10-Q 1 pk-20220331.htm 10-Q 10-Q
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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, 2022

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 27, 2022 was 233,370,080.
 

 

 

 

 


 

Table of Contents

 

PART I. FINANCIAL INFORMATION

 

Page

 

 

 

 

Item 1.

Financial Statements (unaudited)

 

3

 

Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021

 

3

 

Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2022 and 2021

 

4

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021

 

5

 

Condensed Consolidated Statements of Equity for the Three Months Ended March 31, 2022 and 2021

 

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

 

23

Item 4.

Controls and Procedures

 

23

 

 

 

 

PART II. OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

 

24

Item 1A.

Risk Factors

 

24

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

24

Item 3.

Defaults Upon Senior Securities

 

24

Item 4.

Mine Safety Disclosures

 

24

Item 5.

Other Information

 

25

Item 6.

Exhibits

 

26

 

Signatures

 

27

 

 

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, 2022

 

 

December 31, 2021

 

 

 

(unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Property and equipment, net

 

$

8,465

 

 

$

8,511

 

Investments in affiliates

 

 

16

 

 

 

15

 

Intangibles, net

 

 

44

 

 

 

44

 

Cash and cash equivalents

 

 

639

 

 

 

688

 

Restricted cash

 

 

78

 

 

 

75

 

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

 

 

106

 

 

 

96

 

Prepaid expenses

 

 

58

 

 

 

35

 

Other assets

 

 

65

 

 

 

69

 

Operating lease right-of-use assets

 

 

232

 

 

 

210

 

TOTAL ASSETS (variable interest entities - $240 and $237)

 

$

9,703

 

 

$

9,743

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Debt

 

$

4,671

 

 

$

4,672

 

Accounts payable and accrued expenses

 

 

200

 

 

 

156

 

Due to hotel managers

 

 

113

 

 

 

111

 

Other liabilities

 

 

184

 

 

 

174

 

Operating lease liabilities

 

 

250

 

 

 

227

 

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

 

 

5,418

 

 

 

5,340

 

Commitments and contingencies - refer to Note 10

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

Common stock, par value $0.01 per share, 6,000,000,000 shares
   authorized,
233,835,899 shares issued and 233,324,391 shares outstanding
   as of March 31, 2022 and
236,888,804 shares issued and 236,483,990
   shares outstanding as of December 31, 2021

 

 

2

 

 

 

2

 

Additional paid-in capital

 

 

4,473

 

 

 

4,533

 

Accumulated deficit

 

 

(142

)

 

 

(83

)

Total stockholders' equity

 

 

4,333

 

 

 

4,452

 

Noncontrolling interests

 

 

(48

)

 

 

(49

)

Total equity

 

 

4,285

 

 

 

4,403

 

TOTAL LIABILITIES AND EQUITY

 

$

9,703

 

 

$

9,743

 

 

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

 

3


 

PARK HOTELS & RESORTS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(unaudited, in millions, except per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Revenues

 

 

 

 

 

 

Rooms

 

$

292

 

 

$

106

 

Food and beverage

 

 

110

 

 

 

22

 

Ancillary hotel

 

 

61

 

 

 

29

 

Other

 

 

16

 

 

 

8

 

Total revenues

 

 

479

 

 

 

165

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

Rooms

 

 

85

 

 

 

35

 

Food and beverage

 

 

87

 

 

 

21

 

Other departmental and support

 

 

133

 

 

 

78

 

Other property-level

 

 

50

 

 

 

48

 

Management fees

 

 

22

 

 

 

7

 

Depreciation and amortization

 

 

69

 

 

 

74

 

Corporate general and administrative

 

 

16

 

 

 

18

 

Other

 

 

16

 

 

 

7

 

Total expenses

 

 

478

 

 

 

288

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

1

 

 

 

(123

)

 

 

 

 

 

 

 

Interest expense

 

 

(62

)

 

 

(63

)

Equity in losses from investments in affiliates

 

 

 

 

 

(4

)

Other gain, net

 

 

5

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(56

)

 

 

(190

)

Income tax expense

 

