Park Hotels & Resorts Inc. Reports First Quarter 2018 Results
Park Hotels & Resorts Inc.(NYSE: PK) yesterday announced results for the first quarter ended March 31, 2018. Highlights include:
First Quarter 2018 Highlights
- Comparable RevPAR was $165.57, an increase of 1.1% from the same period in 2017; excluding the effect of renovations at several key hotels during the quarter, Comparable RevPAR increased 2.0% from the same period in 2017;
- Net income was $149 million and net income attributable to stockholders was $150 million;
- Adjusted EBITDA was $174 million, a decrease of 1.7% over the same period in 2017;
- Adjusted FFO attributable to stockholders was $137 million, a decrease of 0.7% over the same period in 2017;
- Diluted earnings per share was $0.71;
- Diluted Adjusted FFO per share was $0.65, an increase of 1.6% over the same period in 2017;
- Comparable Hotel Adjusted EBITDA margin was 26.9%, a decrease of 10 bps from the same period in 2017;
- Completed the sale of 12 hotels for total gross proceeds of $379 million and used most of the net proceeds to repurchase 14,000,000 shares of Park’s common stock at $24.85 per share; and
- Under contract to sell the Hilton Berlin (40% JV interest) at a price per key of over $610,000.
Thomas J. Baltimore, Jr., Chairman, President and Chief Executive Officer, stated,
“I am pleased to report another successful quarter with results coming in ahead of our expectations.
I am incredibly proud of the team’s unwavering focus on creating shareholder value as we continue to execute on our stated objectives of prudent capital allocation and operational excellence by recycling capital from the sale of non-core assets to repurchase stock at a price significantly below our NAV and by delivering relative margin outperformance.
As we look out over the balance of the year, we continue to observe improving fundamentals across our portfolio, especially on the group side with pace up 60 basis points in 2018 to 3.6%, while 2019 pace is nearing 7%.”
| Three Months Ended March 31, | |||||||||||||||||
| 2018 | 2017 | Change | |||||||||||||||
| Comparable RevPAR | $ | 165.57 | $ | 163.83 | 1.1 | % | |||||||||||
| Comparable Occupancy | 78.5 | % | 78.5 | % | — | % pts | |||||||||||
| Comparable ADR | $ | 210.83 | $ | 208.64 | 1.0 | % | |||||||||||
| Net income(1) | $ | 149 | $ | 2,350 | NM(2) | ||||||||||||
| Net income attributable to stockholders(1) | $ | 150 | $ | 2,350 | NM(2) | ||||||||||||
| Adjusted EBITDA | $ | 174 | $ | 177 | (1.7 | )% | |||||||||||
| Comparable Hotel Adjusted EBITDA | $ | 159 | $ | 159 | — | % | |||||||||||
| Comparable Hotel Adjusted EBITDA margin | 26.9 | % | 27.0 | % | (10 | ) bps | |||||||||||
| Adjusted FFO attributable to stockholders | $ | 137 | $ | 138 | (0.7 | )% | |||||||||||
| Earnings per share – Diluted(1)(3) | $ | 0.71 | $ | 11.01 | NM(2) | ||||||||||||
| Adjusted FFO per share – Diluted(3) | $ | 0.65 | $ | 0.64 | 1.6 | % | |||||||||||
| Weighted average shares outstanding – Diluted | 212 | 213 | (1 | ) | |||||||||||||
| ___________________________________ | |||
| (1) | The three months ended March 31, 2017 includes an income tax benefit from the derecognition of deferred tax liabilities of $2,288 million associated with Park’s intent to elect REIT status. | ||
| (2) | Percentage change is not meaningful. | ||
| (3) | Per share amounts are calculated based on unrounded numbers. | ||
Top 10 Hotels
RevPAR at Park’s Top 10 Hotels, which account for approximately 70% of Hotel Adjusted EBITDA, increased 1.5% due to a 0.4% pt. increase in occupancy and a 1.0% increase in rate, as compared to the same period in 2017. Highlights within the Top 10 Hotels include:
- Hilton Hawaiian Village Waikiki Beach Resort: RevPAR growth was 0.9% due to an increase in rate from increased transient demand offset by weaker group demand for the quarter;
- New York Hilton Midtown: RevPAR declined 1.0% due to weak transient demand coupled with disruption from rooms renovation during the quarter; excluding the renovation disruption RevPAR would have increased an estimated 1.8%;
- Hilton San Francisco Union Square / Parc 55 San Francisco – a Hilton Hotel: Combined RevPAR declined 0.7% due to decreases in rate driven by a decrease in group events as compared to the prior year coupled with the disruption from the last phase of rooms renovation at the Hilton San Francisco Union Square completed in early February; excluding the renovation disruption combined RevPAR would have increased an estimated 0.2%;
- Hilton Waikoloa Village: RevPAR growth was 9.5% due to an increase in the number of flights to Kona and group demand, which yielded an increased transient rate;
- Hilton New Orleans Riverside: RevPAR growth was 3.2% due to an increase in occupancy from very strong transient demand offset by weaker group demand due to the loss of a city-wide event in January;
- Hilton Chicago: RevPAR declined 7.2% as a result of a decrease in rate from group business relative to last year;
- Hilton Orlando Bonnet Creek / Waldorf Astoria Orlando: Combined RevPAR growth was 7.2% primarily from strong growth in transient rate across the complex and strong group business; and
- Casa Marina, A Waldorf Astoria Resort: RevPAR declined 0.4% from a decrease in transient demand that was partially offset by a strong increase in group business.
