Park Hotels & Resorts Inc 10-Q for FY2022 Q1
Park Hotels & Resorts Inc. (PK)
About this 10-Q
Park Hotels & Resorts Inc filed this 10-Q on May 2, 2022, covering the quarter ended March 31, 2022 (FY2022 Q1).
Headline figures
Quarter ended March 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $479M
- up 190.3% from $165M a year earlier
- Net loss
- $57M
- compared with a net loss of $190M a year earlier
- Diluted EPS
- -$0.24
- compared with -$0.81 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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(Registrant’s telephone number, including area code): (
Securities registered pursuant to Section 12(b) of the Act.
Title of each class |
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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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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 April 27, 2022 was
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 March 31, 2022 and December 31, 2021 |
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Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2022 and 2021 |
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Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021 |
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Condensed Consolidated Statements of Equity for the Three Months Ended March 31, 2022 and 2021 |
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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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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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Item 5. |
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Item 6. |
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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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March 31, 2022 |
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December 31, 2021 |
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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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$ |
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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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$ |
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Accounts payable and accrued expenses |
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Due to hotel managers |
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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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- refer to Note 10 |
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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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Accumulated deficit |
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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 March 31, |
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2022 |
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2021 |
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Revenues |
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Rooms |
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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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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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Operating income (loss) |
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( |
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Interest expense |
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( |
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( |
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Equity in losses from investments in affiliates |
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— |
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Other gain, net |
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Loss before income taxes |
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( |
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Income tax expense |
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( |
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Net loss |
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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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Net loss attributable to stockholders |
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$ |
( |
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$ |
( |
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Other comprehensive income, net of tax expense: |
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Change in fair value of interest rate swap, net of tax expense of $ |
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Total other comprehensive income |
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Comprehensive loss |
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( |
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( |
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Comprehensive (income) loss attributable to noncontrolling interests |
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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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Loss per share: |
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Loss per share – Basic |
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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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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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Three Months Ended |
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March 31, |
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2022 |
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2021 |
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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 provided by (used in) operating |
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Depreciation and amortization |
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Equity in losses from investments in affiliates |
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Other gain, net |
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( |
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Share-based compensation expense |
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Amortization of deferred financing costs |
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Changes in operating assets and liabilities |
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Net cash provided by (used in) operating activities |
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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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( |
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Contributions to unconsolidated affiliates |
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( |
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Insurance proceeds for property damage claims |
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Net cash used in investing activities |
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( |
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( |
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Financing Activities: |
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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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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 financing activities |
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( |
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( |
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Net decrease in cash and cash equivalents and restricted cash |
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( |
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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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Supplemental Disclosures |
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Non-cash financing activities: |
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Dividends declared but unpaid |
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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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Additional |
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Non- |
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Common Stock |
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Paid-in |
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Accumulated |
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controlling |
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Shares |
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Amount |
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Capital |
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Deficit |
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Interests |
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Total |
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Balance as of December 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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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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Dividends and dividend equivalents(1) |
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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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Repurchase of common stock |
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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 March 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Retained |
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Accumulated |
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Additional |
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Earnings |
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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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(Accumulated |
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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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Deficit) |
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(Loss) Income |
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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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— |
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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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(1) Dividends declared per common share were $
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” and, exclusive of any subsidiaries, "Park Parent") 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. 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. 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. Park Parent owned
COVID-19 Update
The novel strain of coronavirus and the disease it causes (“COVID-19”) have had and continue to have an effect on the hospitality industry and our business. Beginning in March 2020, we 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. The increase in vaccination rates across the country and the easing or removal of government restrictions, quarantining and “social distancing” mandates resulted in increased travel and hospitality spending beginning in the second quarter of 2021. Although concerns over the spread of the Omicron variant reduced demand in the first six weeks of the quarter, we witnessed recovery beginning in mid-February 2022 as COVID-19 cases declined across the country and business travel accelerated, and saw the return of group demand. We expect positive momentum to continue for our leisure focused hotels and increased demand for both group and business transient travel during the remainder of the year.
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, 2021 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on February 18, 2022.
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 balance sheets as of December 31, 2021 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, 2021, filed with the SEC on February 18, 2022, contains a discussion of the significant accounting policies. There have been no significant changes to our significant accounting policies since December 31, 2021.
