Earnings Call Transcript - PK Q1 2026

Operator, Operator

Greetings, and welcome to the Park Hotels & Resorts Inc. First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Ian Weissman, Senior Vice President, Corporate Strategy. Please go ahead.

Ian Weissman, Senior Vice President, Corporate Strategy

Thank you, operator, and welcome everyone to the Park Hotels & Resorts Inc. first quarter 2026 earnings call. Before we begin, I would like to remind everyone that many of the comments made today are considered forward-looking statements under federal securities laws. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed, and we are not obligated to publicly update or revise these forward-looking statements. Actual future performance, outcomes, and results may differ materially from those expressed in forward-looking statements. Please refer to documents filed by Park Hotels & Resorts Inc. with the SEC, specifically the most recent reports on Forms 10-K and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements. In addition, on today's call, we will discuss certain non-GAAP financial information such as adjusted FFO and adjusted EBITDA. You can find this information, together with reconciliations to the most directly comparable GAAP financial measures, in yesterday's earnings release as well as in our 8-Ks filed with the SEC and the supplemental financial information available on our website at pkhotelsandresorts.com. Additionally, unless otherwise stated, all operating results will be presented on a comparable hotel basis. This morning, Thomas Jeremiah Baltimore, our Chairman and Chief Executive Officer, will provide an update on strategic initiatives and review Park Hotels & Resorts Inc.’s first quarter performance and outlook for the year, while Sean M. Dell'Orto, our Chief Financial Officer and Chief Operating Officer, will provide updates on our capital investments and balance sheet management along with additional color on guidance. Following our prepared remarks, we will open the call for questions. With that, I would like to turn the call over to Tom.