Total Consolidated Comparable Hotels
Comparable RevPAR increased 1.1% for the quarter primarily due to a 1.0% increase in rate, as compared to the same period in 2017. Transient rooms revenue increased 1.0%, offset by a 2.2% decline in group room revenue primarily due to a decrease in corporate events and conventions. Highlights across comparable hotels and select markets include:
- Florida: RevPAR growth was 6.0%, attributable to strong group business in both Orlando and Key West as well as increased transient revenue from leisure business due to the timing of the Easter holiday occurring earlier than in 2017;
- Northern California: RevPAR growth was 1.9%, primarily attributable to increased occupancy as a result of increased transient and contract demand;
- New Orleans: RevPAR growth was 2.3%, primarily attributable to increased occupancy from an increase in transient business;
- Southern California: RevPAR declined 6.7% due to decreases in both rate and occupancy, primarily from the renovation at the recently converted Hilton Santa Barbara Beachfront Resort (formerly The Fess Parker Santa Barbara Hotel – a DoubleTree Resort), which was completed in April 2018; and
- Washington, D.C.: RevPAR declined 13.0% due to weaker transient demand in 2018 due to the inauguration occurring in 2017, contributing to a decrease in both rate and occupancy.
Hurricanes Irma and Maria
In September 2017, Hurricanes Irma and Maria caused damage and disruption at the Caribe Hilton in San Juan, Puerto Rico, and Park’s two hotels in Key West, Florida. During the three months ended March 31, 2018, Park incurred an additional $7 million of expenses, and based upon additional information obtained during the period, recognized an additional loss of $22 million for property and equipment damaged during the hurricanes. The amounts were offset by the recognition of additional insurance receivable of $29 million. Park expects the Caribe Hilton to remain closed for almost all of 2018 and the results of operations of that property are presented as non-comparable. Full-year 2017 EBITDA, prior to the hurricanes, was projected to be $8 million.
Park expects that insurance proceeds, excluding any applicable insurance deductibles, will be sufficient to cover a significant portion of the property damage to the hotels and the near-term loss of business. Park has received $20 million of property and casualty insurance proceeds to date for both Key West hotels and the Caribe Hilton, including $18 million received in the first quarter. No business interruption insurance proceeds have been received to date.
Dispositions
During the three months ended March 31, 2018, Park completed the sale of the following 12 hotels in four separate transactions (the results of these hotels are presented as non-comparable):
| Hotel | Location | Month Sold | Room Count | Gross Proceeds | |||||||||||
| Hilton Rotterdam | Rotterdam, Netherlands | January 2018 | 254 | $ | 62.2 | ||||||||||
| 254 | 62.2 | ||||||||||||||
| Embassy Suites Portfolio(1) | |||||||||||||||
| Embassy Suites by Hilton Kansas City Overland Park | Overland Park, Kansas | February 2018 | 199 | 25.0 | |||||||||||
| Embassy Suites by Hilton San Rafael Marin County | San Rafael, California | February 2018 | 236 | 37.9 | |||||||||||
| Embassy Suites by Hilton Atlanta Perimeter Center | Atlanta, Georgia | February 2018 | 241 | 32.9 | |||||||||||
| 676 | 95.8 | ||||||||||||||
| UK Portfolio(1) | |||||||||||||||
| Hilton Blackpool | Blackpool, United Kingdom | February 2018 | 278 | N/A | |||||||||||
| Hilton Belfast | Belfast, United Kingdom | February 2018 | 198 | N/A | |||||||||||
| Hilton London Angel Islington | London, United Kingdom | February 2018 | 188 | N/A | |||||||||||
| Hilton Edinburgh | Grosvenor, United Kingdom | February 2018 | 184 | N/A | |||||||||||
| Hilton Coylumbridge | Aviemore, United Kingdom | February 2018 | 175 | N/A | |||||||||||
| Hilton Bath City | Bath, United Kingdom | February 2018 | 173 | N/A | |||||||||||
| Hilton Milton Keynes | Keynes, United Kingdom | February 2018 | 138 | N/A | |||||||||||
| 1,334 | 188.5 | ||||||||||||||
| Hilton Durban | Durban, South Africa | February 2018 | 328 | 32.5 | |||||||||||
| 328 | 32.5 | ||||||||||||||
| Total | 2,592 | $ | 379.0 | ||||||||||||
| ___________________________________ | ||||
| (1) | Hotels were sold as a portfolio. | |||
In April 2018, Park and the other joint venture owners of the entities that own the Hilton Berlin entered into an agreement to sell the ownership interest in these entities for a gross sales price of approximately $367 million, or $610,000 per key, which is subject to customary adjustments. The transaction is currently expected to close in May 2018, subject to the completion of a local regulatory process. Park owns a 40% interest in the joint venture, which has no debt outstanding, and expects to receive net proceeds of approximately $140 million subject to the aforementioned adjustments. Subsequent to the closing of the sale, Park currently expects to declare a special dividend in the range of $80 million to $90 million, subject to approval by its Board of Directors.
