PK - NYSE

Greetings, and welcome to the Park Hotels & Resorts Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Ian Weissman, Senior Vice President, Corporate Strategy. Thank you. You may begin.

Thank you, operator, and welcome, everyone, to the Park Hotels & Resorts Third Quarter 2025 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 the most recent reports on Form 10-K and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in the 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 provide an update on Park's strategic initiatives, third quarter performance and outlook for the remainder of the year. Sean Dell'Orto, our Chief Financial Officer, will provide additional color on third quarter results and 2025 guidance as well as an update on our balance sheet and dividends. 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, Ian. And welcome, everyone. Park remained laser-focused on our strategic priorities during the third quarter, fortifying our strong and flexible balance sheet, recycling capital to enhance the quality and growth potential of our core portfolio and driving operational excellence by minimizing cost in a challenging operating environment. Through disciplined execution, we continue to transform Park into an owner of high-quality iconic hotels with compelling growth profiles. We believe this ongoing portfolio refinement combined with unlocking embedded value across our assets, positions us to deliver stronger performance in the years ahead. Because we continue to be proactive with respect to our balance sheet, we successfully extended and upsized our corporate credit facility in September to provide us with committed debt capital that increases our total liquidity to $2.1 billion to address our 2026 debt maturities. I want to thank our bank partners for their continued support and confidence in Park and for giving us the flexible capital to execute our business plan. Turning to our capital allocation initiatives. Our strategy over the past several years has been and continues to be focused on unlocking significant embedded value within our core portfolio to maximize returns for our shareholders. With development returns far exceeding acquisition yields, we continued to lean into high ROI reinvestments, deploying over $325 million across our best-performing assets at returns approaching 20%, including the meeting space expansion and renovations at our Signia and Waldorf Astoria, Bonnet Creek complex in Orlando, the renovation and repositionings at our Casa Marina and Reach Resorts in Key West and the renovation and upbranding of our Santa Barbara Resort. In May, we launched our 6 major hotel redevelopments in 7 years, a $103 million renovation and repositioning of the Royal Palm located in the heart of South Beach, Miami. This transformational project is expected to generate a 15% to 20% IRR and more than double the hotel's EBITDA from $14 million to nearly $28 million upon stabilization. Importantly, construction remains on schedule and on budget, and we are targeting a reopening ahead of the 2026 World Cup matches in Miami next June. We also have several other major renovation projects underway, including the final phases of guestroom tower renovations at both of our Hawaii hotels expected to be completed in early Q1 2026. as well as the second phase of guestroom renovations at our Hilton New Orleans Riverside Hotel, upgrading another 428 guestrooms in the 1,167-room Main Tower. The remaining 489 guestrooms at New Orleans are expected to be completed over the next 1 to 2 years. In total, we expect to execute approximately $220 million in strategic renovation projects this year, further enhancing the quality of our core portfolio. We remain confident that reinvesting in our assets represents the highest and best use of capital. Since 2018, we have invested approximately $1.4 billion in our core hotels, upgrading nearly 8,000 guestrooms and fully repositioning several of our most strategic assets. We continue to be disciplined and deliberate with our capital recycling efforts, particularly as the transaction market remains episodic. Our goal remains crystal clear to divest our remaining 15 non-core consolidated hotels and concentrate ownership across 20 high-quality assets in markets with strong growth fundamentals and limited new supply and that account for 90% of the value of our portfolio. Successful execution of this strategy will position us with one of the highest quality portfolios in the sector and among the strongest same-store growth profiles. In line with this plan, we recently closed the 266-room Embassy Suites Kansas City a property on an expiring ground lease that generated minimal EBITDA. And by year-end, we will exit 2 additional non-core hotels on expiring ground leases, the DoubleTree Seattle Airport and the DoubleTree Sonoma, which are expected to generate a combined EBITDA of just $300,000 this year. Exiting these 3 lower-quality assets will meaningfully enhance our portfolio metrics, increasing nominal RevPAR by nearly $6 and expanding margins by approximately 70 basis points. Despite a challenging environment, we remain laser-focused on executing our strategic objectives with several non-core assets currently being marketed and active discussions underway on multiple transactions, including 2 potential deals under letter of intent. Turning to operations. As we disclosed on our second quarter call, third quarter results were impacted by a meaningful decline in group demand driven by tough year-over-year comparisons following last year's strong citywide calendars across several of our markets, incremental disruption from the second phase of our Hawaii renovations, which began in August, a month earlier than last year and further challenged by softer leisure and government demand. Overall, RevPAR declined 6% or approximately 5% when excluding Royal Palm South Beach. Despite these headwinds, several of our core markets performed exceptionally well, further demonstrating our ability to unlock value at our hotels. In Orlando, the Bonnet Creek complex delivered nearly 3% RevPAR growth with both the Signia and Waldorf Astoria hotels achieving their highest third quarter RevPAR and GOP in the complex's history. Looking ahead to Q4, the complex is set to benefit from multiple group buyouts with group revenue pace up 28% and RevPAR growth expected in the mid- to upper single digits. In Key West, RevPAR growth outperformed the broader portfolio, increasing 1% for the quarter, while Casa Marina's RevPAR index reached 110, up nearly 800 basis points year-over-year, driven by very strong group demand. Overall, group room nights increased 28%, driving higher occupancy and stronger overall results. For Q4, we expect continued outperformance supported by ongoing leisure transient strength as we head into peak season translating to mid-single-digit RevPAR growth. In New York, RevPAR rose nearly 4% with meaningful share gains across all segments. Meanwhile, in San Francisco, the JW Marriott Union Square delivered RevPAR growth of nearly 14%, supported by strong group and transient demand. Both hotels are expected to maintain strong momentum through year-end, driven by very strong group trends with the group revenue pace up 14% in New York and 160% in San Francisco. Finally, at the Caribe Hilton in Puerto Rico, Q3 RevPAR increased nearly 12% with incremental leisure demand driven by the Bad Bunny residency, which added roughly 1,300 basis points of lift to the quarter. Looking ahead to the fourth quarter, we expect a significant rebound led by a broad-based recovery in group demand coupled with easier year-over-year comparisons in Hawaii as we lap the 45-day labor strike, which began late September last year, the impact of which was endured throughout the fourth quarter last year. Group revenue pace for the fourth quarter is currently up over 12% year-over-year with double-digit increases for several of our largest group houses, including our Bonnet Creek complex in Orlando, our JW Marriott in San Francisco, our Hiltons in New York, New Orleans, Chicago and Denver, our 2 Hawaii resorts and the Caribe Hilton Resort in Puerto Rico. That said, the extended government shutdown has impacted both group and transient demand in several of our core markets and more pronounced in Hawaii, D.C. and San Diego, placing additional pressure on fourth quarter results. Through the end of October, we estimate that the shutdown has reduced expectations for room revenue by approximately $2.5 million, resulting in a roughly 180-basis-point drag on this month's RevPAR performance. October RevPAR is now expected to be relatively flat year-over-year for the total portfolio or up approximately 1.5% when excluding the Royal Palm in Miami. Based on our current forecast, which reflect the impact of the shutdown through October only, we expect fourth quarter RevPAR growth to range between negative 1% and plus 2% or positive 1% to positive 4% when you exclude Royal Palm. Sean will provide more detail on our updated full year guidance in just a moment. Finally, as we turn our attention to 2026, I am confident that the strategic investments we have made will position Park to outperform during reacceleration of the lodging cycle. While some macro uncertainty persists, particularly for the lower-end consumer facing economic pressure from higher rates, we see the foundation forming for the next cycle of expansion. A more accommodative Fed and easing financial conditions, resulting in lower rates and taxes should support a rebound in business investment. At the same time, sustained public sector and private sector spending, particularly around AI infrastructure and the anticipated productivity gains from AI adoption, together with a modest pickup in inbound international travel, particularly from Japan, should further strengthen lodging fundamentals. Looking ahead, we remain optimistic about 2026 and beyond, supported by expectations for lower interest rates, a more favorable regulatory environment and a renewed investment cycle, all of which should drive stronger economic and travel growth, along with a meaningful boost from major events, including World Cup events in multiple cities, the Super Bowl in the San Francisco Bay Area and New York and Boston's 250th anniversary celebrations. With industry supply growth remaining at historic lows, we see a clear path for RevPAR acceleration and sustainable long-term growth, particularly across the segments and markets where our portfolio is concentrated and additional growth from the capital investments we are making in the core portfolio. And with that, I'll turn it over to Sean.