Thomas Jeremiah Baltimore, Chairman and Chief Executive Officer

Thank you, Ian, and welcome everyone. I am pleased to report that we delivered better-than-expected performance in the first quarter with RevPAR increasing 5.5% year-over-year excluding our Royal Palm South Beach hotel, which suspended operations in mid-May 2025 for a comprehensive renovation. I was incredibly impressed by the strong performance throughout the quarter with RevPAR excluding the Royal Palm increasing over 6.5% in January, approximately 3.5% in February, and nearly 6.5% in March. Results were driven by continued strength in leisure demand at our resort properties, where RevPAR increased 7.6% excluding Royal Palm, along with healthy corporate group demand that helped our urban hotels generate over 2% RevPAR growth during the quarter. From a capital allocation perspective, it was another productive quarter as we remain laser-focused on enhancing the overall portfolio quality through the disposition of noncore assets while continuing to unlock embedded value within our core assets through our transformative renovations, and further strengthening our balance sheet by addressing upcoming debt maturities. Following the January disposition of the Hilton Checkers in Los Angeles, we recently sold the 396-room Hilton Seattle Airport hotel, which was on a short-term ground lease, for $18 million, bringing total noncore asset sales for the year to $31 million, or 16 times 2025 EBITDA when accounting for nearly $36 million of CapEx expected for both properties. Together, these transactions reflect the continued execution of our capital recycling strategy and our commitment to improving the long-term growth profile of the company. We continue to make solid progress on the remaining 12 noncore hotels and remain firmly committed to materially reducing our noncore exposure by year end. To that end, we have active marketing campaigns underway on several assets but remain disciplined in our approach to prioritize transactions that improve our portfolio's growth profile and maximize shareholder returns. While the transaction market remains challenging, our track record speaks for itself, having sold or disposed of 52 hotels for more than $3 billion over the last nine years, materially improving the quality and earnings power of our portfolio. Turning to capital investments, we are making significant progress on our comprehensive repositioning of the Royal Palm in Miami. The pace and execution have been exceptional, especially given the scale and complexity of this project. We remain on track to achieve our target completion date by early June thanks to the tireless efforts of our best-in-class design and construction team and all of our partners involved on this project. Miami continues to be one of the strongest hotel markets in the country, and we remain highly confident in the long-term outlook for this asset. We are already seeing strong group demand with the property securing $1.4 million of group business as of the end of the first quarter for 2027 at an average rate of $460. This represents an increase of $108, or 31%, compared to our pace for 2024 at the same point pre-renovation. Looking ahead, we expect returns on invested capital between 15% to 20%, with EBITDA projected to more than double from approximately $14 million to $28 million upon stabilization, or roughly $69 thousand per key, positioning the hotel to be among the most profitable assets in our core portfolio. Turning to operations, the strength of our core portfolio remains evident. Core RevPAR increased 5.4% during the quarter excluding Royal Palm, which represented nearly a 400 basis point drag on core results. Performance was led by strong leisure demand in Bonnet Creek, Key West, and Hawaii, along with a sharp rebound in Southern California driven by improved group and leisure transient demand. In Orlando, Bonnet Creek once again exceeded expectations, delivering approximately 16% RevPAR growth and a 20% increase in hotel adjusted EBITDA over the prior-year period, driven by a 10% increase in transient revenues and a 19% rise in group production supported by large in-house events and stronger average daily rate. Revenues and earnings reached all-time highs with trailing twelve-month EBITDA exceeding $103 million, nearly 60% above pre-renovation levels and $20 million, or 24%, above our projections, meaningfully exceeding our return expectations on our $220 million investment and further underscoring our ability to unlock embedded value across the portfolio. Adding to the property's momentum, our Waldorf Astoria Orlando was recently recognized on Travel + Leisure's list of the top 500 hotels in the world, one of only two Orlando properties to receive the honor. In Key West, performance remained strong at both Casa Marina and The Reach, with RevPAR increasing nearly 9% and capturing meaningful market share during the quarter. Results were driven by increased transient demand and favorable holiday calendar shifts. Like Bonnet Creek, Casa Marina also exceeded our underwriting for the $80 million investment with trailing twelve-month EBITDA of nearly $36 million, exceeding our projections by over $4 million, or approximately 14%. Southern California results significantly exceeded expectations. At the Hilton Santa Barbara, RevPAR increased nearly 23% as strong transient demand helped drive a nearly 13 percentage point increase in occupancy and a 3% increase in ADR. The Hyatt Regency Mission Bay also delivered exceptional performance with RevPAR up 12% supported by continued strength in drive-to leisure demand. Turning to Hawaii, we continue to see a steady rebound in demand following the completion of our comprehensive room renovations for the Rainbow Tower at the Hilton Hawaiian Village hotel and the Palace Tower at the Waikoloa Village that, despite the disruption from historical storm activity, resulted in a combined RevPAR increase of 2% across the two resorts, or approximately 5.4% when accounting for the 340 basis point drag from the storms. Waikoloa Village delivered 6% growth, benefiting from an expanded airline contract and improved ADR following the renovation of the Palace Tower. At Hilton Hawaiian Village, which was far more impacted by the storms, RevPAR increased 1%, or over 4% when adjusting for the storm disruption, driven by higher-rated transient demand in the newly renovated Rainbow Tower. Looking ahead, we remain very encouraged on Hawaii demand trends and expect both hotels to perform at the upper end of our guidance range for the year. Easier year-over-year comparisons, coupled with tailwinds from the completion of our tower renovations at both resorts, should continue to support a higher-rated customer mix. Group performance in the first quarter also exceeded expectations, with portfolio group revenue increasing 5% year-over-year excluding Royal Palm. Growth was led by double-digit gains in Puerto Rico, New York, and our Bonnet Creek complex, driven by a higher-rated group mix and by strong in-house events along with active citywide calendars in Denver and San Francisco. Looking ahead, group trends remain stable, with second-quarter group revenue pace up approximately 4% and full-year pace improving to 3% growth excluding Royal Palm and Hilton Hawaiian Village, which is being impacted by the partial closure of the Honolulu Convention Center. Stronger-than-expected convention demand across several core markets, coupled with the momentum for in-the-year-for-the-year bookings, has driven a greater than 180 basis point improvement in the group revenue pace since last quarter. Longer term, group demand remains healthy, with 2027 pace currently up 5.5% for the core portfolio, reflecting continued confidence in the segment. As we look at the balance of the year, we remain cautiously optimistic based on our first-quarter outperformance and the underlying strength of demand across the portfolio, but recognize the broader macro setup remains uncertain. We continue to believe fundamentals will be supported by a combination of anticipated macro and lodging-centric tailwinds. Fiscal stimulus, including favorable tax policy, deregulation, and potential lowering of near-term interest rates, coupled with easier year-over-year comparisons, favorable calendar shifts, and incremental demand generators such as the World Cup and America's 250th anniversary celebrations, should promote a continuation of the demand growth we saw in the first quarter. That said, growing geopolitical tensions in the Middle East and their potential impact on consumer discretionary spending and business investment sentiment certainly warrant a continued measured approach. Sean will address this more when he talks about guidance. The first quarter was an encouraging start to the year, and I am very pleased with the progress we have made thus far to elevate the quality of our assets and strengthen our long-term growth profile. I could not be prouder of our team's ability to execute in a challenging environment for our business. We remain laser-focused on our strategic priorities: reinvesting in our iconic properties to drive long-term value, advancing the disposition of noncore hotels, and further strengthening the balance sheet through successful maturity extensions and disciplined leverage reduction over time. And with that, I will turn the call over to Sean.

