Investor Presentation - REITworld: 2019 Annual Conference November 2019 - Park Hotels & Resorts
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Investor Presentation
REITworld: 2019 Annual Conference
November 2019
Waldorf Astoria Orlando Le Méridien
Hilton San Francisco
Chicago Hilton Hawaiian Village Waikiki Beach Resort
Mission
To be the preeminent lodging REIT,
focused on consistently delivering superior,
risk-adjusted returns for stockholders through
active asset management and a thoughtful external
growth strategy, while maintaining a strong
and flexible balance sheet
2|
Pillars of our Corporate Strategy
Aggressive Asset Management
▪ Continually improve property level operating performance
▪ Consistently implement revenue management initiatives to optimize market pricing
and segment mix
Prudent Capital Allocation
▪ Allocate capital effectively by leveraging scale, liquidity and M&A expertise to create
value throughout all phases of the lodging cycle
▪ Employ an active capital recycling program—expanding our presence in target
markets with a focus on brand and operator diversification, while reducing exposure
to slower growth assets/markets
▪ Target value enhancement projects with strong unlevered ROI yields
Strong and Flexible Balance Sheet
▪ Preserve a strong and flexible balance sheet, with a targeted leverage ratio of 3x to 5x
▪ Maintain liquidity across lodging cycle and access to multiple types of financing
▪ Aspire to achieve investment grade rating
3|
Hilton Waikoloa Village
Park’s Investment Thesis: Quality + Growth at a Discount
✓ Pro forma comp RevPAR on a TTM basis was $184
High Quality
Portfolio
✓ 2.4% forecasted weighted average supply exposure through
2021 (50bps below peers)
✓ 2019E RevPAR growth 1.0% to 2.0% (20bps above peers)
Sector
Leading ✓ 2019 Group pace for combined Park & CHSP portfolio → 7%
Fundamentals ✓ Margin growth has outpaced peers over the last two years: Hilton Bonnet Creek
(~70bps in ’18; ~30bps in ’19)
✓ Capital recycling to further reduce leverage to low 4x
Financial ✓ Fixed charge coverage ratio a healthy 4.4x
✓ $1.2B of liquidity available
✓ Well covered, above average dividend yield of 8.1%(1)
ROI
Opportunities
✓ $100M+ of attractive, value-add ROI projects in the pipeline Waldorf Astoria Orlando Golf Club
with expected returns in excess of 15% to 20%
✓ Park trades at 11.0x ’20 EBITDA estimates, or a 1.6x multiple
Discounted turn discount versus peers—the widest relative discount over
Valuation the last 18 months; Park trades at a ~25% discount to Street
NAV estimates
✓ Returned over $2.1B of capital since 2017; disposed of $750M
Track Record Hilton Checkers Los Angeles
of non-core hotels over the last 18 months; outperformed
peers by 100bps since Park’s spin-off
Note: Peers include all publicly-traded, full-service hotel REITs with a market cap over $1 billion
4|
(1) Assumes the mid-point of our fourth quarter 2019 dividend range of between $0.50 - $0.60 per share; based on Park’s stock price as of 11/7/19
Near Term Priorities For Park
Execute on our Strategic Plan and create relative value for shareholders
INTEGRATE ◼ Complete a seamless integration of the Chesapeake acquisition
1 CHESAPEAKE
◼ Realize the underwritten EBITDA synergies in the Chesapeake hotels; $8M in ’20
◼ Remix the mix; Group up; ancillary revenue and cost savings opportunities
◼ Continuing to sell approximately $550 million of non-core assets
RECYCLE NON CORE ◼ ~$300 million is currently under contract at gross multiples north of 16x
2
HOTELS ◼ Actively marketing one legacy Park hotel and two non-core Chesapeake hotels with
gross proceeds likely to exceed $250 million
◼ De-leveraging the balance sheet to 4x, with significant progress to be made over the
DE-LEVER THE
3 BALANCE SHEET
next one or two quarters
◼ Park’s pro-forma Net Debt to Adj. EBITDA is 4.4x; fixed charge coverage ratio of 4.4x
◼ Evaluating and executing on stock buyback plan
4 STOCK BUYBACKS ◼ Board previously authorized up to $300 million
PROTECT THE
5 ◼ Protecting the dividend, which currently stands at a very attractive 8%+ yield
DIVIDEND
5|
Park at a Glance
(1)
Hotels Enterprise Adjusted EBITDA Discount to Dividend
Value Multiple(1) NAV(2) Yield(3)
66 $9.6B 11.0 x 25% 8.1%
Hilton Waikoloa Village Parc 55 San Francisco - a Hilton Hotel Hyatt Regency Boston
Caribe Hilton Hilton New York Midtown Hilton Chicago
(1) Based on 2020 consensus estimates
126 | (2) S&P Global Market Intelligence
(3) Assumes the mid-point of our fourth quarter 2019 dividend range of between $0.50 - $0.60 per share; based on Park’s stock price as of 11/7/19
Iconic Portfolio: Urban and Resort Destinations
Hilton Hawaiian Village Waikiki Beach Resort Hilton San Francisco Union Square Royal Palm South Beach Miami
Hilton Denver City Center Le Meridian San Francisco
Waldorf Astoria Orlando
JW Marriott SF Union Square Hilton New Orleans Riverside
Hilton Chicago W Chicago – City Center Casa Marina, a Waldorf Astoria Resort New York Hilton Midtown
7|
3Q19 Performance and 2019 Outlook
3Q19 Operating Results(1)
1.9% 4.9% 20bps 20.7% 9.3%
Comp Comp Comp Hotel Group Increase
RevPAR Total Adj EBITDA Revenues in ‘Other
RevPAR Margin Revenues’
2019 Outlook(2)
Metric Guidance
Comp RevPAR Growth: +1.0% to +2.0%
Comp EBITDA Margins: -50bps to -20bps
Adjusted EBITDA: $768M to $788M
(1) Results for Park’s legacy portfolio only
8 | (2) Guidance as of 11/6/19. Guidance includes results from Chesapeake’s assets for 4Q19 only. Not being updated or reconfirmed via this
presentation
Park Portfolio: Well Insulated from Supply
Supply Growth Exposure for Lodging REITs(1)
4.5%
With outsized exposure to Oahu and 3.9% REIT Supply Growth Exposure to STR Top 25 Markets
San Francisco, Park anticipates
4.0%
2.4% average annual supply
3.5%
2.9% 2.8% 2.8% 2.8% Peer Avg. 2.9%
3.0% 2.7%
growth through 2021, or 50bps 2.4% 2.3%
2.5%
lower than its peer group
2.0%
1.5%
RHP SHO DRH PEB XHR HST PK BHR
Favorable Supply Picture for Park through 2021(1)
18.0%
National Supply Growth Average: 2.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0% 5.7%
6.0% 5.0% 4.7%
4.1% 4.0%
4.0% 3.5% 3.3% 3.2% 3.0% 2.8% 2.5% 2.3%
1.9% 1.8% 1.7% 1.6%
2.0% 1.3%
0.0%
Supply Growth Pro forma PK 2018 EBITDA Contribution (%) National Supply Growth
Note: Charts presented above based on CBRE and Park estimates
(1) Supply Growth data from CBRE’s Sep - Nov 2019 Hotel Horizons forecasts for Upper Priced hotels; represents average of 2020 and 2021 supply
9| forecasts. Peer exposure calculated by weighted average market exposure by room count. Park’s Adjusted EBITDA represents 2018 data and includes
pro rata share of unconsolidated JVs; pro forma for Park’s current portfolio, which includes the acquired Chesapeake portfolio
Strategic Rationale for the Chesapeake Acquisition
Unique opportunity to acquire a high-quality, well-maintained portfolio
that is strategically consistent with Park’s existing platform
◼ Outsized organic growth profile positions the combined company for enhanced NAV growth
UPSIDE OPPORTUNITY ◼ Opportunity to aggressively asset manage the portfolio to drive higher margins
◼ Source attractive / accretive ROI opportunities, including meeting space expansions and additional keys
◼ CHSP: High RevPAR (2nd highest among peers) and high margin portfolio in outstanding condition
QUALITY ◼ 12 of CHSP’s 18 assets are represented in Park’s top 25 assets by 2018 RevPAR
◼ Well-maintained portfolio; CHSP reinvested ~$35k per key over the past 5 years
◼ Increased exposure to San Francisco, and penetration into key submarkets (Miami Beach, Downtown
GEOGRAPHIC LA, Boston, San Diego & Denver)
DIVERSITY ◼ Reduces Park’s exposure to Hawaii from 24% to 20% of 2018 Hotel EBITDA
◼ Broadens Park’s brand mix, providing exposure to Marriott and Hyatt
BRAND & OPERATOR
◼ Diversifies Park’s operator mix, adding exposure to 8 new operators, including Marriott, Hyatt and
DIVERSITY other third party operators
◼ Combined portfolio includes 66 hotels in 17 states and D.C.
