Park Hotels & Resorts Inc. Reports Third Quarter 2020 Results

Park Hotels & Resorts Inc (NYSE: PK) last week announced results for the third quarter ended September 30, 2020 and an operational update on COVID-19.

Third quarter financial highlights include:

• Pro-forma RevPAR was $26.14, a decrease of 86.1% from the same period in 2019, which was an improvement from a 95.9% year-over-year decline reported last quarter;
• Occupancy for Park’s 33 consolidated hotels open during the entirety of the third quarter was 36.4%;
• Net loss and net loss attributable to stockholders were both $(276) million;
• Adjusted EBITDA was $(89) million;
• Adjusted FFO attributable to stockholders was $(149) million;
• Diluted loss per share was $(1.17); and
• Diluted Adjusted FFO per share was $(0.63).

Additional highlights include:

• Reopened 16 hotels since June, increasing the total number of hotels open to 48 of 60 hotels (80%), or 64% of total room count;
• Issued $725 million of senior secured notes due 2028 (“2028 Senior Secured Notes”) and utilized the net proceeds to fully repay its $631 million term loan due December 2021 (the “2016 Term Loan”) and $80 million of its revolving credit facility (“Revolver”);
• Increased commitments under the Revolver by $75 million to $1.075 billion and extended the maturity date for $901 million of the aggregate commitments under the Revolver from December 2021 to December 2023, including all $75 million of the increased Revolver commitments;
• Amended its bank credit facilities to obtain additional financial covenant relief and increase its carve out for acquisitions funded with equity proceeds from $500 million to $1 billion, among other amended provisions;
• Continued to take proactive measures to preserve cash and improved Park’s baseline burn rate to approximately $50 million per month; and
• Amended certain mortgage loan agreements to defer interest and principal payments for three to six months and obtained temporary suspensions from required cash reserves.

Thomas J. Baltimore, Jr., Chairman, President and Chief Executive Officer, stated, “I am extremely proud of the continued proactive efforts by our team as we navigate the severe impact that COVID-19 has had on all facets of our business. During the third quarter, we made significant improvements to our liquidity and balance sheet by reducing our monthly burn rate, completing another successful senior notes offering to pay off our 2016 Term Loan and extending our Revolver, pushing out significant debt maturities until 2023. On the operations front, we continue to make significant progress reopening hotels, and witnessed a steady increase in demand across our portfolio during the third quarter as September occupancy topped 42% for our opened hotels. Although our industry continues to face unprecedented challenges from COVID-19, I am confident that our efforts have positioned Park to get to the other side of this crisis with opportunities to create value for our stockholders.”

Selected Statistical and Financial Information

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

COVID-19 Action Plan Update

The following is an update on the actions Park and its hotel managers have taken to mitigate the effects of COVID-19 on its business:

• Continued identification of opportunities for alternative sources of revenue, including but not limited to housing for colleges and universities, medical professionals and those associated with professional sporting events. In addition, certain hotels are providing guest rooms as work spaces;
• Initiated permanent property-level full-time staff reductions, representing expected future annual savings of up to $70 million throughout the portfolio based on 2019 operations, continuing its efforts to remove costs from the hotel operating model;
• Reopened 14 hotels during the third quarter, increasing total rooms by 7,278, and an additional 2 hotels thus far in the fourth quarter, increasing total rooms by another 1,466; and
• Expects to have 50 of 60 hotels open by the end of 2020, or 74% of the total room count, with the remaining 10 suspended hotels expected to reopen in Q1 2021.