Sean M. Dell'Orto, Chief Financial Officer and Chief Operating Officer

Thanks, Tom. We are very pleased with our first quarter results. RevPAR exceeded $191, up approximately 2% over the prior-year period, or approximately 5.5% when excluding Miami, and over 6.2%, or another 75 basis points, when adjusting for the Hawaii storms that Tom mentioned earlier. Total hotel revenues for the quarter were $591 million, up nearly 2%, and hotel adjusted EBITDA was $152 million, resulting in a hotel adjusted EBITDA margin of approximately 26%. Hotel operating expenses increased 2.6%, reflecting continued cost discipline. Overall, earnings came in ahead of expectations with EBITDA of $143 million and adjusted FFO per share of $0.45. Core portfolio performance remained strong with RevPAR increasing 5.4% to nearly $216 excluding Royal Palm, while gains were partially offset by typical comparisons at both of our D.C.-area hotels following last year's presidential inauguration in addition to a 170 basis point drag on the core portfolio as our Hilton New Orleans Riverside hotel lapped last year's Super Bowl. As Tom mentioned, we continue to make significant progress on our comprehensive transformation of the Royal Palm South Beach hotel in Miami. As we look ahead to the second quarter, we expect the hotel to remain a partial drag on operating results as the property ramps up its staffing ahead of its opening and rebuilds its demand through Q3. Overall, we are forecasting a nearly $3 million loss for Q2, and expect the resort to ramp up quickly over the back half of the year. During the first quarter, we also completed the second and final phase of guest room renovations at both the Rainbow Tower and the Palace Tower, bringing the total investment for Phase Two across both Hawaii properties to approximately $85 million. In addition, we completed the second of three phases of room renovations, totaling more than $30 million, at the Hilton New Orleans Riverside this past January, with the third and final phase scheduled for completion in the fourth quarter of this year. Looking ahead over the balance of 2026, we expect a lower level of capital investment this year, with $230 million to $260 million of planned spend, including the completion of Royal Palm and the launch of the Alihi Tower renovation at Hilton Hawaiian Village. This project will encompass all 351 guest rooms, the tower lobby, its private pool, and the addition of three new keys. Total investment for the project is expected to be approximately $96 million. We expect renovation-related disruption at Hilton Hawaiian Village to have a modest impact in 2026, with the tower's closure expected to have less than a $2 million impact on 2026 hotel adjusted EBITDA and representing just a 10 basis point impact to portfolio RevPAR. Once complete, nearly 80% of the resort's rooms will be newly renovated, significantly enhancing the iconic hotel's long-term competitive positioning. Turning to the balance sheet, our liquidity at the end of the first quarter was approximately $2 billion, including $156 million of cash, plus $1.8 billion of available capacity under our $1 billion revolving credit facility and $800 million delayed draw term loan. With respect to our 2026 maturities, we have made significant progress over the past two months to raise a $700 million floating-rate delayed draw mortgage on Bonnet Creek, which is expected to close this week. The loan was upsized $50 million based on the complex’s strong results and will bear interest at SOFR plus 225 basis points. When combined with the $800 million delayed draw term loan, this $1.5 billion of new debt capital commitments provides us with certainty while also allowing for the flexibility to fund within par prepayment windows closer to the maturities. Accordingly, we expect to execute a partial draw under the delayed draw term loan in June to fully repay the $121 million Hyatt Regency mortgage which matures in July. We then expect to draw the remaining capacity in September along with fully drawing proceeds from the Bonnet Creek mortgage financing to fully repay the $1.275 billion CMBS loan on the Hilton Hawaiian Village, which matures in early November, with additional proceeds to be used for corporate purposes. We are grateful for the continued support of our bank group whose confidence in Park Hotels & Resorts Inc.’s credit profile and the strength of our portfolio has been instrumental in executing these transactions. Their commitment is a clear validation of our balance sheet strategy and underscores our ability to address all 2026 debt maturities in a comprehensive and highly effective manner. Upon completion of these transactions, we will have meaningfully enhanced our financial flexibility, unencumbered the Hilton Hawaiian Village, extended our weighted average debt maturity to nearly four years, and eliminated any significant maturities for approximately two years. On an annualized basis, these refinancings are expected to increase interest expense by approximately $28 million, with roughly $13 million reflected in our 2026 AFFO guidance based on the timing of these transactions. With respect to our dividend, on April 15, we paid our first quarter cash dividend of $0.25 per share, and on April 24, our Board of Directors approved a second quarter cash dividend of $0.25 per share to be paid on July 15 to stockholders of record as of June 30. The dividend currently translates to an annualized yield of approximately 9% based on recent trading levels. Turning to guidance, while we remain mindful of the geopolitical uncertainties and the potential impact of higher oil prices on both business and leisure travel, we were very encouraged by the strength observed in Q1 and solid demand trends continuing into the second quarter. April RevPAR is expected to be flat, but up 3% excluding Miami, with performance led by a continued strength in Hawaii, Bonnet Creek, and Key West, as well as solid spring break leisure transient demand in Santa Barbara. And while we expect performance to modestly soften in May, June looks very strong, driven by strong group demand up nearly 10% and favorable year-over-year comparisons across several key markets, including Hawaii, Orlando, Key West, and New York. Overall, we expect Q2 RevPAR to come in around the midpoint of our guidance range with roughly a 100 basis point drag from Miami. For the year, with Q1's outperformance, we are increasing our RevPAR growth guidance by 50 basis points at the midpoint to a new range of 0.5% to 2.5%, and adjusted EBITDA guidance by $7 million at the midpoint to a new range of $587 million to $617 million, while AFFO increases by $0.01 at the midpoint to a new range of $1.74 to $1.90 per share. It is also worth noting that the recently sold Hilton Seattle Airport hotel was expected to contribute approximately $3 million in EBITDA for the remainder of the year. This concludes our prepared remarks. We will now open the call for questions.

