Company Quick10K Filing
Park Hotels & Resorts
Price24.80 EPS1
Shares239 P/E24
MCap5,937 P/FCF17
Net Debt3,754 EBIT355
TEV9,691 TEV/EBIT27
TTM 2019-09-30, in MM, except price, ratios
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PK 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements.
Note 1: Organization
Note 2: Basis of Presentation and Summary of Significant Accounting Policies
Note 3: Dispositions
Note 4: Property and Equipment
Note 5: Consolidated Variable Interest Entities ("VIES") and Investments in Affiliates
Note 6: Debt
Note 7: Fair Value Measurements
Note 8: Leases
Note 9: Income Taxes
Note 10: Share - Based Compensation
Note 11: Earnings per Share
Note 12: Business Segment Information
Note 13: Commitments and Contingencies
Note 14: Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II. Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits
EX-31.1 pk-ex311_12.htm
EX-31.2 pk-ex312_13.htm
EX-32.1 pk-ex321_11.htm
EX-32.2 pk-ex322_10.htm

Park Hotels & Resorts Earnings 2019-03-31

Balance SheetIncome StatementCash Flow
151296302017201820192020
Assets, Equity
2.41.91.41.00.50.02017201820192020
Rev, G Profit, Net Income
0.80.40.1-0.3-0.6-1.02017201820192020
Ops, Inv, Fin

10-Q 1 pk-10q_20190331.htm 10-Q pk-10q_20190331.htm

 

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, 2019

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 Number)

 

1775 Tysons Blvd., 7th Floor, Tysons, VA

 

22102

(Address of Principal Executive Offices)

 

(Zip Code)

(571) 302-5757

(Registrant’s telephone number, including area code)

 

 

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

 

Securities registered or to be 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

 

The number of shares of common stock outstanding on April 30, 2019 was 201,577,509.

 

 

 

 


 

Table of Contents

 

PART I. FINANCIAL INFORMATION

 

Page

 

 

 

 

Item 1.

Financial Statements (unaudited)

 

2

 

Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018

 

2

 

Condensed Consolidated Statements of Comprehensive Income for the Three months ended March 31, 2019 and 2018

 

3

 

Condensed Consolidated Statements of Cash Flows for the Three months ended March 31, 2019 and 2018

 

4

 

Condensed Consolidated Statements of Equity for the Three months ended March 31, 2019 and 2018

 

5

 

Notes to Condensed Consolidated Financial Statements

 

6

Item 2.

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

 

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

27

Item 4.

Controls and Procedures

 

27

 

 

 

 

PART II. OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

 

28

Item 1A.

Risk Factors

 

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

30

Item 3.

Defaults Upon Senior Securities

 

30

Item 4.

Mine Safety Disclosures

 

30

Item 5.

Other Information

 

30

Item 6.

Exhibits

 

31

 

 

 

 

 

Signatures

 

32

 

 

 

1


 

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, 2019

 

 

December 31, 2018

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Property and equipment, net

 

$

7,944

 

 

$

7,975

 

Investments in affiliates

 

 

49

 

 

 

50

 

Goodwill

 

 

607

 

 

 

607

 

Intangibles, net

 

 

2

 

 

 

27

 

Cash and cash equivalents

 

 

276

 

 

 

410

 

Restricted cash

 

 

14

 

 

 

15

 

Accounts receivable, net of allowance for doubtful accounts of $1 and $1

 

 

172

 

 

 

153

 

Prepaid expenses

 

 

76

 

 

 

82

 

Other assets

 

 

42

 

 

 

44

 

Operating lease right-of-use asset

 

 

212

 

 

 

 

TOTAL ASSETS (variable interest entities - $241 and $242)

 

$

9,394

 

 

$

9,363

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Debt

 

$

2,949

 

 

$

2,948

 

Accounts payable and accrued expenses

 

 

162

 

 

 

183

 

Due to hotel manager

 

 

110

 

 

 

137

 

Due to Hilton Grand Vacations

 

 

135

 

 

 

135

 

Deferred income tax liabilities

 

 

41

 

 

 

42

 

Other liabilities

 

 

213

 

 

 

332

 

Operating lease liability

 

 

204

 

 

 

 

Total liabilities (variable interest entities - $217 and $217)

 

 

3,814

 

 

 

3,777

 

Commitments and contingencies - refer to Note 13

 

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

 

