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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 June 30, 2020

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 July 31, 2020 was 235,604,666.

 

 

 

 

 

Table of Contents

 

PART I. FINANCIAL INFORMATION

 

Page

 

 

 

 

Item 1.

Financial Statements (unaudited)

 

2

 

Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019

 

2

 

Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three and Six Months Ended June 30, 2020 and 2019

 

3

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019

 

4

 

Condensed Consolidated Statements of Equity for the Three and Six Months Ended June 30, 2020 and 2019

 

5

 

Notes to Condensed Consolidated Financial Statements

 

6

Item 2.

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

 

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

30

Item 4.

Controls and Procedures

 

30

 

 

 

 

PART II. OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

 

31

Item 1A.

Risk Factors

 

31

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

33

Item 3.

Defaults Upon Senior Securities

 

34

Item 4.

Mine Safety Disclosures

 

34

Item 5.

Other Information

 

34

Item 6.

Exhibits

 

35

 

Signatures

 

36

 

 

 

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)

 

 

 

June 30, 2020

 

 

December 31, 2019

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Property and equipment, net

 

$

9,323

 

 

$

9,594

 

Assets held for sale, net

 

 

—

 

 

 

71

 

Investments in affiliates

 

 

23

 

 

 

35

 

Goodwill

 

 

—

 

 

 

607

 

Intangibles, net

 

 

45

 

 

 

46

 

Cash and cash equivalents

 

 

1,274

 

 

 

346

 

Restricted cash

 

 

35

 

 

 

40

 

Accounts receivable, net of allowance for doubtful accounts of $7 and $2

 

 

31

 

 

 

180

 

Prepaid expenses

 

 

43

 

 

 

83

 

Other assets

 

 

46

 

 

 

40

 

Operating lease right-of-use assets

 

 

239

 

 

 

248

 

TOTAL ASSETS (variable interest entities - $231 and $242)

 

$

11,059

 

 

$

11,290

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Debt

 

$

5,118

 

 

$

3,871

 

Accounts payable and accrued expenses

 

 

129

 

 

 

217

 

Due to hotel managers

 

 

74

 

 

 

159

 

Deferred income tax liabilities

 

 

36

 

 

 

50

 

Other liabilities

 

 

123

 

 

 

282

 

Operating lease liabilities

 

 

253

 

 

 

260

 

Total liabilities (variable interest entities - $215 and $219)

 

 

5,733

 

 

 

4,839

 

Commitments and contingencies - refer to Note 13

 

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

 

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

   235,900,906 shares issued and 235,604,979 shares outstanding as of

   June 30, 2020 and 239,589,639 shares issued and 239,386,877

   shares outstanding as of December 31, 2019

 

 

2

 

 

 

2

 

Additional paid-in capital

 

 

4,508

 

 

 

4,575

 

Retained earnings

 

 

871

 

 

 

1,922

 

Accumulated other comprehensive loss

 

 

(6

)

 

 

(3

)

Total stockholders' equity

 

 

5,375

 

 

 

6,496

 

Noncontrolling interests

 

 

(49

)

 

 

(45

)

Total equity

 

 

5,326

 

 

 

6,451

 

TOTAL LIABILITIES AND EQUITY

 

$

11,059

 

 

$

11,290

 

 

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

 

2

 

PARK HOTELS & RESORTS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(unaudited, in millions, except per share data)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rooms

 

$

21

 

 

$

434

 

 

$

383

 

 

$

837

 

Food and beverage

 

 

3

 

 

 

195

 

 

 

164

 

 

 

378

 

Ancillary hotel

 

 

15

 

 

 

55

 

 

 

72

 

 

 

110

 

Other

 

 

3

 

 

 

19

 

 

 

22

 

 

 

37

 

Total revenues

 

 

42

 

 

 

703

 

 

 

641

 

 

 

1,362

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rooms

 

 

20

 

 

 

113

 

 

 

132

 

 

 

220

 

Food and beverage

 

 

14

 

 

 

130

 

 

 

137

 

 

 

254

 

Other departmental and support

 

 

60

 

 

 

151

 

 

 

232

 

 

 

300

 

Other property-level

 

 

56

 

 

 

49

 

 

 

116

 

 

 

98

 

Management fees

 

 

—

 

 

 

36

 

 

 

25

 

 

 

69

 

Impairment loss and casualty gain, net

 

 

—

 

 

 

—

 

 

 

694

 

 

 

—

 

Depreciation and amortization

 

 

75

 

 

 

61

 

 

 

150

 

 

 

123

 

Corporate general and administrative

 

 

14

 

 

 

22

 

 

 

30

 

 

 

39

 

Other

 

 

4

 

 

 

18

 

 

 

25

 

 

 

38

 

Total expenses

 

 

243

 

 

 

580

 

 

 

1,541

 

 

 

1,141

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (loss) on sales of assets, net

 

 

1

 

 

 

(12

)

 

 

63

 

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (loss) income

 

 

(200

)

 

 

111

 

 

 

(837

)

 

 

240

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

1

 

 

 

2

 

 

 

2

 

 

 

3

 