Operator, Operator

We will now be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Floris Van Dijkum with Ladenburg Thalmann.

Floris Van Dijkum, Analyst (Ladenburg Thalmann)

Morning. Tom, glad to be on these calls again with you guys. If you can give us a little bit more of an update on the disposition. I think one of the key things I think the market is having some trouble understanding is the quality of the portfolio that is being shielded by the lower 10% of your assets. If you can talk a little bit about where they are. I know that you have pretty much all of those presumably in the market. What is the status on that? Are you having some detailed discussions? What is the pushback that you are getting from the market? And are you going to hold out for the last dollar on those assets?

Thomas Jeremiah Baltimore, Chairman and Chief Executive Officer

Well, Floris, it is great to have you back, and I appreciate the question. If I could frame it for a second, keep in mind, if you think about the remaining 12 assets that we have, we currently have 33 assets in the portfolio. We have sold or disposed of 52 assets, as I said in the prepared remarks, for north of $3 billion. We have 12 assets that we are defining as noncore. Three of those assets obviously rest with the dispute with Safehold, which will, we know, resolve itself, if not this year, certainly next year. The EBITDA from those assets is about $16 million, plus or minus. The remaining nine assets account for about $41 million in EBITDA, and candidly, probably 45% of that relates to one asset in Florida. So we are generally dealing with eight assets that are small. Some have short-term ground leases. Some are joint ventures. Some have various challenges. I would say the last mile is always the most difficult. I would hope the market would give us credit for the perseverance, the discipline, our ability to reshape the portfolio over the last nine years. We are very confident we are going to make substantial progress this year on those noncore assets. Our collective team are working their tails off. We have work streams underway on all of them. It is going to be a little lumpy and choppy. I think you will see more reported as the year unfolds. And believe me, no shortage of effort and focus. We realize it is, while a small overhang, an overhang. It is certainly less—if you look at the $41 million—certainly less than 5% to 6% of overall EBITDA. But it is a drain when you think about operating metrics. And so we are working hard to get the assets sold as quickly as we can. We are not holding out for the last dollar. But we certainly want to have counterparties who can execute and who can move through the process, and we certainly are always focused on creating value for shareholders.

Floris Van Dijkum, Analyst (Ladenburg Thalmann)

Thanks. Maybe a follow-up question on the World Cup. I know that your Royal Palm asset, I think, is opening up in June. Is that a market potentially that could get impacted by the demand for the World Cup? If you can talk broadly about what the impact is going to be or what you are seeing so far. I think everybody is sort of muted on the World Cup impact, but if you can give us a little bit more color on that, that would be great.

