Park Hotels & Resorts - Q2 2024

Transcript

Operator (participant)

Greetings and welcome to Park Hotels & Resorts Incorporated's second quarter 2024 earnings conference call. At this time, all participants are on a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press "star" on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ian Weissman. Thank you. You may begin.

Ian Weissman (SVP of Corporate Strategy)

Thank you, Operator, and welcome everyone to the Park Hotels & Resorts second quarter 2024 earnings call. Before we begin, I would like to remind everyone that many of the comments made today are considered forward-looking statements under federal securities laws. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed, and we are not obligated to publicly update or revise those forward-looking statements. Actual future performance outcomes and results may differ materially from those expressed in forward-looking statements. Please refer to the documents filed by Park with the SEC, specifically those most recent reports on Forms 10-K and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements.

In addition, on today's call, we will discuss certain non-GAAP financial information such as FFO and adjusted EBITDA. You can find this information together with reconciliations to the most direct comparable GAAP financial measure in yesterday's earnings release, as well as on our 8-K filed with the SEC and the supplemental financial information available on our website at pkhotelsandresorts.com. Additionally, unless otherwise stated, all operating results will be presented on a comparable hotel basis. This morning, Tom Baltimore, our Chairman and Chief Executive Officer, will provide a review of Park's second quarter performance and update you on our 2024 outlook. Sean Dell'Orto, our Chief Financial Officer, will provide additional color on second quarter results, full-year guidance, and update on our balance sheet. Following our prepared remarks, we will open the call for questions. With that, I would like to turn the call over to Tom.

Tom Baltimore (Chairman, President, and CEO)

Thank you, Ian, and welcome everyone. It was another very productive quarter for Park as we continue to improve our balance sheet, execute our capital allocation strategies, achieve solid RevPAR results, and benefit from stronger-than-expected gains from our recently completed value-enhancing ROI projects. We have made considerable progress over the past two years repositioning our balance sheet, with further progress made during the second quarter as we extended our debt maturities by refinancing our $650 million of senior notes that were due in June 2025, leaving no material maturities to address until Q4 2026, and continue to make progress with our efforts to dispose of non-core assets with the recent JV sale of Hilton Torrey Pines. Including the two San Francisco hotels in receivership, we have now sold or disposed of 43 hotels for nearly $3 billion since the spin.

In terms of capital allocation, we repurchased nearly 1.7 million shares of our common stock for $25 million at a significant discount to net asset value. Operationally, results continue to be driven by solid leisure performance in Key West, Orlando, and Miami, coupled with improving group and business transient demand trends in core urban markets, including New York and Boston. In Key West, our Casa Marina Resort reported stronger-than-expected results following our $80 million comprehensive upgrade, which was substantially completed last December. RevPAR at the hotel increased by nearly 215% over the same period last year and achieved the highest food and beverage revenue quarter on record, with several groups adding or expanding events throughout the second quarter.

Performance at Casa since the completion of the renovation has been extraordinary and has exceeded our initial underwriting, with the hotel on track to generate hotel-adjusted EBITDA in excess of $31 million in 2024, or 35% above the 2019 peak. At The Reach, results materially beat expectations, with the hotel reporting RevPAR growth of approximately 7% during the quarter, driven by a 520 basis point increase in occupancy at rates that remain 56% above 2019. In Orlando, our Bonnet Creek Complex continued to benefit from the completion of our $220 million transformative renovation and expansion, which wrapped up in February, with the Waldorf Astoria reporting RevPAR growth of 11% during the quarter, driven by a 13% increase in rate, while room revenue gains were compounded by improved ancillary capture with outlets, spa, and golf, increasing 31% year-over-year.

At the Signia Bonnet Creek, RevPAR growth was 9% during the quarter, driven by solid group performance, with the hotel capitalizing on the addition of the 35,000-sq-ft waterside ballroom, adding nearly $2 million of incremental revenues over the same period last year. Looking ahead, 2024 group revenue at the Bonnet Creek Complex is pacing up nearly 18% over the back half of the year, while 2025 group revenue pace is up over 23%. We also witnessed solid group and leisure demand trends in Miami, with our Royal Palm reporting RevPAR growth of nearly 6% for the quarter, evenly split between rate and occupancy gains, and the hotel significantly outperformed its comp set during the quarter.

In Boston, the Hyatt Regency reported RevPAR growth of approximately 15% for the quarter, with the hotel benefiting from a significant increase in citywide events during the quarter, translating into 28 compression days, over three times the number of compression days during the same period last year. Overall, group room nights at the Hyatt Regency increased by over 15%, with rates up approximately 8%, while food and beverage revenue increased nearly 22% during the quarter, with strong group and leisure spend. We forecast the hotel to deliver double-digit RevPAR gains over the balance of the year, driven by ongoing improvements in occupancy, which is pacing 10 percentage points below 2019. In New York, solid group trends helped to drive RevPAR growth of 4% for the quarter, with group room nights up 7.5% and rate increases of approximately 7% during the quarter.

