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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-37795

 

Park Hotels & Resorts Inc.

(Exact name of Registrant as specified in its Charter)

 

Delaware

 

36-2058176

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S Employer

Identification No.)

 

1775 Tysons Boulevard, 7th Floor, Tysons, VA

22102

(Address of principal executive offices)

(Zip Code)

(Registrant’s telephone number, including area code): (571) 302-5757

 

 

Securities registered pursuant to Section 12(b) of the Act.

 

Title of each class

Trading Symbol

Name of exchange on which registered

Common Stock, $0.01 par value per share

PK

New York Stock Exchange

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

 

The number of shares of common stock outstanding on April 25, 2023 was 215,629,872.

 

 

 


 

Table of Contents

 

PART I. FINANCIAL INFORMATION

Page

Item 1.

Financial Statements (unaudited)

3

Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022

3

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2023 and 2022

4

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022

5

Condensed Consolidated Statements of Equity for the Three Months Ended March 31, 2023 and 2022

6

Notes to Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

14

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

22

Item 4.

Controls and Procedures

22

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

23

Item 1A.

Risk Factors

23

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

23

Item 3.

Defaults Upon Senior Securities

23

Item 4.

Mine Safety Disclosures

23

Item 5.

Other Information

24

Item 6.

Exhibits

24

 

Signatures

25

 

 

2


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

PARK HOTELS & RESORTS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share and per share data)

 

 

 

March 31, 2023

 

 

December 31, 2022

 

 

 

(unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Property and equipment, net

 

$

8,198

 

 

$

8,301

 

Intangibles, net

 

 

43

 

 

 

43

 

Cash and cash equivalents

 

 

842

 

 

 

906

 

Restricted cash

 

 

33

 

 

 

33

 

Accounts receivable, net of allowance for doubtful accounts of $2 and $2

 

 

130

 

 

 

129

 

Prepaid expenses

 

 

55

 

 

 

58

 

Other assets

 

 

42

 

 

 

47

 

Operating lease right-of-use assets

 

 

210

 

 

 

214

 

TOTAL ASSETS (variable interest entities  $231 and $237)

 

$

9,553

 

 

$

9,731

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Debt

 

$

4,566

 

 

$

4,617

 

Accounts payable and accrued expenses

 

 

244

 

 

 

220

 

Due to hotel managers

 

 

117

 

 

 

141

 

Other liabilities

 

 

207

 

 

 

228

 

Operating lease liabilities

 

 

231

 

 

 

234

 

Total liabilities (variable interest entities  $218 and $219)

 

 

5,365

 

 

 

5,440

 

Commitments and contingencies  refer to Note 11

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

Common stock, par value $0.01 per share, 6,000,000,000 shares
   authorized,
216,317,656 shares issued and 215,630,695 shares outstanding
   as of March 31, 2023 and
224,573,858 shares issued and 224,061,745
   shares outstanding as of December 31, 2022

 

 

2

 

 

 

2

 

Additional paid-in capital

 

 

4,216

 

 

 

4,321

 

Retained earnings

 

 

19

 

 

 

16

 

Total stockholders' equity

 

 

4,237

 

 

 

4,339

 

Noncontrolling interests

 

 

(49

)

 

 

(48

)

Total equity

 

 

4,188

 

 

 

4,291

 

TOTAL LIABILITIES AND EQUITY

 

$

9,553

 

 

$

9,731

 

 

Refer to the notes to the unaudited condensed consolidated financial statements.

 

3


 

PARK HOTELS & RESORTS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in millions, except per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Revenues

 

 

 

 

 

 

Rooms

 

$

382

 

 

$

292

 

Food and beverage

 

 

181

 

 

 

110

 

Ancillary hotel

 

 

65

 

 

 

61

 

Other

 

 

20

 

 

 

16

 

Total revenues

 

 

648

 

 

 

479

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

Rooms

 

 

107

 

 

 

85

 

Food and beverage

 

 

127

 

 

 

87

 

Other departmental and support

 

 

158

 

 

 

133

 

Other property-level

 

 

60

 

 

 

50

 

Management fees

 

 

30

 

 

 

22

 

Casualty loss

 

 

1

 

 

 

 

Depreciation and amortization

 

 

64

 

 

 

69

 

Corporate general and administrative

 