Note 3: Property and Equipment
Property and equipment were:
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March 31, 2022 |
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December 31, 2021 |
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(in millions) |
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Land |
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$ |
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$ |
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Buildings and leasehold improvements |
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Furniture and equipment |
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Construction-in-progress |
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Accumulated depreciation and amortization |
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( |
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( |
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$ |
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$ |
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Depreciation of property and equipment was $
Note 4: Consolidated Variable Interest Entities ("VIEs") and Investments in Affiliates
Consolidated VIEs
We consolidate VIEs that own
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March 31, 2022 |
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December 31, 2021 |
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(in millions) |
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Property and equipment, net |
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$ |
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$ |
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Cash and cash equivalents |
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Restricted cash |
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Accounts receivable, net |
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Prepaid expenses |
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Debt |
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Accounts payable and accrued expenses |
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|
|
|
|
|
||
Due to hotel manager |
|
|
|
|
|
|
||
Other liabilities |
|
|
|
|
|
|
||
8
Unconsolidated Entities
Investments in affiliates were:
|
|
Ownership % |
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
|
|
|
|
(in millions) |
|
|||||
Hilton San Diego Bayfront |
|
|
$ |
|
|
$ |
|
|||
All others (5 hotels) |
|
|
|
|
|
|
|
|||
|
|
|
|
$ |
|
|
$ |
|
||
The affiliates in which we own investments accounted for under the equity method had total debt of approximately $
Note 5: Debt
Debt balances and associated interest rates as of March 31, 2022 were:
|
|
|
|
|
|
Principal balance as of |
|
|||||
|
|
Interest Rate |
|
Maturity Date |
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
|
|
|
|
|
|
(in millions) |
|
|||||
SF Mortgage Loan(1) |
|
|
|
$ |
|
|
$ |
|
||||
HHV Mortgage Loan(1) |
|
|
|
|
|
|
|
|
||||
Other mortgage loans |
|
Average rate of |
|
|
|
|
|
|
|
|||
2019 Term Facility(3) |
|
L + |
|
|
|
|
|
|
|
|||
Revolver(3) |
|
L + |
|
|
|
|
|
|
|
|||
2025 Senior Secured Notes(4) |
|
|
|
|
|
|
|
|
||||
2028 Senior Secured Notes(4) |
|
|
|
|
|
|
|
|
||||
2029 Senior Secured Notes(4) |
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
||
Add: unamortized premium |
|
|
|
|
|
|
|
|
|
|
||
Less: unamortized deferred financing costs and |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
$ |
|
|
$ |
|
||
(1)
(2)
(3)
(4)
million of senior secured notes due 2029 (“2029 Senior Secured Notes”).
We are required to deposit with lenders certain cash reserves for restricted uses. As of March 31, 2022 and December 31, 2021, our condensed consolidated balance sheets included $
Credit Facilities
Revolver and 2019 Term Facility
9
Debt Maturities
The contractual maturities of our debt, assuming the exercise of all extensions that are exercisable solely at our option, as of March 31, 2022 were:
Year |
|
(in millions) |
|
|
2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Thereafter(1) |
|
|
|
|
|
|
$ |
|
|
(1)
Note 6: 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:
|
|
|
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
|||||||||||
|
|
Hierarchy |
|
|
Carrying |
|
|
Fair Value |
|
|
Carrying |
|
|
Fair Value |
|
|||||
|
|
|
|
|
(in millions) |
|
||||||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
SF Mortgage Loan |
|
|
3 |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
HHV Mortgage Loan |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
2019 Term Facility |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
2025 Senior Secured Notes |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
2028 Senior Secured Notes |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
2029 Senior Secured Notes |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other mortgage loans |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
10
Note 7: 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 three months ended March 31, 2022:
|
|
Number of Shares |
|
|
Weighted-Average |
|
||
Unvested at January 1, 2022 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
Unvested at March 31, 2022 |
|
|
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Performance Stock Units
Performance Stock Units (“PSUs”) generally vest at the end of a
Additionally, in November 2020, we granted special awards with vesting of these awards subject to the achievement of eight increasing levels of our average closing sales price per share, from $
|
|
Number of Shares |
|
|
Weighted-Average |
|
||
Unvested at January 1, 2022 |
|
|
|
|
|
|
||
Granted |
|
|
|
|
|
|
||
Forfeited |
|
|
( |
) |
|
|
|
|
Unvested at March 31, 2022 |
|
|
|
|
$ |
|
||
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 |
|
|
% |
|||
Dividend yield(1) |
|
|
|
|||
Risk-free rate |
|
|
% |
|||
Expected term |
|
|
||||
(1)
11
Note 8: Earnings Per Share
The following table presents the calculation of basic and diluted earnings per share (“EPS”):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
|
|
(in millions, except per share amounts) |
|
|||||
Numerator: |
|
|
|
|
|
|
||
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) |
|
$ |
( |
) |
|
$ |
( |
) |
Certain of our outstanding equity awards were excluded from the above calculation of EPS for the three months ended March 31, 2022 and 2021 because their effect would have been anti-dilutive.
