Park Hotels & Resorts Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; filed August 4, 2022. The company owns premium-branded hotels and resorts and operates as a REIT. Its portfolio comprised interests in 49 hotels with more than 30,000 rooms.
Financial performance and liquidity
| Metric | Q2 2022 | Six months ended June 30, 2022 |
|---|---|---|
| Total revenue | $695 million, versus $323 million | $1.174 billion, versus $488 million |
| Operating income (loss) | $119 million, versus $(44) million | $120 million, versus $(167) million |
| Net income (loss) attributable to stockholders | $150 million, or $0.66 per diluted share; versus $(116) million | $93 million, or $0.40 per diluted share; versus $(306) million |
| Hotel Adjusted EBITDA | $208 million, versus $42 million | $297 million, versus $6 million |
| Operating cash flow | Not separately reported for the quarter in the supplied filing text | $191 million, versus cash used of $161 million |
Q2 revenue recovery reflected higher room, food-and-beverage, and ancillary hotel revenues. Six-month reported net income and Q2 earnings included a $92 million gain from selling the company’s Hilton San Diego Bayfront joint-venture interests. Hotel Adjusted EBITDA and FFO are non-GAAP measures; they should not be treated as cash available for debt service or distributions.
Q2 pro forma RevPAR increased 71.0% year over year and remained 10.2% below Q2 2019, according to the filing. Management reported robust leisure demand and accelerating group and business-transient demand. All previously suspended hotels had reopened by May 19, 2022.
At June 30, cash and cash equivalents were $758 million and restricted cash was $109 million. Debt was $4.671 billion on the balance sheet; the company reported approximately $4.7 billion of total indebtedness and $901 million of available revolving-credit capacity. Six-month investing cash flow was $147 million, including disposition proceeds, partly offset by $52 million of capital expenditures. Financing activities used $234 million, primarily reflecting $218 million of share repurchases.
The company had $125 million of capital-expenditure commitments, including $62 million for the Bonnet Creek expansion. It reported a $418 million minimum-liquidity covenant amount at June 30. Management stated that liquidity was sufficient to meet maturities and other obligations over the next year and beyond. The company exited its credit-facility covenant waiver period after submitting its Q2 compliance certificate in July.
Material changes versus the prior comparable period
- Revenue rose substantially from 2021 as hotel demand recovered; management attributed much of the change to recovery rather than portfolio changes. Dispositions reduced reported revenue modestly.
- Hotel Adjusted EBITDA improved to $208 million for Q2 from $42 million, and to $297 million for the first half from $6 million.
- Operating cash flow improved by $352 million for the first half, which management attributed primarily to increased occupancy and operating recovery.
- Debt was broadly unchanged from year-end 2021. Interest expense declined 6.1% in Q2 and 3.9% for the first half year over year.
- The company repurchased approximately 12.0 million shares for $218 million in the first half. Its February 2022 authorization was for up to $300 million over 24 months; $82 million remained available under the authorization at June 30, subject to debt-agreement limits.
- The quarterly dividend was reinstated at $0.01 per share in March 2022, after suspension in 2020.
Outlook, risks, and unusual items
- Management expected recovery to continue through the remainder of 2022 based on then-current demand trends, but warned that a potential second-half slowdown or recession could disrupt momentum.
- Risks cited include COVID-19 resurgence or new variants and renewed travel restrictions, inflation, rising interest rates, geopolitical conflicts, and the hospitality industry’s sensitivity to demand declines. Many hotel costs are relatively fixed and may not fall quickly when revenue declines.
- Debt maturities, assuming available extensions, include $833 million in 2023, $657 million in 2025, and $1.563 billion in 2026. The company also had $83 million of lender-held restricted cash expected to be released in Q3 upon submission of compliance certificates.
- During Q2, the company sold three consolidated hotels for approximately $102 million gross proceeds and its interests in the Hilton San Diego Bayfront joint ventures for $157 million gross proceeds, including its share of joint-venture mortgage debt. It recognized an approximately $1 million loss on the hotel sales and a $92 million gain on the joint-venture sale. The Hilton Garden Inn Chicago/Oakbrook Terrace was sold in July for approximately $9 million.
- The company reserved approximately $8 million for its indemnification exposure related to litigation involving an Australian Tax Office audit of Hilton’s sale of the Hilton Sydney. It also disclosed ordinary-course litigation and stated that an unfavorable outcome could affect a particular period, though it did not expect current matters to materially affect its consolidated position, results, or liquidity.
- The filing reported no material changes to previously disclosed risk factors, no material changes in internal control over financial reporting, and effective disclosure controls and procedures.
Important facts for investors to verify
- Whether hotel demand, RevPAR, and operating cash flow continued to improve after Q2, particularly amid recession, inflation, and interest-rate risks.
- How much of reported earnings and cash generation reflects ongoing hotel operations versus asset dispositions, especially the $92 million joint-venture sale gain and disposition proceeds.
- Debt refinancing and liquidity plans for the 2023 and 2026 maturity concentrations, covenant requirements, and release of lender-restricted cash.
- Completion, cost, and funding of the $125 million capital-expenditure commitments, including the Bonnet Creek expansion.
- Remaining capacity and restrictions for share repurchases, and the sustainability of the reinstated dividend in light of REIT distribution requirements and cash needs.