In addition to solid group production, the hotel also witnessed better-than-expected food and beverage revenues, increasing almost 29% over the prior year period, as several groups had materially higher spend than anticipated. Turning to Hawaii, which faced challenging year-over-year comparisons, RevPAR at our two hotels decreased by approximately 5.5% during the quarter, as occupancy fell by 620 basis points to approximately 87%, although just 240 basis points below 2019, while average daily rates increased year-over-year by approximately 1%. Overall, year-over-year group revenues increased by an impressive 77% during the quarter at Hilton Hawaiian Village, driven by a strong citywide calendar. However, transient revenues decreased by 14%, resulting in a 4% year-over-year decrease in RevPAR during the quarter at Hilton Hawaiian Village. As expected, U.S.

arrivals were down 2% during the quarter; however, inbound travel from Japan grew but at a slower rate than we had expected, due in large part to continued weakness in the Japanese yen, which hit a 37-year low in early July. We are very encouraged, however, by the yen's recent rally and the Bank of Japan's expected plan to adopt a tighter monetary policy, which we expect will provide additional support to inbound travel over the next year. Overall, Oahu is expected to remain among the top-performing hotel markets in the U.S., driven by limited new supply, strong inbound demand from Japan once the currency normalizes, and expanded airlift from both Southwest and Alaska Airlines, which has helped to permanently support increased domestic travel to the island over the last several years. Over the last 20 years, Oahu's RevPAR growth has outpaced the broader U.S.

by nearly 200 basis points, while exceeding other major resort markets by nearly 150 basis points, delivering a nearly 5.5% compound increase in RevPAR. Japan will continue to play an important role in Oahu's ongoing success, with inbound travel from Japan still pacing approximately 55% below 2019 levels, implying significant upside potential as the yen strengthens against the U.S. dollar. In the third quarter, we have planned to commence a 2-year phased room renovation of the iconic Rainbow Tower's 796 rooms, along with 26 additional keys being added as part of the project. Total investment over the next 2 years is expected to be approximately $90 million. Looking ahead to the balance of this year, we are forecasting RevPAR growth at Hilton Hawaiian Village to be slightly negative over the remaining two quarters.

At our Hilton Waikoloa Village Hotel, RevPAR fell by 12% during the quarter, which was in line with our expectations, as group revenue was down 48% year-over-year due to many groups taking a gap year while most hotels in our comp set undergo comprehensive renovations this year. While group revenue pace remains at a similar level over the balance of the year, down 43% on average, we expect a sharp rebound in 2025 when group revenue pace is up nearly 80%. Our Waikoloa Village Hotel will also commence a comprehensive room renovation in August, when we expect to renovate nearly half of the rooms in the 400-room Palace Tower, with the balance of the rooms to be renovated next year, along with 11 keys being added as part of the project. Total investment over the next two years is expected to be approximately $70 million.

On a portfolio-wide basis, total renovation disruption for 2024, when including both Hawaii Hotels and our rooms renovation in New Orleans, is expected to account for a 50 basis point headwind to RevPAR and a $9 million drag on earnings for the full year. Turning to group performance, we saw continued acceleration in group trends, with Q2 group revenues for the portfolio increasing 8% year-over-year to approximately $128 million, coupled with strong banquet and catering revenue improvement of 18%. We are seeing strength in both the forward pace as well as in-the-year, for-the-year pickup. Group continues to be a key driver for our growth as we look over the balance of 2024. Group demand is expected to remain very strong.

Group revenue pace as of June 30 was up nearly 10% compared to the same time last year, while Q3 group revenue pace is up nearly 13%, driven by the months of August and September, with pace up over 30% and 22% respectively, when exceptionally strong convention and citywide activity is expected in Chicago, New Orleans, Orlando, Denver, and Miami. Chicago and New Orleans citywide room nights are up 200% and nearly 300% year-over-year respectively, and both markets are expected to have near-record convention citywide room nights in the second half. In the year, for-the-year bookings also remain very active, with the portfolio picking up approximately 140,000 room nights for 2024 during the quarter, accounting for $33 million of incremental group revenue, with gains primarily concentrated in Boston, New York, Chicago, and Hawaii.

Looking ahead, while our near-term outlook assumes a slight moderation in demand at Hilton Hawaiian Village, we remain very confident that our well-located portfolio will continue to deliver solid results. Lodging fundamentals remain strong, driven by healthy corporate profits, low unemployment, and limited new supply, which we believe should continue to support healthy gains for both business and leisure demand trends. Additionally, we anticipate benefiting from the significant embedded value in our portfolio, which we plan to realize through our strategic ROI pipeline and proactive asset management strategies. We are currently evaluating over $1.5 billion of potential ground-up and redevelopment opportunities at returns that are well in excess of acquisition yields, while there remains significant uplift across our urban portfolio relative to 2019, which we expect will continue to narrow as both business transient and international demand trends further improve.

Additionally, we expect to remain active with our capital recycling program, having closed the joint venture sale of the Hilton Torrey Pines in July, with gross proceeds over $40 million year-to-date, while we actively pursue other potential non-core asset sales. I want to reemphasize that our team remains laser-focused on executing our internal growth strategies and capital allocation priorities, which we are confident will create long-term shareholder value. With that, I will turn the call over to Sean.

Sean Dell’Orto (CFO and Treasurer)

Thanks, Tom. Q2 RevPAR for the portfolio was approximately $195, representing year-over-year growth of 2%, with occupancy at just over 77%, and ADR increasing nearly 2% to $253. Year-to-date through June, RevPAR has increased 4.6%. Total RevPAR for the second quarter increased by 3.2%, driven mostly by a 9% increase in F&B revenue.

Hotel revenue was $664 million during the quarter, and hotel-adjusted EBITDA was $199 million, resulting in a nearly 30% hotel-adjusted EBITDA margin. Q2 adjusted EBITDA was $193 million, and adjusted FFO per share was $0.65. Note that results include a $2.5 million net property tax benefit recognized at our Chicago-based hotels, which was not included in the annual guidance provided last quarter. Turning to the balance sheet, our current liquidity is approximately $1.4 billion, including $450 million of cash, and net debt is currently $3.6 billion, which translates into a net debt-to-adjusted EBITDA ratio of just 5.3x.