Thanks, Tom. For the third quarter, RevPAR was $181, representing a 6% decline over the prior year or down 5% excluding the Royal Palm South Beach, which suspended operations in May for its full-scale renovation. Total hotel revenues were $585 million, and hotel adjusted EBITDA came in at $141 million, translating into hotel adjusted EBITDA margin of 24.1%. Despite the softer top line results, continued cost discipline by our team and hotel partners held expense growth relatively flat for the quarter, marking the third consecutive quarter with expense growth of 1% or less. Adjusted EBITDA was $130 million and adjusted FFO per share was $0.35. Turning to the balance sheet. As Tom mentioned, we made significant progress toward addressing our 2026 maturities by amending and upsizing our corporate credit facility. The facility now includes a $1 billion senior unsecured revolver with a fully extended maturity in 2030, a new $800 million senior unsecured delayed draw term loan facility with a fully extended maturity in 2031 and a $200 million senior unsecured term loan maturing in 2027 that was entered into in May of last year. We expect to draw on the new term loan next year to fully repay the $122 million mortgage on the Hyatt Regency Boston and together with a subsequent financing transaction expected in the first half of 2026, fully repay the $1.275 billion mortgage on the Hilton Hawaiian Village by the middle of next year when the par prepayment window opens. With respect to the Hilton San Francisco and Parc 55 hotels, which were placed into receivership in November 2023, we now expect the hotels to be sold by the receiver on or before the 21st of next month as the purchaser has exercised its onetime extension right outlined in the executed purchase and sale agreement. Turning to dividends. On October 23, we declared a fourth quarter cash dividend of $0.25 per share to stockholders of record as of December 31, translating to an annualized yield of approximately 9%. To preserve liquidity for our strategic initiatives to reinvest in the portfolio and deleverage the balance sheet, we do not expect to declare a top-off dividend for 2025, preserving over $50 million based on the midpoint of our updated FFO guidance. And finally, on guidance, based on third quarter results and known impacts from the government shutdown, we are adjusting our full year outlook. We now expect full year RevPAR growth to be down around 2% at the midpoint of a range between negative 2.5% to negative 1.75% or down 1% at the midpoint, excluding the Royal Palm South Beach. Our revised guidance reflects weaker-than-expected third quarter results and continued softness in leisure demand expected for the fourth quarter, further compounded by the impact of the government shutdown in October. Accordingly, we are also lowering our full year adjusted EBITDA forecast by $12.5 million at the midpoint to $608 million, within a tightened range of $595 million to $620 million, resulting in a hotel adjusted EBITDA margin range of 26.3% to 26.9%, a 20-basis-point change versus prior guidance. Adjusted FFO per share is now expected to be $1.91 at the midpoint within a range of $1.85 to $1.97 per share. This concludes our prepared remarks. We will now open the line for Q&A. [Operator Instructions] Operator, may we have the first question, please?

