Q2 2024 Earnings Summary
- Strong group demand driving growth: Park Hotels & Resorts is seeing continued acceleration in group trends, with Q3 group revenue pace up nearly 13%, driven by significant increases in key markets. For example, group pace is up 69% in New Orleans, 34% in Chicago, 33% at Bonnet Creek in Orlando, and over 35% in Denver. Additionally, August group pace is up over 30%, and September up 22%, indicating robust future demand.
- Positive outlook on Orlando properties due to strategic investments and market tailwinds: The company remains very bullish on Orlando, highlighting that it's the most visited destination in the U.S. with 74 million visitors. Significant developments like the opening of Epic Universal next spring, with an investment of over $5 billion, and Disney's planned investment of $60 billion over the next decade, are expected to be huge tailwinds for the market. Park's substantial reinvestment in the Bonnet Creek complex has positioned it to outperform, expecting RevPAR growth north of 20% in the third quarter.
- Confidence in long-term performance of Hawaiian properties: Despite near-term challenges, Park is steadfastly bullish on Hawaii. At Hilton Waikoloa Village, while group pace is down 48% this year, it is expected to rebound sharply with group revenue pace up nearly 80% in 2025. The company emphasizes Hawaii's strong market fundamentals, including limited new supply and historical outperformance, with O'ahu's RevPAR growth outpacing the broader U.S. by nearly 200 basis points over the last 20 years. This confidence is further supported by ongoing investments, such as the upcoming renovations of the Rainbow Tower at Hilton Hawaiian Village and the Palace Tower at Hilton Waikoloa Village.
- The company acknowledges uncertainty in RevPAR growth due to consumer stress and macroeconomic factors, which may impact future performance. The CEO mentions, "there's a lot of uncertainty out there... the consumer is certainly feeling more stress."
- Recovery in key markets like Hawaii is slower than expected due to weaker inbound travel from Japan. The CEO notes that Japanese arrivals are pacing about 10% lower than expectations and full recovery may extend beyond 2026.
- Disposing of noncore assets may face challenges due to market conditions and unique asset issues such as lease duration and tax complications, potentially impacting the company's ability to streamline its portfolio. The CEO mentions working hard to accelerate the pace of disposals but acknowledges difficulties with certain assets.
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Capital Allocation and Asset Sales
Q: Could you expand on your potential asset sales and capital allocation?
A: Management's first priority is operational excellence. They have sold or disposed of 43 assets totaling $3 billion, not including Oakland. The top 25 assets account for about 90% of the company's value. They are actively looking to recycle capital from another 10 to 15 hotels. This year, they set a target of $100 million to $250 million in asset sales and are confident in making significant progress. Proceeds will be balanced between reinvesting in the portfolio, paying down debt, and returning capital through share buybacks and dividends. Last year, they returned $630 million in capital and are tracking to be well north of $300 million this year. Management believes buying back stock when trading at a sub-10 multiple is the highest and best use of capital. -
Non-Core Asset Sale Strategy
Q: Are there headwinds to selling non-core assets given the changing backdrop?
A: Management is highly focused on disposing of non-core assets and understands the importance of accelerating the pace. They are working hard to recycle capital from assets outside the top 25, which represent the core portfolio. Each asset has its own challenges, such as lease durations, tax issues, or partners, but they are confident in making progress. The sale of the Oakland property, which was losing money, is an example of moving quickly to dispose of non-core assets. Lower interest rates and a more active lending environment would help facilitate asset sales. They are in frequent discussions with buyers of all types. -
Hawaii Performance and Outlook
Q: How do you view the performance and outlook for Hilton Hawaiian Village?
A: In the second quarter, Hawaii had about a 213 basis point drag on Q2 RevPAR due to the weakening yen and travel surcharges. Japanese visitation, historically 1.5 million, was 600,000 last year and is trending at about 770,000 this year, around 10% lower than expected. Management expects a return to pre-pandemic levels by 2026, possibly slightly extended. They remain bullish on Hawaii long term, citing the difficulty of adding new supply and the fortress position of their assets. Occupancy at Hilton Hawaiian Village in July is running at 95%. They believe the current softness is a short-term blip with many positive factors over the intermediate and long term. -
Renovations and Impact on Earnings
Q: Any early views on renovation headwinds in 2025?
A: Management aims to minimize renovation disruptions and keep them under 100 basis points of RevPAR impact. Next year will include second phases of the Palace and Rainbow Towers, more work in New Orleans, and the Royal Palm transformation. They are working hard to keep disruptions under control and are confident in their team's ability to handle renovations efficiently. This year, renovations are expected to cause a 50 basis point drag on RevPAR and a $9 million impact on EBITDA. -
Debt Refinancing Options for Hawaiian Village
Q: What are the options for refinancing the CMBS debt on Hawaiian Village?
A: Management is exploring various options, including accessing bond markets, institutional debt markets, term loans, and possibly CMBS. They have successfully accessed the bond markets and have supportive banks despite discussions around bank capital being scarce. They are sensitive to pricing and aim to get ahead of the maturity in 2026. More details will be provided over the next several months as they progress. -
RevPAR Guidance and Expectations
Q: Could you share RevPAR growth expectations for the second half?
A: Management expects the third quarter to be strong, with group pace up 13%, August group pace up over 30%, and September up around 22%. Key markets like New Orleans (group pace up 69%), Chicago (34%), Bonnet Creek (33%), and Denver (over 35%) show significant increases. While recognizing macro uncertainties, they are expecting low to mid-single-digit RevPAR growth in the third quarter. For the full year, they adjusted RevPAR guidance to 3.5% to 4.5%, which they believe is reasonable. -
Market Performance in Key West and Orlando
Q: Do Key West and Orlando properties have more growth ahead?
A: Management believes there is continued growth potential in Key West properties. The Casa Marina renovation has created a superior product in the market, and additional amenities like the Dorado restaurant are yet to open. For Orlando, they remain bullish due to it being the most visited destination in the U.S. with 74 million visitors. Upcoming attractions like Epic Universal opening next spring and Disney's planned $60 billion investment over the next decade provide tailwinds. They expect to outperform even if the broader market remains tough. -
Consumer Demand Trends and Macro Uncertainties
Q: How are consumer demand trends and macro uncertainties factored into your outlook?
A: Management is watching macro uncertainties carefully, acknowledging the consumer is feeling some stress and being more value-conscious. They have adjusted guidance based on the best available information and believe their diverse portfolio helps offset softness in certain markets. They remain comfortable with their guidance and are monitoring factors like the potential for the Fed to ease rates. -
Out-of-Room Spend and Group Demand
Q: How does out-of-room spend reflect the health of the consumer?
A: Out-of-room spend trends show strength in banquets and catering, which are up 18% and have exceeded expectations. Outlet spend is slightly down, reflecting some leisure moderation. Overall, total RevPAR is expected to outperform room RevPAR by about 40 to 50 basis points for the year. -
New Orleans Casino Impact
Q: What is the expected impact of the Caesars Casino reopening on the Hilton Riverside?
A: Management believes the reopening of the Caesars Casino will be incrementally additive. The hotel is about 65% group business, and the casino could bring additional transient and incremental group demand. They view it as a positive for the destination and see significant long-term value in their New Orleans assets.