Business Context and Reporting Period
Park Hotels & Resorts Inc. owns premium-branded hotels and resorts and is a REIT. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2020. The portfolio comprised interests in 60 hotels with 33,228 rooms. COVID-19 sharply curtailed travel and hotel demand; as of November 6, 41 of 53 consolidated hotels were open and 12 were suspended, while all seven unconsolidated hotels were open.
Financial Results and Key Metrics
Amounts are in millions except per-share data. Results were severely affected by the pandemic and are not directly comparable with 2019.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $98 | $672 | $739 | $2,034 |
| Net income (loss) attributable to stockholders | $(276) | $5 | $(1,223) | $183 |
| Diluted EPS | $(1.17) | $0.02 | $(5.19) | $0.90 |
| Hotel Adjusted EBITDA | $(76) | $183 | $(93) | $573 |
| Operating cash flow | Not stated by quarter | Not stated by quarter | $(274) | $349 |
Q3 pro forma occupancy was 19.1%, down 65.6 percentage points year over year; ADR fell 38.3% and RevPAR fell 86.1%. For the nine months, the company reported $1,226 of net loss, including $607 of goodwill impairment and $90 of property impairment. Nine-month interest expense was $149, versus $98 in 2019. Nine-month investing cash flow was $136, including $207 of net hotel-sale proceeds and $70 of capital expenditures; financing cash flow was $921.
At September 30, cash and cash equivalents were $1,134 and restricted cash was $35. Balance-sheet debt, net of financing costs and discount, was $5,121; debt principal was $5,157. Total assets were $10,853 and total equity was $5,055. The company estimated more than two and a half years of liquidity at its Q3 average monthly burn rate of $50, subject to stated assumptions and excluding required debt repayments, capital expenditures, future dividends and potential financing or asset-sale proceeds.
Material Changes Versus Prior Comparable Period
- Q3 revenue declined $574, or approximately 85%, from 2019; nine-month revenue declined $1,295, or approximately 64%.
- Hotel Adjusted EBITDA swung from positive $183 to negative $76 in Q3 and from positive $573 to negative $93 for the nine-month period.
- Operating cash flow declined by $623 for the nine months, reflecting lower hotel cash generation and increased cash interest payments.
- Debt increased from $3,871 at December 31, 2019 to $5,121 net carrying value at September 30, 2020, principally following liquidity borrowings and new secured-note issuance.
- The company sold two hotels/interests in the first nine months of 2020 for $208 of gross proceeds and recognized a $64 net gain. It had recognized $20 of gains on five hotel sales in the comparable 2019 period.
Outlook, Liquidity, Risks and Unusual Items
- Management expected COVID-19 to continue adversely affecting results through the remainder of 2020 and at least early 2021. It did not expect material improvement until medical advances support traveler confidence and restrictions ease. No quantified earnings or revenue guidance was provided.
- The company suspended its dividend after paying $0.45 per share for Q1 2020. Credit amendments permit a dividend of up to $0.01 per share per quarter during the covenant-waiver period, but the company stated its dividend remained suspended pending the board’s year-end decision.
- It issued $650 of 7.50% senior secured notes due 2025 and $725 of 5.875% senior secured notes due 2028. Proceeds helped repay the 2016 Term Loan and reduce Revolver borrowings. Revolver commitments increased to $1,075; $601 was drawn at quarter-end.
- Financial covenant testing under amended credit facilities was waived through delivery of financial statements for the quarter ended March 31, 2022. Amendments also extended certain Revolver maturities, raised minimum liquidity requirements (to $287 at September 30, 2020), and imposed additional restrictions.
- A $12 mortgage loan secured by Doubletree Spokane was not repaid at its October 2020 maturity, constituting an event of default; the company was negotiating a one-year extension and said it had not received, and did not expect, a foreclosure notice.
- Other key risks include renewed hotel closures, weak group and business travel, fixed hotel costs, reduced access to financing, increased leverage, further impairment charges and uncertainty around the timing of recovery. The company had $23 of capital-expenditure contract commitments and reserved approximately $7 for an ongoing Australian Tax Office-related indemnification claim.
Investor Verification Priorities
- Confirm subsequent hotel reopening, occupancy, ADR and RevPAR trends, and whether renewed restrictions caused further closures.
- Track cash burn, liquidity runway assumptions, debt maturities, Revolver availability and compliance with amended liquidity and covenant terms.
- Monitor the Spokane mortgage extension/default resolution and any other debt amendments or refinancing needs.
- Assess the likelihood of further asset impairments, the timing of deferred capital spending, and whether the dividend or share-repurchase program resumes.
- Review the eventual outcome and reserve adequacy for the Australian tax indemnification claim and other litigation.