Park Hotels & Resorts Inc. Reports First Quarter 2019 Results

Comparable RevPAR was $176.44, an increase of 4.5% from the same period in 2018

Park Hotels & Resorts Inc. (NYSE: PK) today announced results for the first quarter ended March 31, 2019. Highlights include:

First Quarter 2019 Highlights

  • Comparable RevPAR was $176.44, an increase of 4.5% from the same period in 2018;
  • Net income was $97 million and net income attributable to stockholders was $96 million;
  • Adjusted EBITDA was $176 million;
  • Adjusted FFO attributable to stockholders was $136 million;
  • Diluted earnings per share was $0.48;
  • Diluted Adjusted FFO per share was $0.67, an increase of 3.1% from the same period in 2018;
  • Comparable Hotel Adjusted EBITDA margin was 28.7%, an increase of 100 bps from the same period in 2018; and
  • Completed the sale of the Pointe Hilton Squaw Peak Resort and the Hilton Nuremberg for total gross proceeds of $68.9 million.

Additionally, Park announced, in a separate press release today, a $2.7 billion strategic acquisition of Chesapeake Lodging Trust, which is expected to be completed in late third quarter or early fourth quarter.

Thomas J. Baltimore, Jr., Chairman, President and Chief Executive Officer, stated, “I am very pleased with our first quarter results, which has laid the foundation for a strong year for Park. First quarter RevPAR increased 4.5%, driven by exceptional performance in San Francisco where RevPAR was up nearly 24%. Our portfolio grew RevPAR index share by 480 basis points in aggregate, highlighting the success of our internal growth initiatives. Comparable Hotel Adjusted EBITDA margin also improved 100 basis points, demonstrating our success in improving operational efficiencies in our portfolio. In addition, the success of our grouping up initiative allowed us to achieve 35% overall group mix for the first quarter. With group pace still trending over 10% for our comparable portfolio, we remain confident that we are well positioned to once again deliver strong results in 2019. We also made meaningful progress on our capital recycling initiatives, closing on the sale of the Hilton Squaw Peak Resort and the Hilton Nuremberg. To date, we have sold 15 non-core assets for approximately $590 million.”

Selected Statistical and Financial Information

(unaudited, amounts in millions, except per share data, Comparable RevPAR and Comparable ADR)

        Three Months Ended March 31,  
        2019     2018     Change(1)  
Comparable RevPAR       $ 176.44     $ 168.81       4.5 %
Comparable Occupancy         79.5 %     79.0 %     0.5 % pts
Comparable ADR       $ 221.86     $ 213.52       3.9 %
                             
Net income       $ 97     $ 149       (34.9 )%
Net income attributable to stockholders       $ 96     $ 150       (36.0 )%
                             
Adjusted EBITDA       $ 176     $ 174       1.1 %
Comparable Hotel Adjusted EBITDA       $ 181     $ 166       9.0 %
Comparable Hotel Adjusted EBITDA margin         28.7 %     27.7 %     100 bps
Adjusted FFO attributable to stockholders       $ 136     $ 137       (0.7 )%
                             
Earnings per share – Diluted(1)       $ 0.48     $ 0.71       (32.4 )%
Adjusted FFO per share – Diluted(1)       $ 0.67     $ 0.65       3.1 %
Weighted average shares outstanding – Diluted         202       212       (10 )

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(1)   Amounts are calculated based on unrounded numbers.
     

Top 10 Hotels

RevPAR at Park’s Top 10 Hotels, which account for over 70% of Hotel Adjusted EBITDA, increased 5.3% during the first quarter, as compared to the same period in 2018, primarily due to an increase in rate. Highlights within the Top 10 Hotels include:

  • Hilton Hawaiian Village Waikiki Beach Resort: RevPAR increased 0.5% for the quarter primarily due to an increase in group business, which offset a decline in transient demand;
  • Hilton San Francisco Union Square / Parc 55 San Francisco – a Hilton Hotel: Combined RevPAR increased 23.8% for the quarter due to strong group demand, resulting in an increase in group revenue of 42.1%, coupled with a 16.1% and 9.7% increase in contract and transient revenue, respectively;
  • New York Hilton Midtown: RevPAR decreased 1.3% for the quarter primarily due to a decline in rate as a result of a decrease in group business, partially offset by increases in both transient and contract business;
  • Hilton Orlando Bonnet Creek / Waldorf Astoria Orlando: Combined RevPAR decreased 0.3% for the quarter primarily due to a decline in rate resulting from a decrease in transient business that was partially offset by an increase in group demand;
  • Hilton New Orleans Riverside: RevPAR increased 1.9% for the quarter primarily due to strong group demand, resulting in a 10.1% increase in group revenue;
  • Hilton Chicago: RevPAR decreased 5.5% during the quarter as a result of a decrease in group business from fewer citywide event room nights related to an event that occurs every other year;
  • Casa Marina, A Waldorf Astoria Resort: RevPAR increased 7.8% during the quarter primarily attributable to an increase in rate from strong transient demand; and
  • Hilton Waikoloa Village: RevPAR decreased 5.8% for the quarter due to a decrease in transient revenue from continued disruption caused by the 2018 volcanic activity on the Big Island.