SIZE ◼ Combined enterprise value of $9.6B, solidifying Park’s position as the 2nd largest lodging REIT
◼ Enhanced liquidity and potential cost of capital advantages
◼ Accretive to AFFO/share in ‘20 and beyond; expected to add 80 basis points to RevPAR growth in ‘20
POSITIVE ◼ RevPAR accretive
FINANCIAL IMPACT ◼ Post asset sales, Park maintains a well-capitalized and flexible balance sheet to support future growth
10 |CHSP “Fill First” Strategy: Close RevPAR Gap w/Peers
Remixing the mix of demand in Chesapeake’s portfolio: Potential of $10M of upside in rooms revenue alone
86%
85%
CHSP (1) Narrowing the
84%
occupancy and ADR
SHO
~275bps Occupancy Gap gap in half (reducing
83%
~$18 ADR Gap
exposure to low-rated
'18 Comparable Occupancy
82% PK PEB transient business)
provides opportunity
81%
to improve RevPAR by
80% HST ~$4.50 (230bps+) and
increase rooms
79% DRH
revenue
78%
$205 $210 $215 $220 $225 $230 $235 $240 $245 $250
'18 Comparable ADR
(1) CHSP portfolio results exclude its two New York City hotels which sold in September 2019
▪ Chesapeake pursued a “fill first” strategy with a focus on driving occupancy with lower-rated, discounted business
▪ Accordingly, average occupancy was 85% in 2018 (highest in the sector), or 350bps higher than the full-service peers
▪ Looking at its closest peer (Pebblebrook), comparable occupancy in Chesapeake’s portfolio was 275bps higher, while
comparable ADR was over $18 lower
▪ Strategy: Opportunity to drive rooms revenue higher by ‘remixing the mix’ – reducing exposure to lower
rated transient business (occupancy), while driving ADRs higher: Revenue Upside = $8M to $10M over the
next 2+ years
11 |Asset Management 2.0: Rolling Out Initiatives Across
Chesapeake’s Portfolio Expected to Yield Material Upside
2020 Underwriting: Potential ~$13M of Upside Embedded in the Chesapeake Portfolio
$12.0
$10M
$10.0 Oper.
F&B Rev. Exp.
F&B
Group Up Profit.
$8.0
EBITDA (M)
Other Rev.
$6.0 Group Up
$4.0 $3M Other Rev.
Transient Mix
Transient Mix
F&B Exp.
$2.0 Mgmt Fees/Op Exp.
Payroll Exp.
Payroll Exp.
$0.0
Revenues Expenses
Projected Revenue Upside Projected Expense Savings
Transient: “remix the mix”; reduce exposure to low- Payroll: Cluster management positions with nearby
rated/discounted business; premium room types; hotels; headcount reductions
Upsells (see Slide 23)
Operating Expenses: Cluster management positions
Other Revenue: Parking; Resort Fees; Retail leases with nearby hotels; headcount reductions
Grouping Up: 150bps upside Management Fees: Re-negotiate base and
Food & Beverage Revenue: Increase menu pricing; incentive fee structures
catering revenue upside Food & Beverage Expenses: Reduce beverage costs;
optimize hours of operation
1612 |Case Studies: Examples of Potential Asset Management
Opportunities in Chesapeake Portfolio
JW Marriott SF: +$2.0M Hyatt Regency Boston: +$1.7M Royal Palm South Beach: +$1.3M
344 $13.6M 502 $21.5M 393 $17.4M
Rooms 2018 EBITDA Rooms 2018 EBITDA Rooms 2018 EBITDA
$310 28.0% $232 40.6% $204 42.9%
2018 RevPAR 2018 Margin 2018 RevPAR 2018 Margin 2018 RevPAR 2018 Margin
▪ Transient: Increase ADR by 5% in ▪ Transient: Increase transient ADR by 4% ▪ Transient: Increase ADR by 3%, while
a very strong market
reducing exposure to wholesale business
▪ Other Revenue: Increase ancillary income;
▪ Operating Expenses: Reduce retail leasing opportunity ▪ Other Revenue: Increase ancillary
sales and room operating
income; upsell opportunities
expenses ▪ Operating Expenses: Reduce
miscellaneous operating expenses; reduce ▪ F&B Profit: Increase menu pricing;
▪ Group Up: Improve group overall food costs optimize hours of operation
production and group ADR
▪ Group Up: Opportunity to replace low ▪ Operating Expense: Close spa for future
▪ F&B Expense: Reduce beverage rated transient with additional group ROI opportunity
costs by 100bps
13 |Operational Excellence: Legacy PK Results
Park’s asset management initiatives have contributed to meaningful results:
Improved comparable Improved comparable Hotel
RevPAR 4.3%, or $8, from Adjusted EBITDA margin 40
the end of 2017 to TTM bps to 29.1%, or 60 bps
September 2019
on an absolute basis,
from the end of 2017 to TTM
September 2019
Increased Ancillary Increased Group mix by
Revenues 17.3%, or 220 bps to 31.7% from
$31M, from the end of the end of 2017 to TTM
2017 to TTM September September 2019
2019
14 |Closing the Margin Gap: 95bps+ in Park’s Legacy Portfolio
Comp. Hotel Adj. EBITDA Margins(1): 2018 + 2019E Change
95bps of Relative
80 bps
Improvement
0 bps
Y/Y Change in Hotel Adj. EBITDA Margin
60 bps
40 bps
60 bps
20 bps
-8 bps
bps
-20 bps -27 bps
-40 bps
Park(2) Peers(3)
2018A 2019YTD
• Since 2018, Park’s aggressive asset management strategy has helped to narrow the margin gap with its peers by over
110 basis points, yielding an estimated $30 million of incremental EBITDA over the last two years.
• 2018: Park’s margins improved 60bps vs. a 21bps drop for its peers
• 2019: Park’s margins are flat YTD (through 3Q19) vs. -27bps for its peers
• Park expects to roll out a similar asset management ‘program’ across the recently acquired Chesapeake portfolio:
Remixing the mix; grouping up; ancillary income; and expense controls
(1) See Appendix for our definitions and for reconciliations to comparable U.S. GAAP measures. Our definition of Hotel Adjusted EBITDA margin may not be comparable to similarly titled measures of our peers.