We continue to enhance the overall quality of our balance sheet, obtaining $750 million of debt capital during Q2, consisting of the issuance of $550 million of unsecured senior notes maturing in 2030 with a fixed coupon of 7%, in addition to amending the company's existing credit facility to include a new $200 million senior unsecured floating-rate term loan maturing in 2027. Proceeds from the new debt were used to fully repay our $650 million, 7.5% senior notes, which were scheduled to mature next year, while the remaining dry powder further enhances our financial flexibility. As we look ahead to balance sheet priorities, we remain committed to extending near-term impending maturities. This includes evaluating options for a $1.275 billion CMBS loan on Hilton Hawaiian Village, which comes due in November 2026, while maintaining sufficient liquidity to execute near-term ROI projects within our core portfolio.

Other accomplishments during the quarter included very successful renewal of our property insurance program, which went into effect June 1. Overall, we achieved an 8% year-over-year decrease in our premium compared to our expectation of a 10% increase, resulting in estimated annualized savings of nearly $3 million and a nearly $4 million improvement to our balance of year forecast. I'm incredibly proud of this accomplishment, which is a testament to our efforts in establishing a best-in-class risk management program. Concerning our dividend, on July 15, we paid our second quarter cash dividend of $0.25 per share, and on July 26, our board approved a third quarter cash dividend of $0.25 per share to be paid on October 15 to stockholders of record as of September 30.

The quarterly dividend translates to an annualized dividend yield of over 6.5% based on recent trading levels and is well covered based on our full-year outlook. As a reminder, we expect our full-year dividend payout ratio to equate to 65%-70% of adjusted FFO per share, which, based on our current guidance, would result in an incremental top-off dividend at the end of the year. Turning to guidance, with Q2 RevPAR slightly below expectations and a slight moderation expected for the remainder of the year, we are lowering our full-year 2024 RevPAR growth forecast by 75 basis points at the midpoint to a new range of $185-$187, representing year-over-year growth of 3.5%-4.5%. Despite this adjustment, we believe the company remains well positioned to deliver sector-leading RevPAR growth over the remainder of the year, driven by solid group trends and tailwinds from our strong redevelopment pipeline.

Despite the change to our top-line growth assumption, we are maintaining our full-year Adjusted EBITDA guidance at the midpoint, while narrowing the range by less than 1% to a new range of $660 million-$690 million, while our full-year Adjusted FFO guidance improves by $0.01 per share at the midpoint to a new range of $2.10-$2.26 per share, representing year-over-year growth of approximately 2.5% and 6% respectively. Our adjustments to guidance are based on a number of factors, including moderating performance at our Hilton Hawaiian Village Resort during the second quarter, a trend we expect to continue over the back half of the year given weaker-than-expected inbound travel from Japan into Oahu, while Adjusted EBITDA will also be impacted by the sale of Hilton Torrey Pines, which will account for approximately $2 million of earnings drag over the balance of the year.

Partially offsetting these headwinds is the previously discussed Chicago property tax benefit recognized in Q2, as well as the more favorable insurance renewal, which collectively will account for roughly $6 million of positive adjustments. Please note that guidance does not account for eventual exit from the Hilton Oakland Airport, a property which is scheduled to close in the third quarter. Finally, with respect to hotel adjusted EBITDA margin, we are increasing our forecast by 10 basis points at the midpoint to a new range of 27.3%-28.1%, or down 50 basis points to up 30 basis points versus 2023. As a reminder, our Q3 hotel adjusted EBITDA margin growth will be negatively impacted from lapping the $8 million of property tax benefit and relief grants we recognized during Q3 of last year. This concludes our prepared remarks. We will now open the line for Q&A.

To address each of your questions, we ask that you limit yourself to one question and one follow-up. Operator, may we have the first question, please?

Operator (participant)

Thank you. At this time, we'll be conducting a question-and-answer session. If you'd like to ask a question, please press Star 1 on your telephone keypad. As a reminder, please limit to one question and one follow-up. You may press Star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the Star keys. One moment, please, while we poll for questions. Our first question comes from Floris van Dijkum with Compass Point. Please proceed with your question.

Floris van Dijkum (Managing Director and Senior Research Analyst)

Thanks, guys, for taking my question. So, hey, Tom. Good afternoon.

So, I wanted to talk a little bit about, or maybe if you could expand a little bit more on capital allocation. Obviously, you've got some attractive redevelopments that tend to pay back within a pretty quick period, as we're seeing in Key West and Orlando. You've bought back some stock. Maybe the other thing that if you could expand on a little bit more in terms of your potential asset sales, I think in the past you've said some non-core hotels could be sold before year-end. What can we expect, and where do you think proceeds will be spent on between redevelopments and buybacks?

Tom Baltimore (Chairman, President, and CEO)

All great questions, Floris. Let me just start with sort of the first priority for us as we think about 2024 is really operational excellence.

It's to achieve our operational targets, our guidance, and obviously to continue to work with our operators and really reimagine the operating model. I want to point out, I think we've made a lot of good progress there in really thinking about the business and how we can be more efficient. That we're sort of anchored there. You're right. We each year set a goal of continuing to sell or dispose of non-core assets. If you think back to the prepared remarks, we noted that we have sold or disposed of 43 assets now. That does not include Oakland at this point, but that's about $3 billion. The team has worked incredibly hard to reshape the portfolio. We have said that our top 25 assets really account for about 90% value of the company.

So there's another 10 to 15 hotels easily that we are actively looking to recycle that capital. Each of them has its own story, whether it's a low-tax basis, a joint venture partner, or other challenges. But our team, led by Tom Morey, our Chief Investment Officer, are working their tails off as we continue to make progress there. We also set a target this year of $100 million-$250 million. We are confident that we will make significant progress against those goals, and then we'll use those proceeds as you've seen us do in the past. It'll be a balance between reinvesting back into our portfolio. We think that's really the key priority for us. You've seen, obviously, the extraordinary success that we're having with Bonnet Creek already, and then Casa. Casa probably finishes the year at a RevPAR in excess of 100%, plus or minus.