Total Consolidated Comparable Hotels

Comparable RevPAR increased 4.5% for the quarter primarily due to a 3.9% increase in rate as compared to the same period in 2018. During the three months ended March 31, 2019, group and contract revenues increased 10.3% and 19.3%, respectively, driven by a 5.0% increase in group room nights, which offset a 0.5% decline in transient revenue as compared to the same period in 2018. Transient decline was driven by a 3.3% decrease in transient room nights offset by a 2.9% increase in transient rate.

The overall increase in comparable RevPAR was primarily a result of increases in rate and occupancy at both Park’s Northern California and Southern California hotels. Northern California benefited from an increase at Park’s San Francisco hotels in group, contract and transient revenue of 42.1%, 16.1% and 9.7%, respectively. Southern California benefited primarily from a 52.7% RevPAR increase at the Hilton Santa Barbara Beachfront Resort from an increase in occupancy and rate following the renovation and repositioning of the hotel completed in April 2018. RevPAR increased at Park’s New Orleans hotels as a result of an increase in group revenue at the Hilton New Orleans Riverside and contract revenue, which more than doubled at the Hilton New Orleans Airport. The overall increase in RevPAR was partially offset by declines in RevPAR at Park’s Hawaii and Chicago hotels. The decline in RevPAR in Hawaii was primarily a result of a decrease in transient revenue. The decline in Chicago is primarily a result of a decrease in group revenue at the Hilton Chicago.

Caribe Hilton Update

The Caribe Hilton is currently expected to reopen on May 15, 2019. In the first quarter of 2019, Park recognized $2 million of insurance proceeds related to business interruption, net of expenses.

Dispositions

In February and March 2019, Park sold the 563-room Pointe Hilton Squaw Peak Resort in Phoenix, AZ for a sales price of $51.4 million, or $91,200 per key, and the 152-room Hilton Nuremberg in Nuremburg, Germany for a sales price of $17.5 million, or $115,000 per key, both of which are subject to customary adjustments.

On May 3, 2019, Park executed an agreement to sell its 274-room Embassy Suites Parsippany and its 317-room Hilton New Orleans Airport for an aggregate sales price of $75.0 million. Additionally, Park executed a separate agreement to sell its 507-room Hilton Atlanta Airport for a sales price of $101 million. Both sales are currently expected to close in June 2019.

Balance Sheet and Liquidity

Park had the following debt outstanding as of March 31, 2019:

(unaudited, dollars in millions)              
Debt   Collateral   Interest Rate     Maturity Date   As of

March 31, 2019

 
Fixed Rate Debt                        
Mortgage loan   DoubleTree Hotel Spokane City Center   3.55%     October 2020   $ 12  
Commercial mortgage-backed

securities loan

  Hilton San Francisco Union Square, Parc 55 San Francisco – a Hilton Hotel   4.11%     November 2023     725  
Commercial mortgage-backed

securities loan

  Hilton Hawaiian Village Beach Resort   4.20%     November 2026     1,275  
Mortgage loan   Hilton Santa Barbara Beachfront Resort   4.17%     December 2026     165  
Capital lease obligations       3.07%     2021 to 2022     1  
Total Fixed Rate Debt       4.16%(1)           2,178  
                         
Variable Rate Debt                        
Revolving credit facility(2)   Unsecured   L + 1.50%     December 2021(3)      
Term loan   Unsecured   L + 1.45%     December 2021     750  
Mortgage loan   DoubleTree Hotel Ontario Airport   L + 2.25%     May 2022(3)     30  
Total Variable Rate Debt       3.98%           780  
                         
Less: unamortized deferred financing costs and discount                 (9 )
Total Debt(4)       4.11%(1)         $ 2,949  

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(1)   Calculated on a weighted average basis.
(2)   $1 billion available.
(3)   Assumes the exercise of all extensions that are exercisable solely at Park’s option.
(4)   Excludes $234 million of Park’s share of debt of its unconsolidated joint ventures.
     