Note 9: Business Segment Information
As of March 31, 2022, we have
The following table presents revenues for our consolidated hotels reconciled to our consolidated amounts and net loss to Hotel Adjusted EBITDA:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
|
|
(in millions) |
|
|||||
Revenues: |
|
|
|
|
|
|
||
Total consolidated hotel revenues |
|
$ |
|
|
$ |
|
||
Other revenues |
|
|
|
|
|
|
||
Total revenues |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Other revenues |
|
|
( |
) |
|
|
( |
) |
Depreciation and amortization expense |
|
|
|
|
|
|
||
Corporate general and administrative expense |
|
|
|
|
|
|
||
Other operating expenses |
|
|
|
|
|
|
||
Interest expense |
|
|
|
|
|
|
||
Equity in losses from investments in affiliates |
|
|
|
|
|
|
||
Income tax expense |
|
|
|
|
|
|
||
Other gain, net |
|
|
( |
) |
|
|
|
|
Other items |
|
|
|
|
|
( |
) |
|
Hotel Adjusted EBITDA |
|
$ |
|
|
$ |
( |
) |
|
12
The following table presents total assets for our consolidated hotels, reconciled to total assets:
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
|
|
(in millions) |
|
|||||
Consolidated hotels |
|
$ |
|
|
$ |
|
||
All other |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
Note 10: Commitments and Contingencies
As of March 31, 2022, 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 $
Note 11: Subsequent Events
In April 2022, we sold the
13
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, 2021.
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 expected dates that our hotels will reopen, break even or achieve positive Hotel Adjusted EBITDA, the impact to our business and financial condition and that of our hotel management companies, measures being taken in response to COVID-19, the impact from macroeconomic factors (including inflation and geopolitical conflicts), 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, one of the most significant factors is the adverse effect of COVID-19, including actions taken to contain the pandemic or mitigate its effects, the emergences of virus variants and resurgences, on our financial condition, results of operations, cash flows and performance, our hotel management companies and our hotels’ tenants, and the global economy and financial markets. Investors are cautioned to interpret many of the risks identified in the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2021 as being heightened as a result of the ongoing and numerous adverse impacts of COVID-19.
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, 2021, 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 53 hotels, consisting of premium-branded hotels and resorts with approximately 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.
14
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 9: “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.
COVID-19 Operational Update
The global outbreak of a novel strain of coronavirus and the disease it causes (“COVID-19”) had 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. Beginning in March 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. We have reopened all our hotels except the 1,024-room Parc 55 San Francisco – a Hilton Hotel, the reopening of which has been accelerated to May 19, 2022, based on improving demand trends in the San Francisco market. Temporary closings of restaurants and hotels as well as travel restrictions across entire regions also contributed to severely reduced overall lodging demand. The effects of COVID-19 continue to have an adverse effect on the hospitality industry, including our business; however, the increase in vaccination rates across the country and the easing or removal of restrictions, quarantining, and “social distancing” mandates resulted in increased travel and hospitality spending beginning in the second quarter of 2021. Despite a near-term reduction in demand due to concerns over the spread of the Omicron variant in January 2022, which resulted in additional group cancellations and cautious business travel sentiment, coupled with the seasonal decline in leisure travel following the holiday season and the delay in return of business travel, we saw a broad based recovery beginning in March 2022 as leisure demand was robust and group demand strengthened. We expect leisure demand to remain strong and group demand to accelerate during the remainder of 2022.
We believe the distribution of the COVID-19 vaccine during 2021 drove the improvement in traveler sentiment we experienced and resulted in an improvement in occupancy, Average Daily Rate (“ADR”) and Revenue per Available Room (“RevPAR”) during the second quarter of 2021. Changes in our 2022 pro-forma metrics, which exclude results from properties disposed of and include results from properties acquired as of March 31, 2022, as compared to the same periods in 2021 and 2019, and 2022 occupancy are as follows:
|
Change in Pro-forma ADR |
|
|
Change in Pro-forma Occupancy |
|
|
Change in Pro-forma RevPAR |
|
|
|
|
|
||||||||||||||||
|
2022 vs. 2021 |
|
|
2022 vs. 2019 |
|
|
2022 vs. 2021 |
|
|
2022 vs. 2019 |
|
|
2022 vs. 2021 |
|
|
2022 vs. 2019 |
|
|
|
2022 Occupancy |
|
|||||||
Jan 2022 |
|
49.5 |
% |
|
|
(10.7 |
)% |
|
|
18.6 |
% |
pts |
|
(31.8 |
)% |
pts |
|
179.7 |
% |
|
|
(50.3 |
)% |
|
|
|
40.0 |
% |
Feb 2022 |
|
45.8 |
|
|
|
2.0 |
|
|
|
27.6 |
|
|
|
(25.0 |
) |
|
|
204.9 |
|
|
|
(30.8 |
) |
|
|
|
52.9 |
|
Mar 2022 |
|
40.3 |
|
|
|
6.0 |
|
|
|
30.0 |
|
|
|
(19.4 |
) |
|
|
168.2 |
|
|
|
(18.9 |
) |
|
|
|
62.9 |
|
Q1 2022 |
|
44.2 |
|
|
|
0.1 |
|
|
|
25.3 |
|
|
|
(25.4 |
) |
|
|
181.7 |
|
|
|
(32.8 |
) |
|
|
|
51.9 |
|
We believe demand will remain somewhat reduced as long as mandatory travel restrictions and cost-saving or other measures, such as the postponing or cancelling of non-essential business travel, remain in place or if these restrictions tighten or demand for travel becomes depressed due to the emergence of virus variants. Although we were able to recommence operations at all except one of our previously suspended hotels and further restrictions have been lifted following the spread of the Omicron variant, if demand does not fully recover, or if virus variants increase or travel restrictions tighten, we may be required to suspend operations at additional hotels. Further, uncertainty as to when demand will fully recover generally will make it more difficult to execute on our external growth strategy. The uncertainties surrounding the COVID-19 pandemic recovery, including new variants, make it difficult to predict operating results for our hotels for the remainder of 2022, thus there can be no assurances that we will not experience further fluctuations in hotel revenues or earnings at our hotels.