 

 

 

 

(1

)

Net loss

 

 

(56

)

 

 

(191

)

Net (income) loss attributable to noncontrolling interests

 

 

(1

)

 

 

1

 

Net loss attributable to stockholders

 

$

(57

)

 

$

(190

)

 

 

 

 

 

 

 

Other comprehensive income, net of tax expense:

 

 

 

 

 

 

Change in fair value of interest rate swap, net of tax expense of $0

 

 

 

 

 

1

 

Total other comprehensive income

 

 

 

 

 

1

 

 

 

 

 

 

 

 

Comprehensive loss

 

 

(56

)

 

 

(190

)

Comprehensive (income) loss attributable to noncontrolling interests

 

 

(1

)

 

 

1

 

Comprehensive loss attributable to stockholders

 

$

(57

)

 

$

(189

)

 

 

 

 

 

 

 

Loss per share:

 

 

 

 

 

 

Loss per share – Basic

 

$

(0.24

)

 

$

(0.81

)

Loss per share – Diluted

 

$

(0.24

)

 

$

(0.81

)

 

 

 

 

 

 

 

Weighted average shares outstanding – Basic

 

 

235

 

 

 

235

 

Weighted average shares outstanding – Diluted

 

 

235

 

 

 

236

 

 

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,

 

 

 

2022

 

 

2021

 

Operating Activities:

 

 

 

 

 

 

Net loss

 

$

(56

)

 

$

(191

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

69

 

 

 

74

 

Equity in losses from investments in affiliates

 

 

 

 

 

4

 

Other gain, net

 

 

(1

)

 

 

 

Share-based compensation expense

 

 

4

 

 

 

6

 

Amortization of deferred financing costs

 

 

3

 

 

 

2

 

Changes in operating assets and liabilities

 

 

25

 

 

 

34

 

Net cash provided by (used in) operating activities

 

 

44

 

 

 

(71

)

Investing Activities:

 

 

 

 

 

 

Capital expenditures for property and equipment

 

 

(21

)

 

 

(5

)

Contributions to unconsolidated affiliates

 

 

 

 

 

(2

)

Insurance proceeds for property damage claims

 

 

 

 

 

4

 

Net cash used in investing activities

 

 

(21

)

 

 

(3

)

Financing Activities:

 

 

 

 

 

 

Repayments of mortgage debt

 

 

(2

)

 

 

(1

)

Debt issuance costs

 

 

(3

)

 

 

 

Tax withholdings on share-based compensation

 

 

(3

)

 

 

(6

)

Repurchase of common stock

 

 

(61

)

 

 

 

Net cash used in financing activities

 

 

(69

)

 

 

(7

)

Net decrease in cash and cash equivalents and restricted cash

 

 

(46

)

 

 

(81

)

Cash and cash equivalents and restricted cash, beginning of period

 

 

763

 

 

 

981

 

Cash and cash equivalents and restricted cash, end of period

 

$

717

 

 

$

900

 

 

 

 

 

 

 

 

Supplemental Disclosures

 

 

 

 

 

 

Non-cash financing activities:

 

 

 

 

 

 

Dividends declared but unpaid

 

$

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

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Earnings

 

 

Other

 

 

Non-

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

(Accumulated

 

 

Comprehensive

 

 

controlling

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit)

 

 

(Loss) Income

 

 

Interests

 

 

Total

 

Balance as of December 31, 2020

 

 

236

 

 

$

2

 

 

$

4,519

 

 

$

376

 

 

$

(4

)

 

$

(50

)

 

$

4,843

 

Share-based compensation, net

 

 

 

 

 

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(190

)

 

 

 

 

 

(1

)

 

 

(191

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Balance as of March 31, 2021

 

 

236

 

 

$

2

 

 

$

4,520

 

 

$

185

 

 

$

(3

)

 

$

(51

)

 

$

4,653

 

 

 

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

 

 

 

 

 

 

 

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 and Recent Events

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 in 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. We may, in the future, issue interests in (or from) our Operating Company in connection with acquiring hotels, financing, compensation or other purposes.