Based on most recently available / restated financial statements from their respective quarterly earnings releases
15 | (2) Park’s hotels EBITDA performance for 2019 YTD, excludes Chesapeake
(3) Peers include HST, SHO, DRH, PEB, XHR and RHPPark Then and Now: New & Improved, Higher Quality and
Better Metrics
Since the spin-off, Park’s portfolio has been redefined into a higher-quality, more
profitable portfolio of assets
Hotel Adjusted Hotel Adj. Hotel Adj
Rooms RevPAR
EBITDA EBITDA/key EBITDA Margin
Today: 35K $184(1) $908M(1) $30.1K(1) 29.6%(1)
2016:(2) 35K $161 $750M $24.7K 27.7%
+190
Change: NM +14% +19% +22%
bps
(1) Pro forma comparable portfolio (including Chesapeake’s 18-hotel portfolio acquired by Park in September 2019); presented on a trailing twelve-
1216 | month basis as of 9/30/19
(2) Reflects Park on a carve-out basis prior to spin-off from Hilton Worldwide; includes pro forma adjustments related to the spin-off for incremental
fees based on the terms of the post spin-off management agreements and estimated non-income taxes on certain REIT leasesCHSP: Newly Renovated Portfolio
Hyatt Centric Fisherman’s Wharf
Royal Palm South Beach Miami, a Tribute Portfolio Resort Hyatt Regency Boston
JW Marriott San Francisco Union Square
Hyatt Regency Mission Bay Spa and Marina W Chicago City Center
W New Orleans
Hotel Indigo San Diego-Gaslamp Quarter
Le Méridien San Francisco Hotel Adagio, Autograph Collection
17 |
Hilton Denver City CenterDiversification: Park Operating Portfolio
PF 2018 Hotel EBITDA(1)
West Coast/HI 50%
Florida 17%
Northeast 15%
Other 18%
Legend
Circle Size Based on Hotel EBITDA
$200M+
$100M+
$50M+
$25M+
$10M+
$5–10MDiversification: Brand, Operator and Asset Type
Acquisition advances Park’s brand strategy, providing exposure to Marriott and Hyatt
Geographic Diversification Diversified Operator Pool Expanded Brand Exposure
Suburban
HEI Aimbridge Self-Operated Hyatt Other
8% Other 2% 2% 2% 4% 1%
Hyatt 4% Marriott
Airport 3% 11%
15%
Marriott
6%
New PK New PK New PK
Resort Urban
26% 51% Hilton
Hilton 84%
81%
Legacy PK Legacy PK Legacy PK
Suburban Self-
8% Operated
Airport 2%
18%
Urban
45%
Resort Hilton Hilton
29% 98% 100%
Note: Based on the total number of guestrooms (consolidated + Unconsolidated JVs at share) of the Pro forma combined company
1619 | Note: Other Brands include IHG and Ace. Other Operators include TPG Hospitality, Crestline Hotels & Resorts, IHG and Ace Hotel Group
(1) Pro forma Park owns 51 Hilton branded hotels, 10 Marriott branded hotels, 3 Hyatt branded hotels, 1 IHG branded hotel and 1 Ace branded hotel. In November 2019, Park
entered into an agreement to sell the Ace branded and managed hotel, with the closing of such transaction being subject to customary closing conditionsSize & Scale: Nearly 3x the Size of the Average Lodging REIT(1)
Park solidified its position as the 2nd largest publicly traded Lodging REIT
ENTERPRISE VALUE: PRO FORMA PK vs. HOTEL REITS $16.7B
Full Service
Mixed & Limited Service
$9.6B
$7.2B
$6.2B
$5.2B
$4.9B $4.9B
$3.5B $3.6B
$3.2B
$2.3B $2.3B
$1.4B $1.6B
BHR CLDT INN HT DRH XHR SHO AHT RLJ APLE PEB RHP PK HST
Source: Public company filings as of 2Q19 and FactSet. Market data as of 11/7/19
20 | (1) Average Lodging REIT Total Enterprise Value equates to $4.1 billion, which excludes HST and PKPark’s Active Capital Recycling: Then and Now
Hotel Adj
Hotels Rooms
(1)
EBITDA RevPAR EBITDA
Margin
Hotels
Acquired(1) 18 5.9K $181M $193 32.3%
Hotels
Sold(2) 18 5.0K $64M $109 25.1%
2018:
• 13 hotels sold for $519M, including 10 international assets
• Improved 2018 Pro forma Comparable Portfolio RevPAR by ~$6
2019 YTD:
• 5 hotels sold for $235M, including 1 international asset
• Improved 2019 YTD Pro forma Comparable Portfolio RevPAR by ~$5
• 18 hotels added to portfolio as part of $2.5B Chesapeake
acquisition
• Improved YTD 2019 Pro forma Comparable Portfolio RevPAR by ~$4
Hilton Berlin: sold in 2018 for ~20x 2017 EBITDA multiple
1221 | (1) Reflects Chesapeake’s 2018 operating results
(2) Reflects Park’s pro-rata share of ownership; operating results reflects performance year prior to dispositionsPotential to unlock embedded value. Target 15-20% IRR
Completed/In-Process Projects
Hotel Investment Scope Timing
Converted and repositioned from a DoubleTree, driving significant ADR premiums; Completed
Hilton Santa Barbara Beachfront Resort $14M Results
$5M of incremental EBITDA Q2 2018
Renovate and reposition the Waldorf Astoria to a Curio to better position hotel
Curio Reach Resort $10M Q4 2019
relative to its sister property as well as to the asset
Addition of ~70k sf meeting space and repositioning / upbranding of the Hilton to
Waldorf Astoria/Hilton Bonnet Creek $85M 2021
Signia Hilton
Future Potential Projects
$10M Curio Reach Reno
Hotel Scope
DoubleTree Washington Capitalize on hotel’s location adjacent to Amazon’s HQ2
DC – Crystal City campus with renovation / rebranding
Take advantage of the strong tech employment base in San
DoubleTree Hotel San Jose, and upbrand hotel to a Hilton to further drive the group
Jose mix given the 47,000sf, renovated platform; major Google
expansion nearby
Master planning of the campus (branding; retail; amenities)
Hilton Hawaiian Village
including development of ½-acre Ala Moana parcel
Hilton New Orleans Development and/or sale of 7-acre ‘Whale’ lot and other
Riverside parcel as well as 2-acre surface lot parking area
Evaluate portfolio of 18 hotels for redevelopment /
Chesapeake Portfolio
repositioning opportunities
22 |Completed ROI Project: Hilton Santa Barbara Beachfront Resort
Conversion from a DoubleTree to a Hilton helps capitalize on prime location and amenities
⚫ 360-room beachfront resort on 24 acres in Santa Barbara, CA
⚫ Prime location in Santa Ynez wine country with in-house winery
⚫ Upbranding to a Hilton helped attract higher-rated group business and better
yielded transient business
⚫ $14M renovation cost(1) ($38,000/key) completed in April 2018
⚫ Yielding impressive results: 2019 RevPAR growth projected at 18.6%;
runs one of the highest EBITDA margins in the portfolio
Scope
⚫ Guestrooms: case goods; soft goods
⚫ Guest bathrooms: conversion of 160 bathtubs to walk-in showers; case goods, soft
goods
⚫ Public space: lobby; meeting space (mainly soft goods); and repositioning of F&B to
include new Grab ‘N Go
Old lobby: Renovated lobby:
23 | (1) Park owns a 50% interest in the Hilton Santa Barbara Beachfront Resort; as such its pro-rata investment in the renovation was $7MFuture ROI Project: Bonnet Creek Conversion
Opportunity: Additional Meeting Space and Brand Conversion
⚫ Group meeting business is a key demand source for the 1,009-room
Hilton and 502-room Waldorf Astoria Bonnet Creek, yet both
properties offer less meeting space per guestroom than their key
competitors
⚫ Current plans call for ~70,000 sq. ft. of additional meeting space
across 2 new meeting space platforms including:
⚫ ~35,000 sq. ft. ballroom adjacent to existing Hilton
meeting space complex
⚫ ~9,000 sq. ft. ballroom adjacent to the Waldorf
⚫ Approximately $85M investment in 2019-2021 expected to generate
approximately $13.5M of additional EBITDA/year once stabilized,
yielding a projected 5-yr unlevered IRR of 15% to 20%
⚫ Upbrand the Hilton Bonnet Creek to Signia Hilton brand projected
for 2021
Proposed Hilton Ballroom
and meeting space
Proposed Waldorf Ballroom
24 |Amazon Expected to Concentrate Around Park’s DoubleTree
DoubleTree Crystal City located directly across the street from 4.1M SF Amazon cluster
• As part of its HQ2 expansion into Crystal City
(Arlington, VA), Amazon has entitlements in place
for up to 2.1 million square feet of development
627-room DoubleTree at PenPlace, directly adjacent to our Doubletree
Crystal City hotel.