The operating environment for us and our hotel managers has improved as government restrictions were lifted and demand for travel returned. Economic indicators such as GDP growth, corporate earnings, consumer confidence and employment are highly correlated with lodging demand and have generally returned 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 of 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.
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. We use 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.
15
Average Daily Rate
ADR (which we also refer to as rate) 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.
Comparable Hotels Data
Historically, we have presented certain data for our hotels on a comparable hotel basis as supplemental information for investors. We defined our comparable hotels as those that: (i) were active and operating in our portfolio since January 1st of the previous year; and (ii) have not sustained substantial property damage or business interruption, have not undergone large-scale capital projects or for which comparable results are not available. We presented comparable hotel results to help us and our investors evaluate the ongoing operating performance of our comparable hotels. However, given the significant effect of COVID-19 on most of our hotels and the lack of comparability to prior periods, we do not believe this supplemental information is useful to us or our investors at this time. Under “Results of Operations” below, we have provided information on the effects from dispositions and other factors to our results of operations for the three months ended March 31, 2022 as compared to the same period in 2021. Change from other factors primarily relates to the effects of COVID-19 and subsequent ongoing recovery.
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
16
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:
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 March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
|
|
(in millions) |
|
|||||
Net loss |
|
$ |
(56 |
) |
|
$ |
(191 |
) |
Depreciation and amortization expense |
|
|
69 |
|
|
|
74 |
|
Interest expense |
|
|
62 |
|
|
|
63 |
|
Income tax expense |
|
|
— |
|
|
|
1 |
|
Interest expense, income tax and depreciation and amortization |
|
|
1 |
|
|
|
1 |
|
EBITDA |
|
|
76 |
|
|
|
(52 |
) |
Share-based compensation expense |
|
|
4 |
|
|
|
6 |
|
Other items |
|
|
2 |
|
|
|
(3 |
) |
Adjusted EBITDA |
|
|
82 |
|
|
|
(49 |
) |
Less: Adjusted EBITDA from investments in affiliates |
|
|
(5 |
) |
|
|
2 |
|
Add: All other(1) |
|
|
12 |
|
|
|
11 |
|
Hotel Adjusted EBITDA |
|
$ |
89 |
|
|
$ |
(36 |
) |
(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.
17
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.
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 March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
|
|
(in millions, except per share amounts) |
|
|||||
Net loss attributable to stockholders |
|
$ |
(57 |
) |
|
$ |
(190 |
) |
Depreciation and amortization expense |
|
|
69 |
|
|
|
74 |
|
Depreciation and amortization expense |
|
|
(1 |
) |
|
|
(1 |
) |
Equity investment adjustments: |
|
|
|
|
|
|
||
Equity in losses from investments in affiliates |
|
|
— |
|
|
|
4 |
|
Pro rata FFO of investments in affiliates |
|
|
2 |
|
|
|
(2 |
) |
Nareit FFO attributable to stockholders |
|
|
13 |
|
|
|
(115 |
) |
Share-based compensation expense |
|
|
4 |
|
|
|
6 |
|
Other items |
|
|
1 |
|
|
|
(4 |
) |
Adjusted FFO attributable to stockholders |
|
$ |
18 |
|
|
$ |
(113 |
) |
Nareit FFO per share - Diluted(1) |
|
$ |
0.05 |
|
|
$ |
(0.49 |
) |
Adjusted FFO per share - Diluted(1) |
|
$ |
0.08 |
|
|
$ |
(0.48 |
) |
(1) Per share amounts are calculated based on unrounded numbers.