[Operator Instructions] Our first question today is coming from Duane Pfennigwerth of Evercore ISI.

I wanted to ask you about the expense performance. Given kind of the lower outlook on 4Q RevPAR, it feels like you're pulling expenses down to a surprising degree to offset that. Can you just talk specifically about where that's coming from and what the planning cycle for those expense pull-downs looks like? How much lead time do you need to do that? It just continues to be a bit surprising given the variance in RevPAR and the lesser variance in EBITDA.

Sure, Duane. This is Sean. I'll take a first stab at that. We talked about this last quarter. Clearly, aggressive asset management is a key pillar of ours, and we work with the hotel partners looking to reduce costs in this environment that we're experiencing. We talked about deep dives last quarter. We did that in over a dozen properties, definitely some key properties of ours, looking at both revenue and cost opportunities on the cost side. It's been anywhere from productivity elements, staffing, full -- FTE type staffing, procurement, think about how you might look at certain brand standards and certain assets that don't necessarily fit or make sense in challenging those. So a number of initiatives, experimenting with a few ideas to ultimately drive costs out of the operating model. So this is something that we've been working on throughout the year. And we've noted that some of the deep dives we did in a batch of properties, we started in Q1 and Q2, and we're expecting to see the benefits of that as the year went on. So some of that is there embedded in kind of what we see in Q4. I think on the other side, too, we continue to benefit from the renewal we did in the insurance side with 25% reduction in premiums. We continue to fight on tax appeals in certain markets, especially where real estate valuations are lower than they were pre-COVID and seeing effects of that as well. So that's all kind of getting layered in. Clearly, there's a focus even more intently as you see some of the expectations of Q4 come through. And that's, I think, more kind of real-time adjustments that you make in terms of staffing levels to what you might see in occupancy drops. I think in the end; it's yielded results here. I mean when you adjust out Royal Palm, which obviously is closed and you adjust out Hawaiian Village, which had some anomalies and other things related to with the strike on the cost side we've seen and other anomalies that we've had lapping over year-over-year, we've seen expense growth decline each quarter from the start of the year. We were up 2.7% in Q1 and we're down ultimately just below flat, about 50 basis points down expected for Q4. So I think it's just -- it's a lot of hard work being done, a lot of good work being done to execute against this.

The next question is coming from Smedes Rose of Citi.

I just wanted to ask you a little bit on the dividend side. You noted that you don't have to pay, or you won't be paying the special dividend in the fourth quarter. And is the remaining quarterly $0.25, is that really just to reflect the required sort of payout from a tax perspective? Or is there anything you could do there on the dividend side sort of as you think about sort of cash retention going forward?

Yes. It's a great question, Smedes. Obviously, we're a little perplexed by the number of calls that we've gotten regarding the dividend. And if I could sort of frame for a second, if you look over the last 3 years, we've returned about $1.3 billion in capital to shareholders, both through dividends, obviously, through buybacks. We bought back about 38.5 million shares. That's about 20% of our float. And if you think about that $1.3 billion, I mean, our equity market cap today is somewhere around $2 billion, plus or minus, at obviously a depressed low and somewhat ridiculous number. When you think about that and we're 60%, 70% of that, we've already returned. And we're already paying a dividend that's 9%, 10%. So there was nothing -- there's no liquidity issues at Park. If anything, based on what we've just done and incredible work led by Sean and by the team and with our credit facility, we've got $2.1 billion of liquidity. So there are no issues at all. And I also remind people, if you think back to the pandemic when we virtually had no revenue and all the discipline and the moves that we made and that we got through that. So clearly, no liquidity issues at all. This was just a conscious effort that we thought a 9% to 10% dividend yield, far in excess of any of our peers was really the right threshold. We do have depreciation. We do have the ability to be able to shield and we really thought that we could deploy that incremental quarter, $0.25 plus or minus, back into strategic investments and/or having it available to pay down leverage. So it was really nothing more than that. And I just want to reinforce, we are very disciplined about our capital allocation. I think we've demonstrated that time and time again, and we'll continue to have that focus and that discipline. And we thought the incremental $0.25 and reallocating that was the right business decision at this point.

Okay. I guess just switching gears for just a minute. I wanted to ask you just as we -- obviously, a lot of focus is turning to 2026. Could you just talk about kind of what you're seeing on the group side for next year for sort of pace of bookings or revenue? And any particular kind of submarkets where you're seeing significant strength or weakness?