• Park is currently evaluating strategic options for
the 627-room hotel, including:
• Renovating and repositioning asset to
cater to Amazon clientele (reconfigure mix
of rooms, redesign ancillary facilities,
reposition F&B offerings, etc.)
• Upbranding within the Hilton family of
brands
The Amazon Effect: $180
$160
Annual RevPAR(1)
$140
• Seattle CBD Tract RevPAR recorded 7.6% CAGR from $120
2010 – 2017, coinciding with development of Amazon’s $100
$80
headquarters campus
• The Arlington, VA Tract RevPAR CAGR during same
time period was just 0.8% Seattle CBD Arlington
25 | (1) Tract data provided by STRProactive Deleveraging Plan
Park Plans To Reduce Leverage By Selling $550M+ of Assets Over the Next ~6 Months
The Chesapeake acquisition increased Park’s Net Debt to Adjusted EBITDA(1) ratio to 4.4x from 3.8x as of 2Q19
Phase II Sales: Approximately $550M+ of non-core hotel sales over the next ~6 months with net proceeds used to pay
down debt; Pro forma Net Debt to Adjusted EBITDA would fall to just 4.2x, or 0.2x below peer group average
Since spinning off from Hilton, Park has preserved a strong and flexible balance sheet within its targeted leverage ratio
of 3x to 5x
Pro Forma Park Leverage vs. Peers
10.0x
9.0x
Post $550M of Non-Core
Net Debt + Preferred / TTM EBITDA
8.0x Asset Sales
7.0x
6.0x
5.0x Peer Average ex-PK: 4.4x
9.1x
4.0x
3.0x 5.7x
5.2x
2.0x 4.2x 4.4x 4.4x
3.5x
1.0x 2.3x
1.4x
0.0x
SHO HST XHR PK Pro-Forma(1) DRH PK RHP PEB BHR
2326 | (1) PK Pro-Forma assumes the sale of six, non-core hotels for total gross proceeds of approximately $550 million
Source: FactSet and SNL Market IntelligencePost Transaction Balance Sheet & Credit Metrics
Post Transaction Capital Structure(1) Post Transaction Position Highlights
Secured Debt
• 50 unencumbered hotels, or 70% of Total Rooms
Unsecured Debt
U–JV Debt
• Post-acquisition WACD at 3.9%, down ~ 20bps from
Equity 4.1% at beginning of year
Total Capitalization • Undrawn $1 billion revolving credit facility
$10.3 B
• 63% Fixed Debt vs. 37% Floating Debt(2)
• 63% Secured Debt vs. 37% Unsecured Debt(2)
• Pro-forma fixed charge coverage ratio of 4.4x
Post-Transaction Debt Maturity Schedule(3)
$ 1,8 0 0
$ 1,6 0 0 weighted avg. maturity: 4.9 years
$ 1,4 0 0
$ 1,20 0 $ 1,0 0 0
$ 1,0 0 0
$800 $ 1,58 2
$600
$400 $ 750 $ 8 32 $ 8 50
$200 $91
$ 12
$- $-
(4)
20 19 20 20 20 21 20 22 20 23 20 24 20 25 20 26 +
Secur ed Pr oper ty M or tgages Unsecur ed T erm Loans Revol ver
(1) Debt balances and equity capitalization (based on market pricing of equity) reflected as of 9/30/19; includes $321 million of cash & cash equivalents
(2) Includes Park’s 2023 convertible notes, capital leases, pro-rata share of unconsolidated joint venture debt and $225 million interest rate swap which terminates in April 2022 and fixes one-month Libor at 1.86%
(3) Excludes pro-rata share of Park’s unconsolidated joint venture debt, unamortized deferred financing costs, fair value adjustments to reflect carrying value of Chesapeake mortgage loans and scheduled amortization
(4) Reflects prepayment of Hilton Denver City Center mortgage on the “At Par” date of 8/1/2022 stated in the loan agreement, which is before the stated maturity in 8/1/2042
27 |Attractive, Well Covered Dividend
Park’s Quarterly Dividends and Respective Yield(1) Peer REITs: Current Dividend Yield(2)
$0.80 9.0% 9.0%
8.3%
$0.70 8.0%
8.0%
7.0%
Annualized Dividend Yield
$0.60
Quarterly Dividend
$0.27 6.8%
Dividend Yield
6.0% 7.0% 7.5%
$0.50 $0.12 $0.10
5.0% 5.8%
$0.40 6.0%
4.0% 5.1% 5.0%
$0.30 5.0% 4.9% 4.8%
$0.45 Per Share 3.0% 4.2%
$0.20 $0.43 Per Share 2.0% 4.0%
$0.10 1.0%
3.0%
$0.00 0.0%
2.0%
PK BHR PEB XHR SHO DRH HST RHP
Source: FactSet Source: FactSet
Dividend and Payout Ratio Analysis
⚫ Park paid a third quarter 2019 cash dividend of $0.45/share on October 15th to stockholders of record as of September 30, 2019.
⚫ Expect to distribute between $0.50 - $0.60 for our fourth quarter dividend, which includes our normal top off fourth quarter
payment ($0.05 - $0.15) and within our stated range of 65% to 75% of Adjusted FFO/share
⚫ Including the impact of the fourth quarter ‘step-up’ dividend, Park’s dividend yield is currently 8.3%, or 290 basis points higher
than its full-service REIT peers.
Park has paid a total of $8.72/share in cash + stock dividends in less than three years, totaling $2.1B
(1) 4Q 2017 dividend includes a $0.12 per share ‘top-off’, which translated into an AFFO payout ratio of 67.5%. 4Q 2018 dividend includes a $0.27 per share ‘top-off’ amount and a $0.30 per share component
related to additional gains from 2018 asset sales, which translated into an AFFO payout ratio of 67.2%. Yield excludes both the $0.45 per share special dividend announced on 5/18/18 and the $0.30 per share
component included in the 4Q 2018 dividend. 4Q 2019 dividend includes an estimated $0.10 per share ‘top-off’, which translates into an AFFO payout ratio of 67.5%, or the mid-point of our guidance.