18
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:
Hotel Revenues and Operating Expenses
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|||||||||||
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Change from |
|
|
Change |
|
|||||
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
||||||||
Rooms revenue |
|
$ |
292 |
|
|
$ |
106 |
|
|
$ |
186 |
|
|
$ |
(3 |
) |
|
$ |
189 |
|
Food and beverage revenue |
|
|
110 |
|
|
|
22 |
|
|
|
88 |
|
|
|
— |
|
|
|
88 |
|
Ancillary hotel revenue |
|
|
61 |
|
|
|
29 |
|
|
|
32 |
|
|
|
— |
|
|
|
32 |
|
Rooms expense |
|
|
85 |
|
|
|
35 |
|
|
|
50 |
|
|
|
(1 |
) |
|
|
51 |
|
Food and beverage expense |
|
|
87 |
|
|
|
21 |
|
|
|
66 |
|
|
|
— |
|
|
|
66 |
|
Other departmental and support |
|
|
133 |
|
|
|
78 |
|
|
|
55 |
|
|
|
(3 |
) |
|
|
58 |
|
Other property-level expense |
|
|
50 |
|
|
|
48 |
|
|
|
2 |
|
|
|
(2 |
) |
|
|
4 |
|
Management fees expense |
|
|
22 |
|
|
|
7 |
|
|
|
15 |
|
|
|
— |
|
|
|
15 |
|
(1) Change from other factors primarily relates to the effects of COVID-19. The increase in revenues and expenses for the three months ended March 31, 2022 was primarily due to the reopening of additional hotels that were suspended during the same period in 2021 and improved occupancy due to an increase in demand as compared to the same period in 2021.
Group, transient, contract and other rooms revenue for the three months ended March 31, 2022, as well as the change for each segment compared to the same period in 2021 are as follows:
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|||||||||||
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Change from |
|
|
Change |
|
|||||
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
||||||||
Group rooms revenue |
|
$ |
73 |
|
|
$ |
8 |
|
|
$ |
65 |
|
|
$ |
— |
|
|
$ |
65 |
|
Transient rooms revenue |
|
|
199 |
|
|
|
86 |
|
|
|
113 |
|
|
|
(2 |
) |
|
|
115 |
|
Contract rooms revenue |
|
|
14 |
|
|
|
11 |
|
|
|
3 |
|
|
|
— |
|
|
|
3 |
|
Other rooms revenue |
|
|
6 |
|
|
|
1 |
|
|
|
5 |
|
|
|
— |
|
|
|
5 |
|
Rooms revenue |
|
$ |
292 |
|
|
$ |
106 |
|
|
$ |
186 |
|
|
$ |
(2 |
) |
|
$ |
188 |
|
(1) Change from other factors primarily relates to the effects of COVID-19. The increase in revenues for the three months ended March 31, 2022 was primarily due to the reopening of additional hotels that were suspended during the same period in 2021 and improved occupancy due to an increase in demand as compared to the same period in 2021.
19
Other revenue and Other expense
The increases in other revenue and other expense are primarily due to increases in support services revenue and expense from the reopening of our hotels that have service arrangements with Hilton Grand Vacations to full capacity following their suspension of operations during 2020.
Corporate general and administrative
|
|
Three Months Ended March 31, |
|
|||||||||
|
|
2022 |
|
|
2021 |
|
|
Percent Change |
|
|||
|
|
(in millions) |
|
|
|
|
||||||
General and administrative expenses |
|
$ |
12 |
|
|
$ |
12 |
|
|
|
— |
% |
Share-based compensation expense |
|
|
4 |
|
|
|
6 |
|
|
|
(33.3 |
) |
Total corporate general and administrative |
|
$ |
16 |
|
|
$ |
18 |
|
|
|
(11.1 |
)% |
Non-operating Income and Expenses
Interest expense
Interest expense decreased during the three months ended March 31, 2022 compared to the same period in 2021 as a result of the partial repayment of our unsecured delayed draw term loan facility ("2019 Term Facility") during the second and third quarters of 2021 and the full repayment of our revolving credit facility ("Revolver") during 2021, partially offset by the issuance of $750 million of 4.875% senior secured notes due 2029 ("2029 Senior Secured Notes") in May 2021. Interest expense associated with our debt for the three months ended March 31, 2022 and 2021 were as follows:
|
|
Three Months Ended March 31, |
|
|||||||||
|
|
2022 |
|
|
2021 |
|
|
Percent Change |
|
|||
|
|
(in millions) |
|
|
|
|
||||||
SF and HHV Mortgage Loans(1) |
|
$ |
21 |
|
|
$ |
21 |
|
|
|
— |
% |
Other Mortgage Loans |
|
|
5 |
|
|
|
5 |
|
|
|
— |
|
2019 Term Facility |
|
|
1 |
|
|
|
5 |
|
|
|
(80.0 |
) |
Revolver |
|
|
1 |
|
|
|
5 |
|
|
|
(80.0 |
) |
2025 Senior Secured Notes(3) |
|
|
12 |
|
|
|
12 |
|
|
|
— |
|
2028 Senior Secured Notes(3) |
|
|
11 |
|
|
|
11 |
|
|
|
— |
|
2029 Senior Secured Notes(3) |
|
|
9 |
|
|
|
— |
|
|
NM(2) |
|
|
Other |
|
|
2 |
|
|
|
4 |
|
|
|
(50.0 |
) |
Total interest expense |
|
$ |
62 |
|
|
$ |
63 |
|
|
|
(1.6 |
)% |
(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 Mortgage Loan”) and a $1.275 billion CMBS loan secured by the Hilton Hawaiian Village Waikiki Beach Resort (“HHV Mortgage 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 (collectively with the 2029 Senior Secured Notes, the “Senior Secured Notes”).