Bonnet Creek, the Signia of the Waterside Ballroom, probably busy already for 225 days already this year in its first year. The Casa, as we're also going to be opening the Dorado restaurant. We've opened the bar, all oceanfront. So those are just great examples of really the talent that exists within the team, and those remain, obviously, high priorities for us as we look to the future. We will also be using proceeds to pay down debt. Our balance sheet has improved significantly, but we will continue to seek opportunities to pay off and then return capital through share buybacks and dividends. We returned $630 million in capital last year. We're tracking this year to be well north of $300 million so far this year, including our dividend and probably estimated top-off, as Sean mentioned. And I feel very good about that.

But we're laser-focused on really continuing to be disciplined as a capital allocator. We do not think it makes sense to be out buying at high multiples right now. We think the better play is to invest back into our portfolio and buy back stock, particularly when we're trading at absurd levels like we are today at a sub-10 multiple. So we think that's really the highest and best use. And I believe generally investors really applaud that kind of discipline that I think we've continued to show for many, many years.

Floris van Dijkum (Managing Director and Senior Research Analyst)

Thanks, Tom. Maybe if I can have one follow-up for Sean. I know it's very early, but if you can share some ideas on options for the refinancing of the CMBS debt on Hawaii Village.

Sean Dell’Orto (CFO and Treasurer)

Yeah, Floris, certainly taking a look at that. I think that certainly the positives of the efforts we've done over the last few years is certainly to expand the options that we have available to us. We've obviously accessed the bond markets. We certainly have other institutional debt markets out there available to us, whether it's term loans, whether it's term loan A or B. We successfully did the $200 million term loan A with the banks. We're very supportive. So despite, I think, discussions around bank capital being scarce, which I think still is, I think we demonstrated we can already access that market as well since we repaid them coming out of the pandemic. So we're looking at all those kinds of options. We'll also look at CMBS as an option.

Don't necessarily want to just repeat and have another $1 billion-plus outstanding on the asset, but that is certainly why I wouldn't rule it out either. So we have a number of options available to us. We're looking at it. We're certainly sensitive to the pricing as we look at today, obviously the maturity as it comes up in 2026 and getting ahead of that next year. So we'll have more color as we kind of progress over the next several months as to how we want to attack it.

Floris van Dijkum (Managing Director and Senior Research Analyst)

Thanks, Sean.

Operator (participant)

Our next question comes from Smedes Rose with Citi. Please proceed with your question.

Smedes Rose (Managing Director and Equity Research Analyst)

Hi, thank you. I just wanted to ask a couple of things. Hi. Just on maintaining the midpoint of your EBITDA guidance, and it sounds like you have, I guess, $8.5 million of benefits between the tax credit and the lower insurance expenses.

But then is there also something maybe factored in for closing Oakland because it seemed like that was running at a loss? So will that help support your EBITDA guidance?

Sean Dell’Orto (CFO and Treasurer)

Yeah. So just to clarify, the property tax credit in Chicago and the insurance benefit for the remainder of the year, that really equates to $6 million. It's about, call it rounded, $4 million on insurance and $2 million on Chicago to kind of get through the 6. Oh, okay. Sorry. Yeah, Oakland is not in our guidance, as we mentioned. Certainly a potential headwind or, I'm sorry, tailwind for us, depending on when it closes, that the asset, as we noted, on a trailing basis, lost more than $3 million. So you can kind of probably back into kind of a quarter's worth of that as a potential tailwind for us.

But I think we feel comfortable kind of assessing the risk out there. Clearly, we noted Hawaii being that, the chief risk out there from a leisure standpoint. On other leisure markets like Orlando and Key West, we're certainly demonstrating strength there from the investments we've made, certainly stealing a lot of share from those assets. So I think performing well in those markets despite those markets being actually down, performing below 2023 levels. So we feel kind of good. The group has held up strong relative to what we forecasted even at the beginning of the year. I'd say IBT, Individual Business Transient, has also been a welcome surprise and healthy year-to-date thus far.

So we think we forecasted, again, the risk on the leisure side, but I also think that we have potential benefits even if there's a little more risk out there on some of these other components that might offset that going forward. So we feel good about where we are, $675 midpoint.

Smedes Rose (Managing Director and Equity Research Analyst)

Okay. And can you maybe speak to kind of maybe the ranges of RevPAR growth you're thinking about for third quarter versus fourth quarter? I think you talked about that on the first quarter call, thinking about ranges for the second quarter. I just want to see if you could share that through the balance of the year.

Tom Baltimore (Chairman, President, and CEO)

Yeah. I think, look, there's a lot of uncertainties, Smedes, out there. I think we all know. And you've got, obviously, the geopolitical. You've got, obviously, will the Fed begin to ease on rates?

Obviously, the consumer is certainly feeling more stress. So we don't want to ignore that. Hence the reason that we were pretty thoughtful about raising and about lowering, obviously, the top end of our RevPAR guidance. And having said that, I do think that there is a really compelling story for Park. We're expecting the third quarter to be strong. And the components of that are really the group pace is up 13%. If you think about August, as an example, August already group pace north of 30%. September group pace up around 22%. So that's probably about 330,000 rooms just in those two months. If you look at New Orleans, group pace up about 69%. Chicago's up about 34%. Bonnet Creek up about 33%. Denver up north of 35%. So that really provides a great tailwind for us.

We said gave a range last quarter and sort of had to backtrack. So we're hesitant to give a range this quarter. We feel very good about how things are tracking for the third quarter. And certainly low to mid-single digits is probably, but don't want to give any specific numbers. But probably in that range is something we feel reasonably comfortable with at this time.

Smedes Rose (Managing Director and Equity Research Analyst)

Thank you. I appreciate that.

Operator (participant)

Our next question comes from Duane Pfennigwerth with Evercore. Please proceed with your question.

