PK - NYSE

Greetings, and welcome to the Park Hotels & Resorts Inc. fourth quarter and full year 2024 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Ian Weissman, Senior Vice President, Corporate Strategy. Please go ahead.

Thank you, operator. And welcome everyone to the Park Hotels & Resorts Inc. fourth quarter and full year 2024 earnings call. Before we begin, I would like to remind everyone that many of the comments made today are considered forward-looking statements under federal securities laws. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed, and we are not obligated to publicly update or revise these forward-looking statements. Actual future performance, outcomes, and results may differ materially from those expressed in forward-looking statements. Please refer to the documents filed by Park with the SEC, specifically those most recent reports on Form 10-Ks and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in forward-looking statements. In addition, on today's call, we will discuss certain non-GAAP financial information such as FFO and adjusted EBITDA. You can find this information together with reconciliations to the most directly comparable GAAP financial measure in yesterday's earnings release as well as in our 8-K filed with the SEC, and the supplemental financial information available on our website at pkhotelsandresorts.com. Additionally, unless otherwise stated, all operating results will be presented on a comparable hotel basis. This morning, Tom Baltimore, our Chairman and Chief Executive Officer, will review Park's fourth quarter performance and provide an outlook for 2025 while Sean Dell’Orto, our Chief Financial Officer, will provide additional color on fourth quarter results and further details on guidance. Following our prepared remarks, we will open the call for questions. With that, I would like to turn the call over to Tom.

Thank you. Our first question is from Floris Van Dijkum with Compass Point. Please proceed with your question.

Good morning, guys. Thanks for taking my question.

Good morning, Floris.

So the disposition target that you've laid out for $300 million to $400 million only covers, as far as I can tell, a portion of your non-core assets. You've got another probably half of your at least half of your non-core EBITDA that's probably left for sale. Can you walk us through how you plan to deploy that capital? What percentage could we expect is going to be spent on ROI projects versus potential share buybacks?

Yeah. Thank you for the question, Floris. I think it's important to sort of level set. I think we can as our ability to recycle capital. If you think back from the spin now, we have sold or disposed of forty-five hotels for about $3 billion. We've been very thoughtful about it. Even under difficult circumstances, we've been able to achieve at least some portion of that objective each year. Last year, obviously, selling about $200 million. Tom Mori, our chief investment officer, and his team are diligently working, and we've set an aggressive target in this environment of about $300 million to $400 million. We will use we'll wait and look for how best to reallocate that capital, but you can expect, obviously, we're going to continue to invest in our core portfolio. We believe passionately that we can generate really higher yields from development projects than we can from acquisition projects at this point. So that's sort of point one. Point two, we will continue to use proceeds to pay down debt. We want to make sure that the balance sheet remains in great shape and that we've got liquidity. And then opportunistically, we will look from time to time in buying back shares where it makes sense. I mean, obviously, we continue to trade at a really significant discount to NAV, and the team is laser-focused on doing everything we can to close that gap as quickly as possible.

Floris, the other thing that I would add, just to agree with everything that Sean has said, is, you know, Sean and the team have done just a fabulous job. And when you think about even coming out of the pandemic, we paid all the banks back. The credibility that we have with TheStreet gives us optionality as strong as anybody in our peer set. And so Sean and team are already out in front of this looking at different options. Obviously, it doesn't mature until way late until the second half of 2026. But you can expect us to be proactive, to be disciplined, and really under Sean's leadership, we'll find the right balance.

Thanks, guys.

Our next question is from Duane Pfennigwerth with Evercore ISI. Please proceed with your question.

Hey, thanks. Good morning.

Morning.

I wonder if you can walk us through the expectation for Hawaii in total over the course of the year, you know, maybe what, you know, growth or lack of growth looks like in Q1, Q3 is all the growth kind of Q4 weighted in that market in total. Then one of the questions we get from clients is how to convert the pacing stats you give to EBITDA. So, for example, Waikoloa group pace up 70%. How does that translate to EBITDA growth for that asset?

Appreciate the thoughts. Thank you.

Our next question is from David Katz with Jefferies. Please proceed with your question.

Hi. Good morning, everyone. Thanks for all of the copious details so far. I wanted to just circle back on the Royal Palm having, you know, toured it not too long ago. When finished, right, it's a meaningful project, you just talk about its intended positioning within, you know, Miami, which is obviously a big important hot market. Where does it fit in the landscape there?