Well, if we look at '26 group pace, and I think it's important to sort of -- given Hawaii is still ramping up, take if you exclude Hawaii and excludes Royal Palm, which will reopen and complete in May, early June of next year, you're essentially flat in '26 right now. '27, as we look out, I think we're up about 4.1% plus or minus. So we think about markets, clearly strong markets Signia, Bonnet Creek, up probably 9%. Our Hyatt in Boston double digits; Caribe probably up another 39%; Santa Barbara up a significant amount, certainly north of 50%; Casa Marina, up low to mid-single digits. So certainly feel very good about that right now as we look out. We fully expect that we'll continue to see more activities with our operating partners to continue to build the group base for '26. As we think about 2026, we're pretty encouraged. I mean there are a number of data points out there that I think are interesting. Clearly, as you think through with the Fed, we certainly expect a more accommodative Fed, lower rates, clearly lower tax rates, deregulation, certainly more public and private investment. And as we all know the kind of dollars that are being invested right now in AI and infrastructure and certainly the expected productivity gains there. But you've got also special events. You've got the impact of World Cup, which we all -- we certainly believe is going to be significant. Obviously, the Super Bowl out in the San Francisco Bay Area. Obviously, the anniversary celebrations, 250 years, which will be largely anchored in New York and Boston. We expect, obviously, Park is going to be very well positioned to take advantage of that. So as we look out, we're certainly encouraged. It would be nice to have some of the tariffs and some of the other matters, geopolitical sort of calm down, less of an impact would certainly be helpful and I think provide incremental tailwinds as well. But we're very encouraged as we look out to 2026. We're also very encouraged by really the strategic investments that we continue to make as you think about what we're doing in Hawaii, both properties there, if you think about New Orleans, what we're doing, obviously, just incredibly bullish about our transformation in Miami. We think that's just going to be an extraordinary success and really excited about the progress that we're making there and fully expect that, that will open, obviously, in May, early June of next year.

The next question is coming from Chris Woronka of Deutsche Bank.

So my first question, Tom, you mentioned asset sales and you got 15 non-core assets. You may have other things with land and such. I guess the question would be, what's your conviction level? What's your confidence level maybe now versus a year ago or 6 months ago in some of these same assets? What needs to happen to get some of these over the finish line? And do you think we start seeing an acceleration in that as we move through into the new year?

Chris, it's a great question, and thank you for it. I mean we -- I can tell you, as a leadership team, and we are laser-focused. Let me just set the stage for a second. Really, our top 20 assets account for 90% of the value of the company. And if you really focus on sort of the core and the core metrics, of those 20 assets. It's really as strong as any portfolio in the sector. We remain laser-focused on selling the non-core and recycling that capital. I think it's important to remind listeners, I mean, we have sold or disposed now of 47 assets for north of $3 billion since the spin. So we have -- in the worst of times, even during the pandemic, keep in mind, we had 6 assets in San Francisco. We now have 1 asset, and we sold 2 of those in the worst of times during the pandemic. It is challenging in this environment. It's not an issue of debt. There's plenty of debt capital. There's plenty of equity capital. I think if you can get really just better visibility and less volatility, that certainly will help. There are 2 additional leases. Obviously, we gave back the Kansas City asset, which is we mentioned, obviously, in our prepared remarks, we've got 2 other assets that we made the decision last year that we would not extend those ground leases, short-term ground leases. We'll give those assets back at the end of this year. We've got 2 other assets under letter of intent, and we've got several others at various stages of the marketing process. We are very confident we probably would lean more towards the low end of our guidance than the high end. We've said $300 million to $400 million this year. And it is conceivable that some of that could bleed into early next year from a closing standpoint. But please rest assured that we are laser-focused, committed, experienced in selling and disposing of these non-core assets. We've done it. We've done it with assets that have been even more complex. Every asset has got a story, whether it's a legal or tax or some other matter. But the team is working their tails off to make progress and get this matter behind us. The sooner we can get closer to those 20 hotels, we think that's really going to improve our optionality, but I think allow investors to really look through with the core assets and really the incredible work that we're doing within that core. That's where we're spending significant dollars. We believe passionately that we can generate higher returns on our -- from development yields than we can from acquisition yields.

Okay. As a follow-up, I think we heard Hilton last week talking about lower expenses to owners and franchisees and some of that is coming from the, I guess, what you call the share -- I don't know the exact term, but some of the chargebacks. Is there more that can be done there? How do you guys view that? Is that a material or tangible benefit to you next year? And just maybe where you sit with respect to maximizing what can be done with -- through the franchise agreements to keep your costs down from the parent companies?

Yes. It's another great question, Chris. We are spending a lot of time with our partners at Hilton and our other operating partners. As Sean so eloquently pointed out, when you think about expenses and what we've done 3 quarters in a row, if you look at insurance, if you look at the deep dive analysis that you mentioned, we are as good as anybody at really in this environment where you haven't really had the top line growth across the sector, doing everything humanly possible to take cost and really reinvent the operating model where we can. You're going to see that continue, and you're going to see us continue to push and encourage and partner with Hilton, with Marriott, Hyatt, et cetera, trying to find ways to continue to take cost out of the business. There are huge opportunities there, and I have to think candidly, with the advancement of AI as that continues to expand and that we've got to believe that there are going to be significant savings and productivity gains there as well. I don't think those occur necessarily this week, this month, but I certainly believe over the intermediate and long term, there are going to be real opportunities there.

The next question is coming from David Katz of Jefferies.

What I would love some help with having gone out there earlier this year with yourselves and your peers, Hawaii is still just a confusing market for me. Can you just sort of give us as much insight on sort of what the puts and takes or the drivers, the headwinds are out of Hawaii at this point?