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 March 31, 2022, we had total cash and cash equivalents of $639 million and $78 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. We currently have higher than historical balances in restricted cash due to certain of our mortgage loans that require deposits of excess cash with the lender when certain financial ratios are not met, which occurred as a result of the effect from COVID-19 on operating results at the associated hotels.
As a result of the economic uncertainty resulting from the effects of COVID-19, as described above under “COVID-19 Operational Update”, we expect our cash flows through at least the second quarter of 2022 to be lower than prior to COVID-19. We and our hotel managers took various actions to mitigate the effects of COVID-19, 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
20
which was used to partially repay amounts outstanding under our Revolver and our term loan due December 2021 ("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 (which was recently reinstated for the first quarter of 2022), and implementing various cost saving initiatives at our hotels including temporary suspension of operations at certain hotels (all of which have reopened except one) and selected restaurants and other businesses and outlets and reductions in capital expenditures for maintenance projects to approximately $44 million for 2021.
We generated positive Hotel Adjusted EBITDA for the quarter ended March 31, 2022, the fourth such consecutive quarter since the start of the pandemic. With $901 million of availability under our Revolver and existing cash and cash equivalents, we have sufficient liquidity to pay our debt maturities and to fund other liquidity obligations over the next year and beyond. Only 1% of our total outstanding debt is maturing in 2022. We may also take 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, extended the maturity of the Revolver and 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). In February 2022, we further amended our credit and term loan facilities, including extending the waiver period for the testing of the financial covenants, obtaining the ability to repurchase up to $250 million of shares as long as there is no outstanding balance on the Revolver (with the amount of any such repurchases increasing the minimum liquidity covenant, dollar for dollar, resulting in a minimum liquidity covenant amount as of March 31, 2022 of $261 million), and removing or decreasing certain restrictions on the Company related to capital expenditures, acquisitions and asset sales. Refer to Note 5: "Debt" in our unaudited condensed consolidated financial statements included elsewhere within this Quarterly Report on Form 10-Q for additional information.
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 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.
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 construction contract commitments of approximately $118 million for capital expenditures at our properties, of which $70 million relates to the expansion project at the Bonnet Creek complex. The Bonnet Creek expansion project includes additional meeting space for the Signia by Hilton Orlando Bonnet Creek and the Waldorf Astoria Orlando. Our contracts contain clauses that allow us to cancel all or some portion of the work. Additionally, 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.
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.
Stock Repurchase Program
In February 2022, our Board of Directors authorized and approved a stock repurchase program allowing us to repurchase up to $300 million of our common stock over a 24-month period, ending in February 2024. Stock repurchases would be made through open market purchases, including through Rule 10b5-1 trading programs, in privately negotiated transactions, or in such other manner that would comply with applicable securities laws and subject to compliance with existing debt agreements (which currently limits the repurchase of common stock to $250 million). The timing of any future stock repurchases and the number of shares to be repurchased will depend upon prevailing market conditions and other factors. During the three months ended March 31, 2022, we repurchased approximately 3.4 million shares of our common stock for a total purchase price of $61 million. As of March 31, 2022, $239 million remained available for stock repurchases.
21
Sources and Uses of Our Cash and Cash Equivalents
The following tables summarize our net cash flows and key metrics related to our liquidity:
|
|
Three Months Ended March 31, |
|
|||||||||
|
|
2022 |
|
|
2021 |
|
|
Percent Change |
|
|||
|
|
(in millions) |
|
|
|
|
||||||
Net cash provided by (used in) operating activities |
|
$ |
44 |
|
|
$ |
(71 |
) |
|
|
162.0 |
% |
Net cash used in investing activities |
|
|
(21 |
) |
|
|
(3 |
) |
|
|
600.0 |
% |
Net cash used in financing activities |
|
|
(69 |
) |
|
|
(7 |
) |
|
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 $115 million increase in net cash provided by operating activities for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily due to an increase in cash from operations as a result of the increase in occupancy as our hotels continue to recover from the effects of COVID-19.
Investing Activities
The $18 million increase in net cash used in investing activities for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily due to a $16 million increase in capital expenditures, of which $6 million related to the expansion project at the Bonnet Creek complex.
Financing Activities
The $62 million increase in net cash used in financing activities for the three months ended March 31, 2022 was primarily attributable to the repurchase of 3.4 million shares of our common stock for $61 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. To avoid paying tax on our income, we intend to make distributions of all, or substantially all, of our REIT taxable income (including net capital gains) to our stockholders. Therefore, as a general matter, before consideration of the use of any NOL carryforward, 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. After the payment of the first quarter dividend in 2020, we suspended our quarterly dividend as a precautionary measure in light of COVID-19; in March 2022, our Board of Directors approved and reinstated our quarterly cash dividend.