Duane Pfennigwerth (Senior Managing Director)

Hey, thanks. So you've disclosed the headwind to RevPAR and earnings from renovations this year. I think it was 50 bips to RevPAR and $9 million to EBITDA. Any early views on how you're thinking about renovation or displacement headwinds in 2025?

Tom Baltimore (Chairman, President, and CEO)

Yeah, I would say, look, it's probably a little too early other than just to make this global statement.

Sean and I and the team work really hard to not be the construction story. So we try to be very, very thoughtful and think about this year where we've got, obviously, Rainbow Tower. We've got the Palace Tower. We've got New Orleans. And we're confident in about 50 basis points of RevPAR disruption and about, obviously, $9 million in EBITDA as we communicated. We always want to be under 100 basis points. Next year, obviously, we'll have second phases of both the Palace and Rainbow Tower. And then, of course, we'll have a little more work in New Orleans. And then, of course, Royal Palm, which will be our next, what we would call, really big transformation. And we couldn't be more excited about that. Our asset management team and our design and construction team led by Carl Mayfield really are best in class.

We work and seamlessly hand in glove to figure out really the best windows to renovate, have materials on site, have the contractors lined up. And we've had a lot of success, and I think we've demonstrated that time and time again. And so we'll work hard to really keep that disruption under that 100 basis points as a really guiding principle for us. But I don't want to say anything more than that other than, look, there isn't anybody better in the sector than us and this team and how we handle those renovations. And those of you that have seen Orlando, I think, would really certainly agree with that statement.

Duane Pfennigwerth (Senior Managing Director)

Thanks, Tom. And maybe just thoughts on Hilton Hawaiian Village and how the team thinks about the new normal beyond this year.

Why is that asset in that market different than other markets that have surged and begun to normalize? Why do you think the floor is now higher on that asset? And thanks for taking the questions.

Tom Baltimore (Chairman, President, and CEO)

Yeah, a couple of things on Hawaii. Obviously, second quarter, we had about 213 basis points of drag on Q2 RevPAR for the reasons we all know. Obviously, the weakening yen, the surcharges on travel. And we began the year visitation historically from Japan has been about 1.5 million into Hawaii, into the islands. We were about 600,000 last year. We expected that that would be about 850,000-900,000 this year and count to year 2024. Looks like it's trending right now at about 770,000 approximately. So about 10% sort of lower. It's still up 34% to last year, but still about 50% below sort of pre-pandemic.

So if anything, we look today and say, with obviously the Bank of Japan beginning to adjust monetary policy, and if you can get that moving in the right direction. And given the pent-up demand, Japanese have consistently been strong visitors to Hawaii for north of 30 years and more. And we don't expect that to change. So we just think it gets elongated. And really, we thought we'd be back to pre-pandemic in 2026. It probably gets slightly extended. Obviously, that can change if the financial conditions change. But we remain steadfast. Hawaii has been the strongest market over the last 20 years. When you think about just some of the stats that we gave in our prepared remarks, we don't see that changing. Impossible to add, near impossible to add new supply. We've got just a fortress position, obviously, 22 acres, oceanfront.

We're working on adding a sixth tower there, which we couldn't be more excited about. And Anne has been a long-term great corporate citizen and partner there with all of our stakeholders. And so we are very, very bullish on Hilton Hawaiian Village and Hawaii long-term. And candidly, feel the same way about Hilton Waikoloa, the opportunity to add additional 200 keys there. And the big island continues to surge. And remind listeners, we generate more EBITDA today as a 600-room hotel than we did as a 1,200-room hotel. And probably EBITDA per key somewhere in the $85,000 a key. So very, very bullish on Hawaii. This is a short-term blip. If you think about just July, our occupancy right now at Hilton Hawaiian Village is, I think we're running month to day at about 95%. Hilton Waikoloa, I think, at 86%.

So any concerns of Hawaii not being a preferred destination, we would certainly strongly disagree with that. We continue to see that in July. There's going to be some softening. Part of that, obviously, on the Hilton Waikoloa side. Obviously, group pace is down about 48% this year. That'll be low 40s, we think, for the balance of the year. Not unexpected in our original forecast. But next year, you're looking at group pace up around 80%. So it rebounds quickly. And Hilton Hawaiian Village, it benefits, obviously, Southwest, Alaska Airlines. So there's a little bit of moderating, but it's very different than other resort markets. It hasn't had that huge increase in rate. We don't have the Japanese traveler back. They tend to stay longer and spend more. We also have a big wedding environment that used to be 150 weddings a year.

And we're, I think, just a fraction of that. So there's a lot of really, really good things over the intermediate and long term. So I'll stop there, but I think you get the message. Thank you.

Duane Pfennigwerth (Senior Managing Director)

Thank you, Tom.

Operator (participant)

Our next question comes from Ari Klein with BMO Capital Markets. Please proceed with your question.

Tom Baltimore (Chairman, President, and CEO)

Hey, Ari.

Ari Klein (Director of Equity Research)

Hey, Tom. Thanks. And good afternoon. Within Q2, can you help parse out how much of the 200 basis points in low RevPAR was Hawaii versus the rest of the portfolio? And then the second half of the year was effectively lowered about 25 basis points in terms of RevPAR when accounting for the Q2 shortfall. Is that all Hawaii? And I get that the group pace underpins expectations, but Tom, you also talked about some things that are uncertain around the consumer and the macro.

To what extent is that factored into the second-half outlook? Thanks.

Sean Dell’Orto (CFO and Treasurer)

Yeah. I mean, I would say a good portion of Q2 was Hawaii. We saw certainly a continuation from what we saw kind of in April through most of the quarter, certainly on the transient side. A little bit as well in New Orleans. I would say they're kind of the key ones. New Orleans didn't have a lot of strong pace backdrop group in second quarter. So it's certainly some softness there. But I'd say those are kind of the key contributors for the most part in terms of versus expectations for Q2.

