Park Hotels & Resorts Inc. — FY 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018; filed February 28, 2019. The filing also reports fourth-quarter results. Park is a lodging REIT with a predominantly U.S. portfolio of branded hotels and resorts; as of February 2019 it reported 52 properties and 30,659 rooms, with more than 85% of rooms in luxury or upper-upscale hotels.
Financial performance and liquidity
| Metric | 2018 | 2017 |
|---|---|---|
| Total revenue | $2.737 billion | $2.791 billion |
| Operating income | $504 million | $371 million |
| Net income attributable to stockholders | $472 million | $2.625 billion |
| Diluted EPS | $2.31 | $12.21 |
| Hotel Adjusted EBITDA (non-GAAP) | $761 million | $758 million |
| Adjusted FFO per diluted share (non-GAAP) | $2.96 | $2.78 |
| Cash from operating activities | $444 million | $653 million |
Reported operating margin was approximately 18.4% in 2018 versus 13.3% in 2017; the increase reflected, in part, gains on asset sales. Comparable-hotel RevPAR rose 2.9%, with ADR up 2.4%. Total revenue fell 1.9%, primarily reflecting hotel dispositions and the Caribe Hilton closure, partly offset by comparable-property growth.
Fourth-quarter 2018 revenue was $686 million, operating income $97 million, net income $55 million and diluted EPS $0.27. Fourth-quarter 2017 revenue was also $686 million; operating income was $65 million and net income $61 million.
At year-end, cash and cash equivalents were $410 million plus $15 million restricted cash; Park also had $1 billion available on its revolving credit facility. Debt carrying value was $2.948 billion, excluding its share of unconsolidated affiliates’ debt. Approximately 74% of debt was fixed-rate; $780 million was LIBOR-indexed. Capital expenditures were $188 million. The filing states management believes available liquidity is adequate for anticipated operating needs and capital expenditures.
Material changes and unusual items
- Park sold 12 consolidated hotels and its interest in the Hilton Berlin joint venture during 2018. It reported $98 million of gain on consolidated hotel sales and a further $107 million gain on the Berlin investment. Disposition proceeds and insurance proceeds supported positive investing cash flow of $419 million.
- Park repurchased 14 million shares for $348 million and paid $464 million of dividends. Dividends declared were $2.74 per share, including a $0.45 special dividend funded in part by Berlin sale proceeds. A $300 million, two-year repurchase authorization was approved in February 2019; no purchases had been made under it by the filing date.
- 2017 net income and EPS were unusually high because of a $2.347 billion deferred-tax benefit associated with the company’s REIT election and related tax remeasurement. 2018 net income is therefore not directly comparable to the 2017 reported figure; 2018 included a $23 million income-tax expense.
- Operating cash flow declined $209 million year over year, mainly due to higher income-tax payments and working-capital timing. Debt carrying value was broadly stable year over year.
- The Caribe Hilton remained closed throughout 2018 following Hurricane Maria damage and was expected to reopen in 2019. Park received $119 million of insurance proceeds during 2018 and had a $25 million insurance receivable at year-end. The Hilton Chicago O’Hare ground lease expired December 31, 2018, and the city assumed ownership of the hotel.
Outlook, commentary and risks
Management gave no numerical 2019 earnings or RevPAR guidance. It said continued RevPAR growth would depend on group and transient demand and the timing of hotel renovations. Management also identified economic growth, corporate profitability, consumer confidence, employment and wage trends, new hotel supply, and online and short-term lodging booking channels as relevant drivers.
Key disclosed risks include lodging-cycle and economic sensitivity, concentrated exposure to selected U.S. markets, fixed operating costs, renovation and capital needs, dependence on Hilton brands and management, labor costs and union activity, natural disasters and insurance limits, ground-lease obligations, debt covenants and floating-rate exposure, and REIT qualification and spin-off-related tax risks. The company reported that ordinary-course litigation was not expected to have a material effect; specified claims related to hotels retained by Hilton were concluded or dismissed, with related liabilities expected to be indemnified by Hilton.
Important facts for investors to verify
- Reconcile 2018 reported earnings with gains from hotel and affiliate sales, insurance recoveries, and the prior-year tax benefit; assess recurring earnings using GAAP and non-GAAP reconciliations.
- Review the assumptions and exclusions in comparable-hotel RevPAR and Hotel Adjusted EBITDA, particularly the treatment of sold hotels and the Caribe Hilton.
- Confirm liquidity, debt maturities, covenant headroom, floating-rate exposure and the transition away from LIBOR; the filing reports $122 million of contractual debt payments due within one year, including estimated interest.
- Track the Caribe Hilton’s repair and reopening progress, remaining insurance recovery, and any related operating or capital costs.
- Assess the use of disposition proceeds, dividend sustainability, and execution of the newly authorized $300 million share-repurchase program.