Yes. It's a fair question, David. I think you've got to kind of step back a little bit and just think about Hawaii. If you think about over the last 20 years, Oahu's RevPAR growth has really outpaced the U.S. by at least 120 basis points. I think Key West in Hawaii is sort of lead a CAGR of about 4.5% versus the U.S. average of about 3.3%. If you think back over that period of time, we've had negative supply growth, I think 0.3% or less than that. Think about the next 5 years, we're thinking about supply growth in Hawaii at 0.3% again. So that backdrop to us is very, very encouraging. Domestic airlift has also increased 20% since 2019. And a lot of the owners in Hawaii own their assets underground leases. I mean in our case, in both of our world-class resorts there, -- we own those, obviously, fee simple. And we just think that's a huge advantage. And obviously, there's a little bit of a concentration issue. Ideally, we wouldn't want to have 25%, 30%. But if you're going to have it anywhere, having it in Hawaii certainly gives us comfort. Clearly, from a demand standpoint, if you look historically, it's about 10 million visitors -- 9 million to 10 million visitors, 60% plus or minus coming out of the U.S., 17% historically coming out of Japan over the last 30 years. And to get to your point, it was about 1.5 million in Japan. I mean, we're going to end this year probably somewhere in the 720,000 to 750,000. So you're clearly seeing less visitation from Japan. It's been a slower ramp-up, there are reasons for that, the stronger dollar versus the yen, and there have been some fuel surcharges. There have been some cheaper alternatives. So clearly, that Hawaii ramp-up with Hawaii participation today is about probably 3% to 4% of the international demand at our assets versus probably 19% plus or minus where it was in 2019. So we are encouraged by recent discussions. Sequentially, Hawaii has gotten better. Obviously, we had the strike. It was a very challenging environment for 45 days and the lingering effects of that. We were down 18% first quarter, 13% second quarter, 9% plus or minus third quarter. And we expect we're going to be somewhere north of 20% here in fourth quarter, even with sort of the revised guidance that Sean outlined. So it's certainly taking a little longer, but we are bullish and passionate and still believe, obviously, the investments that we're making, Tapa Tower, huge, huge benefit, Rainbow Tower and what we're seeing there. We're excited, obviously, what we're doing at Hilton Waikoloa. Hilton Waikoloa, a little more complex, the second phase of that renovation. So more rooms out of service that certainly is contributing to a little bit of the more disruption there and certainly contributing to some of the softness there. But -- and Canadian travel. Canadians, as we all know, account for and Mexican travelers about half of the inbound international travel into the U.S. And Canadians have been frustrated, and they have been voting with their dollars and their travel has been down in Hawaii, and it's certainly been down in other markets as well. So we're certainly feeling the effects of that as well. Once some of those matters on the trade front get normalized and get resolved, we certainly expect that they will be back and certainly think that Hawaii will accelerate in terms of its ramp-up.

A lot going on, but you still like it.

Yes, very much so.

The next question is coming from Patrick Scholes of Truist Securities.

Sorry if I missed this in the prepared remarks. You had noted in your guidance and expectations only expecting the government shutdown through today. It doesn't look like it's going to get resolved today. Why not continue that expectation in your guidance beyond today?

Yes. It's another excellent question. Look, at the time we were preparing the guidance, and the situation has been so fluid, we wanted to include for investors and analysts and all the listeners what we knew. And what we knew as of the end of October was about $2.5 million of impact. So we've included that. But we also were conservative in our guidance, and that reflects sort of the midpoint. So if this were to continue, and none of us know how this is going to unfold, and everybody has probably got an opinion. The reality is that if you look at the low end of our guidance, we believe that we are adequately covered if this were to continue. And I'll reinforce that. We centered our -- obviously, our guidance on that midpoint and recognize that if it were to continue, we believe that we're covered through that guidance range. I would also tell you my own opinion, growing up and living in this market for my life and talking and watching my strong belief is that this will be resolved in the near future. I don't think either party can allow for this to continue much longer, particularly with the impact with 40 million people not having food benefits among other benefits. And so I hope that our leaders in Washington on both sides of the aisle will resolve it in short order. And -- but we think that we are covered for the guidance that we have provided. If we get more information, if it were to extend and have more of an impact, we certainly will provide that on either side of that. But we wanted to provide and be transparent for what we knew and what we were seeing in our portfolio.

The next question is coming from Stephen Grambling of Morgan Stanley.

I just wanted to follow up on the reallocation of the top-off dividend to investment. Is that something that you'll have the opportunity to do in the future? Maybe I missed this. And if you did have that opportunity, maybe any thoughts around thinking through that capital allocation? And is there -- are there big projects that you try to pull forward that you have on your horizon?

Yes, it's a great question. Thank you for it. Listen, we've -- as I said earlier, we've been very thoughtful about capital allocation. And again, returned $1.3 billion to shareholders here over the last 3 years. And we really concluded, Sean and I and the team that obviously, a 9%, 10% dividend, which is where we are today was -- and certainly sector-leading was certainly enough and made sense. We will have the flexibility in the future to certainly manage that dividend, and we will be thoughtful. We just didn't think we thought reallocating that $50 million for either debt reduction and/or continued strategic investments in our portfolio makes a lot of sense. I mean if you take Bonnet Creek as an example and just the success that we're having there, we've taken EBITDA from there approximately $55 million. We think we'll be somewhere north of $95 million this year. We're generating significant returns and higher returns through our development and strategic ROI activities than we can generate through acquisitions. So strong believers in that and strong believers that there's a lot of embedded upside within this portfolio.

Got it. And just to be clear then, so I guess the answer in some ways depends on where the dividend yield shakes out and valuation. Is that fair?

Yes. Yes, that certainly plays. I mean we've always targeted kind of 65% of AFFO. And obviously, we've managed that a little more this year, but it's not -- again, it's not a liquidity issue. We've got plenty of liquidity. We've got -- when you -- we have no issues there, and we have our 2026 maturities addressed appropriately and are very thoughtful, very creative and huge credit to Sean and the team and what we've done there. So we are very thoughtful, and I think we've been as disciplined as anybody on the capital allocation front. But we also know a respectable solid dividend makes sense. And clearly, we're way in excess of all of our peers on that front.

