Park Hotels & Resorts Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Park owns interests in 59 hotels with more than 33,000 rooms; it is a REIT. Financial amounts below are in millions except per-share data and operating metrics.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $165 | $599 |
| Operating loss | $(123) | $(637) |
| Net loss attributable to stockholders | $(190) | $(688) |
| Loss per diluted share | $(0.81) | $(2.89) |
| Hotel Adjusted EBITDA | $(36) | $91 |
| Nareit FFO attributable to stockholders | $(115) | $21 |
| Adjusted FFO attributable to stockholders | $(113) | $57 |
| Net cash used in operating activities | $(71) | $(13) |
Revenue fell about 72% year over year, driven chiefly by pandemic-related declines in hotel activity; dispositions accounted for only a small part of the decline. Q1 2021 rooms revenue was $106, versus $362 a year earlier. Interest expense rose to $63 from $40, reflecting pandemic-era borrowings and bond issuances, partly offset by repayment of a prior term loan.
For Q1 2021, pro forma occupancy was 26.4%; compared with Q1 2019, occupancy was down 35.3 percentage points, ADR down 29.9%, and RevPAR down 70.0%. These operating comparisons use a 2019 baseline and are distinct from the GAAP year-over-year financial comparisons above.
Balance sheet and liquidity
- At March 31, 2021, cash and cash equivalents were $868; restricted cash was $32. Cash and restricted cash totaled $900, down $81 during the quarter.
- Debt was $5.121 billion on the balance sheet; principal outstanding was approximately $5.155 billion before unamortized financing costs and discounts. Debt was essentially unchanged from year-end 2020.
- Total assets were $10.434 billion and total equity was $4.653 billion. Stockholders’ equity declined from $4.893 billion at year-end, primarily reflecting the quarterly loss.
- Management reported a March monthly cash burn rate of $26 million and estimated more than 50 months of liquidity absent debt repayments. The estimate excludes planned capital expenditures and other potential cash uses, and does not include available debt-facility capacity.
- Capital expenditures were $5 in Q1. Approximately $52 of hotel capital expenditure commitments remained outstanding; contracts permit cancellation subject to costs incurred and discharge costs.
Changes, outlook, and risks
- COVID-19 continued to suppress travel demand, group business, occupancy, ADR, RevPAR, and cash flow. By May 7, 45 consolidated hotels were open and seven remained suspended; the company expected to reopen the remaining hotels over the next couple of quarters, subject to restrictions and demand.
- Management saw improving leisure sentiment alongside vaccine distribution, stimulus, and pent-up demand, and said accelerated growth could begin in the second half of 2021. It expected results to remain adversely affected through at least the first half, but emphasized that the remainder-of-year outlook was highly uncertain. No quantified earnings or revenue guidance was provided.
- The prior-year comparison includes $694 of net impairment loss and casualty gain expense, including $607 of goodwill impairment and $88 of hotel impairment, as well as a $62 gain on asset sales. These unusual items substantially affected Q1 2020 reported results; their absence helps explain the smaller GAAP loss in 2021 despite continuing operating weakness.
- The quarterly dividend remained suspended after the first-quarter 2020 payment. Credit-facility amendments restrict dividends and distributions, subject to stated exceptions, including a limited permitted dividend.
- Park ceased debt-service payments in January 2021 on the $75 mortgage loan secured by W Chicago City Center; nonpayment constitutes an event of default, and negotiations with the lender were not assured to succeed. A joint-venture loan secured by Doubletree Spokane was under forbearance through October 6, 2021; default-rate interest of 6.55% was to accrue beginning April 2021.
- Debt maturities included $115 in 2021, of which $96 related to the Revolver and could effectively be extended using undrawn commitments, and $1.332 billion in 2023. The company said it had liquidity to meet 2021 maturities and short-term obligations.
- Other matters include an approximately $8 reserve for Hilton-related Australian Tax Office litigation and an approximately $11 payment to Hilton in February 2021 toward a required deposit and expenses. Management said litigation outcomes cannot be predicted with certainty. The company also faces risks from renewed restrictions, variants, vaccine effectiveness and uptake, demand recovery, fixed hotel costs, and access to capital.
- Subsequent to quarter-end, Park sold the 97-room W New Orleans – French Quarter in April for approximately $24 gross proceeds.
Most important facts for investors to verify
- Whether hotel reopenings and the recovery in occupancy, ADR, and RevPAR progressed as management expected, and whether demand improved beyond leisure travel.
- Cash burn and usable liquidity relative to the stated 50-plus-month estimate, including the estimate’s exclusions and debt-facility availability.
- Status and potential consequences of the W Chicago City Center payment default and Doubletree Spokane forbearance.
- Upcoming debt maturities, covenant and dividend restrictions, and any refinancing or additional capital needs.
- Whether the reported improvement in GAAP net loss is viewed in context of the prior-year impairment and asset-sale items and continued negative Hotel Adjusted EBITDA and FFO.