Park Hotels & Resorts Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited results; dollar amounts in millions except per-share data and operating metrics.
Business context
Park is a lodging REIT with interests in 53 premium-branded hotels and resorts, approximately 32,000 rooms, primarily in U.S. urban and resort markets. All hotels had reopened except the 1,024-room Parc 55 San Francisco, scheduled to reopen May 19, 2022.
Financial and operating results
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $479 | $165 |
| Operating income (loss) | $1 | $(123) |
| Net loss attributable to stockholders | $(57) | $(190) |
| Loss per diluted share | $(0.24) | $(0.81) |
| Hotel Adjusted EBITDA | $89 | $(36) |
| Nareit FFO attributable to stockholders | $13 | $(115) |
| Adjusted FFO attributable to stockholders | $18 | $(113) |
| Net cash from (used in) operating activities | $44 | $(71) |
| Capital expenditures | $21 | $5 |
Revenue growth largely reflected reopened hotels and recovering demand; five consolidated hotels had been disposed of since January 1, 2021, slightly reducing year-over-year revenue. Rooms revenue was $292 versus $106; food and beverage revenue was $110 versus $22. Hotel Adjusted EBITDA improved to $89, while the company still reported a GAAP net loss. Operating margin was approximately 0.2% ($1 operating income on $479 revenue).
Q1 pro forma RevPAR increased 181.7% year over year but remained 32.8% below Q1 2019. Pro forma occupancy was 51.9%; ADR was up 44.2% year over year and 0.1% versus 2019. March occupancy reached 62.9%.
Balance sheet, liquidity and capital
- At March 31, 2022, cash and cash equivalents were $639; restricted cash was $78. Combined cash and restricted cash totaled $717, down $46 from year-end.
- Debt was $4.671 billion, approximately unchanged from year-end; total liabilities were $5.418 billion. The debt balance included $2.125 billion of senior secured notes. Debt fair values varied from carrying values.
- The revolving credit facility had $901 million available and no balance outstanding. Management said cash and revolver availability were sufficient for maturities and liquidity needs over the next year and beyond.
- Only about 1% of outstanding debt was scheduled to mature in 2022. Contractual maturities, assuming available extensions, include $833 million in 2023, $1.562 billion in 2026 and $1.505 billion thereafter.
- February 2022 credit amendments extended certain financial covenant testing waivers and the $200 million minimum liquidity covenant through March 2023. Share repurchases increase the applicable minimum liquidity requirement dollar for dollar; it was $261 million at quarter-end.
- The company repurchased approximately 3.4 million shares for $61 million in Q1. The board authorized a $300 million program through February 2024; debt agreements then limited repurchases to $250 million, with $239 million remaining under the program at quarter-end.
- A $0.01-per-share dividend was declared for payment April 15, 2022, following reinstatement of the quarterly dividend.
Outlook, risks and notable items
- Management reported recovery beginning in March after Omicron-related weakness early in the quarter. It expected leisure demand to remain strong and group demand to accelerate during the rest of 2022; no quantified financial guidance was provided.
- COVID-19, variants, travel restrictions and the pace of business and group travel recovery remained material uncertainties. Management cautioned that operating results could continue to fluctuate and stated it could not predict the extent or duration of pandemic effects.
- Inflation and geopolitical conflicts were identified among macroeconomic factors relevant to forward-looking statements. The company also cited exposure to interest-rate changes.
- Capital expenditure commitments were approximately $118 million, including $70 million for the Bonnet Creek expansion; contracts allow some or all work to be cancelled, subject to incurred and discharge costs.
- The company reserved approximately $8 million for litigation related to an Australian Tax Office audit of Hilton concerning the 2015 sale of Hilton Sydney; the amount may change as litigation proceeds. It reported ordinary-course litigation and said it believed reserves were adequate, while noting an unfavorable outcome could affect a particular period.
- In April 2022, the company sold the 131-room Hampton Inn & Suites Memphis–Shady Grove for gross proceeds of $11.5 million.
Most important facts for investors to verify
- Whether the improvement in hotel demand and Hotel Adjusted EBITDA continued beyond Q1, particularly in group, business-transient and San Francisco markets.
- Compliance with amended covenant and minimum-liquidity requirements, including the impact of further repurchases or distributions.
- Debt refinancing and repayment plans for the $833 million scheduled in 2023 and $1.562 billion in 2026, and the terms of any mortgage extensions.
- Actual project costs, timing and cancellation exposure for the $118 million of capital commitments.
- Developments in the Hilton Sydney tax litigation and whether the approximately $8 million reserve remains adequate.