The next question is coming from Chris Darling of Green Street.

So Tom, thinking about the impact of the government shutdown, in the past when these events have been resolved, do you typically see demand come back fairly quickly? Or is there historically a lagged recovery? I'm not sure if you have any experience thinking back to draw on.

Yes. I mean I think there's certainly a possibility of that, Chris. I mean, clearly, it depends. We haven't seen -- while we've seen some group cancel related to government, it's been certainly more so on the transient, kind of seeing how that -- how that's -- the pickup of that has been more impacted. But groups -- a lot of these groups tend to have to -- are required to meet in a way. And so we certainly expect that those will rebook. Now the question will be, will it be within the quarter or will be kind of into the next year? It's the kind of question. So it might be a little bit more spread out over a number of months that may be hard to tell really a true impact on it. I mean we did some looking in a way back at the last long one, the first Trump term, and it straddled both December and January. And so you certainly saw some impact in government spend in transit in January, but did only see dramatic pickup in February, but it was also a good time, a good macro environment, too there. So it's kind of hard to look back in the past and try to draw any conclusions. But just from a standpoint of the fact that a lot of people have to make these trips, have to do this travel in a way. And so there's probably a thought that you're going to rebound some of that, just matter of when.

Chris, I agree with everything that Sean said. The other point I'd make here on our portfolio, obviously, a strong fourth quarter group pace of about 12%. Surprisingly, November and December were double-digit increases and certainly stronger than October. So if we are all lucky and our leaders on both sides of the aisle resolve and reopen the government, we could see increased activity here based on what's on the books already in November and December. So it could be a bit of a green shoot for us there.

Okay. Yes, those are all helpful thoughts. I realize it's a fluid situation, certainly. Maybe just one quick one going back to capital allocation. As you work to sell some of these non-core assets in the coming quarters and you think through use of proceeds, to what extent are you thinking about share buybacks, just given the frustration with where the share price has been relative to, of course, needing to retain some amount of capital for the different redevelopments and expansions that you've talked about?

Yes. It's a great question, Chris. I would say, look, as I mentioned, I've said it a few times on the call, we've returned $1.3 billion, and we bought back 20% of the float. So with that backdrop, it is important to us. We've always had a guiding principle of leverage in that 3 to 5x. We're certainly above that. And obviously, a little bit of that's artificial right now because you've got major renovations underway in New Orleans, 2 assets in Hawaii and of course, Royal Palm. But we certainly would like as a team to use some of the excess proceeds to pay down debt and continue to invest back into our portfolio. There are opportunistic times when going in and buying shares will make sense. But I'd say right now, the 2 priorities would be really paying down debt and reinvesting back into the portfolio.

The next question is coming from Jay Kornreich of Cantor Fitzgerald.

I just wanted to ask a question about the 4Q outlook. RevPAR is roughly flat, which is a change from the expectation last quarter where 4Q would be, I guess, up 3% to 5% and recognizing there are some new dynamics such as the government shutdown. But are there any other points or markets that you would relate to that maybe led to some of the deceleration for the 4Q expectation?

Yes, Jay, I'll jump in on that one. In our last call, we talked about a 3% to 5% up for Q4. So as you spoke to as you're noticing about a 350-basis-point drop relative to that expectation. It's kind of a mix of macro trends and near-term disruption as well as a little bit of Park specific sprinkled in there. But when you kind of start from just a more macro level and just some of the transient softness we've seen, whether it's through this -- through inbound international travel that Tom talked about, just seeing a continuation of that and kind of looking at certain markets and seeing a little bit of the trend line there. I'd say that there's about 150 basis points of impact to Q4 based on just kind of more general trends and then mostly on transient because group remains strong, pace is up 12%, and within our largest 15 group hotels, it's up 17%. So we feel good about the group setup. It's just more the transient side being impacted relative to our previous expectations. Going from there, government impact, about 100 basis points. It obviously continues to be a challenge since the beginning of -- earlier in the year with DOGE and everything else. We've certainly seen the weakness there, but now more pronounced with the government shutdown, which we've talked about. Chicago, we've seen pickup trends deteriorate materially there with the National Guard deployment into that market. So it's been, again, more of a transient impact in terms of pickup there. Group position there at Hilton Chicago is up 12% for the quarter and is holding. So -- but it's more about -- it's about a 50-basis-point impact to Q4 there from that market. And then Waikoloa [indiscernible] on the renovation scope there, just kind of a little more disruption than planned due to some schedule shifting. We're doing a little bit kind of -- as part of Phase 2, we're doing a little bit of extra work from Phase 1 brought into Phase 2. So it's a little bit of an adjustment there. It's about 50 basis points. So general softness, 150 basis points, government-related 100 and then another 100 between the Waikoloa renovation and the Chicago disruption.

The next question is coming from Cooper Clark of Wells Fargo.

I appreciate the earlier comments on the dispositions. Curious if you could speak to the bidder pools and buyers you are actively seeing, looking for product in the transaction market today. Wondering what markets, products or yield a buyer is looking for to step in today with what should be a better '26 and '27 demand picture despite some uncertainty?