(2) Based on 11/1/19 closing prices; For PK, the 7.6% yield assumes a quarterly dividend run-rate of $0.45/share, or $1.80 on an annualized basis, while the 8.0% yield includes the 4Q 2019 incremental top-off
dividend of $0.65/share at the midpoint of our guidance range, or $1.99/share on an annualized basis
28 |ESG: Corporate Responsibility
Public Disclosure of Materials
FY 2018 Performance Highlights(1):
• Park issued its first Annual Corporate
Responsibility Report in Jan ‘19; the Hotel Portfolio:
second report was published Sep ‘19
9.79 18 100%
• Park’s “Responsibility” webpage launched Greenhouse Gas TripAdvisor Portfolio ISO
Jan ’19 with ESG-related data and case studies Emission Green Leaders 14001, 9001 and
Intensity (kg/sf) Hotels 50001 Certified
• Added GRI Index to 2019
Annual Corporate
Responsibility Report for ~$1.0M 26% 10.4M
enhanced ESG reporting Investment in Total Annualized
and disclosure Energy Efficiency
Waste
Water Reduction
Diversion Rate
Projects in Gallons
Accomplishments & Recognitions Corporate HQ:
• Favorable ISS
Disclosure Scores $270k 90% 400+
indicate higher quality
disclosure and Charitable Associate Volunteer
Contributions Satisfaction hours
transparency practices(2):
• Environmental: 3/10
• Social: 2/10
• Governance: 1/10
• 2019 GRESB Public
Disclosure Score: A Hilton Waikoloa Village
(1) Represents Park’s portfolio as of 12/31/18, which consisted of 54 hotels with over 32,000 rooms
29 | (2) ISS disclosure scores based on a scale of 1 to 10, with 1 representing higher quality disclosure and transparency practices. Scores as of 11/1/19
(3) GRESB Public Disclosure Score relative to lodging REIT peer group; score as of 9/4/19Park Team
Chairman, President
& CEO
Tom Baltimore
Executive Management
EVP, CFO & EVP, GC EVP, Asset
EVP, D&C EVP, HR EVP, CIO
Treasurer Management
Carl Mayfield Tom Morey Jill Olander Matt Sparks
Sean Dell’Orto Rob Tanenbaum
Senior Management
SVP, FP&A SVP, CAO SVP, Strategy SVP, Tax
Diem Larsen Darren Robb Ian Weissman Scott Winer
Park Management Board of Directors
➢ 25 years average experience among senior ➢ Best-in-class board including former CEOs and
leadership CFOs of Fortune 500 Companies
➢ Total of ~90 employees at Park Headquarters ➢ Significant REIT experience across industries
30 |Appendix
Hilton Chicago
31 |Guidance
2019 Guidance and Assumptions
(unaudited, dollars in millions, except per share amounts and Comparable RevPAR)
2019 Outlook
as of November 6, 2019
Metric Low High
Comparable RevPAR Growth(1) 1.0% 2.0%
Comparable RevPAR(1) $ 181 $ 183
Net income $ 264 $ 284
Net income attributable to stockholders $ 254 $ 274
Diluted earnings per share $ 1.19 $ 1.29
Adjusted EBITDA $ 768 $ 788
Comparable Hotel Adjusted EBITDA margin change (1) (50) bps (20) bps
Adjusted FFO per share - Diluted(2) $ 2.80 $ 2.90
___________________
(1)
Includes operating results for the 18 Chesapeake hotels for the fourth quarter only.
(2)
Per share amounts are calculated based on unrounded numbers.
• Net income, EBITDA and FFO includes projected Chesapeake results from the date of acquisition through the remainder of 2019;
• General and administrative expenses are projected to be $43 million, excluding $65 million of acquisition costs, $16 million of non-cash share-based
compensation expense, $4 million of disposition costs and $1 million of severance expense;
• Fully diluted weighted average shares are expected to be 212.7 million;
• Comparable RevPAR for the fourth quarter of 2019 is expected to be flat compared to the fourth quarter of 2018;
• Includes $8 million of Adjusted EBITDA from the Caribe Hilton representing a partial year of operations, for which Park expects to be covered by
business interruption insurance resulting from the hotel being closed for a portion of 2019 following the damage caused by Hurricane Maria; and
• Does not take into account potential future acquisitions and dispositions, including those currently under contract, which could result in a material
change to Park’s outlook.
32 | NOTE: Guidance as of 11/6/19. Guidance includes results from Chesapeake’s assets for 4Q19 only. Not being updated or reconfirmed via this presentationGuidance (continued)
EBITDA and Adjusted EBITDA
Year Ending
(unaudited, in millions) Decem ber 31, 2019
Low Case High Case
Net income $ 264 $ 284
Depreciation and amortization expense 263 263
Interest income (6) (6)
Interest expense 141 141
Income tax expense 13 13
Interest expense, income tax and depreciation and amortization included in
equity 23 23
in earnings from investments in affiliates
EBITDA 698 718
Gain on sale of assets, net (20) (20)
Acquisition costs 65 65
Severance expense 2 2
Share-based compensation expense 16 16
Casualty loss and impairment loss, net 8 8
Other items (1) (1)
Adjusted EBITDA $ 768 $ 788
NAREIT FFO and Adjusted FFO
Year Ending
(unaudited, in millions except per share data) Decem ber 31, 2019
Low Case High Case
Net income attributable to stockholders $ 254 $ 274
Depreciation and amortization expense 263 263
Depreciation and amortization expense attributable to
noncontrolling interests (4) (4)
Gain on sale of assets, net (20) (20)
Equity investment adjustments:
Equity in earnings from investments in affiliates
Guidance (continued) EBITDA and Adjusted EBITDA Year Ending (unaudited, in millions) December 31, 2019 Low Case High Case Net income $ 294 $ 323 Depreciation and amortization expense 278 278 Interest income (8) (8) Interest expense 130 130 Income tax expense 13 14 Interest expense, income tax and depreciation and amortization included in equity in earnings from investments in affiliates 23 23 EBITDA 727 757 Share-based compensation expense 15 15 Adjusted EBITDA $ 745 $ 775
(20) (21)
Pro rata FFO of equity investments 33 34
Nareit FFO attributable to stockholders 506 526
Acquisition costs 65 65
Severance expense 2 2
Share-based compensation expense 16 16
Casualty loss, net 7 7
Adjusted FFO attributable to stockholders $ 596 $ 616
Adjusted FFO per share - Diluted (1) $ 2.80 $ 2.90
Weighted average diluted shares outstanding 212.7 212.7
(1)
33 | Per share amounts are calculated based on unrounded numbers.Non-GAAP Financial Measures
Historical Pro-forma Comparable Hotel Metrics
The financial information below is for the 57 comparable hotels owned as of September 30, 2019 (1).
Three Months Ended TTM (2) Full Year
(unaudited) December 31, March 31, June 30, September 30, September 30, December 31,
2018 2019 2019 2019 2019 2018
Pro-forma Comparable RevPAR $176.41 $178.48 $195.03 $187.70 $184.41 $182.10
Pro-forma Comparable Occupancy 80.1% 79.2% 87.0% 84.9% 82.8% 82.7%
Pro-forma Comparable ADR $220.25 $225.39 $224.30 $221.17 $222.76 $220.28
Pro-forma Comparable Hotel Revenues (in millions) $747 $746 $816 $759 $3,068 $3,001
Pro-forma Comparable Hotel Adjusted EBITDA (in millions) $215 $213 $261 $219 $908 $892
Pro-forma Comparable Hotel Adjusted EBITDA margin 28.8% 28.6% 32.0% 28.8% 29.6% 29.7%
Three Months Ended TTM (2) Full Year
(unaudited) December 31, March 31, June 30, September 30, September 30, December 31,
2017 2018 2018 2018 2018 2017
Pro-forma Comparable RevPAR $171.09 $171.73 $194.45 $185.71 $180.76 $176.86
Pro-forma Comparable Occupancy 79.6% 79.3% 86.4% 84.9% 82.5% 82.0%
Pro-forma Comparable ADR $215.00 $216.61 $225.00 $218.90 $219.00 $215.56
Pro-forma Comparable Hotel Revenues (in millions) $722 $713 $810 $731 $2,976 $2,928
Pro-forma Comparable Hotel Adjusted EBITDA (in millions) $206 $198 $267 $212 $883 $856
Pro-forma Comparable Hotel Adjusted EBITDA margin 28.5% 27.8% 32.9% 29.0% 29.7% 29.2%
(1) Includes results from the 18 hotels acquired from Chesapeake as if the acquisition had taken place on January 1, 2018.
