Park Hotels & Resorts Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; filed November 2, 2023. Figures are in millions of dollars except per-share data. Park is a lodging REIT with interests in 43 hotels, excluding the two San Francisco hotels subject to the loan default and receivership described below.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $679 | $662 | $2,041 | $1,836 |
| Operating income | $85 | $92 | $67 | $212 |
| Net income (loss) attributable to stockholders | $27 | $35 | $(90) | $128 |
| Diluted EPS | $0.13 | $0.15 | $(0.42) | $0.55 |
| Hotel Adjusted EBITDA | $173 | $167 | $517 | $464 |
| Adjusted FFO attributable to stockholders | $108 | $94 | $329 | $251 |
- Q3 revenue increased about 3% year over year; nine-month revenue rose about 11%. Nine-month Hotel Adjusted EBITDA increased about 11%. Adjusted FFO and Hotel Adjusted EBITDA are non-GAAP measures.
- Q3 rooms revenue was $432, food and beverage revenue $159, and ancillary hotel revenue $66. Management cited stronger group demand and occupancy in markets including New York, Hawaii, and Seattle; ADR growth had slowed as recovery and seasonal patterns normalized.
- Nine-month operating cash flow was $377, versus $339 in 2022. Investing cash flow was a $91 outflow, including $195 of property capital expenditures; financing cash flow was a $439 outflow, including $180 of share repurchases, $132 of debt repayments, and $120 of dividends paid.
- At September 30, cash and cash equivalents were $726 and restricted cash was $60. Debt had a $4,490 carrying value ($4,512 principal); the company reported about $946 of available revolver capacity after letters of credit.
- Total assets were $9,305, total liabilities $5,365, and total equity $3,940. Interest expense was $65 for Q3 and $186 for the first nine months. The filing does not provide a clear company-wide operating margin figure.
Material changes and unusual items
- Nine-month results included a $202 impairment loss on a hotel securing the $725 San Francisco mortgage loan. The company ceased debt-service payments on that non-recourse loan in June 2023; default interest and fees accrued. The loan’s default interest rate was 7.11%, with an additional monthly late-payment administrative fee.
- After quarter-end, the loan trustee sued and a court-appointed receiver took control of Hilton San Francisco Union Square and Parc 55 San Francisco. Park reported no further economic interest in their operations. The receiver may sell the hotels through November 1, 2024; absent a sale, the filing contemplates non-judicial foreclosure by December 2, 2024. As of November 2, arrears, including interest and fees, were $26.
- Following the effective exit from the San Francisco hotels, the board declared a special dividend of $0.77 per share, approximately $162 in total, payable January 16, 2024 to holders of record December 29, 2023.
- Nine-month 2022 results included a $92 gain from selling the company’s interest in the Hilton San Diego Bayfront joint ventures; 2023 results included a $15 gain on the Miami Airport hotel sale and a $4 early lease-termination gain. The San Francisco impairment and these prior-year gains materially affect earnings comparisons.
- Park repurchased approximately 14.6 million shares for $180 during the first nine months of 2023; $150 remained under its $300 repurchase authorization at quarter-end. It declared regular dividends of $0.15 per share for each 2023 quarter through Q3.
Outlook, risks, and commitments
- Management expected positive demand momentum to continue through the remainder of 2023 and into 2024, supported by improving international travel. It gave no quantified financial guidance in the provided filing text.
- Management identified inflation, labor and operating-cost pressures, higher interest rates, potential economic slowdown or recession, geopolitical conflicts, and market-specific demand as risks. Many hotel costs are relatively fixed and may not decline quickly if demand weakens.
- Park said it had sufficient liquidity for debt maturities and other obligations over the next 12 months and beyond, while noting the San Francisco loan default and the special dividend. This assessment should be considered alongside the planned hotel exit, debt service needs, and capital spending.
- Capital expenditure commitments under third-party contracts were approximately $135, including renovation and improvement projects at Bonnet Creek, Casa Marina Key West, and Hilton Hawaiian Village. Contracts allow some cancellation, subject to costs incurred and discharge costs.
- The company reserved approximately $8 for an Australian Tax Office-related claim under Hilton spin-off indemnification arrangements. Park also disclosed ordinary-course litigation; it believed existing reserves were adequate, but outcomes cannot be predicted with certainty.
Important facts for investors to verify
- Progress and final outcome of the San Francisco loan enforcement, receivership, any hotel sale or foreclosure, and the resulting effect on earnings, cash flow, and debt.
- Funding and payment of the $0.77-per-share special dividend, and how it affects liquidity and future distributions.
- Hotel demand, occupancy, ADR, and operating-cost trends, particularly whether group demand offsets slower ADR growth and fixed-cost exposure.
- Liquidity after the hotel exit, debt maturities and refinancing needs, available revolver capacity, and committed renovation spending.
- Nature and potential exposure of the $8 Australian tax-related indemnification reserve and other disclosed litigation.