COVID-19 Update

The novel strain of coronavirus and the disease it causes (“COVID-19”) have had and continue to have an effect on the hospitality industry and our business. Beginning in March 2020, we experienced a significant decline in occupancy and Revenue per Available Room (“RevPAR”) associated with COVID-19 throughout our portfolio, which resulted in a decline in our operating cash flow. The increase in vaccination rates across the country and the easing or removal of government restrictions, quarantining and “social distancing” mandates resulted in increased travel and hospitality spending beginning in the second quarter of 2021. Although concerns over the spread of the Omicron variant reduced demand in the first six weeks of the quarter, we witnessed recovery beginning in mid-February 2022 as COVID-19 cases declined across the country and business travel accelerated, and saw the return of group demand. We expect positive momentum to continue for our leisure focused hotels and increased demand for both group and business transient travel during the remainder of the year.

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, 2021 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on February 18, 2022.

7


 

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 condensed consolidated balance sheets as of December 31, 2021 have been reclassified to conform to the current period presentation.

Summary of Significant Accounting Policies

 

Our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 18, 2022, contains a discussion of the significant accounting policies. There have been no significant changes to our significant accounting policies since December 31, 2021.

Note 3: Property and Equipment

Property and equipment were:

 

 

 

March 31, 2022

 

 

December 31, 2021

 

 

 

(in millions)

 

Land

 

$

3,336

 

 

$

3,333

 

Buildings and leasehold improvements

 

 

6,616

 

 

 

6,606

 

Furniture and equipment

 

 

1,013

 

 

 

1,005

 

Construction-in-progress

 

 

82

 

 

 

82

 

 

 

 

11,047

 

 

 

11,026

 

Accumulated depreciation and amortization

 

 

(2,582

)

 

 

(2,515

)

 

 

$

8,465

 

 

$

8,511

 

 

Depreciation of property and equipment was $68 million and $73 million during the three months ended March 31, 2022 and 2021, respectively.

Note 4: 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, 2022

 

 

December 31, 2021

 

 

 

(in millions)

 

Property and equipment, net

 

$

208

 

 

$

209

 

Cash and cash equivalents

 

 

19

 

 

 

18

 

Restricted cash

 

 

8

 

 

 

6

 

Accounts receivable, net

 

 

3

 

 

 

3

 

Prepaid expenses

 

 

2

 

 

 

1

 

Debt

 

 

206

 

 

 

208

 

Accounts payable and accrued expenses

 

 

8

 

 

 

7

 

Due to hotel manager

 

 

1

 

 

 

1

 

Other liabilities

 

 

4

 

 

 

3

 

 

8


 

Unconsolidated Entities

Investments in affiliates were:

 

 

 

Ownership %

 

March 31, 2022

 

 

December 31, 2021

 

 

 

 

 

(in millions)

 

Hilton San Diego Bayfront

 

25%

 

$

12

 

 

$

11

 

All others (5 hotels)

 

20% - 50%

 

 

4

 

 

 

4

 

 

 

 

 

$

16

 

 

$

15

 

 

The affiliates in which we own investments accounted for under the equity method had total debt of approximately $942 million and $943 million as of March 31, 2022 and December 31, 2021, respectively. Substantially all the debt is secured solely by the affiliates’ assets or is guaranteed by other partners without recourse to us.

Note 5: Debt

Debt balances and associated interest rates as of March 31, 2022 were:

 

 

 

 

 

 

 

Principal balance as of

 

 

 

Interest Rate
at March 31, 2022

 

Maturity Date

 

March 31, 2022

 

 

December 31, 2021

 

 

 

 

 

 

 

(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 4.22%

 

2022 to 2027(2)

 

 

501

 

 

 

503

 

2019 Term Facility(3)

 

L + 2.65%

 

August 2024

 

 

78

 

 

 

78

 

Revolver(3)

 

L + 3.00%

 

December 2023

 

 

 

 

 

 

2025 Senior Secured Notes(4)

 

7.50%

 

June 2025

 

 

650

 

 

 

650

 

2028 Senior Secured Notes(4)