Park Hotels & Resorts Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unaudited; amounts in U.S. dollars. Park is a lodging REIT with premium-branded hotels and resorts. As of November 4, it reported interests in 54 hotels; two consolidated hotels remained suspended.
Financial results and operating trends
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $423 million | $98 million | $911 million | $739 million |
| Operating loss | $14 million | $206 million | $181 million | $1.043 billion |
| Net loss attributable to stockholders | $86 million | $276 million | $392 million | $1.223 billion |
| Loss per diluted share | $0.36 | $1.17 | $1.66 | $5.19 |
| Hotel Adjusted EBITDA | $84 million | $(76) million | $90 million | $(93) million |
| Interest expense | $66 million | $59 million | $195 million | $149 million |
Q3 2021 revenue growth chiefly reflected hotel reopenings and stronger leisure demand. Pro forma Q3 ADR rose 50.0% and RevPAR 301.6% year over year, while occupancy increased 32.2 percentage points. Compared with Q3 2019, ADR was down 7.0%, occupancy down 33.0 percentage points, and RevPAR down 43.4%. These are management’s pro forma operating comparisons, not reported GAAP margins.
For the first nine months, net cash used in operating activities was $95 million, versus $274 million used in 2020. Investing activities provided $425 million, including $454 million of net hotel-sale proceeds, while capital expenditures were $28 million. Financing activities used $469 million, mainly reflecting debt repayments. Cash and cash equivalents were $772 million, plus $70 million restricted cash, at September 30.
Balance sheet, debt and liquidity
- Debt carrying value was $4.670 billion at September 30, down from $5.121 billion at year-end 2020. Total debt principal was approximately $4.708 billion; the filing also reports approximately $225 million of Park’s share of unconsolidated-affiliate debt, generally without recourse to Park.
- Park issued $750 million of 4.875% senior secured notes due 2029 in May. Proceeds, together with hotel-sale proceeds, were used to repay the revolving credit facility and reduce the 2019 Term Facility. The Revolver had no outstanding balance at quarter-end.
- Management said cash, revolver availability and other liquidity were sufficient for near-term maturities and short-term obligations, and that it was maintaining elevated cash amid COVID-19 uncertainty. The filing does not state a single total liquidity figure.
- Scheduled debt maturities, assuming available extensions, include $829 million in 2023 and $657 million in 2025; $3.037 billion is due thereafter.
- Quarter-end stockholders’ equity was $4.515 billion; accumulated deficit was $16 million. No dividend had been paid since the first quarter of 2020.
Material changes and unusual items
- Park sold five hotels during the first nine months of 2021 for approximately $477 million gross proceeds and recorded a net $5 million loss on sales. The sales reduced the property portfolio and helped fund debt repayment.
- Q3 and nine-month 2021 net losses improved substantially year over year. Comparability is affected by 2020’s $607 million goodwill impairment, other hotel impairment charges, and unusually severe pandemic disruption; 2020 also included a $62 million net gain on asset sales for the nine-month period.
- Interest expense increased 11.9% in Q3 and 30.9% for the first nine months, reflecting the 2020–2021 senior-note issuances, partly offset by repayment of term and revolving debt.
- Park stopped making debt-service payments on the $75 million mortgage loan secured by W Chicago City Center in January 2021 and received an event-of-default notice. The stated rate is 4.25%; the default rate is 8.25%. Management hoped to negotiate an amendment but could not assure an agreement.
- Outstanding third-party capital-expenditure commitments were approximately $116 million, including $78 million for the Bonnet Creek expansion. The contracts allow some cancellation, subject to costs incurred and discharge costs.
- Park reserved approximately $8 million for an indemnification matter concerning the Australian Tax Office’s audit related to Hilton’s sale of the Hilton Sydney. In February 2021, Park paid Hilton approximately $11 million toward a tax deposit and expenses; the amount may change as the matter progresses.
Outlook, commentary and risks
Management expected a broader recovery to resume in the latter half of Q4 2021 and continue into 2022, supported by leisure demand and improving group bookings. It also noted seasonal leisure weakness, a delayed business-travel recovery and concerns about the Delta variant. As of November 4, 46 consolidated hotels were open and two suspended. Management cautioned that demand and results remained difficult to predict, further revenue or earnings declines could occur, and cost savings would not fully or materially offset pandemic-related revenue losses.
Key uncertainties include COVID-19 resurgences and variants, vaccination and treatment effectiveness and adoption, travel restrictions or renewed closures, and the pace of business and group travel recovery. Hotels have significant fixed costs, which can amplify the effect of lower revenue on cash flow and margins. Other relevant exposures include debt maturities, interest-rate risk, financing and refinancing conditions, capital needs, and litigation. Management reported no material change in previously disclosed risk factors and said disclosure controls were effective as of September 30.
Investor verification checklist
- Track hotel occupancy, ADR and RevPAR against both 2019 levels and management’s recovery expectations, including group and business-travel trends.
- Verify liquidity and revolver availability, covenant and dividend restrictions, upcoming maturities, and progress on the W Chicago City Center default and lender negotiations.
- Assess the sustainability of positive Hotel Adjusted EBITDA and operating cash flow, while accounting for interest, capital spending and the limits of non-GAAP measures.
- Monitor hotel-sale proceeds and portfolio changes, the Bonnet Creek project commitment, and the Australian tax indemnification exposure.
- Confirm the timing and conditions for resuming dividends and reopening the two suspended consolidated hotels.