Park Hotels & Resorts Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Amounts are in U.S. dollars; financial statement amounts are generally in millions. The company owns premium-branded hotels and resorts and reported 60 hotels with more than 33,000 rooms.
Financial performance and liquidity
- Revenue: $599 million, down 9% from $659 million in Q1 2019. The comparison reflects acquisitions and dispositions as well as COVID-19 disruption.
- Hotel operating performance: Hotel Adjusted EBITDA was $91 million, versus $181 million a year earlier. March pro forma RevPAR fell 63.8% year over year; occupancy declined 49.4 percentage points and ADR fell 10.1%. January and February RevPAR were up 1.2% and 0.4%, respectively.
- Profit: Net loss attributable to stockholders was $688 million, or $2.89 per diluted share, compared with net income of $96 million, or $0.48 per share, in Q1 2019. The loss included approximately $695 million of impairment and casualty charges, primarily a $607 million goodwill impairment and an $88 million property impairment. Gain on asset sales was $62 million.
- FFO: Nareit FFO attributable to stockholders was $21 million ($0.09 per diluted share); Adjusted FFO was $57 million ($0.24 per diluted share), down from $130 million and $136 million, respectively, in Q1 2019.
- Cash flow: Operating cash flow was negative $13 million, versus positive $72 million in Q1 2019. Investing activities provided $180 million, including $205 million net proceeds from asset dispositions, partly offset by $26 million of capital expenditures. Financing activities provided $789 million, principally reflecting the $1 billion revolver draw.
- Debt and cash: Debt was $4.87 billion at quarter-end, compared with $3.87 billion at year-end 2019. Cash and cash equivalents were $1.304 billion, with $38 million restricted. The company drew its full $1 billion revolving credit facility in March.
- Capital and distributions: The company declared a $0.45-per-share first-quarter dividend, paid April 15, and subsequently suspended dividends. It repurchased approximately 4.6 million shares for $66 million during Q1.
Material changes, outlook, and risks
- COVID-19 sharply reduced travel and lodging demand. By quarter-end, operations had been temporarily suspended at 38 of 60 hotels; remaining open hotels operated at reduced capacity, with rooms available equal to 15% of full capacity. Most group business and events through May had been cancelled, and new reservations were substantially lower.
- Management expected results in at least Q2 and Q3 2020 to be more adversely affected than Q1. It did not provide a conventional numerical earnings or revenue forecast, and said the timing of recovery was uncertain and depended on travel restrictions, consumer confidence, and the course of the pandemic.
- Cost and liquidity actions included deferring approximately $150 million of the $200 million originally budgeted for 2020 capital spending, reducing expected spending to about $50 million, and pursuing temporary lodging opportunities for medical personnel and others. Management said cost reductions would not fully or materially offset lost revenue.
- Under a scenario in which all hotels were closed and generated no revenue from May through December, management estimated average monthly cash burn of approximately $70 million ($50 million at hotels and $20 million at corporate level) and said available liquidity was expected to support such a suspension for 17 months. This is an estimate based on assumptions, not a guarantee.
- Subsequent financing amendments: In May, the company amended its credit and term loan facilities, suspending existing financial covenant testing through March 31, 2021 and adjusting later covenant levels. It also accepted a monthly minimum liquidity covenant, pledged equity in certain subsidiaries, added guarantors, and extended the revolver maturity to December 24, 2021. Amendments restrict dividends, repurchases, certain capital spending, asset transfers, investments, and other actions, subject to exceptions.
- Management identified material uncertainty around demand recovery, cash burn, access to financing, debt refinancing, further impairments, and possible additional hotel closures or asset sales. The only 2020 debt maturity identified in the debt note was a $12 million mortgage loan due in October; scheduled maturities rise to $1.709 billion in 2021, assuming available extensions.
- Other disclosed matters include approximately $47 million of outstanding capital expenditure commitments, generally cancellable subject to incurred and discharge costs, and a $7 million reserve related to an Australian tax authority audit connected to the 2015 Hilton Sydney sale. The company said ordinary-course litigation was not expected to have a material adverse effect, while noting outcomes cannot be predicted with certainty.
Most important facts for investors to verify
- Whether hotel reopenings, occupancy, ADR, and RevPAR recover in line with the pace needed to reduce cash burn.
- Actual monthly cash use versus the company’s $70 million full-closure scenario, and whether its liquidity estimate remains valid.
- Compliance with the amended minimum-liquidity covenant and the implications of the new collateral, guarantor, and distribution restrictions.
- Ability to refinance or repay upcoming maturities, particularly the $1.709 billion scheduled for 2021, and the availability and cost of future financing.
- Whether additional property impairments, asset sales, or further changes to capital spending and dividends are required.