Yes. I mean, look, there's plenty of liquidity out there. And I think the buyer pool is mixed. I mean you've got from owner operators, certainly family offices. You've got small private equity to larger private equity. You've really got the normal menu. And as I think about assets, we are -- we've had -- and our team has had great success in really finding that buyer for a particular opportunity and we continue to come through and have discussions. I think the hesitation with some buyers is debt markets certainly have improved. But if you believe that rates are going to continue to come down, you might be a little more hesitant on that front. And then certainly, just better visibility on the demand front and probably candidly, just clarity on some of the geopolitical and trade and inflation, I mean, all the things that all of us are working through right now. Uncertainty really is the enemy of decision-making. So I do think that there are some buyers out there that are being a little more hesitant. And in some cases, we certainly understand that. From my own experience, periods of dislocation really create the best opportunities to be buyers, particularly if you've got an intermediate and longer-term hold period. Obviously, we continue to work hard. Again, we've got the track record. And I just -- I can't emphasize that enough and how we've been able to reshape this portfolio since the spin here. And now we're 47 assets that we've sold or disposed of and 2 more in the queue and several more at various stages, whether LOI or the marketing process. So we are confident we'll get it done, and no one is going to work harder than the men and women at Park as we continue to pursue our objectives.

Okay. That's helpful. And then I appreciate it's still early and there's some uncertainty but wondering how you're thinking about the balance of group, BT and leisure into '26, just given some of your earlier comments on group pace and also a strong '26 event calendar in various markets.

Encouraged. I mean, listen, part of this, if you -- if we can -- obviously, the President's return and the discussions in China, if you can begin to just provide clarity both on tariffs and trade matters and you look at the backdrop of the just inordinate amount of capital that's being invested through AI, but you start seeing and obviously, on the public investment side, just the CHIPS Act, I mean probably 30%, 40% of that or more remains to be spent as well, coupled with the special events that I've mentioned and you mentioned as well from the World Cup, the Super Bowl and obviously, the 250th anniversary. And I think the animal spirits, getting more clarity and just getting broader participation in the broader economy, we know that both in the lower end and certainly parts of the middle that people are hesitant and perhaps a little more stretched. If those issues can be addressed, and I do think that the recent tax bill helps with that, you'll get a tailwind that I think '26 and certainly '27 as we look out, we see are very, very encouraging. The other thing that gives us great comfort is the fact that you've got muted supply. If you look at the Park portfolio, we're 0.7% supply growth versus the long-term average of about 2%, and that's over the next 5 years. So we find that very encouraging as we look out. And as you look at our portfolio, you can't replicate. You can't replicate what we have in Hawaii, what we have, obviously, in Bonnet Creek and what we have in Key West and those barriers to entry. So we're very, very encouraged as we look out over the near term. I want to get through this year, Obviously, we want to get beyond the government shutdown and some of the other matters of uncertainty. But I think as we look out '26, '27, we are very, very encouraged.

The next question is coming from Dan Politzer of JPMorgan.

I wanted to go back to the capital allocation this year, obviously, notwithstanding the dividend, there was some CapEx that I think came down. As you think about preserving more capital to reinvest in the portfolio, the CapEx coming down this year and maybe there's some timing there. Directionally, is there maybe any inkling on how we should think about CapEx for next year, just given it seems like you're focused on reinvesting in the portfolio?

Yes. I think I'll let Sean give you the math, but we are not lowering CapEx. I mean if anything, we have been crystal clear. And I think if you look at what we've done in Bonnet Creek, what we've done, obviously, in Key West, obviously, what we're doing right now in Miami, what we're doing in Hawaii with 2 of the towers near complete, you think about Hilton Waikoloa, which will be done this year. If anything, we sort of -- if anything, we accelerated and expanded scope slightly. And part of that is some things that we needed to go back and some other things we felt we needed to expand. So we are all in. We think we're making the right decisions. And obviously, I think the results are showing that. We're seeing the incremental lift in rates, IRRs that are in the 15% to 20%, think about what we did in Santa Barbara. So we think high better returns for us through the development side than what we're seeing on the acquisition side.

Yes. I'd just add, it's more so timing. We're probably about $190 million or so through the third quarter on spend, and we certainly expect that to be more ramped up with Royal Palm well underway here for the Q4. But I think in total for the year, we just felt like it's probably a more appropriate range for the actual spend out the door. Projects still remain the same, more going into next year.

Got it. And then just on Hawaii, maybe another one asked differently. I think you're pacing about 70%, 75% of the EBITDA relative to 2023. As you think about the glide path and trajectory into 2026, do you think you can fully close that gap? Or do you think it's going to take a few years?

I think you're back in '27. I think you're still ramping in '26 and you're looking at what's probably low 150s number this year versus 177 and keep in mind that we are finishing the second phase of the Palace Tower in Hilton Waikoloa and then, of course, we've got the Rainbow Tower that we're finishing up here in Hilton Waikoloa, which obviously is 1 of the premier towers. So we remain steadfast and very confident and certainly believe that those continue to ramp up. And we're also making a number of other operational changes. We are spending a tremendous amount of time with our partners at Hilton, looking at both from a leadership, sales and marketing, all of the commercial engines. It's terribly important to us, but it also is a big fee generation for -- generator for our partners at Hilton as well.

The next question is coming from Robin Farley of UBS.

Just 2 small clarifications at this point. One is just trying to understand your comments about the -- because the release says your guidance includes just the strike through sort of today -- I mean, sorry, the government shutdown through today. It sounded like you said that the lower end of your range includes the shutdown continuing through the quarter. But just if I heard you right about the impact in October, it seems like the range wouldn't be wide enough if it continued. Is it just that is government business less of a factor in November and December than in October? I mean that would make sense if that's the case. Or do you think it would be a similar impact when we think about how the next 2 months could look?