The current status of Park’s hotels as of November 5, 2020 is as follows (for a list of status by hotel please see Park’s financial supplement):

Operational Update

Since the beginning of March, Park has experienced a significant decline in ADR, occupancy, and RevPAR associated with COVID-19 throughout its portfolio, which has resulted in a decline in Park’s operating cash flow. Changes in Pro-forma ADR, Occupancy and RevPAR for each month in 2020 compared to the same period in 2019 and Pro-Forma Occupancy for all of Park’s current 53 consolidated hotels during each month of 2020 are as follows:

Changes in Pro-forma ADR, Occupancy and RevPAR for each month in 2020 compared to the same period in 2019 and Pro-forma Occupancy for 2020 for consolidated hotels open during the entirety of each month are as follows:

Park’s estimated hotel level break-even occupancy is 35% to 40%, assuming a 15% to 20% decrease in ADR compared to the comparable period in 2019. For the third quarter, Park had 12 hotels reach operational break-even levels.

During the third quarter, group, transient and contract revenue represented 13%, 72% and 15%, respectively, of our business compared to 27%, 67% and 6% in the third quarter of 2019. Additionally, within the transient segment, business and leisure represented 35% and 65%, respectively, compared to 43% and 57% during the third quarter of 2019. Park recognized approximately $2 million of cancellation and attrition revenue during the third quarter.

The current operating status for each of the Company’s key markets is as follows:

• Hawaii: Hawaii reopened to tourism on October 15^th and with the exclusion of the Big Island, guests may bypass the state’s 14-day quarantine period if certain protocols are followed upon arrival. Both the Hilton Waikoloa Village and Hilton Hawaiian Village remain suspended; however, Park is monitoring demand and currently expects to reopen the hotels during the fourth quarter of 2020;
• San Francisco: Although the city allowed hotels to reopen for leisure travel in September, four of Park’s San Francisco hotels remain suspended, while the JW Marriott San Francisco Union Square and Hyatt Centric Fisherman's Wharf remained open, primarily housing medical personnel and airline crew;
• Orlando: All of Park’s Orlando hotels have reopened and the Waldorf Astoria Orlando benefited from the National Basketball Association’s events in the area with an occupancy rate of over 70% during the quarter; the Hilton Bonnet Creek successfully hosted several small group events during the third quarter utilizing Hilton’s EventReady protocols;
• New Orleans: Both the Hilton New Orleans Riverside and the W New Orleans – French Quarter reopened during the third quarter as the city continued its phased reopening. The Hilton New Orleans Riverside secured several non-traditional business opportunities including Hurricane Laura evacuee housing and a contract to house college students resulting in occupancy of over 40% at this hotel during the quarter;
• Boston: All of Park’s Boston hotels are open with demand from airline crews and an increase in transient demand;
• New York: As New York continues to have restrictions on certain out-of-state travelers and limits on gatherings, the Hilton New York’s operations remain suspended;
• Southern California: All of Park’s hotels in Southern California have re-opened and benefited during the quarter from optimal weather conditions and being located in drive-to market destinations, resulting in an increase in occupancy of 30 percentage points from the second quarter. Occupancy at the Hilton Santa Barbara Beachfront Resort was over 60% for the quarter;
• Chicago: The W Chicago – Lakeshore and Hilton Chicago/Oak Brook Suites remained open primarily due to demand from airline crews and transient demand from summer leisure travelers. Both the state of Illinois and the city of Chicago have maintained travel and event restrictions, including a 14-day quarantine period for certain travelers and restrictions on large gatherings, and as a result, both the Hilton Chicago and W Chicago City Center are likely to remain suspended for the balance of the year;
• Key West: Casa Marina, A Waldorf Astoria Resort, and The Reach Key West, Curio Collection, both of which resumed operations in June, benefited from strong transient demand from leisure travelers, resulting in occupancy of nearly 60% for the quarter;
• Denver: The Hilton Denver reopened in July as the city eased its restrictions and the hotel benefited from transient demand, resulting in occupancy of 30% for the quarter;
• Miami: Both of Park’s Miami hotels, the Royal Palm South Beach Miami and Hilton Miami Airport, were open for the entire quarter and are benefiting from transient demand, resulting in occupancy of nearly 30% for the quarter;
• Washington, D.C.: Although Washington, D.C. requires a 14-day quarantine period for non-essential travelers from deemed high-risk states, all of Park’s hotels are open with demand primarily from airline crews; and
• Seattle: Two of Park’s three Seattle hotels are open based on demand from airline crews and local business transient travel, with the two airport hotels consolidating operations.