Total cash and cash equivalents were $290 million as of March 31, 2019, including $14 million of restricted cash.

Capital Investments

Excluding the redevelopment of the Caribe Hilton, Park invested $35 million in the first quarter on capital improvements at its hotels, including $23 million on improvements made to guest rooms, meeting spaces and other guest-facing areas. Key projects for the quarter included:

  • Hilton Hawaiian Village Waikiki Beach Resort: $5 million primarily on guest room and exterior renovations;
  • Hilton Orlando Bonnet Creek: $4 million primarily on meeting room and guest room renovations;
  • Hilton Chicago: $3 million primarily on meeting room and guest room renovations;
  • Hilton San Francisco Union Square: $2 million primarily on meeting room and guest room renovations;
  • Hilton New Orleans Riverside: $2 million primarily on meeting room and exterior renovations;
  • Hilton Waikoloa Village: $2 million primarily on exterior renovations;
  • Hilton Boston Logan Airport: $2 million primarily on guest room renovations;
  • Hilton Orlando Lake Buena Vista: $2 million primarily on guest room renovations;
  • New York Hilton Midtown: $2 million primarily on guest room and exterior renovations; and
  • Waldorf Astoria Reach Resort: $2 million primarily on guest room renovations.

Dividends

Park declared a first quarter 2019 cash dividend of $0.45 per share to stockholders of record as of March 29, 2019. The first quarter 2019 cash dividend was paid on April 15, 2019.

On April 26, 2019, Park declared a second quarter 2019 cash dividend of $0.45 per share to be paid on July 15, 2019 to stockholders of record as of June 28, 2019.

Full-Year 2019 Outlook

Hilton Waikoloa Village is included in Park’s 2019 comparable hotels as its room count is expected to remain consistent throughout 2019 as compared to 2018. Park expects the full-year 2019 operating results, excluding the effect of the acquisition of Chesapeake Lodging Trust announced today, to be as follows:

                               
(unaudited, dollars in millions, except per share amounts)                              
                                             
    2019 Outlook     2019 Outlook     Change at    
    as of May 6, 2019     as of February 27, 2019     Midpoint    
Metric   Low     High     Low       High            
                                             
Comparable RevPAR Growth     2.5 %     4.5 %     2.0 %       4.0 %     0.5 %  
Comparable RevPAR   $ 181     $ 184     $ 179       $ 183     $ 2    
                                             
Net income   $ 358     $ 386     $ 294       $ 323     $ 63.5    
Net income attributable to stockholders   $ 350     $ 378     $ 286       $ 315     $ 63.5    
Diluted earnings per share(1)   $ 1.73     $ 1.87     $ 1.42       $ 1.56     $ 0.31    
                                             
Adjusted EBITDA   $ 750     $ 780     $ 745       $ 775     $ 5    
Comparable Hotel Adjusted EBITDA margin change     20   bps   80   bps   0   bps     60   bps   20   bps
Adjusted FFO per share – Diluted(1)   $ 2.93     $ 3.07     $ 2.91       $ 3.05     $ 0.02    

__________________________

(1)   Per share amounts are calculated based on unrounded numbers.
     

Full-year 2019 guidance is based in part on the following assumptions:

  • General and administrative expenses are projected to be $46 million, excluding $15 million of non-cash share-based compensation expense and $1 million of severance expense;
  • Fully diluted weighted average shares are expected to be 202.2 million;
  • Includes $8 million of Adjusted EBITDA from the Caribe Hilton representing a partial year of operations, for which Park expects to be covered by business interruption insurance resulting from the hotel being closed for a portion of 2019 following the damage caused by Hurricane Maria; and
  • Excludes potential future acquisitions and dispositions, which could result in a material change to Park’s outlook.

Park’s full-year 2019 guidance is based on a number of factors, many of which are outside the Company’s control and all of which are subject to change. Park may change the guidance provided during the year as actual and anticipated results vary from these assumptions.

About Park

Park is the second largest publicly traded lodging REIT with a diverse portfolio of market-leading hotels and resorts with significant underlying real estate value. Park’s portfolio consists of 51 premium-branded hotels and resorts with over 30,000 rooms, a substantial portion of which are located in prime United States markets with high barriers to entry.