Interest expense

 

 

(50

)

 

 

(33

)

 

 

(90

)

 

 

(65

)

Equity in (losses) earnings from investments in affiliates

 

 

(8

)

 

 

10

 

 

 

(9

)

 

 

15

 

Other loss, net

 

 

(1

)

 

 

(1

)

 

 

(3

)

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income before income taxes

 

 

(258

)

 

 

89

 

 

 

(937

)

 

 

193

 

Income tax expense

 

 

(3

)

 

 

(5

)

 

 

(13

)

 

 

(12

)

Net (loss) income

 

 

(261

)

 

 

84

 

 

 

(950

)

 

$

181

 

Net loss (income) attributable to noncontrolling interests

 

 

2

 

 

 

(2

)

 

 

3

 

 

 

(3

)

Net (loss) income attributable to stockholders

 

$

(259

)

 

$

82

 

 

$

(947

)

 

$

178

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income, net of tax expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency translation adjustment, net of tax expense of $0

 

 

(1

)

 

 

1

 

 

 

(3

)

 

 

1

 

Total other comprehensive (loss) income

 

 

(1

)

 

 

1

 

 

 

(3

)

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive (loss) income

 

 

(262

)

 

 

85

 

 

 

(953

)

 

 

182

 

Comprehensive loss (income) attributable to noncontrolling

   interests

 

 

2

 

 

 

(2

)

 

 

3

 

 

 

(3

)

Comprehensive (loss) income attributable to stockholders

 

$

(260

)

 

$

83

 

 

$

(950

)

 

$

179

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) earnings per share - Basic

 

$

(1.10

)

 

$

0.40

 

 

$

(4.01

)

 

$

0.88

 

(Loss) earnings per share - Diluted

 

$

(1.10

)

 

$

0.40

 

 

$

(4.01

)

 

$

0.88

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - Basic

 

 

235

 

 

 

201

 

 

 

236

 

 

 

201

 

Weighted average shares outstanding - Diluted

 

 

235

 

 

 

202

 

 

 

236

 

 

 

202

 

 

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)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2020

 

 

2019

 

Operating Activities:

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(950

)

 

$

181

 

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

   activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

150

 

 

 

123

 

Gain on sales of assets, net

 

 

(63

)

 

 

(19

)

Impairment loss and casualty gain, net

 

 

694

 

 

 

—

 

Equity in loss (earnings) from investments in affiliates

 

 

9

 

 

 

(15

)

Other loss, net

 

 

3

 

 

 

—

 

Share-based compensation expense

 

 

6

 

 

 

8

 

Amortization of deferred financing costs

 

 

3

 

 

 

2

 

Distributions from unconsolidated affiliates

 

 

5

 

 

 

13

 

Deferred income taxes

 

 

2

 

 

 

—

 

Changes in operating assets and liabilities

 

 

(17

)

 

 

(49

)

Net cash (used in) provided by operating activities

 

 

(158

)

 

 

244

 

Investing Activities:

 

 

 

 

 

 

 

 

Capital expenditures for property and equipment

 

 

(56

)

 

 

(120

)

Proceeds from asset dispositions, net

 

 

207

 

 

 

229

 

Contributions to unconsolidated affiliates

 

 

(2

)

 

 

—

 

Insurance proceeds for property damage claims

 

 

1

 

 

 

2

 

Net cash provided by investing activities

 

 

150

 

 

 

111

 

Financing Activities:

 

 

 

 

 

 

 

 

Borrowings on Revolver

 

 

1,000

 

 

 

—

 

Repayments of Revolver

 

 

(319

)

 

 

—

 

Proceeds from issuance of Senior Secured Notes

 

 

652

 

 

 

—

 

Repayment of 2016 Term Loan

 

 

(69

)

 

 

—

 

Repayment of mortgage debt

 

 

(4

)

 

 

—

 

Debt issuance costs

 

 

(15

)

 

 

—

 

Dividends paid

 

 

(241

)

 

 

(291

)

Distributions to noncontrolling interests, net

 

 

(1

)

 

 

(3

)

Tax withholdings on share-based compensation

 

 

(6

)

 

 

(6

)

Repurchase of common stock

 

 

(66

)

 

 

—

 

Net cash provided by (used in) financing activities

 

 

931

 

 

 

(300

)

Net increase in cash and cash equivalents and restricted cash

 

 

923

 

 

 

55

 

Cash and cash equivalents and restricted cash, beginning of period

 

 

386

 

 

 

425

 

Cash and cash equivalents and restricted cash, end of period

 

$

1,309

 

 

$

480

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosures

 

 

 

 

 

 

 

 

Non-cash financing activities:

 

 

 

 

 

 

 

 

Dividends declared but unpaid

 

$

—

 

 

$

90

 

 

 

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) Income

 

 

Interests

 

 

Total

 

Balance as of December 31, 2019

 

 

239

 

 

$

2

 

 

$

4,575

 

 

$

1,922

 

 

$

(3

)

 

$

(45

)

 

$

6,451

 

Share-based compensation, net

 

 

—

 

 

 

—

 

 

 