Common stock, par value $0.01 per share, 6,000,000,000 shares authorized,

   201,715,453 shares issued and 201,539,398 shares outstanding as of

   March 31, 2019 and 201,290,458 shares issued and 201,198,381

   shares outstanding as of December 31, 2018

 

 

2

 

 

 

2

 

Additional paid-in capital

 

 

3,588

 

 

 

3,589

 

Retained earnings

 

 

2,044

 

 

 

2,047

 

Accumulated other comprehensive loss

 

 

(6

)

 

 

(6

)

Total stockholders' equity

 

 

5,628

 

 

 

5,632

 

Noncontrolling interests

 

 

(48

)

 

 

(46

)

Total equity

 

 

5,580

 

 

 

5,586

 

TOTAL LIABILITIES AND EQUITY

 

$

9,394

 

 

$

9,363

 

 

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

 

 

2


 

PARK HOTELS & RESORTS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in millions, except per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Revenues

 

 

 

 

 

 

 

 

Rooms

 

$

405

 

 

$

418

 

Food and beverage

 

 

183

 

 

 

183

 

Ancillary hotel

 

 

53

 

 

 

50

 

Other

 

 

18

 

 

 

17

 

Total revenues

 

 

659

 

 

 

668

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

Rooms

 

 

107

 

 

 

112

 

Food and beverage

 

 

124

 

 

 

126

 

Other departmental and support

 

 

149

 

 

 

156

 

Other property-level

 

 

49

 

 

 

53

 

Management and franchise fees

 

 

33

 

 

 

33

 

Depreciation and amortization

 

 

62

 

 

 

70

 

Corporate general and administrative

 

 

17

 

 

 

16

 

Other

 

 

20

 

 

 

17

 

Total expenses

 

 

561

 

 

 

583

 

 

 

 

 

 

 

 

 

 

Gain on sales of assets, net

 

 

31

 

 

 

89

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

129

 

 

 

174

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

1

 

 

 

1

 

Interest expense

 

 

(32

)

 

 

(31

)

Equity in earnings from investments in affiliates

 

 

5

 

 

 

4

 

Gain on foreign currency transactions

 

 

 

 

 

1

 

Other gain, net

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

104

 

 

 

149

 

Income tax expense

 

 

(7

)

 

 

 

Net income

 

 

97

 

 

 

149

 

Net (income) loss attributable to noncontrolling interests

 

 

(1

)

 

 

1

 

Net income attributable to stockholders

 

$

96

 

 

$

150

 

 

 

 

 

 

 

 

 

 

Other comprehensive income, net of tax expense:

 

 

 

 

 

 

 

 

Currency translation adjustment, net of tax expense of $0

 

 

 

 

 

37

 

Total other comprehensive income

 

 

 

 

 

37

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

97

 

 

$

186

 

Comprehensive (income) loss attributable to noncontrolling interests

 

 

(1

)

 

 

1

 

Comprehensive income attributable to stockholders

 

$

96

 

 

$

187

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

Earnings per share - Basic

 

$

0.48

 

 

$

0.71

 

Earnings per share - Diluted

 

$

0.48

 

 

$

0.71

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - Basic

 

 

201

 

 

 

211

 

Weighted average shares outstanding - Diluted

 

 

202

 

 

 

212

 

 

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

3


 

PARK HOTELS & RESORTS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in millions)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

Operating Activities:

 

 

 

 

 

 

 

 

Net income

 

$

97

 

 

$

149

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

62

 

 

 

70

 

Gain on sales of assets, net

 

 

(31

)

 

 

(89

)

Equity in earnings from investments in affiliates

 

 

(5

)

 

 

(4

)

Gain on foreign currency transactions

 

 

 

 

 

(1

)

Other gain, net

 

 

(1

)

 

 

 

Share-based compensation expense

 

 

4

 

 

 

4

 

Amortization of deferred financing costs

 

 

1

 

 

 

1

 

Distributions from unconsolidated affiliates

 

 

6

 

 

 

1

 

Deferred income taxes

 

 

(1

)

 

 

(5

)

Changes in operating assets and liabilities

 

 

(60

)

 

 

(83

)

Net cash provided by operating activities

 

 

72

 

 

 

43

 

Investing Activities:

 

 

 

 

 

 

 

 

Capital expenditures for property and equipment

 

 

(64

)

 

 

(53

)

Proceeds from asset dispositions, net

 

 

65

 

 

 

360

 