 

16

 

 

 

16

 

Other

 

 

20

 

 

 

16

 

Total expenses

 

 

583

 

 

 

478

 

 

 

 

 

 

Gain on sales of assets, net

 

 

15

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

80

 

 

 

1

 

 

 

 

 

 

 

Interest income

 

 

10

 

 

 

 

Interest expense

 

 

(60

)

 

 

(62

)

Equity in earnings from investments in affiliates

 

 

4

 

 

 

 

Other gain, net

 

 

1

 

 

 

5

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 

35

 

 

 

(56

)

Income tax expense

 

 

(2

)

 

 

 

Net income (loss)

 

 

33

 

 

 

(56

)

Net income attributable to noncontrolling interests

 

 

 

 

 

(1

)

Net income (loss) attributable to stockholders

 

$

33

 

 

$

(57

)

 

 

 

 

 

Earnings (loss) per share:

 

 

 

 

 

 

Earnings (loss) per share – Basic

 

$

0.15

 

 

$

(0.24

)

Earnings (loss) per share – Diluted

 

$

0.15

 

 

$

(0.24

)

 

 

 

 

 

 

Weighted average shares outstanding – Basic

 

 

220

 

 

 

235

 

Weighted average shares outstanding – Diluted

 

 

221

 

 

 

235

 

 

Refer to the notes to the unaudited condensed consolidated financial statements.

4


 

PARK HOTELS & RESORTS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in millions)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2023

 

 

2022

 

Operating Activities:

 

 

 

 

 

 

Net income (loss)

 

$

33

 

 

$

(56

)

Adjustments to reconcile net income (loss) to net cash provided by operating
   activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

64

 

 

 

69

 

Gain on sales of assets, net

 

 

(15

)

 

 

 

Casualty loss

 

 

1

 

 

 

 

Equity in earnings from investments in affiliates

 

 

(4

)

 

 

 

Other gain, net

 

 

 

 

 

(1

)

Share-based compensation expense

 

 

4

 

 

 

4

 

Amortization of deferred financing costs

 

 

2

 

 

 

3

 

Distributions from unconsolidated affiliates

 

 

6

 

 

 

 

Changes in operating assets and liabilities

 

 

13

 

 

 

25

 

Net cash provided by operating activities

 

 

104

 

 

 

44

 

Investing Activities:

 

 

 

 

 

 

Capital expenditures for property and equipment

 

 

(54

)

 

 

(21

)

Acquisitions, net

 

 

(11

)

 

 

 

Proceeds from asset dispositions, net

 

 

116

 

 

 

 

Contributions to unconsolidated affiliates

 

 

(2

)

 

 

 

Net cash provided by (used in) investing activities

 

 

49

 

 

 

(21

)

Financing Activities:

 

 

 

 

 

 

Repayments of credit facilities

 

 

(50

)

 

 

 

Repayments of mortgage debt

 

 

(2

)

 

 

(2

)

Debt issuance costs

 

 

(1

)

 

 

(3

)

Dividends paid

 

 

(56

)

 

 

 

Distributions to noncontrolling interests, net

 

 

(1

)

 

 

 

Tax withholdings on share-based compensation

 

 

(2

)

 

 

(3

)

Repurchase of common stock

 

 

(105

)

 

 

(61

)

Net cash used in financing activities

 

 

(217

)

 

 

(69

)

Net decrease in cash and cash equivalents and restricted cash

 

 

(64

)

 

 

(46

)

Cash and cash equivalents and restricted cash, beginning of period

 

 

939

 

 

 

763

 

Cash and cash equivalents and restricted cash, end of period

 

$

875

 

 

$

717

 

 

 

 

 

 

 

Supplemental Disclosures

 

 

 

 

 

 

Non-cash financing activities:

 

 

 

 

 

 

Dividends declared but unpaid

 

$

32

 

 

 

2

 

 

 

Refer to the notes to the unaudited condensed consolidated financial statements.