Thomas Jeremiah Baltimore, Chairman and Chief Executive Officer

Yeah, it is a lot to unpack there, Floris, but I am happy to take it. If we step back and think about the Royal Palm at 15th and Collins, 393 keys—we are expanding to 404—putting in approximately $112 million. We could not be more excited. We could not be prouder. We had, obviously, a group there. We cannot wait to get more analysts and more investors in. I could not be more grateful to Carl Mayfield, who heads our design and construction team, who is literally spending three or four days of his week in Miami leading. We also have the lead operator from Davidson who has been on-site since we launched construction last May. As of this morning, we had 417 men and women on-site, and that includes owners’ reps, general contractor, subcontractors, owners’ teams, and operations folks, and we are currently targeting that construction will be substantially complete by early June. What we would call the stocking and training TCO would begin and target in mid-May. You have a few weeks of testing all the fire alarm and life safety issues that have got to work through, and we are probably looking at a target public occupancy, hoping for mid-June. So when you think about where that all unfolds as it relates to the World Cup, we have included in our guidance that Sean outlined in his prepared remarks that we have no contribution coming from Miami in that process at this time. If we are able to get open, I think the two prominent games in Miami will be July 11 and July 18. We are cautiously optimistic that we should be open in time for those, and that is what we are all working our tails off to make sure occurs. Again, we do not have anything in the current guidance, so we have been quite conservative intentionally given the geopolitical issues and also the complexity of the inspection and regulatory process as we close out the job. You may recall other projects and the months, and in some cases years. I think this again speaks to the core competency and leadership that we have at Park Hotels & Resorts Inc., our experience, the extraordinary success that we are having at Bonnet Creek and what we are seeing in Key West. We feel the same way about Royal Palm as we look out. We are very bullish and excited about this project and think we are going to have tremendous success there over time.

Operator, Operator

Thank you, Floris. Our next question is from Smedes Rose with Citi.

Smedes Rose, Analyst (Citi)

Hi, thank you. I wanted to ask you, in your guidance it looks like the expense expectations moved up around 40 basis points versus your prior guidance, and I was just wondering what was behind that.

Sean M. Dell'Orto, Chief Financial Officer and Chief Operating Officer

Yes, Smedes. We obviously, in Q1, had some outperformance top line. A lot of that was occupancy-based. So we certainly naturally see, while cost per occupied room was solid—in terms of basically 50 basis points or so growth—with the extra occupancy, expense growth was a little more than expected as well. So we are kind of carrying that through, much like we are doing with the top line, into the expense. Certainly, it is expected the rest of the year that expenses operate as we expect, much like we are thinking about the top line, expecting that to perform as we expected for Q2 through Q4.

Smedes Rose, Analyst (Citi)

Okay. Yeah. So thanks. That is helpful. And then, Tom, you said that you think the Hawaii assets this year can trend towards the upper end of your expected ranges. Can you just remind us what that range was for this year?

Sean M. Dell'Orto, Chief Financial Officer and Chief Operating Officer

Well, I think, ultimately, you are talking about the upper end of our guidance range. So certainly, you know—yeah, so 2.5%, somewhere in that zone or a little better.

Thomas Jeremiah Baltimore, Chairman and Chief Executive Officer

Two and a half. As we said, we did not provide an EBITDA outlook. The other part is we do have some favorable comps coming up on the heels of renovations and certainly some softening activity that we saw last year in Hawaii. So to Sean’s point, we feel good about that. If anything, it is conservative, but that is intentional given all the uncertainty right now.

Smedes Rose, Analyst (Citi)

Okay. Thank you. Appreciate it.

Operator, Operator

Alright. Thank you. Our next question is from Duane Pfennigwerth with Evercore ISI.

Duane Pfennigwerth, Analyst (Evercore ISI) - represented by Peter

Yes. Hi. This is Peter on for Duane. Thanks for taking the question. I would like to maybe piggyback off Smedes’ last question on Hawaii. Bigger picture, Tom, if you could lay out the building blocks of the recovery in Hawaii getting back to pre-strike levels—what do you need to see happen, and what could the cadence of that recovery look like?