(2) Trailing Twelve Months (“TTM”).
34 |Non-GAAP Financial Measures (continued)
Historical Pro-forma Comparable Hotel Adjusted EBITDA – 2019 TTM
The financial information below is for the 57 comparable hotels owned as of September 30, 2019.
Three Months Ended TTM Full Year
(unaudited, dollars in millions) Decem ber 31, March 31, June 30, Septem ber 30, Septem ber 30, Decem ber 31,
2018 2019 2019 2019 2019 2018
Net income $ 55 $ 97 $ 84 $ 9 $ 245 $ 477
Depreciation and amortization expense 69 62 61 61 253 277
Interest income (2) (1) (2) (2) (7) (6)
Interest expense 33 32 33 33 131 127
Income tax expense 10 7 5 — 22 23
Interest expense, income tax and depreciation and
amortization included in equity in earnings from
investments in affiliates 6 5 7 7 25 26
EBITDA 171 202 188 108 669 924
Loss (gain) on sales of assets, net 2 (31) 12 (1) (18) (96)
Loss on sale of investments in affiliates (1) — — — — — (107)
(Gain) loss on foreign currency transactions (1) — — 2 1 3
Transition expense — — — — — 3
Dispostion costs 2 — 1 — 3 2
Acquisition costs — — 6 59 65 —
Severance expense — 1 1 — 2 2
Share-based compensation expense 4 4 4 4 16 16
Casualty gain and impairment loss, net — — — 8 8 (1)
Other items 6 — (5) — 1 8
Adjusted EBITDA 184 176 207 180 747 754
Add: Adjusted EBITDA from hotels acquired(2) 41 37 53 39 170 181
Less: Adjusted EBITDA from hotels disposed of 8 6 5 (1) 18 40
Less: Adjusted EBITDA from investments in affiliates
disposed — — — — — 2
Pro-forma Adjusted EBITDA(2) 217 207 255 220 899 893
Less: Adjusted EBITDA from investments in affiliates 9 10 12 9 40 43
Less: All other(3) (13) (15) (14) (12) (54) (52)
Pro-forma Hotel Adjusted EBITDA(2) 221 212 257 223 913 902
Less: Adjusted EBITDA from non-comparable hotels 6 (1) (4) 4 5 10
Pro-forma Comparable Hotel Adjusted EBITDA(2) $ 215 $ 213 $ 261 $ 219 $ 908 $ 892
(1) Included in other gain (loss), net in the condensed consolidated statement of operations.
(2) Includes results from hotels acquired in the Chesapeake acquisition as if the merger had taken place on January 1, 2018.
(3) Includes other revenues and other expenses, non-income taxes on TRS leases included in other property-level expenses and corporate general and administrative expenses in the
condensed consolidated statement of operations.
35 |Non-GAAP Financial Measures (continued)
Historical Pro-forma Comparable Hotel Adjusted EBITDA – 2018 TTM
The financial information below is for the 57 comparable hotels owned as of September 30, 2019.
Three Months Ended TTM Full Year
(unaudited, dollars in millions) Decem ber 31, March 31, June 30, Septem ber 30, Septem ber 30, Decem ber 31,
2017 2018 2018 2018 2018 2017
Net income $ 61 $ 149 $ 218 $ 55 $ 483 $ 2,631
Depreciation and amortization expense 71 70 69 69 279 288
Interest income — (1) (1) (2) (4) (2)
Interest expense 31 31 31 32 125 124
Income tax (benefit) expense (2) — 13 — 11 (2,346)
Interest expense, income tax and depreciation and
amortization included in equity in earnings from
investments in affiliates 6 7 5 8 26 24
EBITDA 167 256 335 162 920 719
Gain on sales of assets, net (1) (89) (7) (2) (99) (1)
(Gain) loss on sale of investments in affiliates (1) — — (108) 1 (107) —
(Gain) loss on foreign currency transactions — (1) 4 1 4 4
Transition expense 4 2 — 1 7 9
Disposition costs 2 — — — 2 2
Severance expense 1 — 1 1 3 1
Share-based compensation expense 4 4 4 4 16 14
Casualty loss (gain) and impairment loss, net 24 — — (1) 23 26
Other items (21) 2 (1) 1 (19) (17)
Adjusted EBITDA 180 174 228 168 750 757
Add: Adjusted EBITDA from hotels acquired(2) 38 36 55 49 178 171
Less: Adjusted EBITDA from hotels disposed of 15 12 11 8 46 67
Less: Adjusted EBITDA from investments in affiliates
disposed 7 — 2 — 9 7
Pro-forma Adjusted EBITDA(2) 196 198 270 209 873 854
Less: Adjusted EBITDA from investments in affiliates 3 12 12 10 37 38
Less: All other(3) (12) (12) (14) (13) (51) (46)
Pro-forma Hotel Adjusted EBITDA(2) 205 198 272 212 887 862
Less: Adjusted EBITDA from non-comparable hotels (1) — 5 — 4 6
Pro-forma Comparable Hotel Adjusted EBITDA(2) $ 206 $ 198 $ 267 $ 212 $ 883 $ 856
(1) Included in other gain (loss), net in the condensed consolidated statement of operations.
(2) Includes results from hotels acquired in the Chesapeake acquisition as if the merger had taken place on January 1, 2018.
(3) Includes other revenues and other expenses, non-income taxes on TRS leases included in other property-level expenses and corporate general and administrative expenses in the
condensed consolidated statement of operations.
36 |Non-GAAP Financial Measures (continued)
Historical Pro-forma Comparable Hotel Revenues – 2019/2018 TTM
The financial information below is for the 57 comparable hotels owned as of September 30, 2019.
Three Months Ended TTM Full Year
(unaudited, dollars in millions) Decem ber 31, March 31, June 30, Septem ber 30, Septem ber 30, Decem ber 31,
2018 2019 2019 2019 2019 2018
Total Revenues $ 686 $ 659 $ 703 $ 672 $ 2,720 $ 2,737
Less: Other revenue 19 18 19 22 78 72
Add: Revenues from hotels acquired(1) 135 130 151 125 541 561
Less: Revenues from hotels disposed of 42 22 14 — 78 193
Less: Revenues from non-comparable hotels (2) 13 3 5 16 37 32
Pro-forma Comparable Hotel Revenues(1) $ 747 $ 746 $ 816 $ 759 $ 3,068 $ 3,001
(1) Includes results from hotels acquired in the Chesapeake acquisition as if the merger had taken place on January 1, 2018.
(2) Includes revenues from Park's non-comparable hotels and rental revenues from office space and antenna rent leases located at its hotels.
Three Months Ended TTM Full Year
(unaudited, dollars in millions) Decem ber 31, March 31, June 30, Septem ber 30, Septem ber 30, Decem ber 31,
2017 2018 2018 2018 2018 2017
Total Revenues $ 686 $ 668 $ 731 $ 652 $ 2,737 $ 2,791
Less: Other revenue 17 17 17 19 70 64
Add: Revenues from hotels acquired(1) 130 127 152 148 557 545
Less: Revenues from hotels disposed of 75 62 48 41 226 299
Less: Revenues from non-comparable hotels (2) 2 3 8 9 22 45
Pro-forma Comparable Hotel Revenues(1) $ 722 $ 713 $ 810 $ 731 $ 2,976 $ 2,928
(1) Includes results from hotels acquired in the Chesapeake acquisition as if the merger had taken place on January 1, 2018.
