Park Hotels & Resorts Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Park owns interests in 46 hotels with more than 29,000 rooms, primarily premium-branded properties in U.S. urban and resort markets. Comparisons are with Q1 2022 unless noted.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $648 million | $479 million |
| Operating income | $80 million | $1 million |
| Net income (loss) attributable to stockholders | $33 million | $(57) million |
| Diluted earnings (loss) per share | $0.15 | $(0.24) |
| Net cash from operating activities | $104 million | $44 million |
| Net cash from (used in) investing activities | $49 million | $(21) million |
| Net cash used in financing activities | $(217) million | $(69) million |
- Revenue increased approximately 35%. Rooms revenue rose $90 million to $382 million and food and beverage revenue rose $71 million to $181 million. Management attributed underlying growth mainly to stronger occupancy and average daily rates, particularly in San Francisco, Hawaii and New York; property dispositions partly offset growth.
- Hotel Adjusted EBITDA, a non-GAAP measure, was $152 million versus $89 million. Adjusted FFO attributable to stockholders was $92 million, or $0.42 per diluted share, versus $18 million, or $0.08. These measures have limitations and are not substitutes for GAAP results or cash flow.
- Operating cash flow improved by $60 million, primarily due to higher hotel occupancy. Investing cash flow included $116 million of net asset-sale proceeds, partly offset by $65 million of capital expenditures and land acquisitions. Financing outflows included $105 million of stock repurchases, $56 million of dividends paid and $52 million of debt repayments.
- Calculated operating margin was approximately 12.3% ($80 million operating income divided by $648 million revenue), compared with approximately 0.2% in Q1 2022. Hotel Adjusted EBITDA was approximately 24% of consolidated hotel revenue, versus approximately 19%.
Balance sheet, debt and liquidity
- At March 31, 2023, cash and cash equivalents were $842 million, restricted cash was $33 million, and total debt carrying value was $4.566 billion (principal balance $4.592 billion). Total liabilities were $5.365 billion and total equity was $4.188 billion.
- Debt carrying value declined from $4.617 billion at December 31, 2022. Park fully repaid the $50 million revolver balance in February; approximately $946 million of revolver capacity remained available, including approximately $4 million of outstanding standby letters of credit. Management said cash and revolver availability provided sufficient liquidity for maturities and other obligations over the next year and beyond.
- Debt maturities include $861 million in 2023, assuming available extensions. The $725 million San Francisco mortgage loan matures in November 2023; management expected to address it by the end of Q2 2023. Park also expected to repay the $75 million W Chicago–City Center mortgage loan, due in August 2023, before maturity. Senior notes include $650 million due 2025, $725 million due 2028 and $750 million due 2029.
- Capital expenditure commitments under third-party contracts totaled approximately $168 million, including projects at Bonnet Creek ($51 million), Casa Marina Key West ($39 million) and Hilton Hawaiian Village ($30 million).
Material developments and outlook
- Park sold the 508-room Hilton Miami Airport in February for gross proceeds of $118.25 million and recognized an approximately $15 million net gain. A portion of proceeds repaid the revolver.
- In March, Park acquired adjacent land and improvements at Hilton Hawaiian Village for approximately $18 million, intending to develop an additional tower.
- Park repurchased approximately 8.8 million shares for $105 million during the quarter. A new $300 million repurchase authorization runs through February 2025; $225 million remained available at quarter-end. The share count was about 216 million at March 31, compared with about 224 million at year-end.
- Management reported continued improvement in leisure, group and business-transient demand, including at urban hotels, and expected positive momentum to continue through the rest of 2023, with international travel demand expected to improve in the second half. No numerical revenue or earnings guidance was provided.
- Management cited inflation, supply-chain disruption, higher labor and operating costs, interest-rate increases, potential economic slowdown or recession, geopolitical conflicts and banking-sector pressure as risks to demand and profitability. Hotel expenses include relatively fixed costs that may not fall quickly when demand weakens.
- As a REIT, the company generally intends to distribute substantially all REIT taxable income; it declared a $0.15-per-share dividend for March 31 record holders, payable April 17, 2023.
Contingencies and other items
- Park reserved approximately $8 million for its indemnification obligation related to litigation concerning the Australian Tax Office’s audit of Hilton following the 2015 sale of Hilton Sydney; the amount could change as the matter progresses.
- The company reported ordinary-course litigation and other claims, and stated it believes reserves are adequate and outcomes are not expected to materially affect its consolidated position, results or liquidity, though an unfavorable resolution could affect a particular period.
- Management reported no material changes to previously disclosed risk factors and concluded disclosure controls were effective as of March 31, 2023.
Important facts for investors to verify
- How Park planned to refinance, repay or otherwise address the $725 million San Francisco mortgage maturity, and whether the expected Q2 action was completed.
- Progress and funding needs for the $168 million capital program, alongside hotel demand, labor costs and inflation.
- Whether operating cash generation can sustain dividends and repurchases while managing debt maturities and planned investments.
- Updates to the Australian Tax Office-related litigation reserve and any other material claims.
- Reconciliation and timing of repurchase disclosures: the filing reports approximately $105 million and 8.8 million program shares repurchased, while the quarterly table lists 8,815,500 shares under programs and also includes employee tax-withholding share surrenders in total shares purchased.