Thomas Jeremiah Baltimore, Chairman and Chief Executive Officer

Peter, it is a fair question. If you look historically, Oahu’s RevPAR growth has always outpaced the U.S. pretty consistently by about 120 basis points. Key West and Hawaii both are around a CAGR of about 4.5% versus 3.3% for the U.S. Obviously, you have very limited supply growth in Hawaii through 2030. The investment that we are making and continue to make—and after we have finished the Alihi Tower—at least 80% of the rooms at Hilton Hawaiian Village, in particular, will be renovated. We have been looking to reposition the business. If you think about the Japanese traveler, visitation is about 750,000 versus about 1.5 million historically. Japanese travelers are accounting for about 3% of our business now, which was probably 18% to 20% pre-pandemic. Given the conflict, you do have headwinds related to fuel surcharges, the strong dollar versus the yen, and some cheaper alternatives. Having said that, given the investment we have made and the favorable comps, we think there is an opportunity for Hawaii to perform on the higher end of our guidance, if not exceed it. We remain very bullish over the intermediate and long term. Last year we generated north of $140 million in EBITDA, plus or minus, and the highs were about $185 million coming out of the pandemic. With that backdrop and some headwinds, we are really not that far. We continue to reposition to regain higher-end business. As the convention center work completes, we see that as another tailwind for the outer years. We remain encouraged for Hawaii over the intermediate and long term. For Waikoloa, completing the Palace Tower renovation and favorable comps in the second half of this year, including the reduction of out-of-order rooms from prior disruptions, should be a favorable dynamic for 2026 and 2027.

Duane Pfennigwerth, Analyst (Evercore ISI) - represented by Peter

Great. Thanks for the detail. And then my follow-up, you mentioned group pace improving from the beginning of the year. Group pace ex Hawaii and Miami—could you highlight markets that saw sequential improvement and the flavor of those bookings? Is it corporate groups in the year-for-the-year? Is it convention blocks booking up?

Sean M. Dell'Orto, Chief Financial Officer and Chief Operating Officer

I will jump in. In Q1, we saw some help in New York on group where a nurses strike resulted in temporary demand that we captured as group blocks for a few weeks, which was helpful. We have seen some disruptive forces in Mexico and the Middle East allow some groups to transition or change out and come into markets like Hawaii. We are seeing some benefit there, and some of that will be in future periods. Overall, we have seen revaluations across the portfolio for group where groups have outperformed their blocks, and we have seen that across the board in both in-house group and convention.

Operator, Operator

Thank you. Our next question is from Ari Klein with BMO Capital Markets.

Ari Klein, Analyst (BMO Capital Markets)

Thanks. Good morning. Is Hawaii benefiting from some rotation from Puerto Rico? And Tom, if oil prices do materially impact airline prices, do you think that disproportionately impacts Hawaii relative to the rest of your portfolio?

Thomas Jeremiah Baltimore, Chairman and Chief Executive Officer

If we get a prolonged supply shock and the conflict continues indefinitely, it will impact long-haul air travel and air travel broadly, and certainly affect the sector. If anything, you might see some rerouting where people prefer onshore destinations in the U.S., and Hawaii could benefit, as could the Caribbean and Puerto Rico. We are already seeing some rerouting benefits in Florida and the Caribbean and Puerto Rico. Hawaii has historically been a fan favorite, and we do not see that changing materially. Mix may change, and we are spending time to reposition with our investments like the Alihi Tower—a hotel within a hotel—with its own check-in, pool, and elevated experience. We think that will help reposition Hilton Hawaiian Village. We also have the opportunity at Waikoloa to add additional keys when market dynamics make sense. We remain bullish on Hawaii, and historically it has outperformed as a sector over the last twenty-plus years.

Ari Klein, Analyst (BMO Capital Markets)

Thanks. And then two clarifications on group. For Q4 I think previously it was down 8% and was going to be a headwind. With the improvement, what does that now look like? And on 2027, the 5.5% growth in pace—does that exclude Hawaii and Royal Palm?

Thomas Jeremiah Baltimore, Chairman and Chief Executive Officer

The 5.5% 2027 pace does include Hawaii and Royal Palm. For 2027, New York is up mid-teens, New Orleans up mid-teens, Hilton Waikoloa up 17%, Bonnet Creek up mid-single digits, Key West significantly up north of 20%. Hilton Hawaiian Village is down slightly in part due to the convention center partial closure. It is broad-based and we are bullish on 2027.

Sean M. Dell'Orto, Chief Financial Officer and Chief Operating Officer

On Q4, we were thinking about pace down 8% last time around; we are about down 4% now.

Operator, Operator

Our next question is from Chris Jon Woronka with Deutsche Bank.

Chris Jon Woronka, Analyst (Deutsche Bank)

Hey, good morning, guys. Thanks for taking the question. Question on the transactional market: Are you seeing a difference in the buyer pool, in terms of it broadening out and being more institutional as opposed to local owner-operators?