 

PARK HOTELS & RESORTS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in millions, except share and per share data)

                 
        March 31,     December 31,  
        2019     2018  
ASSETS                    
Property and equipment, net       $ 7,944     $ 7,975  
Investments in affiliates         49       50  
Goodwill         607       607  
Intangibles, net         2       27  
Cash and cash equivalents         276       410  
Restricted cash         14       15  
Accounts receivable, net         172       153  
Prepaid expenses         76       82  
Other assets         42       44  
Operating lease right-of-use asset         212        
TOTAL ASSETS       $ 9,394     $ 9,363  
LIABILITIES AND EQUITY                    
Liabilities                    
Debt       $ 2,949     $ 2,948  
Accounts payable and accrued expenses         162       183  
Due to hotel manager         110       137  
Due to Hilton Grand Vacations         135       135  
Deferred income tax liabilities         41       42  
Other liabilities         213       332  
Operating lease liability         204        
Total liabilities         3,814       3,777  
Stockholders’ Equity                    
Common stock, par value $0.01 per share, 6,000,000,000 shares authorized,

201,715,453 shares issued and 201,539,398 shares outstanding as of

March 31, 2019 and 201,290,458 shares issued and 201,198,381

shares outstanding as of December 31, 2018

        2       2  
Additional paid-in capital         3,588       3,589  
Retained earnings         2,044       2,047  
Accumulated other comprehensive loss         (6 )     (6 )
Total stockholders’ equity         5,628       5,632  
Noncontrolling interests         (48 )     (46 )
Total equity         5,580       5,586  
TOTAL LIABILITIES AND EQUITY       $ 9,394     $ 9,363  
                     

PARK HOTELS & RESORTS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in millions, except per share data)

           
        Three Months Ended  
        March 31,  
        2019     2018  
Revenues                    
Rooms       $ 405     $ 418  
Food and beverage         183       183  
Ancillary hotel         53       50  
Other         18       17  
Total revenues         659       668  
                     
Operating expenses                    
Rooms         107       112  
Food and beverage         124       126  
Other departmental and support         149       156  
Other property-level         49       53  
Management and franchise fees         33       33  
Depreciation and amortization         62       70  
Corporate general and administrative         17       16  
Other         20       17  
Total expenses         561       583  
                     
Gain on sales of assets, net         31       89  
                     
Operating income         129       174  
                     
Interest income         1       1  
Interest expense         (32 )     (31 )
Equity in earnings from investments in affiliates         5       4  
Gain on foreign currency transactions               1  
Other gain, net         1        
                     
Income before income taxes         104       149  
Income tax expense         (7 )      
                     
Net income         97       149  
Net (income) loss attributable to noncontrolling interests         (1 )     1  
Net income attributable to stockholders       $ 96     $ 150  
                     
Earnings per share:                    
Earnings per share – Basic       $ 0.48     $ 0.71  
Earnings per share – Diluted       $ 0.48     $ 0.71  
                     
Weighted average shares outstanding – Basic         201       211  
Weighted average shares outstanding – Diluted         202       212  
                     
 

PARK HOTELS & RESORTS INC.

NON-GAAP FINANCIAL MEASURES RECONCILIATIONS

EBITDA AND ADJUSTED EBITDA

(unaudited, in millions)

           
        Three Months Ended  
        March 31,  
        2019     2018  
Net income       $ 97     $ 149  
Depreciation and amortization expense         62       70  
Interest income         (1 )     (1 )
Interest expense         32       31  
Income tax expense         7        
Interest expense, income tax and depreciation and

amortization included in equity in earnings

from investments in affiliates

        5       7  
EBITDA         202       256  
Gain on sales of assets, net         (31 )     (89 )
Gain on foreign currency transactions               (1 )
Transition expense               2  
Severance expense         1        
Share-based compensation expense         4       4  
Other items               2  
Adjusted EBITDA       $ 176     $ 174  
                     
 

PARK HOTELS & RESORTS INC.

NON-GAAP FINANCIAL MEASURES RECONCILIATIONS

COMPARABLE HOTEL ADJUSTED EBITDA AND COMPARABLE HOTEL ADJUSTED EBITDA MARGIN

(unaudited, dollars in millions)

       
    Three Months Ended  
    March 31,  
    2019     2018  
Adjusted EBITDA   $ 176     $ 174  
Less: Adjusted EBITDA from investments in affiliates     10       12  
Less: All other(1)     (15 )     (12 )
Hotel Adjusted EBITDA     181       174  
Less: Adjusted EBITDA from hotels disposed of     1       8  
Less: Adjusted EBITDA from non-comparable hotels     (1 )      
Comparable Hotel Adjusted EBITDA   $ 181     $ 166  
_______________________________________________________                

(1) Includes other revenues and other expenses, non-income taxes on REIT leases included in other property-level expenses and corporate general and administrative expenses in the consolidated statements of operations.