Yeah. It's a great question, David. I'd like you have spent a lot of time down in Miami. I've walked it recently with the team. A huge credit to Carl Mayfield who heads our design and construction team who, by the way, David, is best in class. There isn't anybody in the lodging sector, certainly in the REIT sector, that has his experience and knowledge. And I think his track record really demonstrates that. And you'll think about our success in Bonnet Creek, think about, obviously, our success down in Casa Marina. We have studied carefully, for more than a year, and really with given the historic nature, given the three buildings, and how best to really activate and take advantage of that bullseye location when you also step back and think about all of the high end, the Faina, North Miami Beach, what you have with obviously, the Four Seasons and the Ritz Carlton not close from South Beach and obviously, the St. Regis and you've got on deck here the Auberge that's coming, Rosewood coming, the Aman obviously coming, the Andaz, which should, you know, eventually will open. I mean, all of that we see Royal Palm being tucked underneath that. We don't see taking it to that level. So certainly an upper upscale lifestyle, but we think we can tuck under and really raise rate significantly and give what is a varied and diverse customer base. And just given what's happening in Miami, we don't see that slowing down. We see that just accelerating. So as we talk about the opportunity to really double EBITDA, we believe that passionately and we believe really changing the operation with a more activated public space, different food and beverage outlets, taking the pool on the second floor and really making that a the kind of views that we'll have. Obviously, a renovated room product and really adding eleven keys. So we are really really excited about this. You hate to close a hotel, but really to do this right, it's the right business decision and we think it's going to create really long-term value for shareholders. So very excited about it. And we don't see any slowing down. If you look over the last twenty years, what are the three markets that have certainly been among the strongest? It's really Hawaii, it's Orlando, it's Miami, it's Key West. And in all of those markets, you know, Park is really well positioned. Not sure we get the kind of credit from shareholders that we should when you carefully look at the quality of the real estate that we have in all of those markets.

Perfect. Thank you.

Our next question is from Smedes Rose with Citi. Please proceed with your question.

Hey, Smedes.

Maize, is your line on mute? I apologize. I was on mute there. Can you hear me now? Okay. I wanted to ask you on the Bonnet Creek asset, it looks like it came in in the low $80 million. I think that's kind of around the range you would you would targeted kind of post-investment, and it just do you feel like that's kind of stabilized here or do you think there's sort of significant upside or just kind of sort of more normalized organic growth at this point?

We are incredibly bullish, Smedes, and think that that's get it in the in the first year, seeing RevPAR up 17% and obviously EBITDA as you noted, going from $60 million to about $82 million up 36%. And the ability to really layer in multiple groups. We could not be more excited. Obviously, Conde Nast given the Waldorf, you know, a top ten rating globally, we are incredibly excited as you sort of look at. And group pace at Bonnet Creek at the Waldorf up about 15% in 2025 and I think up another 20% plus or minus in what we see right now in 2026. So we are very, very encouraged as we look out. You know, the other thing that really helps us two speeds is if you think about citywides are up this year in Orlando, so that's certainly going to be a tailwind for the market. And then, of course, Epic Universe, which is going to be opening in May plus or minus. And you know, the reported spend is about $6 billion and fifty experiences plus or minus. So we think that's only going to continue to benefit the overall market. And we certainly think that that's going to benefit Bonnet Creek and our assets in Orlando.

Okay. Thank you. And then if I can just ask one more, and I you know, maybe I missed this, so at the risk of embarrassing myself, I'll ask it anyway. The W Hotels in Chicago look like they've been renamed. I was just wondering does that brand switch help you maybe on CapEx requirements? Or would you expect operational improvements there? Or maybe you just talk about that a little bit?

Yeah. We think on both sides. We think, obviously, that both expected obviously to be part of the Tribute family. Both having that flexibility, both having new operators, and we think leaner more nimble. So we're very excited about that decision. As Sean noted in his prepared remarks, we've changed out really six operators. In this case, we're also changing converting to a franchise model, certainly staying within the Marriott family. So really excited about these decisions again. Credit to our asset management team and our development team that's worked very hard over the last last year plus. In discussions with Marriott to make that happen, and we think it's really a win-win for everybody.

Great. Okay. Thank you.

Our next question is from Chris Woronka with Deutsche Bank. Please proceed with your question.

Thanks for taking the question. Morning. So if I can follow-up a little bit on the Chicago and maybe go a little bit just a little bit deeper. Tom, can you comment on whether those are longer-term franchises with the new, I think, ones that attribute, ones that Marriott independent. I because I think you know, it's pretty well known that, you know, Lake Shore was, you know, was shopped a few times. And so, you know, does this does what you've done with the change impact your ability to, you know, to sell the assets or how a buyer might view them as being long-term encumbered or unencumbered by brands? Thanks.