Balance Sheet and Liquidity

Park’s Net Debt as of September 30, 2020 was $4.2 billion. With total cash and cash equivalents as of September 30, 2020 of $1.2 billion, including $35 million of restricted cash, Park is maintaining higher than historical cash levels due to the continued uncertainty surrounding COVID-19. As a result of the proactive measures taken by Park’s team and its hotel managers to dramatically reduce costs, coupled with recent capital raises, including the issuance of $650 million of 2025 Senior Secured Notes in May and $725 million of 2028 Senior Secured Notes in September, Park believes it has sufficient liquidity to satisfy its short-term liquidity obligations even though certain of the Company’s hotels are operating at limited capacity and certain hotels continue to suspend operations.

With total liquidity of $1.6 billion as of September 30, 2020, including $474 million of available capacity remaining on the Revolver, and a burn rate of approximately $50 million per month, which takes into account current operations from both open and suspended hotels and uses an accrual-based methodology, Park estimates it currently has over two and half years of liquidity available to meet its financial obligations. The estimated burn rate amount does not take into account capital expenditures (which were reduced by 75% in 2020 to approximately $4 million per month) or any possible alternative sources of revenue that may arise, any hotel property dispositions for the remainder of the year or any payment of future cash dividends, if any. Additionally, the estimated burn rate amount has not been reduced by any amount available to Park under existing or future debt facilities, or proceeds from issuance of any additional debt, equity or equity-linked securities.

Park continues to take proactive measures to reduce the near-term burn rate, including deferral of payments, hiring freezes and other cost reduction measures.

Additionally, in September 2020, Park further amended its credit facilities to extend the waiver period for the testing of its financial covenants to the date the financial statements are delivered for the quarter ended March 31, 2022. As part of the amendment process, Park (i) increased commitments under the Revolver by $75 million to $1.075 billion and extended the maturity date with respect to $901 million of the aggregate commitments for two years to December 2023, including all $75 million of the increased Revolver commitments, (ii) extended the temporary periods for which certain financial covenants are adjusted once quarterly testing of financial covenants resumes, (iii) increased the mandatory repayment carve out for equity issuances from $500 million to $1 billion, so long as proceeds from the issuances are used for capital expenditures and hotel acquisitions that become part of the unencumbered pool and (iv) extended the minimum liquidity covenant and maintained the existing guarantees and pledges of equity interests in certain subsidiaries subject to specific conditions, among other amended provisions. Additionally, during the second and third quarters of 2020, Park amended certain mortgage loan agreements to defer interest and principal payments for three to six months and obtained temporary suspensions from required cash reserves.

Park had the following debt outstanding as of September 30, 2020:

Dividends

As a precautionary measure in light of COVID-19, Park has suspended dividend payments following the payment of its first quarter 2020 dividend until such time that Park’s Board of Directors determines a year-end dividend, if any.

Full-Year 2020 Outlook

Given the continued economic uncertainty, travel restrictions and rapidly-changing circumstances related to the COVID-19 pandemic, in March 2020, Park withdrew its previously issued 2020 guidance. Park is not providing an updated outlook at this time.

The Company’s ability to predict future operating results is significantly impacted by the current COVID-19 pandemic. Park expects that the trends affecting the economy will continue to depress hotel operating results across the portfolio. The economic environment lacks sufficient clarity at this time to provide accurate guidance.

Supplemental Disclosures

In conjunction with this release, Park has furnished a financial supplement with additional disclosures on its website. Visit www.pkhotelsandresorts.com for more information. Park has no obligation to update any of the information provided to conform to actual results or changes in Park’s portfolio, capital structure or future expectations.

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 currently consists of 60 premium-branded hotels and resorts with over 33,000 rooms primarily located in prime city center and resort locations.

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