 
                 
    Three Months Ended  
    March 31,  
    2019     2018  
Total Revenues   $ 659     $ 668  
Less: Other revenue     18       17  
Less: Revenues from hotels disposed of     6       47  
Less: Revenues from non-comparable hotels(1)     3       3  
Comparable Hotel Revenue   $ 632     $ 601  
_______________________________________________________                
(1) Includes revenues from Park’s non-comparable hotels and rental revenues from office space and antenna leases located at its hotels.  
                 
    Three Months Ended  
    March 31,  
    2019     2018  
Comparable Hotel Revenues   $ 632     $ 601  
Comparable Hotel Adjusted EBITDA   $ 181     $ 166  
Comparable Hotel Adjusted EBITDA margin     28.7 %     27.7 %
                 
 

PARK HOTELS & RESORTS INC.

NON-GAAP FINANCIAL MEASURES RECONCILIATIONS

NAREIT FFO AND ADJUSTED FFO

(unaudited, in millions, except per share data)

           
        Three Months Ended  
        March 31,  
        2019     2018  
Net income attributable to stockholders       $ 96     $ 150  
Depreciation and amortization expense         62       70  
Depreciation and amortization expense attributable to

noncontrolling interests

        (1 )     (1 )
Gain on sales of assets, net         (31 )     (89 )
Equity investment adjustments:                    
Equity in earnings from investments in affiliates         (5 )     (4 )
Pro rata FFO of investments in affiliates         9       10  
NAREIT FFO attributable to stockholders         130       136  
Gain on foreign currency transactions               (1 )
Transition expense               2  
Severance expense         1        
Share-based compensation expense         4       4  
Other items         1       (4 )
Adjusted FFO attributable to stockholders       $ 136     $ 137  
                     
NAREIT FFO per share – Diluted(1)       $ 0.65     $ 0.64  
Adjusted FFO per share – Diluted(1)       $ 0.67     $ 0.65  
Weighted average shares outstanding – Diluted         202       212  

______________________________

(1)   Per share amounts are calculated based on unrounded numbers.
     
 

PARK HOTELS & RESORTS INC.

NON-GAAP FINANCIAL MEASURES RECONCILIATIONS

2019 OUTLOOK – EBITDA AND ADJUSTED EBITDA

(unaudited, in millions)

 
        Year Ending  
        December 31, 2019  
        Low Case     High Case  
Net income       $ 358     $ 386  
Depreciation and amortization expense         245       245  
Interest income         (8 )     (8 )
Interest expense         128       129  
Income tax expense         15       16  
Interest expense, income tax and depreciation and amortization

included in equity in earnings from investments in affiliates

        22       22  
EBITDA         760       790  
Gain on sale of assets, net         (31 )     (31 )
Severance expense         3       3  
Share-based compensation expense         15       15  
Other items         3       3  
Adjusted EBITDA       $ 750     $ 780  
                     
 

PARK HOTELS & RESORTS INC.

NON-GAAP FINANCIAL MEASURES RECONCILIATIONS

2019 OUTLOOK – NAREIT FFO ATTRIBUTABLE TO STOCKHOLDERS AND

ADJUSTED FFO ATTRIBUTABLE TO STOCKHOLDERS

(unaudited, in millions except per share amounts)

           
        Year Ending  
        December 31, 2019  
        Low Case     High Case  
Net income attributable to stockholders       $ 350     $ 378  
Depreciation and amortization expense         245       245  
Depreciation and amortization expense attributable to noncontrolling interests         (4 )     (4 )
Gain on sale of assets, net         (31 )     (31 )
Equity investment adjustments:                    
Equity in earnings from investments in affiliates         (17 )     (17 )
Pro rata FFO of equity investments         30       30  
NAREIT FFO attributable to stockholders         573       601  
Severance expense         3       3  
Share-based compensation expense         15       15  
Other items         2       2  
Adjusted FFO attributable to stockholders       $ 593     $ 621  
Adjusted FFO per share – Diluted(1)       $ 2.93     $ 3.07  
Weighted average diluted shares outstanding         202.2       202.2  

___________________________

(1)   Per share amounts are calculated based on unrounded numbers.