Thomas Jeremiah Baltimore, Chairman and Chief Executive Officer

For these remaining types of assets—generally smaller assets with lower EBITDA—they tend to be more attractive to owner-operators, entrepreneurial buyers, and small PE firms who see opportunity to reposition. There is no shortage of interested parties; some markets are more attractive than others. Los Angeles and Chicago have challenges, but across the assets we are marketing we have a healthy buyer pool. The last mile is always the toughest, and many of these assets came from the old Hilton portfolio and were low priority previously. The Park Hotels & Resorts Inc. team accepts the challenge and will continue to make progress. You will see significant progress this year.

Chris Jon Woronka, Analyst (Deutsche Bank)

Thanks, Tom. Follow-up on Miami—on the Royal Palm. You outlined EBITDA expectations fully ramped and timing of opening. When it opens and starts the ramp, how much does the composition of earnings change to get to your EBITDA target, in terms of ancillary revenue and gaining higher rates? Are you adding amenities like a beach club? How does the composition look versus pre-renovation?

Thomas Jeremiah Baltimore, Chairman and Chief Executive Officer

I do not have all of the specifics with me other than to say we are excited. Pre-renovation ADR was about $265. We have underwritten at around $400 and are already booking group business at about $460 on average. The second floor now has outdoor entertainment space and by bringing the three buildings together we will offer an elevated guest experience. Compared to the Auberge, Rosewood, Aman, Delano, and others who price at $600 to $800 and up, we underwrote at $400 and I personally believe we will exceed that. Response has been very strong. We believe we can generate higher returns on development deals than on acquisition deals and that has been a core competency for the team. We are excited to finish the project and bring analysts and investors to see the transformation. We have over 400 people on-site working two shifts to complete construction and capture as much of the World Cup benefit as possible. Remember, we did not plan any World Cup benefit in our guidance, so anything we get would be incremental upside.

Operator, Operator

Our next question is from David Brian Katz with Jefferies.

David Brian Katz, Analyst (Jefferies)

Hey, everyone. Thanks. I wanted to ask something longer term. Ian always reminds us about the pipeline of longer-term repositionings. Royal Palm gets done, Hawaii updates are good. Can you talk qualitatively about some of the ones that might be next and how to think about building the portfolio longer term?

Thomas Jeremiah Baltimore, Chairman and Chief Executive Officer

A few come to mind. Santa Barbara has significant upside; we have a proposal to add approximately 70 keys and we are working through entitlements. Waikoloa has the by-right opportunity to add another 200 keys, though that would wait until market recovery supports it. Our DoubleTree in Crystal City sits in a prime location at the front of Amazon HQ2 and has bull’s-eye real estate potential, but current market conditions may not warrant action now. In New York, we continue to study elevator modernization and repositioning opportunities, which is a priority given the scale and performance of that asset. Those are some of the assets on our mind as potential medium- to long-term opportunities.

David Brian Katz, Analyst (Jefferies)

Okay. Thank you. I appreciate it. Got a lot done. That is it for me.

Operator, Operator

Our next question is from Daniel Brian Politzer with JPMorgan.

Daniel Brian Politzer, Analyst (JPMorgan)

Hey, good afternoon, everyone. Quick follow-up on the second quarter. I think you mentioned RevPAR in range, but you also commented on May tracking. Can you give more detail on what is driving that, because I think you characterized it as mix?

Sean M. Dell'Orto, Chief Financial Officer and Chief Operating Officer

For Q2, April is tracking flattish to slightly better and is almost finished. May is the weakest setup right now for the quarter, with group pace just down slightly. Transient demand needs to hold to hit our expectations for the month, so May is the one to monitor and there is some risk. June looks very strong; group pace is up double digits and we have events like the World Cup and Juneteenth and favorable year-over-year comparisons in several markets. Together, April flattish, May with risk, and June strong, make the quarter around the midpoint of guidance.

Daniel Brian Politzer, Analyst (JPMorgan)

Got it. And just for my follow-up, more broadly on the World Cup across the portfolio, have you seen a change in demand for World Cup-related stays versus three or six months ago?

Sean M. Dell'Orto, Chief Financial Officer and Chief Operating Officer

Nothing dramatic. Excluding Royal Palm, the two big markets for us are New York and Boston. These markets typically are about 90% occupied during June and July, so this is largely a rate play. Positioning in those markets around the matches is good at the moment, but there is a lot of uncertainty around the event. It remains a demand generator and positive, but not as dramatic as some expected coming into the year. We previously estimated an impact of about $35 million or so across those markets, which might come off a bit from earlier expectations, but it remains a positive demand driver.

Operator, Operator

Our next question is from Chris Darling with Green.