Balance Sheet and Liquidity
Park had the following debt outstanding as of March 31, 2018:
| (unaudited, dollars in millions) | ||||||||||||||||
| Debt | Collateral | Interest Rate | Maturity Date | As of March 31, 2018 | ||||||||||||
| 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 | ||||||||||||
| Total Fixed Rate Debt | 4.16%(1) | 2,177 | ||||||||||||||
| 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 | 3.36%(1) | 780 | ||||||||||||||
| Less: unamortized deferred financing costs and discount | (11 | ) | ||||||||||||||
| Total Debt(4) | 3.95%(1) | $ | 2,946 | |||||||||||||
| ___________________________________ | |||
| (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 $236 million of Park’s share of debt of its unconsolidated joint ventures. | ||
Total cash and cash equivalents were $280 million as of March 31, 2018, including $108 million of restricted cash. Restricted cash included $94 million related to proceeds from the sale of the Embassy Suites Portfolio that was released from restriction in April 2018.
In March 2018, Park repurchased and retired 14,000,000 shares of Park’s common stock for $348 million, or $24.85 per share, from an affiliate of HNA Tourism Group Co. Ltd (“HNA”) concurrently with the closing of HNA’s secondary offering of Park’s common stock.
Capital Investments
Park invested $48 million in the first quarter on capital improvements at its hotels, including $30 million on improvements made to guest rooms, lobbies and other guest-facing areas. Key projects include:
- Hilton Santa Barbara Beachfront Resort: $4 million primarily on the conversion from a Doubletree to a Hilton; which was completed in April 2018. Total project spend was $14 million and included a complete remodel of the hotel’s 360 rooms and bathrooms, a full renovation of the hotel’s 40,000 square feet of meeting space, while further enhancing the arrival experience with entirely new flooring, soft seating and case goods throughout the lobby. Comparable RevPAR decreased an estimated 35 basis points from these renovations during the first quarter;
- New York Hilton Midtown: $12 million primarily on phase four of guest room renovations. Total project spend was $26 million and included a full renovation of 371 rooms. Comparable RevPAR decreased an estimated 23 basis points from these renovations during the first quarter;
- Hilton San Francisco Union Square: $5 million primarily on the final phase of guest room renovations. Total project spend was $16 million and included a full renovation of 407 existing rooms, while converting excess office space into two rooms. Comparable RevPAR decreased an estimated 13 basis points from these renovations during the first quarter;
- Hilton Short Hills: $2 million primarily on renovations to add 10 new rooms to the property, new bathrooms and soft goods. Total project spend is anticipated to be about $8 million and is expected to be completed by the second quarter. Comparable RevPAR decreased an estimated 13 basis points from these renovations during the first quarter;
- DoubleTree Ontario: $2 million primarily on guest room renovations. Comparable RevPAR decreased an estimated 8 basis points from these renovations during the first quarter; and
- Hilton Chicago: $4 million primarily on ballroom renovations.
Dividends
Park declared a first-quarter 2018 cash dividend of $0.43 per share to stockholders of record as of March 30, 2018. The first quarter 2018 cash dividend was paid on April 16, 2018.
On April 27, 2018, Park declared a second-quarter 2018 cash dividend of $0.43 per share to be paid on July 16, 2018, to stockholders of record as of June 29, 2018.