Tom Baltimore (Chairman, President, and CEO)

Yeah. Ari, the other thing to keep in mind, we gave last call, I think, a range of 3%-5%. At the time, we felt comfortable with that.

But to Sean's point, I mean, we were down 213 basis points in second quarter, and we ended up 2. So you're really back to midpoint. So largely driven by Hawaii, a little bit, obviously, in New Orleans. Denver also on the transient side, a little softer. But the big issue in second quarter was really Hawaii from that standpoint.

Ari Klein (Director of Equity Research)

Thanks. And then just the second-half outlook, kind of what's implied outside Hawaii in the RevPAR guide, given some, I guess, concerns around the macro and consumer?

Tom Baltimore (Chairman, President, and CEO)

Yeah. Well, listen, there's a lot of uncertainty out there. And we don't want to be Pollyannish and not acknowledge. And we're watching carefully. I do think that we're in a unique position because we started the year, remember, we had the 150 basis points of tailwind from the transformation at Bonnet Creek and also Casa.

But as you sort of think about Bonnet, we're probably looking at RevPARs north of 20%. Bonnet in the third quarter, New Orleans, we've got the huge increase in group. We're probably 20%-25% or more there. Chicago, you're up significantly, 34% in group pace. And Q3, you're up double-digit RevPAR. Boston looks good, high single digits. So we've got a number of things. Denver, very strong group pace. So just given the diversity of our portfolio, will really help to offset some of the softness that we're seeing in Hilton Hawaiian Village. But again, we're still expecting that's low single digits based on how we look today. So we've adjusted based on the best information that we have today. We're watching the macro like we all are. No doubt the consumer is feeling a little stress and certainly being more value-conscious.

And I think it sets up well for, hopefully, the Fed to ease and to begin that process. But we're watching carefully. And we sent the signal, as you may recall, during NAREIT. And we could see then that demand was softening a little bit. And I think we were certainly one of the few to point that out, which I did pretty openly at NAREIT within our meetings at that time. We're not seeing that. As I said, we're looking at Hilton Hawaiian Village right now in July is running 95%. That's north of 2,800 rooms. And we're running 95% occupancy right now.

Ari Klein (Director of Equity Research)

Thanks for the color.

Operator (participant)

Our next question is from David Katz with Jefferies. Please proceed with your question.

David Katz (Managing Director and Senior Equity Research Analyst)

Hi. Afternoon, everyone. Good to talk to you.

Tom Baltimore (Chairman, President, and CEO)

Good afternoon.

David Katz (Managing Director and Senior Equity Research Analyst)

Afternoon. So I wanted to go back.

Everything appears to be working as well as it could be. The backdrop will be what it will be. But just focusing on the non-core assets and the possibility that they could go in the form of ones and twos versus sort of some larger bites. And with this change in backdrop, do you think that it potentially creates a headwind to getting anything else done from here?

Tom Baltimore (Chairman, President, and CEO)

David, it's a great question. And thank you. You and I have had this conversation many times. No one is more focused. I admit it. No one is more focused than the women and men on the Park team on this. We think this is a mini overhang, if you will. And as we've said, look, the top 25 assets are really the core part of the portfolio. We are working hard to accelerate that pace.

And that means, look, we're confident the debt markets are improving. Part of it is that each of these assets has some different unique challenges, whether it's a lease duration. It's a tax issue, a partner. But we get it. We understand the sooner we can do that, the better off we will be and the more optionality. So message has been delivered. It's delivered to me, to the team every day. And we're working hard to make progress there. And we're not looking for perfection. We recognize that these are assets that are non-core. And we're working hard. I think you're going to see some continued productivity and see evidence of that. And look, Oakland's a great example. Losing money, short-term ground lease, undesirable market, safety, security issues. We didn't waste time. We went into action on that.

And you're going to see other situations like that where we're also going to continue to move quickly here. The core value. And if you think about some of the recent trades that have happened in Hawaii just as a data point, our asset is a whole lot better. And if assets are trading at 16x-17x, what do you think Hilton Hawaiian Village is worth? A lot more than that. And I don't think you would dispute that.

David Katz (Managing Director and Senior Equity Research Analyst)

I would not. Thank you very much.

Operator (participant)

Our next question comes from Chris Woronka with Deutsche Bank. Please proceed with your question.

Tom Baltimore (Chairman, President, and CEO)

Hey, Chris.

Chris Woronka (Director and Senior Equity Research Analyst)

Hey. Good afternoon, Tom, and Sean, Ian. So Tom, I have a non-guidance, non-Hawaii question for you, if that's okay. And it relates to the first one's on Key West. Obviously, some really impressive numbers coming through this quarter, last quarter.

Is 2024, is that kind of the peak for those two assets post-renovation? Or do you think there's still more to go? You're having great success on the rate. I think you might still be a little below on OC, which might be intentional. But do those still have legs in 2025 and beyond?

Tom Baltimore (Chairman, President, and CEO)

We really believe they do, Chris. I mean, if you think about the Dorado restaurant, that has yet to open, will be soon. The bar is open. Just the quality of the renovation. There's no better asset in that submarket now. We really were thoughtful. And again, credit to Carl Mayfield and our design and construction team and how thoughtful we were in creating really just a phenomenal product. And then having, obviously, the piers redone, both the high-end group we can get there coupled with, obviously, the high-end leisure.

It's a really repositioning of a world-class asset. So we couldn't be happier and prouder. And we think clearly there's going to be continued upside there. And we gave you stats as to how it's performing today. But even The Reach. I mean, The Reach is an example of that where we're up 7%, but we're still up 56% plus or minus in rate over 2019. So we think the Casa's got plenty of ramp-up room and running room as we move forward.