(2) Includes revenues from Park's non-comparable hotels and rental revenues from office space and antenna rent leases located at its hotels.
37 |Non-GAAP Financial Measures (continued)
Pro-forma Net Debt and Pro-forma Net Debt to Pro-forma Adjusted EBITDA Ratio
(unaudited, in millions)
Septem ber 30, 2019 Decem ber 31, 2018
(1)
Debt $ 4,100 $ 4,098
Add: unamortized deferred financing costs (2) 19 22
Long-term debt, including current maturities and excluding
unamortized deferred financing costs 4,119 4,120
Add: Park's share of unconsolidated affiliates debt,
excluding unamortized deferred financing costs 234 233
Less: cash and cash equivalents (3) 321 376
Less: restricted cash(4) 43 47
Pro-forma Net debt $ 3,989 $ 3,930
(5)
Pro-forma TTM Adjusted EBITDA $ 899 $ 893
Pro-forma Net debt to Pro-forma Adjusted EBITDA ratio 4.4x 4.4x
(1) Debt as of December 31, 2018 includes $312 million of assumed Chesapeake mortgage loans and $850 million term facility borrowings, less $12 million of related unamortized deferred
financing costs.
(2) Unamortized deferred financing costs as of December 31, 2018 includes $3 million of unamortized deferred financing costs associated with the assumed Chesapeake mortgage loans and
$9 million associated with the term facility entered into in September 2019.
(3) Cash and cash equivalents as of December 31, 2018 includes Chesapeake's cash and cash equivalents of $71 million less $105 million of merger-related costs.
(4) Restricted cash as of December 31, 2018 includes Chesapeake’s restricted cash of $32 million.
(5) See slide 36 for Pro-forma TTM Adjusted EBITDA at September 30, 2019. Pro-forma TTM Adjusted EBITDA includes EBITDA for periods prior to ownership for the hotels acquired in the
Chesapeake acquisition and excludes results from the 13 hotels disposed of in 2018, 1 hotel returned to the ground lessor at the end of 2018 and 5 hotels disposed of in 2019.
38 |Definitions
EBITDA, Adjusted EBITDA, Hotel Adjusted EBITDA and Hotel Adjusted EBITDA Margin
Earnings before interest expense, taxes and depreciation and amortization (“EBITDA”), presented herein, reflects net income excluding depreciation and amortization,
interest income, interest expense, income taxes and interest expense, income tax and depreciation and amortization included in equity in earnings from investments in
affiliates.
Adjusted EBITDA, presented herein, is calculated as EBITDA, as previously defined, further adjusted to exclude:
• Gains or losses on sales of assets for both consolidated and unconsolidated investments;
• Gains or losses on foreign currency transactions;
• Transition expense related to the Company’s establishment as an independent, publicly traded company;
• Transaction costs associated with hotel acquisitions or dispositions expensed during the period;
• Severance expense;
• Share-based compensation expense;
• Casualty and impairment losses; and
• Other items that management believes are not representative of the Company’s current or future operating performance.
Hotel Adjusted EBITDA measures hotel-level results before debt service, depreciation and corporate expenses of the Company’s consolidated hotels, including both
comparable and non-comparable hotels but excluding hotels owned by unconsolidated affiliates, and is a key measure of the Company’s profitability. The Company
presents Hotel Adjusted EBITDA to help the Company and its investors evaluate the ongoing operating performance of the Company’s consolidated hotels.
Hotel Adjusted EBITDA margin is calculated as Hotel Adjusted EBITDA divided by total hotel revenue.
EBITDA, Adjusted EBITDA, Hotel Adjusted EBITDA and Hotel Adjusted EBITDA margin are not recognized terms under United States (“U.S.”) GAAP and should not
be considered as alternatives to net income (loss) or other measures of financial performance or liquidity derived in accordance with U.S. GAAP. In addition, the
Company’s definitions of EBITDA, Adjusted EBITDA, Hotel Adjusted EBITDA and Hotel Adjusted EBITDA margin may not be comparable to similarly titled measures
of other companies.
The Company believes that EBITDA, Adjusted EBITDA, Hotel Adjusted EBITDA and Hotel Adjusted EBITDA margin provide useful information to investors about the
Company and its financial condition and results of operations for the following reasons: (i) EBITDA, Adjusted EBITDA, Hotel Adjusted EBITDA and Hotel Adjusted
EBITDA margin are among the measures used by the Company’s management team to make day-to-day operating decisions and to evaluate its operating
performance between periods and between REITs by removing the effect of its capital structure (primarily interest expense) and asset base (primarily depreciation and
amortization) from its operating results; and (ii) EBITDA, Adjusted EBITDA, Hotel Adjusted EBITDA and Hotel Adjusted EBITDA margin are frequently used by
securities analysts, investors and other interested parties as a common performance measure to compare results or estimate valuations across companies in the
industry.
EBITDA, Adjusted EBITDA, Hotel Adjusted EBITDA and Hotel Adjusted EBITDA margin have limitations as analytical tools and should not be considered either in
isolation or as a substitute for net income (loss) or other methods of analyzing results as reported under U.S. GAAP.