Insurance proceeds for property damage claims

 

 

1

 

 

 

18

 

Net cash provided by investing activities

 

 

2

 

 

 

325

 

Financing Activities:

 

 

 

 

 

 

 

 

Dividends paid

 

 

(201

)

 

 

(119

)

Distributions to noncontrolling interests

 

 

(3

)

 

 

 

Tax withholdings on share-based compensation

 

 

(5

)

 

 

(1

)

Repurchase of common stock

 

 

 

 

 

(348

)

Net cash used in financing activities

 

 

(209

)

 

 

(468

)

Effect of exchange rate changes on cash and cash equivalents and restricted cash

 

 

 

 

 

1

 

Net decrease in cash and cash equivalents and restricted cash

 

 

(135

)

 

 

(99

)

Cash and cash equivalents and restricted cash, beginning of period

 

 

425

 

 

 

379

 

Cash and cash equivalents and restricted cash, end of period

 

$

290

 

 

$

280

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosures

 

 

 

 

 

 

 

 

Non-cash financing activities:

 

 

 

 

 

 

 

 

Dividends declared but unpaid

 

$

90

 

 

$

86

 

 

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

 

 

4


 

PARK HOTELS & RESORTS INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(unaudited, in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

Non-

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

controlling

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Interests

 

 

Total

 

Balance as of December 31, 2018

 

 

201

 

 

$

2

 

 

$

3,589

 

 

$

2,047

 

 

$

(6

)

 

$

(46

)

 

$

5,586

 

Share-based compensation, net

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(1

)

Net income

 

 

 

 

 

 

 

 

 

 

 

96

 

 

 

 

 

 

1

 

 

 

97

 

Dividends and dividend equivalents(1)

 

 

 

 

 

 

 

 

 

 

 

(91

)

 

 

 

 

 

 

 

 

(91

)

Distributions to noncontrolling

    interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

(3

)

Cumulative effect of change in

    accounting principle

 

 

 

 

 

 

 

 

 

 

 

(8

)

 

 

 

 

 

 

 

 

 

 

(8

)

Balance as of March 31, 2019

 

 

201

 

 

$

2

 

 

$

3,588

 

 

$

2,044

 

 

$

(6

)

 

$

(48

)

 

$

5,580

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

Non-

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

controlling

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Interests

 

 

Total

 

Balance as of December 31, 2017

 

 

215

 

 

$

2

 

 

$

3,825

 

 

$

2,229

 

 

$

(45

)

 

$

(49

)

 

$

5,962

 

Share-based compensation, net

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

3

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

150

 

 

 

 

 

 

(1

)

 

 

149

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

37

 

 

 

 

 

 

37

 

Dividends and dividend equivalents(1)

 

 

 

 

 

 

 

 

 

 

 

(88

)

 

 

 

 

 

 

 

 

(88

)

Repurchase of common stock

 

 

(14

)

 

 

 

 

 

(250

)

 

 

(98

)

 

 

 

 

 

 

 

 

(348

)

Balance as of March 31, 2018

 

 

201

 

 

$

2

 

 

$

3,578

 

 

$

2,193

 

 

$

(8

)

 

$

(50

)

 

$

5,715

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Dividends declared per common share were $0.45 and $0.43 for the three months ended March 31, 2019 and 2018.

 

 

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

 

5


 

PARK HOTELS & RESORTS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Note 1: Organization

Park Hotels & Resorts Inc. (“we,” “us,” “our” or the “Company”) is a Delaware corporation that owns a portfolio of premium-branded hotels and resorts primarily located in prime United States (“U.S.”) markets. On January 3, 2017, Hilton Worldwide Holdings Inc. (“Hilton” or “Parent”) completed the spin-off of a portfolio of hotels and resorts that established Park Hotels & Resorts Inc. as an independent, publicly traded company. The spin-off transaction was effected through a pro rata distribution of Park Hotels & Resorts Inc. stock to existing Hilton stockholders.

For U.S. federal income tax purposes, we are taxed as a real estate investment trust (“REIT”). We are currently, and expect to continue to be, organized and operate in a REIT qualified manner. From the spin-off date, Park Intermediate Holdings LLC (our “Operating Company”), directly or indirectly, holds all of our assets and conducts all of our operations. We own 100% of the interests in our Operating Company.

 

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, 2018 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on February 28, 2019.

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.

