
96,298 |
|
|
|
|
|
|
— |
|
|
|
|
||
(1) The number of shares purchased represents shares of common stock surrendered by certain of our employees to satisfy their federal and state tax obligations associated with the vesting of restricted common stock.
(2) The weighted average price paid per share for shares of common stock surrendered by certain employees is based on the closing price of our common stock on the trading date immediately prior to the date of delivery of the shares.
(3) The stock repurchase program authorized in February 2019 for the repurchase of up to $300 million of the Company’s common stock expired on February 28, 2021.
Item 3. Defaults Upon Senior Securities.
Not applicable.
29
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
30
Item 6. Exhibits
Exhibit Number |
|
Description |
2.1 |
|
|
|
|
|
2.2 |
|
|
|
|
|
3.1 |
|
|
|
|
|
3.2 |
|
|
|
|
|
4.1 |
|
|
|
|
|
10.1 |
|
|
|
|
|
10.2 |
|
|
|
|
|
31.1* |
|
|
|
|
|
31.2* |
|
|
|
|
|
32.1* |
|
|
|
|
|
32.2* |
|
|
|
|
|
101.INS* |
|
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
101.SCH* |
|
Inline XBRL Taxonomy Extension Schema Document. |
|
|
|
101.CAL* |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
|
|
|
101.DEF* |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
|
|
|
101.LAB* |
|
Inline XBRL Taxonomy Extension Label Linkbase Document. |
|
|
|
101.PRE* |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
|
|
|
104* |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
|
|
|
* |
|
Filed herewith |
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
Park Hotels & Resorts Inc. |
||
|
|
|
|
Date: August 6, 2021 |
By: |
|
/s/ Thomas J. Baltimore Jr. |
|
|
|
Thomas J. Baltimore, Jr. |
|
|
|
Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) |
|
|
|
|
Date: August 6, 2021 |
By: |
|
/s/ Sean M. Dell’Orto |
|
|
|
Sean M. Dell’Orto |
|
|
|
Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
|
|
|
|
Date: August 6, 2021 |
By: |
|
/s/ Darren W. Robb |
|
|
|
Darren W. Robb |
|
|
|
Senior Vice President and Chief Accounting Officer (Principal Accounting Officer) |
32