Yeah. We actually think it gives us more optionality. Chris, obviously, having those being in a franchise situation, obviously, having new operators. Again, spent a lot of time with Marriott negotiating and we didn't think either asset really were W caliber in terms of what Marriott was looking for and we wanted the optionality of more of those soft brands. So we found the right balance. We'll continue to look how we can create shareholder value and if that means selling or monetizing asset as we've demonstrated time and time again, we'll we will certainly do that. But we are confident that we've arrived at the right decision and the right outcome here.

Okay. Very good. Just a follow-up. If I could, and that's on a similar kind of question, but on Miami kind of post-renovation. You know, it sounds like you stay in the Marriott. Staying with the Tribute, but does that renovation I mean, is there a reset of the, you know, of the franchise contract? I think that was one of the first tributes in the old Starwood portfolio in 2015, if I remember. So, you know, is there, like, a reset on are you going to be kind of wedded to Tribute portfolio for that for a much longer period, or are you still going to keep some optionality there?

We have significant optionality there in your. We've all been around a long time, Chris. You in fact, it was the first tribute is our understanding as well. With Starwood and really under the same term at this point, doesn't mean that that can't change, but that's the current structure. And you know, Marriott's been a great partner and been working with us. They can certainly speak for themselves, but the feedback that we've gotten is they are thrilled with our program, with our design features, how we're going to reimagine the public space, the food and beverage offerings. We are very excited about this and again, a shout out to our team who have worked incredibly hard for more than a year as we've planned this out. And at the end of peak season, we're going to hit the ground running with strong confidence that we will deliver before the World Cup next year.

Okay. Very good. Thanks, Tom.

Thank you. Our next question is from Chris Darling with Green Street. Please proceed with your question.

Thanks. Good morning. Tom, can you walk through your expectations for New York this year? Would curious your perspective on the overall market as well as your Hilton Midtown specifically. And then, you know, additionally, would also be curious to hear about how you're thinking about margins at your property there.

Yeah. I mean, if you think about New York, I mean, obviously, we ended fourth quarter, I think, up about 3.5% in RevPAR and I think for the full year just south of 4%. Group pace in 2025, I think we're looking up about 10%. There's been, you know, little supply increase in New York. So 2025, I think, were about 2% in the overall market, and you know, continues to decline. I think 0.5%, 0.6% in 2026, and I think clearly just flat 2027. And Manhattan Supply is falling, I think, 8, 9% since 2019. So look, New York has turned out to be a stronger market. Obviously, some of the restrictions that have been imposed and required on Airbnb have helped the market. Our hotel continues to gain market share. There are really only two hotels that can handle large groups. So we're encouraged. Obviously, group room nights, I think, we're going to down a little bit here in the first quarter. But we still expect that we're going to finish the year 2025 probably in low single digits in terms of RevPAR. That existing contract with labor doesn't expire until 2026. I've got no comment on that as to when our operator will start to engage. But we I suspect that will be, you know, a 2026 execution. But we remain cautiously optimistic in New York. I think New York and you think about return to office, you think about visitation, think about what's happening. It continues to be a solid market.

Alright. That's helpful thoughts. And then just one more, shifting gears a little bit. Thinking about the transaction market, just curious your perspective. Do you see any increased appetite among private buyers to transact at scale, you know, portfolio transactions, anything like that, or do you think it's really more of a kind of one-off deal situation still these days?

Yeah. It's a great question. Chris, you would expect obviously rumors are there's some $400 billion of private equity real estate capital kind of on the sidelines. Obviously, that includes some of the large players. That also includes some small to midsize players. You've got family offices and owner operators. I certainly think the debt markets are open. Pricing seems to have improved slightly. I would expect obviously that you're going to see sellers perhaps I don't want to say capitulation, but you know, I think the gap is narrowing between buyers and sellers. So I would back the transaction market to continue to improve, probably more the second half of this year. While I think there's optimism certainly with the new administration, pro-growth, more rational regulation, expectation of lower taxes, at some point, hopefully, rates start to come in. But there is uncertainty. There's uncertainty obviously with inflation still while coming in, still a little sticky. And, obviously, the impact of some of the decisions that are being talked about, including tariffs. So I think there's still optimism but a little bit of wait and see. But we fully expect that we are going to be more active and we would expect to see our peers in others in the transaction market really pick up in the second half of the year.

Appreciate that.

Yeah. Chris, I think we've demonstrated again, and as we said in our prepared remarks, and I said earlier, look, we've when you've moved forty-five hotels in the last five years or five years from the pandemic, I mean, we have been as active and even in difficult circumstances, the pandemic, international assets, etcetera, we've been able to close deals and get deals done. So I expect you'll continue to see that kind of execution from us.

Understood. Thank you, Tom.

Thank you. Our next question is from Patrick Scholes with Truist Securities. Please proceed with your question.