Summary of Significant Accounting Policies

Our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 28, 2019, contains a discussion of the significant accounting policies. There have been no significant changes to our significant accounting policies since December 31, 2018 except for the change in lease accounting, refer to “Recently Issued Accounting Pronouncements.”

Recently Issued Accounting Pronouncements

Adopted Accounting Standards

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02 (“ASU 2016-02”), Leases (Topic 842), which supersedes existing lease accounting guidance in Leases (Topic 840) and generally requires all leases to be recognized on the statement of financial position. We adopted this ASU on January 1, 2019 using the optional transition method, which allows entities to initially apply the ASU at the adoption date without revising comparable periods. We consider an arrangement to contain a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for compensation. We elected certain practical expedients that allowed us to utilize historical lease classifications and elected an accounting policy to continue accounting for leases with an initial term of 12 months and less using existing guidance for operating leases. We did not elect the practical expedient that allows us to use hindsight to reassess our probability of exercising renewal options; however, we did include any renewal options controlled by the lessor. On a prospective basis, lease terms will include both renewal options that we are reasonably certain to exercise as well as renewal options controlled by the lessor.  

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Upon adoption, we recognized an operating lease right-of-use asset of $213 million representing the right to use land, buildings, and equipment over lease terms which include renewal options we have exercised, and renewal options controlled by the lessor, and a corresponding operating lease liability of $213 million representing the present value of our fixed lease payment obligations. We also recognized an $8 million impairment of the operating lease right-of-use asset associated with one of our previously impaired hotels as a cumulative effect of change in accounting principle within retained earnings. In addition, we reclassified $25 million of below market lease intangibles from intangibles, net and $8 million of deferred rent liabilities from other liabilities on our condensed consolidated balance sheet to the operating lease right-of-use asset. The discount rate used to calculate the operating lease right-of-use asset and operating lease liability was based on our estimated incremental borrowing rate at our adoption date of January 1, 2019.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), which adds recognition, measurement, and disclosure guidance on implementation costs of cloud computing arrangements. Implementation costs incurred by customers in cloud computing arrangements are deferred if they would be capitalized by customers in software license arrangements under the existing internal-use software guidance. We elected to early adopt this ASU as of January 1, 2019 on a prospective basis and there was no effect on our consolidated financial statements.

 

Note 3: Dispositions

 

Dispositions

 

During the three months ended March 31, 2019, we sold our interests in the Pointe Hilton Squaw Peak Resort and the Hilton Nuremberg hotels for total gross proceeds of $69 million and recognized a gain, net of selling costs of $31 million on these hotels which is included in gain on sales of assets, net in our condensed consolidated statements of comprehensive income.

 

During the three months ended March 31, 2018, we sold 12 hotels for total gross proceeds of $379 million.  We recognized a net gain of approximately $89 million, including the reclassification of a currency translation adjustment of $31 million from accumulated other comprehensive loss into earnings concurrent with the dispositions, which was included in gain on sales of assets, net in our condensed consolidated statements of comprehensive income.

 

Note 4: Property and Equipment

Property and equipment were:

 

 

 

March 31, 2019

 

 

December 31, 2018

 

 

 

(in millions)

 

Land

 

$

3,340

 

 

$

3,344

 

Buildings and leasehold improvements

 

 

5,615

 

 

 

5,616

 

Furniture and equipment

 

 

941

 

 

 

949

 

Construction-in-progress

 

 

147

 

 

 

124

 

 

 

 

10,043

 

 

 

10,033

 

Accumulated depreciation and amortization

 

 

(2,099

)

 

 

(2,058

)

 

 

$

7,944

 

 

$

7,975

 

 

Depreciation of property and equipment was $62 million and $69 million during the three months ended March 31, 2019 and 2018, respectively.

 

Hurricanes Irma and Maria

 

In September 2017, Hurricanes Irma and Maria caused damage and disruption at certain of our hotels in Florida and the Caribe Hilton in Puerto Rico. Our insurance coverage provides us with reimbursement for the replacement cost for the damage to these hotels, which includes certain clean-up and repair costs, exceeding the applicable deductibles, in addition to loss of business.

 

During the three months ended March 31, 2019, we received $1 million of insurance proceeds related to property damage and recognized an additional $2 million related to business interruption. Business interruption proceeds are included within ancillary hotel revenue in our condensed consolidated statements of comprehensive income. The insurance receivable as of March 31, 2019 and December 31, 2018 was $23 million and $25 million, respectively, and is included within other assets in our condensed consolidated balance sheets.  