5


 

PARK HOTELS & RESORTS INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(unaudited, in millions)

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Non-

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Retained

 

 

controlling

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Interests

 

 

Total

 

Balance as of December 31, 2022

 

 

224

 

 

$

2

 

 

$

4,321

 

 

$

16

 

 

$

(48

)

 

$

4,291

 

Share-based compensation, net

 

 

1

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

2

 

Net income

 

 

 

 

 

 

 

 

 

 

 

33

 

 

 

 

 

 

33

 

Dividends and dividend equivalents(1)

 

 

 

 

 

 

 

 

 

 

 

(32

)

 

 

 

 

 

(32

)

Distributions to noncontrolling
    interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

(1

)

Repurchase of common stock

 

 

(9

)

 

 

 

 

 

(105

)

 

 

 

 

 

 

 

 

(105

)

Balance as of March 31, 2023

 

 

216

 

 

$

2

 

 

$

4,216

 

 

$

19

 

 

$

(49

)

 

$

4,188

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Non-

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

controlling

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Interests

 

 

Total

 

Balance as of December 31, 2021

 

 

236

 

 

$

2

 

 

$

4,533

 

 

$

(83

)

 

$

(49

)

 

$

4,403

 

Share-based compensation, net

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(57

)

 

 

1

 

 

 

(56

)

Dividends and dividend equivalents(1)

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

(2

)

Repurchase of common stock

 

 

(3

)

 

 

 

 

 

(61

)

 

 

 

 

 

 

 

 

(61

)

Balance as of March 31, 2022

 

 

233

 

 

$

2

 

 

$

4,473

 

 

$

(142

)

 

$

(48

)

 

$

4,285

 

 

(1) Dividends declared per common share were $0.15 and $0.01 for the three months ended March 31, 2023 and 2022, respectively.

 

 

Refer to the notes to the unaudited condensed consolidated financial statements.

6


 

PARK HOTELS & RESORTS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1: Organization

Park Hotels & Resorts Inc. (“we,” “us,” “our” or the “Company” and, exclusive of any subsidiaries, "Park Parent") is a Delaware corporation that owns a portfolio of premium-branded hotels and resorts primarily located in prime city center and resort locations. On January 3, 2017, Hilton Worldwide Holdings Inc. (“Hilton”) completed the spin-off of a portfolio of hotels and resorts that established Park Hotels & Resorts Inc. as an independent, publicly traded company.

On May 5, 2019, the Company, PK Domestic Property LLC, an indirect subsidiary of the Company (“PK Domestic”), and PK Domestic Sub LLC, a wholly-owned subsidiary of PK Domestic (“Merger Sub”) entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) with Chesapeake Lodging Trust (“Chesapeake”). On September 18, 2019, pursuant to the terms and subject to the conditions set forth in the Merger Agreement, Chesapeake merged with and into Merger Sub (the “Merger”) and each of Chesapeake’s common shares of beneficial interest, $0.01 par value per share, was converted into $11.00 in cash and 0.628 of a share of our common stock. No fractional shares of our common stock were issued in the Merger. The value of any fractional interests to which a Chesapeake shareholder would otherwise have been entitled was paid in cash.

We are a real estate investment trust (“REIT”) for United States (“U.S.”) federal income tax purposes. We have been organized and operated, and we expect to continue to be organized and operate, in a manner to qualify as a REIT. To qualify as a REIT, we must satisfy requirements related to, among other things, the real estate qualification of sources of our income, the real estate composition and values of our assets, the amounts we distribute to our stockholders annually and the diversity of ownership of our stock. From the date of our spin-off from Hilton, Park Intermediate Holdings LLC (our “Operating Company”), directly or indirectly, has held all our assets and has conducted all of our operations. Park Parent owned 100% of the interests of our Operating Company until December 31, 2021 when the business undertook an internal reorganization transitioning our structure to a traditional umbrella partnership REIT structure ("UPREIT"). Effective January 1, 2022, Park Parent became the managing member of our Operating Company and PK Domestic REIT Inc., a direct subsidiary of Park Parent, became a member of our Operating Company. We may, in the future, issue interests in (or from) our Operating Company in connection with acquiring hotels, financings, issuance of equity compensation or other purposes.

Note 2: Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

Principles of Consolidation

The unaudited condensed consolidated financial statements reflect our financial position, results of operations and cash flows, in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with U.S. GAAP. In our opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, including normal recurring items, considered necessary for a fair presentation of the interim periods. All significant intercompany transactions and balances within the financial statements have been eliminated.

These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2022 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on February 23, 2023.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Interim results are not necessarily indicative of full year performance.