Definitions EBITDA, Adjusted EBITDA, Hotel Adjusted EBITDA and Hotel Adjusted EBITDA Margin Earnings before interest expense, taxes and depreciation and amortization (“ EBITDA”), presented herein, reflects net income excluding depreciation and amortization, interest income, interest expense, income taxes and interest expense, income tax and depreciation and amortization included in equity in earnings from investments in affiliates. Adjusted EBITDA, presented herein, is calculated as EBITDA, as previously defined, further adjusted to exclude: Gains or losses on sales of assets for both
consolidated and unconsolidated investments; Gains or losses on foreign currency transactions; Transition expense related to the Company’s establishment as an independent, publicly traded company; Transaction costs associated with hotel acquisition or disposition costs expensed during the period; Severance expense; Share-based compensation expense; Casualty and impairment losses; and Other items that management believes are not representative of the Company’s current or future operating performance. Hotel Adjusted EBITDA measures hotel-level results before debt service, depreciation and
corporate expenses of the Company’s consolidated hotels, including both comparable and non-comparable hotels but excluding hotels owned by unconsolidated affiliates, and is a key measure of the Company’s profitability. The Company presents Hotel Adjusted EBITDA to help the Company and its investors evaluate the ongoing operating performance of the Company’s consolidated hotels. Hotel Adjusted EBITDA margin is calculated as Hotel Adjusted EBITDA divided by total hotel revenue. EBITDA, Adjusted EBITDA, Hotel Adjusted EBITDA and Hotel Adjusted EBITDA margin are not
recognized terms under United States (“ U.S.”) GAAP and should not be considered as alternatives to net income (loss) or other measures of financial performance or liquidity derived in accordance with U.S. GAAP . In addition, the Company’s definitions of EBITDA, Adjusted EBITDA, Hotel Adjusted EBITDA and Hotel Adjusted EBITDA margin may not be comparable to similarly titled measures of other companies. The Company believes that EBITDA, Adjusted EBITDA, Hotel Adjusted EBITDA and Hotel Adjusted EBITDA margin provide useful information to investors about the Company and
its financial condition and results of operations for the following reasons: (i) EBITDA, Adjusted EBITDA, Hotel Adjusted EBITDA and Hotel Adjusted EBITDA margin are among the measures used by the Company’s management team to make day-to-day operating decisions and to evaluate its operating performance between periods and between REITs by removing the effect of its capital structure (primarily interest expense) and asset base (primarily depreciation and amo rtization) from its operating results; and (ii) EBITDA, Adjusted EBITDA, Hotel Adjusted EBITDA and Hotel Adjusted EBITDA
margin are frequently used by securities analysts, investors and other interested parties as a common performance measure to compare results or estimate valuations across companies in the industry. EBITDA, Adjusted EBITDA, Hotel Adjusted EBITDA and Hotel Adjusted EBITDA margin have limitations as analytical tools and should not be considered either in isolation or as a substitute for net income (loss) or other methods of analyzing results as reported under U.S. GAAP. P ARK HOTELS & RESORTS 39
39 |Definitions (cont’d) Nareit FFO attributable to stockholders, Adjusted FFO attributable to stockholders, Nareit FFO per share – Diluted and Adjusted FFO per share - Diluted Nareit FFO attributable to stockholders and Nareit FFO per diluted share (defined as set forth below) are presented herein as non-GAAP measures of the Company’s performance. The Company calculates funds from operations (“FFO”) attributable to stockholders for a given operating period in accordance with standards established by the National Association of Real Estate Investment Trusts (“Nareit”), as net income (loss) attributable to stockholders (calculated in accordance with U.S. GAAP), excluding depreciation and amortization, gains or losses on sales of assets, impairment, and the cumulative effect of changes in accounting principles, plus adjustments for unconsolidated joint ventures. Adjustments for unconsolidated joint ventures are calculated to reflect the Company’s pro rata share of the FFO of those entities on the same basis. As noted by Nareit in its December 2018 “Nareit Funds from Operations White Paper – 2018 Restatement,” since real estate values historically have risen or fallen with market conditions, many industry investors have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. For these reasons, Nareit adopted the FFO metric in order to promote an industry-wide measure of REIT operating performance. The Company believes Nareit FFO provides useful information to investors regarding its operating performance and can facilitate comparisons of operating performance between periods and between REITS. The Company’s presentation may not be comparable to FFO reported by other REITs that do not define the terms in accordance with the current Nareit definition, or that interpret the current Nareit definition differently. The Company calculates Nareit FFO per diluted share as Nareit FFO divided by the number of fully diluted shares outstanding during a given operating period. The Company also presents Adjusted FFO attributable to stockholders and Adjusted FFO per diluted share when evaluating its performance because management believes that the exclusion of certain additional items described below provides useful supplemental information to investors regarding the Company’s ongoing operating performance. Management historically has made the adjustments detailed below in evaluating its performance and in its annual budget process. Management believes that the presentation of Adjusted FFO provides useful supplemental information that is beneficial to an investor’s complete understanding of operating performance. The Company adjusts Nareit FFO attributable to stockholders for the following items, which may occur in any period, and refers to this measure as Adjusted FFO attributable to stockholders: • Gains or losses on foreign currency transactions; • Transition expense related to the Company’s establishment as an independent, publicly traded company; • Transaction costs associated with hotel acquisitions or dispositions expensed during the period; • Severance expense; • Share-based compensation expense; • Casualty gains or losses; and • Other items that management believes are not representative of the Company’s current or future operating performance. Pro-forma Certain financial measures and other information have been adjusted to reflect the effects of hotels disposed of and assume hotels acquired were owned as of the beginning of each of the periods presented. When presenting such information, the amounts are identified as “Pro-forma.” 40 |
Definitions (cont’d) Net Debt Net debt, presented herein, is a non-GAAP financial measure that the Company uses to evaluate its financial leverage. Net debt is calculated as (i) long- term debt, including current maturities and excluding unamortized deferred financing costs; and (ii) the Company’s share of investments in affiliate debt, excluding unamortized deferred financing costs; reduced by (a) cash and cash equivalents; and (b) restricted cash and cash equivalents. The Company believes Pro-forma Net debt provides useful information about its indebtedness to investors as it is frequently used by securities analysts, investors and other interested parties to compare the indebtedness of companies. Net debt should not be considered as a substitute to debt presented in accordance with U.S. GAAP. Net debt may not be comparable to a similarly titled measure of other companies. Net Debt to Pro-forma Adjusted EBITDA Ratio Net debt to Pro-forma Adjusted EBITDA ratio, presented herein, is a non-GAAP financial measure and is included as it is frequently used by securities analysts, investors and other interested parties to compare the financial condition of companies. Pro-forma Net debt to Pro-forma Adjusted EBITDA ratio should not be considered as an alternative to measures of financial condition derived in accordance with U.S. GAAP and it may not be comparable to a similarly titled measure of other companies. Comparable Hotels The Company presents certain data for its consolidated hotels on a comparable hotel basis as supplemental information for investors. The Company presents comparable hotel results to help the Company and its investors evaluate the ongoing operating performance of its comparable hotels. Park Comparable Hotels The Company presents certain data for Park’s legacy portfolio on a comparable basis. The Company defines Park comparable hotels as those that: (i) were active and operating in since January 1st of the previous year, and (ii) have not sustained substantial property damage or business interruption, have not undergone large-scale capital projects and for which comparable results are not available. Of the 40 Park legacy hotels that are consolidated as of September 30, 2019, 39 hotels have been classified as Park comparable hotels, which excludes 18 hotels acquired from Chesapeake. Due to the effects of business interruption from Hurricane Maria at the Caribe Hilton in Puerto Rico during the first half of 2019, the results from this property were excluded from comparable hotels in 2019. Park’s comparable hotels also exclude the 12 consolidated hotels that were sold in January and February 2018, one consolidated hotel that was returned to the lessor after the expiration of the ground lease in December 2018 and five consolidated hotels that were sold in 2019. 41 |
Definitions (cont’d) Chesapeake Comparable Hotels The Company presents certain data for Chesapeake’s comparable hotels on a pro-forma comparable hotel basis, which includes 18 hotels the Company acquired from Chesapeake in September 2019. Total Pro-Forma Comparable Hotels The Company presents certain data for its consolidated hotels on a pro-forma comparable hotel basis, which includes Park and Chesapeake comparable hotels. Of the 58 hotels that are consolidated as of September 30, 2019, 57 hotels have been classified as comparable hotels. Occupancy Occupancy represents the total number of room nights sold divided by the total number of room nights available at a hotel or group of hotels. Occupancy measures the utilization of the Company’s hotels’ available capacity. Management uses occupancy to gauge demand at a specific hotel or group of hotels in a given period. Occupancy levels also help management determine achievable Average Daily Rate (“ADR”) levels as demand for hotel rooms increases or decreases. Average Daily Rate ADR represents rooms revenue divided by total number of room nights sold in a given period. ADR measures average room price attained by a hotel and ADR trends provide useful information concerning the pricing environment and the nature of the customer base of a hotel or group of hotels. ADR is a commonly used performance measure in the hotel industry, and management uses ADR to assess pricing levels that the Company is able to generate by type of customer, as changes in rates have a more pronounced effect on overall revenues and incremental profitability than changes in occupancy, as described above. Revenue per Available Room Revenue per Available Room (“RevPAR”) represents rooms revenue divided by total number of room nights available to guests for a given period. Management considers RevPAR to be a meaningful indicator of the Company’s performance as it provides a metric correlated to two primary and key factors of operations at a hotel or group of hotels: occupancy and ADR. RevPAR is also a useful indicator in measuring performance over comparable periods for comparable hotels. References to RevPAR and ADR are presented on a comparable basis and references to RevPAR and ADR are presented on a currency neutral basis (prior periods are reflected using the current period exchange rates), unless otherwise noted. 42 |
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