Park Hotels & Resorts Inc. — FY 2020 Form 10-K
Reporting period: Year ended December 31, 2020; filed February 26, 2021. This is an annual filing, not a standalone fourth-quarter report. Park is a lodging REIT whose portfolio, as of February 26, 2021, comprised 60 hotels and resorts with 33,228 rooms, primarily in the U.S. and its territories.
Financial performance and key metrics
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Total revenue | $852 million | $2.844 billion |
| Operating income (loss) | $(1.202) billion | $426 million |
| Net income (loss) attributable to stockholders | $(1.440) billion | $306 million |
| Diluted earnings (loss) per share | $(6.11) | $1.44 |
| Hotel Adjusted EBITDA | $(147) million | $802 million |
| Net cash from (used in) operating activities | $(438) million | $499 million |
- Revenue declined approximately 70% year over year. Rooms revenue fell to $526 million from $1.764 billion; food and beverage revenue was $189 million versus $743 million.
- Operating results included $607 million of goodwill impairment and $90 million of impairment losses on other assets, primarily related to a hotel. The company reported a $62 million net gain on asset sales.
- Cash and cash equivalents were $951 million at year-end, with $30 million of restricted cash. Debt was $5.121 billion, up from $3.871 billion. Management reported a 4.6% weighted-average interest rate and approximately 79% fixed-rate debt.
- Capital expenditures were $86 million, down from $240 million. Investing activities provided $119 million, principally from hotel-sale proceeds.
- Fourth-quarter pro forma RevPAR fell 84.5% year over year; ADR declined 38.8%, occupancy declined 60.4 percentage points, and occupancy was 20.4%.
Material changes versus the prior period
- COVID-19 drove sharp reductions in travel demand, hotel operations and cash generation. In March 2020, Park temporarily suspended operations at 38 of its 60 hotels; by February 26, 2021, 10 consolidated hotels remained suspended.
- Park raised liquidity through a $1 billion Revolver draw in March, $650 million of 7.5% senior secured notes due 2025, and $725 million of 5.875% senior secured notes due 2028. It repaid the 2016 Term Loan in full and partially repaid the Revolver.
- Operating cash flow swung from $499 million provided in 2019 to $438 million used in 2020. Interest expense rose to $213 million from $140 million.
- Park sold two consolidated hotels and its interest in Hilton São Paulo Morumbi in 2020, generating $207 million net investing proceeds. It permanently closed its three commercial laundry facilities.
- The company repurchased 4.6 million shares for $66 million. Its quarterly dividend was suspended after the first-quarter 2020 payment of $0.45 per share.
Outlook, risks and unusual items
- Management expected COVID-19 to continue adversely affecting results through at least the first half of 2021, while stating that the duration and overall financial impact could not be reliably estimated. It expected to reopen the remaining 10 suspended hotels by the end of the second quarter of 2021, subject to restrictions and demand.
- Management estimated 33 months of liquidity based on an average monthly burn rate of $42 million. This estimate excluded planned capital expenditures, future dividends, debt repayments, potential property sales and new financing; it is not a guarantee of available liquidity.
- 2021 capital expenditures were budgeted at approximately $40 million. Park said it had sufficient liquidity for 2021 debt maturities and short-term obligations, but could pursue additional financing if needed.
- Debt amendments extended covenant-testing waivers and imposed restrictions, including on dividends and share repurchases. The company also disclosed it stopped making debt-service payments in January 2021 on a $76 million mortgage secured by W Chicago City Center; a lender agreement was not assured. A joint venture received forbearance through October 2021 on a $12 million loan secured by DoubleTree Spokane.
- Other significant risks include uncertain hotel recovery and impairment exposure, fixed operating costs, concentrated exposure to key markets, reliance on hotel managers and Hilton brands, debt and refinancing risk, and REIT qualification and spin-off-related tax or indemnity liabilities. Park reserved approximately $19 million for ongoing claims related to an Australian tax audit and its spin-off indemnity obligations.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting; management also reported effective controls as of year-end.
Important facts for investors to verify
- Current hotel reopening status, occupancy, ADR and RevPAR trends, particularly group and business-travel demand.
- Cash burn, unrestricted liquidity, covenant compliance and the timing and terms of debt maturities, including the W Chicago City Center mortgage situation.
- Whether asset values stabilize or further impairment charges arise, given the scale and sensitivity of the 2020 impairments.
- When dividends may resume and how debt covenants and REIT distribution requirements affect that decision.
- Progress on deferred capital spending and the potential effect of underinvestment on hotel competitiveness and value.