Hey, Patrick. Hi. Good morning. Good morning. We know that amongst international travelers, Canadian inbound is the most important international traveler to Florida. Have you seen any impact on the propensity to visit your Florida properties from Canadian travelers given all of the attention and whatnot with tariffs? Thank you.

It's a great question. The answer is we have not at this point. We continue to monitor that. And as you correctly point out, as you think about so the inbound visitation, it's, you know, still about half of that coming from Canada and Mexico. So but at this point, we have not seen any softening or slowdown and Florida, and particularly our properties, certainly remain strong. And we are encouraged at this point.

Okay. Thank you.

Our next question is from Jay Kornreich with Wedbush Securities. Please proceed with your question.

Okay. Thanks for that. And then just as we're halfway through the first quarter, naturally, as you mentioned, there's a tough comp in Hawaii, but there should be some other markets with some one-time benefits such as the Super Bowl being in New Orleans, inauguration DC. Maybe is there any other just, you know, core portfolio or market comments that you had one in terms of as we think performance so far in the quarter?

Yeah. Obviously, New Orleans very strong. Very encouraged. I should think I think January was a little softer. And down 4 or 5% in New Orleans, but you know, we were we had a just given the location, a headquarter hotel. We had we had one of the teams in, you know, we were up mid-teens in RevPAR there and probably looking at a, you know, for first quarter, probably up in the 5% to 7% range there. So certainly very strong and as I pointed out, feel very good about what we're seeing in Florida and Orlando in particular and as we look out in, you know, as Sean pointed out, Hawaii, we're we had a tough comp and Hawaii is certainly going to be a little softer in the first quarter. No surprise there. But as we look out to the second half of the year, very, very encouraged and I gave you some of the stats of what we're seeing already, and both in enplanements, both in arrivals, both international as well as domestic. So certainly expect. So first quarter, you know, down in that low single-digit range plus or minus. But very encouraged as we look out for the balance of the year.

Okay. Thank you.

Thank you. Our next question is from Robin Farley with UBS.

Thanks. On Miami, when you talk about doubling EBITDA there, is that something that you think you would ramp up to or would you be at that rate in, you know, by 2027, you know, understanding that next year is not a full year?

Yeah. I mean, obviously, we would as we've as we've seen, obviously, and in both Casa and Bonnet, mean, obviously, you've seen a pretty quick ramp up, but I, you know, I would see that as a two to three years I think, would be sort of a normal ramp up in, you know, the kind of transformation that we're talking about and also dependent on how that market's doing. But when you're bringing in that kind of high-end product above us, we certainly think that gives us the right opportunity to sort of tuck underneath and really push rate. And given the premier location that we have in South Beach, we're very excited about the opportunity.

Okay. Thank you.

Thank you. Our next question is from Dori Kesten with Wells Fargo. Please proceed with your question.

Great. Thanks, Sean.

Our next question is from David Hargreaves with Barclays. Please proceed with your question.

Hi. So I know that you're sort of guiding to a flattish top picture, but with everything that's going on spend wise, I'm wondering if you have plans to be accessing the debt market soon.

We don't have a need to access the debt markets at this time. Obviously, we've got the revolver. We've got about $1.4 billion in liquidity, plus or minus. Obviously, are going to be working to recycle capital and sell, as we've said, about $300 to $400 million in non-core assets, which gives us a lot of optionality to pay down debt. And also really reinvest back into our portfolio. We've been laser-focused and pretty consistent with that strategy over the last few years, and you're really not going to see that change. We will as we think about our maturities next year and very seasoned and experienced team here and you know, Sean and team are already thinking about those maturities next year and we will have lots of optionality and we'll think carefully about what creates the most value for shareholders that gives us the optionality as we think about other strategic options as well for the company.

So thank you for that. And in the past, I think you've expressed comfort level leverage wise in the three to five times range. I'm just wondering if that's updated at all if that's still your policy.

Yeah. It's still Sean and I from day one really, really, three to five is sort of a guiding principle. We were sort of at four-ish pre-pandemic. Obviously, we were above that. Certainly, a little higher than we'd like and then normalized. But we are we're confident that we'll be able to get sort of inside of at five times and at some point here in the near future. That's a year or two, we certainly will make that happen.

Very helpful. Thank you so much.

Our next question is from Ari Klein with BMO Capital Markets. Please proceed with your question.

Alright. Thanks.

Thank you. There are no further questions at this time. I would like to hand the floor back over to Tom Baltimore for any closing comments.

I appreciate everybody taking time today. We look forward to seeing many of you at the Citi Conference and safe travels. And we are laser-focused here at Park and excited about 2025 and look forward to seeing many of you soon.