Chris Woronka (Director and Senior Equity Research Analyst)

Okay. That's great to hear, Tom. And then I guess we can keep it in Florida and go to Orlando. And you guys are, again, you're having good results this year with the repositionings. A lot of your peers are not having great results this year there. It's a tough market for a lot of reasons.

A similar question, which is, can you guys outperform there again next year if the broader market remains tough? And do you have any indications? I think you had someone from the. I remember being in the room in Orlando. And I think they were a bit more optimistic about 2025 just based on the, I guess, some of the citywides that might come in. But any thoughts on that? Thanks.

Tom Baltimore (Chairman, President, and CEO)

Yeah. Listen, we remain very bullish on Orlando. And I think sometimes people forget it's the most visited destination in the United States. 74 million visitors, I think, is part of that presentation that you and many others attended. Think about Vegas. Now, Vegas has the gaming. Orlando doesn't. But that's about 45 million, I think, plus or minus. The other thing to keep in mind is you've got Epic Universal opening next spring.

And I think Universal's on record of spending $5 billion or more and 50 different experiences and 800 acres. So that's going to be a huge tailwind for the destination. And then Disney's on record of saying they're going to invest $60 billion over the next decade, ±. And certainly another tailwind as well for the market. So we're very, very encouraged, as we think. And then again, we're well-positioned. Think about the amount of meeting space we have, a completely renovated and reimagined resort coupled with a championship golf course. So look, the Four Seasons is the best market, the best asset in that market, and a huge RevPAR. But there's plenty of running room to continue to raise our performance there. And we expect we're going to continue to be a very, very formidable player. And no one has the waterside ballroom that we have.

You saw it. You witnessed it. Just the optionality that we have from a demand standpoint. And again, 225 days it's being operated. And that's in the first year. So we think we've got many, many years. And I think that's part of the Park story that's more compelling than a lot of our peers are the tailwinds from reinvesting back in our portfolio. We believe passionately that's the better play and will generate additional cash flow above what we can get from acquisition yields and paying some of the lofty prices that are being demonstrated right now.

Chris Woronka (Director and Senior Equity Research Analyst)

Okay. Appreciate all the perspective. Thanks, Tom.

Operator (participant)

Our next question comes from Dori Kesten with Wells Fargo. Please proceed with your question.

Dori Kesten (Senior Equity Research Analyst)

Hi, Ian. Thanks for taking my question. I think in your prepared remarks, you said guidance assumes international demand trends improve. I was just checking. Was that a portfolio-wide comment?

Or were you specifically referring to Hawaii?

Tom Baltimore (Chairman, President, and CEO)

I think Hawaii is a good portion of that, as I outlined. Dori, we expected demand coming into Hawaii to be about 850,000-900,000 visitors. And that's currently tracking at about 770,000. So it's a small obviously, at Hawaii, it's a 200 basis point drag in the second quarter. And we've sort of walked you through how we're trending and what we see for the balance of the year. We expect, obviously, Hilton Waikoloa is going to continue to be a drag. But we knew that given the fact that the group pace is down 48%. And we think that's probably low 40% for the balance of the year. But again, that rebounds pretty quickly to pace is up 80% next year. And we're obviously looking at completing half of the renovation of the Palace Tower.

So we're going to use that period to take advantage of it. And obviously, feel very good about Waikoloa and how it's trending for the balance of the year as well as we look out to the out years. But clearly, a little bit of softening there versus what we thought going into the second quarter for all the reasons that we've outlined and discussed with other analysts that have raised the question.

Dori Kesten (Senior Equity Research Analyst)

So for the remainder just so I understand, for the remainder of the portfolio or just Park as a whole, the assumption is for the rest of the year, international inbounds continues to improve and you have a deceleration in domestic outbounds. Is that a fair characterization?

Tom Baltimore (Chairman, President, and CEO)

Yeah. It's a fair question, Dori. If you step back for a second, you know this stat as well as I do.

But if you look pre-pandemic, right, inbound was about 79 million. I think last year was about 63-65 million. And I think the forecast was somewhere in that 67-70 million overall visitation. No doubt the high-end consumer is still enjoying considerable time in international. And particularly, the Olympics are playing a role there. There's no doubt that the success that's occurring there is certainly diverting what people may travel to the U.S. otherwise. So that's probably on the margin. But we're very comfortable with the range of guidance that we've given for the balance of the year. That 3.5-4.5, to us, seems very reasonable at this time.

Dori Kesten (Senior Equity Research Analyst)

Okay. Thank you.

Operator (participant)

Our next question comes from Jay Kornreich with Wedbush Securities. Please proceed with your question.

Jay Kornreich (VP of REIT Equity Research)

Hey. Thanks. Good afternoon.

Sean Dell’Orto (CFO and Treasurer)

Thank you.

Jay Kornreich (VP of REIT Equity Research)

As it seems that out-of-room spend remained elevated despite some transient booking softness, I guess, how does that make you think about just the overall health of the consumer? And do you see total RevPAR performing better than just RevPAR in the second half of the year?

Sean Dell’Orto (CFO and Treasurer)

Hey. Yeah. I think in the end, what you've seen I think you have seen just through the out-of-room spend what the trends you've seen between group and kind of leisure transient. On the group side, from an F&B side, the strength really comes from banquets and catering, which are ultimately up 18%. And certainly, it has exceeded our expectations for the first half of the year. So it's really banquets and catering supported by the group strength that we've seen.

