Park Hotels & Resorts Inc. Q2 FY2025 earnings call

Key Points

• Second quarter results encouraged by ROI project outperformance, cost controls, and strategic initiatives. Q2 RevPAR relatively flat y-o-y excluding Royal Palm South Beach.
• Aggressive asset management strategy with total expense growth of 40 basis points for the quarter (1% excluding Royal Palm South Beach).
• Capital allocation: Sold Hyatt Centric Fisherman's Wharf, closed Embassy Suites Kansas City Plaza Hotel and 2 other noncore hotels, core portfolio represents ~90% of portfolio value with average RevPAR nearly $215 and EBITDA per key exceeding $40,000.
• Capital investments: Commenced Royal Palm South Beach renovation (expected 15%-20% return on $103M investment, EBITDA expected to double), launched final phases of room renovation projects in Hawaii, and underway with second phase of New Orleans renovation project.
• Operations: Orlando Bonnet Creek complex had record revenue, Key West Casa Marina had strong RevPAR and food and beverage performance, Puerto Rico Caribe Hilton outperformed comp set, urban portfolio had solid RevPAR growth from business travel, Hawaii showing sequential improvement but near-term headwinds.

Orlando: Bonnet Creek complex delivered record-setting revenue in Q2, RevPAR exceeded expectations with nearly 12% year-over-year increase, Waldorf Astoria Orlando RevPAR up 24% year-over-year. Key West: Casa Marina resort RevPAR nearly 4% year-over-year increase, food and beverage outlet and ancillary revenue outperformed last year by 8%. Puerto Rico: Strong leisure and business transient demand drove nearly 18% increase in RevPAR. Urban portfolio: Business travel contributed to solid RevPAR growth in New York, San Francisco, Denver and Boston. Hawaii: Combined RevPAR at 2 properties declined by approximately 12% during the quarter, but Hilton Hawaiian Village market share regaining, expected sequential recovery in near term with strong forecast for July, long-term outlook favorable with limited new supply expected through at least 2030.

Guidance

• Lowered full year RevPAR forecast by 150 basis points at midpoint to a new range of negative 2% to flat growth (excluding Royal Palm South Beach, essentially flat at midpoint).
• Increased adjusted EBITDA forecast by $2 million at midpoint to $620 million within a tightened range of $595 million to $645 million due to improved annual expense growth outlook.
• Adjusted FFO per share increases by $0.01 at midpoint to $1.95 with a range of $1.82 to $2.08 per share.

Risks

• Ongoing uncertainty around tariffs, elevated inflation and geopolitical issues weighing on travel demand during third quarter.
• Noncore asset transaction market challenging.
• Hawaii continuing to be impacted by weaker inbound travel from abroad and near-term headwinds like convention center renovation impacting group business.

Q: Looking at the guidance bridge, how does the decline in revenues offset by expense side seem aggressive and about the same-store pool difference between first and second quarter?

A: Sean M. Dell'Orto said it's not the only one asking, adjustment due to selling Fisherman's Wharf, asset management team's work producing $10M benefit, tax side appeals giving $5M benefit in Q2 and $2.5M in back half, 25% reduction in property insurance premiums giving $1M in Q2 and $5M in back half, total about $24M bottom line benefits from efforts.

Q: Unpack the comment about possible refinancing in 3Q and options being looked at?

A: Sean M. Dell'Orto said working with banks to find capital to get commitments, dealing with 2026 debt maturities, likely a mortgage secured loan against Bonnet Creek to fulfill need. Thomas Jeremiah Baltimore added it gives optionality for other strategic things and having Hawaii properties unencumbered.

Q: Feedback on assets currently being marketed and time line for further announcements?

A: Thomas Jeremiah Baltimore said it's a challenging environment, but Park has sold or disposed of 46 assets north of $3B, in active discussions with multiple hotels, confident to meet $300M to $400M asset sale range, will use proceeds to invest in core portfolio, reduce debt, and look at buybacks.

Q: Hawaii citywide front, marketing and airlift?

A: Thomas Jeremiah Baltimore said domestic airlift increased north of 20% since 2019, Japanese visitation expected to get back to 1 million range by 2027-2028, Hilton Hawaiian Village had strike but working to accelerate ramp up.

Q: Noncore airport/ground lease hotels, impact on comparable RevPAR margins or EBITDA?

A: Thomas Jeremiah Baltimore said laser focused on reshaping portfolio, got rid of 46 assets, has 3 noncore hotels to deal with, will reshape portfolio and clean up overhang, expect announcements in coming months.

Q: Hawaii demand dynamics, group commentary, labor expense growth?

A: Thomas Jeremiah Baltimore talked about Hawaii's past performance, demand patterns, Q3 and Q4 expectations. Sean M. Dell'Orto said labor costs in 4%-4.5% range, team focused on budget process and taking cost out of business through technology and other means.

Q: Royal Palm ramp-up, timing and underwriting assumptions?

A: Thomas Jeremiah Baltimore said excited about transformation, $103M investment, unlevered IRR 15%-20%, expect EBITDA to double, opening in Q2 2026 ahead of World Cup. Sean M. Dell'Orto concurred on ramp-up and EBITDA expectations.

Q: Levers for offsetting higher wage level in 2026, debt maturities and asset sales?

A: Thomas Jeremiah Baltimore said asset management team can take cost out, technology provides opportunities, confident in team's ability. Sean M. Dell'Orto said debt maturities not dependent on asset sales, Park has great banking relationships and will get it done in third quarter.

Q: Visitor spending, near-term concern, urban RevPAR and out of room spend?

A: Sean M. Dell'Orto said banquet and catering strong, outlets and ancillary fees up, urban RevPAR strong but need to look into out of room spend details.