 

Reclassifications

 

Certain line items on the audited condensed consolidated balance sheet as of December 31, 2022 have been reclassified to conform to the current period presentation.

 

7


 

Summary of Significant Accounting Policies

 

Our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 23, 2023, contains a discussion of significant accounting policies. There have been no significant changes to our significant accounting policies since December 31, 2022.

Note 3: Acquisitions and Dispositions

Acquisitions

In March 2023, we purchased two parcels of land, including all improvements, adjacent to the Hilton Hawaiian Village Waikiki Beach Resort, for approximately $18 million, including transaction costs. We accounted for the purchase as an acquisition of an asset, and the entire purchase price was allocated to land.

Dispositions

In February 2023, we sold the Hilton Miami Airport hotel for gross proceeds of $118.25 million. We recognized a net gain of approximately $15 million, which is included in gain on sale of assets, net in our condensed consolidated statements of operations.

Note 4: Property and Equipment

Property and equipment were:

 

 

March 31, 2023

 

 

December 31, 2022

 

 

 

(in millions)

 

Land

 

$

3,272

 

 

$

3,317

 

Buildings and leasehold improvements

 

 

6,469

 

 

 

6,512

 

Furniture and equipment

 

 

993

 

 

 

994

 

Construction-in-progress

 

 

211

 

 

 

201

 

 

 

 

10,945

 

 

 

11,024

 

Accumulated depreciation

 

 

(2,747

)

 

 

(2,723

)

 

 

$

8,198

 

 

$

8,301

 

 

Depreciation of property and equipment was $64 million and $68 million during the three months ended March 31, 2023 and 2022, respectively.

Note 5: Consolidated Variable Interest Entities ("VIEs") and Investments in Affiliates

Consolidated VIEs

We consolidate VIEs that own three hotels in the U.S. We are the primary beneficiary of these VIEs as we have the power to direct the activities that most significantly affect their economic performance. Additionally, we have the obligation to absorb their losses and the right to receive benefits that could be significant to them. The assets of our VIEs are only available to settle the obligations of these entities. Our condensed consolidated balance sheets include the following assets and liabilities of these entities:

 

 

 

March 31, 2023

 

 

December 31, 2022

 

 

 

(in millions)

 

Property and equipment, net

 

$

208

 

 

$

208

 

Cash and cash equivalents

 

 

14

 

 

 

21

 

Restricted cash

 

 

2

 

 

 

2

 

Accounts receivable, net

 

 

5

 

 

 

4

 

Prepaid expenses

 

 

2

 

 

 

2

 

Debt

 

 

204

 

 

 

205

 

Accounts payable and accrued expenses

 

 

9

 

 

 

8

 

Due to hotel manager

 

 

1

 

 

 

2

 

Other liabilities

 

 

4

 

 

 

4

 

Unconsolidated Entities

 

Four of our hotels are owned by unconsolidated joint ventures in which we hold an interest, are accounted for under the equity method and had total debt of approximately $721 million as of both March 31, 2023 and December 31, 2022. Substantially all the debt is secured solely by the affiliates’ assets or is guaranteed by other partners without recourse to us.

8


 

Note 6: Debt

Debt balances and associated interest rates as of March 31, 2023 were:

 

 

 

 

 

 

 

Principal balance as of

 

 

 

Interest Rate
at March 31, 2023

 

Maturity Date

 

March 31, 2023

 

 

December 31, 2022

 

 

 

 

 

 

 

(in millions)

 

SF Mortgage Loan(1)

 

4.11%

 

November 2023

 

$

725

 

 

$

725

 

HHV Mortgage Loan(1)

 

4.20%

 

November 2026

 

 

1,275

 

 

 

1,275

 

Other mortgage loans

 

Average rate of 4.35%

 

2023 to 2027(2)

 

 

467

 

 

 

469

 

Revolver(3)

 

SOFR + 2.10%

 

December 2026

 

 

 

 

 

50

 

2025 Senior Notes(4)

 

7.50%

 

June 2025

 

 

650

 

 

 

650

 

2028 Senior Notes(4)

 

5.88%

 

October 2028

 

 

725

 

 

 

725

 

2029 Senior Notes(4)

 

4.88%

 

May 2029

 

 

750