We declared the following dividends to holders of our common stock during 2022:
Record Date |
|
Payment Date |
|
Dividend per Share |
|
|
March 31, 2022 |
|
April 15, 2022 |
|
$ |
0.01 |
|
Debt
As of March 31, 2022, our total indebtedness was approximately $4.7 billion, including approximately $2.1 billion of our Senior Secured Notes, as disclosed above, and excluding approximately $225 million of our share of debt from investments in affiliates. 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 5: “Debt” in our unaudited condensed consolidated financial statements included elsewhere within this Quarterly Report on Form 10-Q for additional information.
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 unaudited 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, 2021, filed with the Securities and Exchange Commission on February 18, 2022. There have been no material changes to our critical accounting policies or the methods or assumptions we apply.
22
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 March 31, 2022, 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.
23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
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, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
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 three months ended March 31, 2022, repurchases made pursuant to our repurchase program were as follows:
Period |
|
Total number of |
|
|
Weighted average |
|
|
Total number of |
|
|
Maximum number |
|
||||
January 1, 2022 through January 31, 2022 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
N/A |
|
|
February 1, 2022 through February 28, 2022 |
|
|
106,694 |
|
|
$ |
19.38 |
|
|
|
— |
|
|
$ |
300 |
|
March 1, 2022 through March 31, 2022 |
|
|
3,409,949 |
|
|
$ |
17.99 |
|
|
|
3,409,949 |
|
|
$ |
239 |
|
Total |
|
|
3,516,643 |
|
|
|
|
|
|
3,409,949 |
|
|
|
|
||
(1) The number of shares purchased represents shares of common stock repurchased under the previously announced stock repurchase program as well as 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. The weighted average price paid per share for shares repurchased excludes commissions paid.
(3) The stock repurchase program was authorized on February 25, 2022 allowing for the repurchase of up to $300 million of our common stock and expiring on February 23, 2024.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
24
Item 5. Other Information.
None.
25
Item 6. Exhibits
Exhibit Number |
|
Description |
2.1 |
|
|
|
|
|
2.2 |
|
|
|
|
|
3.1 |
|
|
|
|
|
3.2 |
|
|
|
|
|
10.1 |
|
|
|
|
|
10.2 |
|
|
|
|
|
10.3 |
|
|
|
|
|
10.4* |
|
Form of CEO Amended and Restated Performance Stock Unit Agreement. |
|
|
|
10.5* |
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Form of Executive Amended and Restated Performance Stock Unit Award Agreement. |
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31.1* |
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31.2* |
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32.1* |
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32.2* |
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101.INS* |
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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. |
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101.SCH* |
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Inline XBRL Taxonomy Extension Schema Document. |
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101.CAL* |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF* |
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Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB* |
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Inline XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE* |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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104* |
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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
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Filed herewith |
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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.
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Park Hotels & Resorts Inc. |
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Date: May 2, 2022 |
By: |
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/s/ Thomas J. Baltimore Jr. |
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Thomas J. Baltimore, Jr. |
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Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) |
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Date: May 2, 2022 |
By: |
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/s/ Sean M. Dell’Orto |
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Sean M. Dell’Orto |
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Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
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Date: May 2, 2022 |
By: |
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/s/ Darren W. Robb |
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Darren W. Robb |
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Senior Vice President and Chief Accounting Officer (Principal Accounting Officer) |
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Exhibit 10.4
AMENDED AND RESTATED PERFORMANCE STOCK UNIT AGREEMENT
PARK HOTELS & RESORTS INC.
2017 OMNIBUS INCENTIVE PLAN
This Amended and Restated Performance Stock Unit Agreement (this “Agreement”), dated , but effective as of (the “Grant Date”), is between Park Hotels & Resorts Inc., a Delaware corporation (the “Company”), and Thomas J. Baltimore, Jr. (the “Participant”).
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[Signatures follow]
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PARK HOTELS & RESORTS INC. |
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By: |
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Acknowledged and Agreed
as of the date first written above:
______________________________
Participant Signature
Name: Thomas J. Baltimore, Jr.
EXHIBIT A
The PSUs shall be earned based on the Company’s Relative Total Shareholder Return Position for the Performance Period, as set forth in the table below. All determinations with respect to Relative Total Shareholder Return Position shall be made by the Committee in its sole discretion. The total number of PSUs which become earned shall be equal to (x) the number of PSUs that comprise the Target Award multiplied by (y) the Payout Percentage, and rounded down to the nearest whole PSU.