Then the leisure side, I think it shows on the out-of-room spend that outlets are technically down a little bit year-over-year. Some of it is kind of a mixed shift fundamentally. But I would say it does track kind of the macro trends we see of group strength and some leisure moderation. Over the back half of the year, I think in the end, we'll continue to see some outperformance on out-of-room spend relative to room RevPAR. So I think overall for the year, we kind of anticipate about 40-50 basis points higher total RevPAR than room RevPAR. So I think that kind of flows into a little bit slightly better performance for the back half of the year than room RevPAR.

Jay Kornreich (VP of REIT Equity Research)

Okay. That's helpful. That's it. Thank you.

Operator (participant)

Our next question comes from Robin Farley with UBS. Please proceed with your question.

Robin Farley (Managing Director and Senior Equity Research Analyst)

Great.

Thank you. Just kind of circling back to the asset sales. Do you think it's just a matter of waiting for some interest rate cuts before there's more movement there? Or is there anything else that you would like to characterize about the buyer side of the market that could change or how you see that over the next six months? Is it just a rate cut issue? Or are there other factors? Thanks.

Tom Baltimore (Chairman, President, and CEO)

Robin, great question. I think, obviously, lower rates and certainly a more active lending environment. And candidly, I think once buyers have a little more comfort on what their cost of debt is, and particularly if that can be reduced slightly, I think that helps. I think that's going to help both buyers and sellers. I think we've been able to demonstrate. I mean, think through the pandemic and subsequent to that.

I mean, every year, we've been able to advance and continue to sell non-core. We had 14 international assets we were selling during the pandemic. So I'm not sure there's anybody more skilled at each. Again, a lot of these deals had hair on them and joint venture partners and international and legal and tax issues. So we're working hard on it. It remains a high top priority for us. And you'll continue to see us put points on the board and show additional activity here for the balance of the year.

Robin Farley (Managing Director and Senior Equity Research Analyst)

Thank you for that color. And maybe just one follow-up. In your conversations with potential buyers, do you get the sense you talked about all the things with interest rates and cost of their debt and all of that.

Do you get the sense they're worried at all about what's happening with the consumer and what that means for the EBITDA performance of the property? Or do you think these buyers are sort of they would look through whatever might happen in the next couple of quarters because they're long-term buyers? In other words, if we get interest rate cuts, do you think there are still do you think the potential asset buyers are as concerned about the consumer as maybe equity investors are right now? Thanks.

Tom Baltimore (Chairman, President, and CEO)

Yeah. It's another great question. I think the answer is really depending on the buyer. If it's a private equity shop that's probably got a 5-7 or 7-10-year hold, I think they can look through some of the near-term noise and buy on a by-pound or per-pound basis and do quite well.

Obviously, I've had a private equity platform in the past. So I certainly understand that. I think family offices could also or owner-operators as well could be looking through. Uncertainty is the enemy of decision-making. So if we get additional clarity and that's geopolitical. You've got a pending election. Obviously, you've got the Fed probably being one of the more important issues that people are waiting for the Fed to begin the easing process. I think it looks more likely than not. But we'll all see. And I certainly think that that will help as we move forward. We are active. We're in frequent discussions with buyers of all types. So I think we've got a pretty good pulse on it. And look, as I said, we've demonstrated time and time again. We've sold or disposed of 43 assets. And that list is going to grow.

We're going to continue to reshape and clean up this portfolio and get it back to its core. We think with that core portfolio is the real value of the company. And it also gives us a lot of optionality as we move forward.

Robin Farley (Managing Director and Senior Equity Research Analyst)

Okay. Great. Thank you very much.

Operator (participant)

Our next question comes from Chris Darling with Green Street. Please proceed with your question.

Chris Darling (Senior Analyst)

Thanks. Good afternoon, everyone.

Tom Baltimore (Chairman, President, and CEO)

Hey, Chris.

Chris Darling (Senior Analyst)

Hey, Tom. Going back to New Orleans, do you have a view on the reopening of the Caesars Casino and the potential impact on the Hilton Riverside? You think that could be a meaningful tailwind going forward or perhaps just more incrementally additive?

Tom Baltimore (Chairman, President, and CEO)

I think it's more incrementally additive. Look, that hotel is probably about 65% group plus or minus.

So certainly, from an additive standpoint, getting additional transient or incremental group that we could get, I think it's a positive for the destination. New Orleans, obviously, has always been a solid convention market. It's always been a very good leisure market. Where it's Achilles' heel has been really is on the corporate demand. But I think it's a net positive. Look, we're not in the gaming business. We do think it will be incrementally positive for us. And again, we've got additional 8 acres there and 5 million sq ft of additional FAR. So we like our positioning in New Orleans. And we think, clearly, over the intermediate and long term, there's going to be significant value that certainly can be realized.

Chris Darling (Senior Analyst)

All right. Helpful thoughts. And then just one more on the non-core portfolio.

Park, of course, they have a handful of ground lease properties other than the Hilton Oakland with relatively near-term maturities. Recognize it's a small piece of the portfolio. But is there an opportunity for you to proactively extend some of those leases, maybe acquire the fee position in certain cases? Are you thinking about it at all like that? Or are you more so focused on kind of dispositions incrementally in terms of that portfolio?

Tom Baltimore (Chairman, President, and CEO)

Chris, another great question. Look, all options are on the table. We have a lot of experience. And you think back again to the 43 that we have disposed of and international, JV, all the domestic, the ports, all the different entities that we've dealt with, partners. So all those issues, we're laser-focused on what can create the most value for shareholders and what can we move as quickly as possible.

So you're going to continue to see activity there and see us put points on the board and make real progress.

Chris Darling (Senior Analyst)

All right. Thanks for the time.

Operator (participant)

We've reached the end of the question-and-answer session. I'd now like to turn the call back over to Tom Baltimore for closing comments.

Tom Baltimore (Chairman, President, and CEO)

Well, we really appreciate everybody taking time today. And I hope you have a great remainder of the summer. And look forward to seeing you at the various conferences in September and beyond.