Chris Darling, Analyst (Green)

Hi. Thanks. Good morning. Hey, Tom. Quick one circling back to Hilton Hawaiian Village, maybe framing the trajectory there in a different way. Can you update us on where your RevPAR index share is today and where you see that heading over time as you realize the benefit of the capital you have invested over the last few years?

Sean M. Dell'Orto, Chief Financial Officer and Chief Operating Officer

The RevPAR index is tracking in the 95 to just around 100 range. We saw that last year and at the start of this year due to renovation work at the Rainbow Tower. Historically, pre-renovation, we sat around 110 to 115. We expect to come back to that 110 to 115 range as recovery continues and renovation work completes, which would improve rate profile and the bottom line.

Chris Darling, Analyst (Green)

Understood. And how are you thinking about the timing in terms of that index share? One-year timeline, three-year timeline? I realize it is hard to quantify.

Thomas Jeremiah Baltimore, Chairman and Chief Executive Officer

We would hope the ramp-up accelerates given the investment and operating resources we are devoting. Once the Alihi Tower is complete, which is somewhat isolated and self-contained, it will help. With 80% of the campus renovated, that will reposition the property and allow us to change customer mix. We are committed to the program and the payoff of the mortgage will leave us with unencumbered marquee assets in Hawaii, which is rare and provides optionality.

Chris Darling, Analyst (Green)

Thanks. I appreciate the thoughts. That is all for me.

Operator, Operator

Our next question is from Cooper R. Clark with Wells Fargo.

Cooper R. Clark, Analyst (Wells Fargo)

Great. Thanks for taking the question. Can you talk us through some of the building blocks for the updated OpEx guide for the full year and what you are expecting to see from a growth perspective on wages and benefits, insurance, and utilities?

Sean M. Dell'Orto, Chief Financial Officer and Chief Operating Officer

We have a range in the mid-2s to mid-3s for expense growth. Labor and wage growth should be around 5% on average, plus or minus. We expect some offsets: favorable insurance premium reductions in the renewals, with a renewal on June 1 that should continue reduction benefits; estate taxes are likely to be about a 5% increase in the budget process, but appeal processes are in place and we have not fully factored outcomes, amounts, and timing into guidance. Labor and wages are the big driver on growth, but we continue to work with asset management and operators to find offsets.

Cooper R. Clark, Analyst (Wells Fargo)

Great. Thanks. Quick follow-up. How much, if any, impact did the Hilton Seattle sale have on the RevPAR guidance raise?

Sean M. Dell'Orto, Chief Financial Officer and Chief Operating Officer

RevPAR guidance is a comparable growth rate, so the sale is removed from the portfolio on a like-for-like basis and had no impact on the growth rate. From a nominal RevPAR you may see a nice increase.

Operator, Operator

Our next question is from Robin Margaret Farley.

Robin Margaret Farley, Analyst

Great. Thank you. Most of my questions have been answered. I wonder if you could—oh, can you hear me okay? Yeah, most of my questions have been covered. Just going back to the Alihi Tower in Hawaii, can you walk us through what you are expecting in terms of returns and change in RevPAR, similar to how you discussed Royal Palm? Thanks.

Thomas Jeremiah Baltimore, Chairman and Chief Executive Officer

We expect returns in the 15% to 20% range for these types of transformations. Budget is approximately $96 million to renovate the Alihi Tower, adding three keys to 351. It will be a hotel within a hotel with separate check-in and an embedded pool in a premier location on the Village. Given our experience with prior renovations like Tapa Tower and Rainbow Tower, we are excited. We expect to start later this year and finish in mid-next year, plus or minus. We believe getting the Village to that 110 and above RevPAR index is within sight once the final tower is done.

Robin Margaret Farley, Analyst

Are there any limits on brand there in terms of having to stay Hilton-branded, or could you rebrand completely?

Thomas Jeremiah Baltimore, Chairman and Chief Executive Officer

It would have to stay within the Hilton family. We considered renaming, but Hilton Hawaiian Village is iconic and Alihi Tower has its following. We concluded the right approach is repositioning and upgrade within the Hilton family, and response has been phenomenal for the renovated towers.

Operator, Operator

There are no further questions at this time. I would like to turn the floor back over to Tom Baltimore for any closing remarks.

Thomas Jeremiah Baltimore, Chairman and Chief Executive Officer

I appreciate everybody taking time, and I look forward to seeing many of you at upcoming meetings—one hosted by Wells Fargo, JPMorgan, and, of course, NAREIT. Safe travels, and I look forward to seeing you all.

Operator, Operator

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