Relative Total Shareholder Return Position |
Percentage of Target Award Earned |
80th Percentile and Above (Maximum) |
200.0% |
70th Percentile |
167.0% |
60th Percentile |
133.0% |
50th Percentile (Target) |
100.0% |
37.5th Percentile |
62.5% |
25th Percentile (Threshold) |
25.0% |
Below 25th Percentile |
0% |
The Committee shall determine (A) the Total Shareholder Return for the Company for the Performance Period and (B) the Total Shareholder Return for each Lodging/Resorts Company for the Performance Period. The “Relative Total Shareholder Return Position” for the Company will then be determined by comparing the Total Shareholder Return for the Company for the Performance Period to the Total Shareholder Return for each Lodging/Resorts Company for the Performance Period on a relative percentile basis (using a continuous percentile rank calculation that excludes the Company).
Notwithstanding anything in this Agreement to the contrary, if the Total Shareholder Return for the Company for the Performance Period is negative and the Payout Percentage that otherwise would have been achieved based on the Company’s Relative Total Shareholder Return Position is greater than 100%, then the Payout Percentage shall be reduced by an amount equal to ten percentage points; provided, however, that in no event shall the Payout Percentage be reduced to below 100%. For example, if the Total Shareholder Return for the Company for the Performance Period is negative and the Payout Percentage that otherwise would have been achieved based on the Company’s Relative Total Shareholder Return Position is 133%, then the Payout Percentage shall be reduced to 123%.
For the purposes of this Exhibit A:
Exhibit 10.5
AMENDED AND RESTATED PERFORMANCE STOCK UNIT AGREEMENT
PARK HOTELS & RESORTS INC.
2017 OMNIBUS INCENTIVE PLAN
This Amended and Restated Performance Stock Unit Agreement (this “Agreement”), dated , but effective as of (the “Grant Date”), is between Park Hotels & Resorts Inc., a Delaware corporation (the “Company”), and (the “Participant”).
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[Signatures follow]
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PARK HOTELS & RESORTS INC. |
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By: |
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Acknowledged and Agreed
as of the date first written above:
______________________________
Participant Signature
EXHIBIT A
The PSUs shall be earned based on the Company’s Relative Total Shareholder Return Position for the Performance Period, as set forth in the table below. All determinations with respect to Relative Total Shareholder Return Position shall be made by the Committee in its sole discretion. The total number of PSUs which become earned shall be equal to (x) the number of PSUs that comprise the Target Award multiplied by (y) the Payout Percentage, and rounded down to the nearest whole PSU.
Relative Total Shareholder Return Position |
Percentage of Target Award Earned |
80th Percentile and Above (Maximum) |
200.0% |
70th Percentile |
167.0% |
60th Percentile |
133.0% |
50th Percentile (Target) |
100.0% |
37.5th Percentile |
62.5% |
25th Percentile (Threshold) |
25.0% |
Below 25th Percentile |
0% |
The Committee shall determine (A) the Total Shareholder Return for the Company for the Performance Period and (B) the Total Shareholder Return for each Lodging/Resorts Company for the Performance Period. The “Relative Total Shareholder Return Position” for the Company will then be determined by comparing the Total Shareholder Return for the Company for the Performance Period to the Total Shareholder Return for each Lodging/Resorts Company for the Performance Period on a relative percentile basis (using a continuous percentile rank calculation that excludes the Company).
Notwithstanding anything in this Agreement to the contrary, if the Total Shareholder Return for the Company for the Performance Period is negative and the Payout Percentage that otherwise would have been achieved based on the Company’s Relative Total Shareholder Return Position is greater than 100%, then the Payout Percentage shall be reduced by an amount equal to ten percentage points; provided, however, that in no event shall the Payout Percentage be reduced to below 100%. For example, if the Total Shareholder Return for the Company for the Performance Period is negative and the Payout Percentage that otherwise would have been achieved based on the Company’s Relative Total Shareholder Return Position is 133%, then the Payout Percentage shall be reduced to 123%.
For the purposes of this Exhibit A:
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Thomas J. Baltimore, Jr., certify that:
Date: May 2, 2022 |
By: |
/s/ Thomas J. Baltimore, Jr. |
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Thomas J. Baltimore, Jr. |
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Chairman of the Board, President and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Sean M. Dell’Orto, certify that:
Date: May 2, 2022 |
By: |
/s/ Sean M. Dell’Orto |
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Sean M. Dell’Orto |
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Executive Vice President and Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Park Hotels & Resorts Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas J. Baltimore, Jr., President and Chief Executive Officer, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
Date: May 2, 2022 |
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By: |
/s/ Thomas J. Baltimore, Jr. |
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Thomas J. Baltimore, Jr. |
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Chairman of the Board, President and Chief Executive Officer |
In accordance with SEC Release NO. 34-47986, this Exhibit is furnished to the SEC as an accompanying document and is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Park Hotels & Resorts Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sean M. Dell’Orto, Executive Vice President and Chief Financial Officer, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
Date: May 2, 2022 |
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By: |
/s/ Sean M. Dell’Orto |
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Sean M. Dell’Orto |
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Executive Vice President and Chief Financial Officer |
In accordance with SEC Release NO. 34-47986, this Exhibit is furnished to the SEC as an accompanying document and is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended.