Park Hotels & Resorts Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited results. Park is a lodging REIT with interests in 47 hotels and approximately 30,000 rooms; all previously suspended hotels had reopened by May 2022. Financial amounts below are in millions except per-share data.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $662 | $423 | $1,836 | $911 |
| Operating income (loss) | $92 | ($14) | $212 | ($181) |
| Net income (loss) attributable to stockholders | $35 | ($86) | $128 | ($392) |
| Diluted EPS | $0.15 | ($0.36) | $0.55 | ($1.66) |
| Hotel Adjusted EBITDA | $167 | $84 | $464 | $90 |
| Adjusted FFO attributable to stockholders | $94 | $5 | $251 | ($146) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $339 | ($95) |
Q3 revenue improvement reflected recovery in hotel demand, partly offset by dispositions. Q3 pro forma RevPAR increased 71.7% versus 2021 and 8.8% versus 2019; occupancy was 61.7% below 2021 and 8.8% below 2019, while ADR rose 20.9% versus 2021 and 14.6% versus 2019. The filing does not provide a clear consolidated profit margin measure; Q3 operating income was approximately 13.9% of revenue.
Cash, debt and liquidity
- At September 30, 2022, cash and cash equivalents were $971; restricted cash was $29. Total debt carrying value was $4,670, compared with $4,672 at December 31, 2021. Total liabilities were $5,467 and total assets were $9,786.
- Park reported $901 of available capacity under its revolver. Management said cash and revolver availability were sufficient to address debt maturities and other liquidity needs over the next year and beyond; no significant debt maturities were expected until Q4 2023.
- Contractual debt principal maturities, assuming available extensions, included $889 in 2023, $85 in 2024, $657 in 2025, and $1,563 in 2026. The company reported $4.7 billion of debt, including $2.1 billion of senior secured notes; it also noted approximately $170 million of its share of unconsolidated-affiliate debt, generally without recourse to Park.
- Nine-month investing cash flow was $140, including net sale proceeds, partly offset by $104 of capital expenditures. Financing cash outflow was $242, primarily reflecting $218 of common-stock repurchases.
Material changes and notable items
- Hotel recovery drove substantial increases in rooms and food-and-beverage revenue. Nine-month revenues rose to $1,836 from $911, while expenses increased to $1,637 from $1,087.
- Park sold five consolidated hotels during the first nine months for approximately $149 million gross proceeds and recognized a net gain of about $15 million. It also sold its interests in the Hilton San Diego Bayfront joint ventures for $157 million gross proceeds; after its share of mortgage debt, Park recorded a $92 million gain. Total reported sale proceeds from the five hotels and joint-venture interests were approximately $244 million net.
- In February 2022, the board authorized a $300 million repurchase program. Park repurchased approximately 12.0 million shares for $218 million during the nine months; $82 million remained under the program at quarter-end. The credit agreement separately capped permitted repurchases at $250 million.
- Quarterly dividends were reinstated in March 2022 at $0.01 per share and declared for each of the first three quarters.
- Park exited the credit-facility covenant waiver period in July 2022 after demonstrating covenant compliance, earlier than scheduled. Certain restrictions ended and borrowing margins decreased.
Outlook, risks and contingencies
- Management expected continued recovery through the remainder of 2022, based on then-current demand trends, with improvement in leisure, group and business-transient demand. The filing does not give numerical full-year guidance.
- Management cautioned that COVID-19 uncertainty, inflation, higher interest rates, a possible economic slowdown or recession, and geopolitical conflicts could disrupt demand and hotel earnings. Many hotel costs are relatively fixed, so declining revenue could disproportionately affect cash flow and profit.
- Capital-expenditure commitments were approximately $121 million, including $47 million for the Bonnet Creek expansion. Contracts allow cancellation of some or all work, subject to costs incurred and contract-discharge costs.
- Hurricanes Ian and Fiona caused minimal reported damage in Florida and Puerto Rico. Park recorded approximately $2 million of losses; repairs were not expected to be significant, but costs and business interruption remained under assessment.
- Park reserved approximately $8 million for its indemnification exposure related to litigation concerning an Australian Tax Office audit of Hilton’s sale of the Hilton Sydney. The amount could change as the litigation progresses. The company also faces ordinary-course claims and other spin-off-related litigation; it said it believed reserves were adequate and outcomes were not expected to materially affect its overall financial position, results or liquidity.
- In October 2022, a joint venture sold DoubleTree Hotel Las Vegas Airport for approximately $22 million gross proceeds; Park’s pro-rata share was approximately $11 million.
Most important facts for investors to verify
- Whether hotel demand, occupancy and RevPAR recovery continued after Q3, particularly if economic conditions weakened.
- Current unrestricted cash, revolver availability, covenant compliance and refinancing plans for the 2023–2026 debt maturities.
- Whether capital spending, including Bonnet Creek, remains within commitments and whether projects can be delayed or cancelled economically.
- Subsequent share repurchases and dividends, and the remaining authorization and debt-agreement limits.
- Final hurricane-related costs and developments in the Australian tax litigation and other contingencies.