 

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During the three months ended March 31, 2018, we incurred $7 million of expenses, and based upon additional information obtained during the period, we recognized a loss of $22 million for property and equipment that was damaged during the hurricanes. These amounts were offset by the recognition of an insurance receivable of $29 million.  Additionally, we received $18 million of insurance proceeds related to property damage.  

 

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

Consolidated VIEs

We consolidate three VIEs that own 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, 2019

 

 

December 31, 2018

 

 

 

(in millions)

 

Property and equipment, net

 

$

223

 

 

$

223

 

Cash and cash equivalents

 

 

11

 

 

 

12

 

Restricted cash

 

 

2

 

 

 

1

 

Accounts receivable, net

 

 

4

 

 

 

4

 

Prepaid expenses

 

 

1

 

 

 

2

 

Debt

 

 

207

 

 

 

207

 

Accounts payable and accrued expenses

 

 

8

 

 

 

7

 

Due to hotel manager

 

 

1

 

 

 

2

 

Other liabilities

 

 

1

 

 

 

1

 

 

During the three months ended March 31, 2019 and 2018, we did not provide any financial or other support to these VIEs that we were not previously contractually required to provide, nor do we intend to provide any such support in the future.

Unconsolidated Entities

Investments in affiliates were:

 

 

 

Ownership %

 

 

March 31, 2019

 

 

December 31, 2018

 

 

 

 

 

 

 

(in millions)

 

Hilton San Diego Bayfront

 

25%

 

 

$

18

 

 

$

19

 

All others (7 hotels)

 

20% - 50%

 

 

 

31

 

 

 

31

 

 

 

 

 

 

 

$

49

 

 

$

50

 

 

The affiliates in which we own investments accounted for under the equity method had total debt of approximately $962 million and $955 million as of March 31, 2019 and December 31, 2018, respectively. Substantially all of the debt is secured solely by the affiliates’ assets or is guaranteed by other partners without recourse to us.

 

 

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Note 6: Debt

Debt balances and associated interest rates as of March 31, 2019 were:

 

 

 

 

 

 

 

Principal balance as of

 

 

 

Interest Rate

at March 31, 2019

 

Maturity Date

 

March 31, 2019

 

 

December 31, 2018

 

 

 

 

 

 

 

(in millions)

 

SF CMBS Loan

 

4.11%

 

November 2023

 

$

725

 

 

$

725

 

HHV CMBS Loan

 

4.20%

 

November 2026

 

 

1,275

 

 

 

1,275

 

Mortgage loans

 

Average rate of

4.22%

 

2020 to 2026(1)

 

 

207

 

 

 

207

 

Term loan

 

L + 1.45%

 

December 2021

 

 

750

 

 

 

750

 

Revolving credit facility(2)

 

L + 1.50%

 

December 2021(1)

 

 

 

 

 

 

Financing lease obligations

 

3.07%

 

2021 to 2022

 

 

1

 

 

 

1

 

 

 

 

 

 

 

 

2,958

 

 

 

2,958

 

Less: unamortized deferred financing costs and

   discount

 

 

 

 

 

 

(9

)

 

 

(10

)

 

 

 

 

 

 

$

2,949

 

 

$

2,948

 

 

(1)

Assumes the exercise of all extensions that are exercisable solely at our option.

(2)

$1 billion available.

 

We are required to deposit with lenders certain cash reserves for restricted uses. As of March 31, 2019 and December 31, 2018, our condensed consolidated balance sheets included $14 million and $15 million, respectively, of restricted cash related to our CMBS loans and mortgage loans.

Debt Maturities

The contractual maturities of our debt, assuming the exercise of all extensions that are exercisable solely at our option, as of March 31, 2019 were:

 

Year

 

(in millions)

 

2019

 

$

 

2020

 

 

13

 

2021

 

 

751

 

2022

 

 

32

 

2023

 

 

728

 

Thereafter(1)

 

 

1,434

 

 

 

$

2,958

 

 

(1)

Assumes the exercise of all extensions that are exercisable solely at our option.

 

 

Note 7: Fair Value Measurements

We did not elect the fair value measurement option for any of our financial assets or liabilities. The fair values of financial instruments not included in the table below are estimated to be equal to their carrying amounts. The fair value of certain financial instruments and the hierarchy level we used to estimate fair values are shown below: