Park Hotels & Resorts Inc. — Q1 2018 10-Q
Reporting period: Three months ended March 31, 2018; unaudited. The company owns premium-branded hotels and resorts and expects to qualify as a REIT. Unless noted otherwise, dollar amounts are in millions.
Financial performance and liquidity
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Total revenue | $668 | $684 |
| Operating income | $174 | $94 |
| Net income attributable to stockholders | $150 | $2,350 |
| Diluted EPS | $0.71 | $11.01 |
| Hotel Adjusted EBITDA | $174 | $180 |
| Adjusted FFO attributable to stockholders | $137 | $138 |
| Cash provided by operating activities | $43 | $141 |
- Revenue declined 2.3%. Comparable-hotel RevPAR increased 1.1% to $165.57; occupancy was 78.5%, unchanged, and ADR rose to $210.83 from $208.64. Comparable Hotel Adjusted EBITDA was flat at $159.
- Operating income included an $89 gain on hotel sales. Q1 2018 net income also included a $5 tax benefit. The much higher Q1 2017 net income reflected a $2,288 tax benefit from derecognizing deferred tax liabilities following the company’s intended REIT election. Adjusted FFO was nearly unchanged year over year.
- Cash from operations was $43, with management attributing the decline primarily to working-capital timing. Investing activities provided $325, including approximately $360 of net hotel-sale proceeds; capital expenditures were $53. Financing activities used $468, including $348 for share repurchases and $119 in dividends paid.
- At March 31, cash and cash equivalents were $172 and restricted cash was $108. Total debt was approximately $2,957 principal ($2,946 carrying value); the $1 billion revolving facility was undrawn. Debt maturities were concentrated in 2021 ($750) and thereafter ($2,162), assuming available extensions.
- Total assets were $9,336 and total equity was $5,715. The quarterly dividend declared was $0.43 per share.
Material changes and management commentary
- The company sold 12 hotels for gross proceeds of $379 and recorded an $89 net gain, including a $31 currency-translation reclassification. It repurchased and retired 14 million shares at $24.85 each for approximately $348; HNA’s remaining shares were sold, ending its ownership.
- Reported hotel revenue and expenses were affected by the sales and by the Caribe Hilton’s hurricane-related closure. Management said the Caribe Hilton was expected to remain closed for most of 2018. Comparable results excluded the Caribe Hilton and Hilton Waikoloa Village, among other exclusions.
- Comparable domestic RevPAR increased 0.9%; international comparable RevPAR rose 8.7% on a currency-neutral basis. Washington, D.C. RevPAR fell 13.0%, mainly reflecting weaker transient demand versus the 2017 inauguration period; Southern California RevPAR declined 6.7%, partly due to renovation displacement.
- Management stated that existing cash and operating cash flow should meet anticipated operating and capital needs for the foreseeable future. No quantified full-year operating guidance is provided in the supplied filing text.
Outlook, risks, contingencies, and unusual items
- In April 2018, the company and joint-venture partners agreed to sell their interests in the entities owning Hilton Berlin for a gross price of approximately €297 million (about $367 million). Park expected net proceeds of approximately $140 million, subject to customary adjustments. After closing, it expected to declare an $80–$90 million special dividend, subject to Board approval.
- For hurricane damage, the company recognized an additional $22 loss and $29 insurance receivable in Q1; the insurance receivable was $67 at March 31. It received $18 in insurance proceeds during the quarter. No business-interruption insurance amounts had been recognized, and final loss and recovery amounts could change.
- The company had approximately $66 of capital-expenditure contract commitments, generally cancellable subject to incurred costs and termination costs. It reported ordinary-course litigation and an English claim alleging damages exceeding £600 million, as well as a related lease-condition suit seeking £113 million plus costs. The company expects Hilton indemnification under the Distribution Agreement for liabilities related to the retained assets; it reported no costs or losses to date. Management said litigation outcomes cannot be predicted with certainty.
- The company was still assessing certain tax effects of the 2017 Tax Cuts and Jobs Act. It cited REIT qualification requirements, including asset, income, distribution, and ownership tests. Interest-rate and foreign-exchange movements remain market risks; pound exposure declined after the UK hotel sales.
- Management reported effective disclosure controls as of March 31, 2018. During the quarter, it completed implementation of a new accounting/reporting system and a third-party payroll solution as part of its transition from Hilton services.
Important facts for investors to verify
- Whether the Hilton Berlin sale closed, the final net proceeds, and whether the proposed special dividend was approved and paid.
- Comparable-hotel operating trends, especially group and transient demand, renovation effects, and the excluded properties’ performance.
- Caribe Hilton reopening timing, remaining repair costs, and collection and recognition of property-damage and business-interruption insurance.
- Cash generation and working-capital trends, capital spending, debt maturities and terms, and the capacity to maintain dividends while meeting REIT distribution requirements.
- Final tax accounting under the Tax Cuts and Jobs Act and continuing REIT qualification, along with the status and indemnification coverage of the disclosed litigation.