Yes. We think it would be less of an impact, Robin, as we look out. And look, as I said, one person's opinion, I just don't believe that they can allow this to drag out much longer for all the reasons we all know, all of the families and kids and others that are being impacted. And we're all hearing rumors that certainly this should be resolved, hopefully in the very near future. But we also believe that the lower end of that guidance will largely protect us based on the guidance that we've provided.

Understood. But just even if it were solved today in theory, right, there'd still be some November impact, but I totally understood. And then the other clarification was just on Hawaii, and I just wasn't sure if I -- when I caught your comments about forward group bookings. I think when you said group pace for the company overall was flat in '26, I think you were excluding Hawaii. And just wanted to -- it seems like Hawaii; you're comping the strike. You have the benefit of some room renovations. I know the convention center in Hawaii will close at the end of '26. So I know that, obviously, the '27 -- that would make the '27 sort of timing off. But for 2026, is your group Hawaii, the pace benefiting from those strike comps and things?

Robin, our understanding is that the convention center will be closing at the end of '25.

So the Hawaii down is primarily just the timing of that and not so much...

Correct. Yes. And keep in mind, group is also a small percentage of Hawaii, but it will be closing here in '25.

The next question is coming from Aryeh Klein of BMO Capital Markets.

I had a bit of a bigger picture question. I think historically, non-residential fixed investment has been relatively highly correlated with demand. But now perhaps with AI, that relationship is seemingly not holding up the same way and maybe even distorting the relationship. Curious what you think about that. And if that continues, how does that impact your ability to forecast? And what else are you looking at in terms of helping with things?

Yes. We all spend time trying to figure out what's going to be the right correlation. If you think historically, right, it was GDP growth. And then if you think about certainly the last decade or so, it's been huge emphasis on non-residential fixed investment spending. I have to believe, candidly, on both sides. I think that both remain important. I just think it's the level. If you think about just GDP, they have been disconnected here in the short term. I have to believe that, that will change, and we'll continue to see as GDP gets in as Westin and others want to get it in that 3% range, we certainly think that's going to be a huge tailwind for our sector. That's one point that I would make. And if you think about just the amount of investment spending in the adjacencies, both in energy, both in data centers, both AI, both in all the things that have got to be done from certainly the electrification side, I have to believe that, that will continue to benefit lodging as well as we sort of look out. And if you get non-residential fixed investment spending in that sort of 3% to 5% range, you get GDP in that 3% range. Think of both the operating leverage and the benefit that we think that's going to accrue to lodging will be significant. And candidly, we'll have an industry that we hope will be certainly more attractive to investors from that standpoint where you can get the kind of operating leverage, which is just more difficult to get when we -- at these lower RevPAR numbers.

And maybe just on the dividend. I understood you're not paying the top off. But as you think about the yield in that 9% to 10% range, when it comes to next year, is there a thought to maybe reduce that yield.

Yes. Look, we obviously haven't decided that for next year. Historically, we've been in that 65% of AFFO. If anything, we -- you could see us certainly consider moderating that a little. But at this kind of run rate, $1 dividend, we think, is very healthy and certainly a 9% to 10% for anything we hear from most investors, they certainly appreciate that. This has gotten a lot more interest than we would have thought and hoped to be candid. And I know some, I want to reinforce again, there are no liquidity issues, 0 with Park. If anything, we've got significant liquidity. We just decided that we wanted to allocate. We thought that there was an opportunity both to pay down some debt and also reinvest back into the portfolio. So it was really a strategic decision made by the leadership team.

The next question is coming from Ken Billingsley of Compass Point.

My question is regarding comparing total RevPAR to RevPAR growth on a year-to-date basis. A number of markets call smaller total RevPAR growth versus its comparable RevPAR such as New York, Boston, D.C. My question is, is this all group and banquet related? And how is 2026 shaping up in the group business Will a bump in leisure travel to some of those cities for the 250th anniversary actually negative impact kind of our total RevPAR expectations for those markets?

I think we certainly continue to see strong out-of-room spend. And certainly, that goes hand-in-hand with group here with banquet and catering. And those patterns have kind of held up even with Q3, we had certainly a weaker group quarter and a little bit weaker than expected despite that, banquets amongst our urban resort properties have held up pretty well on the banquet revenue side. The outlet side was down about 6%, 7% relative to expectations, again, more so because I think as you have a little bit weaker group, you pivoted to more discount channels. So kind of higher -- lower price point guest who is not necessarily going to spend as much in the outlet. So we certainly saw that dynamic go on there, but I think when you look at the mainstream guests and consumers, on the group side, people continue to spend on their events, AV and the like and guests that are kind of more on the transient side, leisure side and even business are spending in the outlets. So I think that's led to what we've typically seen is about, I think, predicting about 100-basis-point benefit differential between total RevPAR and RevPAR this year. We certainly expect that to continue into next year as you think about some of these -- some of these events. I think there's certainly a nice benefit and pop you expect on rate in the rooms for things like the World Cup. But you see a lot of -- you expect a lot of people being around these markets as part of the -- not going even going the games as part of the celebrations and really being promoting restaurants and certainly other things and outlets inside the hotels themselves. So I think we certainly expect to see a continuation of strong spending patterns outside the [indiscernible] to help promote total RevPAR growth above room RevPAR growth.

Thank you. At this time, I would like to turn the floor back over to Mr. Baltimore for closing comments.

On behalf of the Park team, really appreciate everyone taking time today. We are available for follow-up questions and look forward to seeing many of you in Nareit in Dallas. Safe travels. And please know that Park team is laser-focused on continuing to create shareholder value.