(5

)

 

 

1

 

 

 

—

 

 

 

—

 

 

 

(4

)

Net loss

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(688

)

 

 

—

 

 

 

(1

)

 

 

(689

)

Other comprehensive loss

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(2

)

 

 

 

 

 

 

(2

)

Dividends and dividend equivalents(1)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(106

)

 

 

—

 

 

 

—

 

 

 

(106

)

Distributions to noncontrolling

    interests

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(1

)

 

 

(1

)

Repurchase of common stock

 

 

(4

)

 

 

—

 

 

 

(66

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(66

)

Balance as of March 31, 2020

 

 

235

 

 

 

2

 

 

 

4,504

 

 

 

1,129

 

 

 

(5

)

 

 

(47

)

 

 

5,583

 

Share-based compensation, net

 

 

1

 

 

 

—

 

 

 

4

 

 

 

1

 

 

 

—

 

 

 

—

 

 

 

5

 

Net loss

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(259

)

 

 

—

 

 

 

(2

)

 

 

(261

)

Other comprehensive loss

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(1

)

 

 

—

 

 

 

(1

)

Balance as of June 30, 2020

 

 

236

 

 

$

2

 

 

$

4,508

 

 

$

871

 

 

$

(6

)

 

$

(49

)

 

$

5,326

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Share-based compensation, net

 

 

1

 

 

 

—

 

 

 

3

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

3

 

Net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

82

 

 

 

—

 

 

 

2

 

 

 

84

 

Other comprehensive income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1

 

 

 

—

 

 

 

1

 

Dividends and dividend equivalents(1)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(92

)

 

 

—

 

 

 

—

 

 

 

(92

)

Balance as of June 30, 2019

 

 

202

 

 

$

2

 

 

$

3,591

 

 

$

2,034

 

 

$

(5

)

 

$

(46

)

 

$

5,576

 

 

(1)

Dividends declared per common share were $0.45 for the three months ended March 31, 2020, March 31, 2019 and June 30, 2019, respectively.   

 

 

 

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 and Recent Events

 

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 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 treated as a real estate investment trust (“REIT”) for United States (“U.S.”) federal income tax purposes, and we believe we have been organized and operated, and expect to continue to be organized and operate in a manner to qualify as a REIT. 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. We own 100% of the interests in our Operating Company.

 

Recent Events

The novel strain of coronavirus and the disease it causes (“COVID-19”) have had a significant effect on the hospitality industry and our business.  The effects of COVID-19, including government restrictions such as mandated closings of non-essential businesses and travel restrictions, have severely reduced overall lodging demand.  Since the beginning of March, we have 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. We expect that COVID-19 will continue to negatively affect our operating results for at least the remainder of 2020, as well as the debt and equity capital markets, which in the near-term could make obtaining financing or refinancing debt obligations more challenging.

During the first quarter of 2020, we and our hotel managers took various actions to mitigate the effects of COVID-19, including temporarily suspending operations at 38 of our 60 hotels, limiting capacity at our hotels that remained open, deferring approximately $150 million of capital expenditures planned for 2020, suspending our dividend after the first quarter of 2020, and as a precautionary measure to increase liquidity and preserve financial flexibility, fully drawing our $1 billion revolving credit facility (“Revolver”). We have since commenced a phased reopening of 20 of our hotels as restrictions are removed and demand returns. The timing of fully reopening these and the remainder of our hotels will depend primarily on government restrictions imposed or re-imposed, recommendations of health officials and market demand. Additionally, in May 2020, in order to maintain compliance under our credit and term loan facilities in future quarters, we amended our credit and term loan facilities to suspend compliance with all existing financial covenants tested through and including March 31, 2021 and to adjust the levels of particular financial covenants after such period. As part of the amendment process, we (i) agreed to comply with a monthly minimum liquidity covenant, to pledge equity in certain subsidiaries to secure the facilities, and for certain subsidiaries to become guarantors under the facilities, and (ii) exercised our two six-month extension options on our Revolver to extend its maturity to December 24, 2021. The amendments also added additional covenants that restrict our ability to make dividend and distribution payments (except to the extent required to maintain REIT status) and stock repurchases, make prepayments of other indebtedness, make capital expenditures, conduct asset dispositions or transfers and make investments, including acquisitions or mergers, in each case subject to various exceptions. We expect to be in compliance with financial covenants for the quarter ended June 30, 2021 (the first quarter for which compliance is required following the amendments). If we are unable to comply with such covenants for the quarter ended June 30, 2021, we intend to negotiate with our lenders to amend such covenants as needed and believe we will be able to reach an agreement in advance as we did with the previous amendments.

In May 2020, our Operating Company, PK Domestic and PK Finance Co-Issuer Inc. (“PK Finance”), an indirect, wholly-owned subsidiary of the Company, issued an aggregate of $650 million of senior secured notes due 2025 (“Senior Secured Notes”). We set aside $350 million of the net proceeds for general corporate purposes, further increasing our liquidity, and used the remainder of the net proceeds to repay portions of our Revolver and the term loan we entered into in December 2016 (“2016 Term Loan”). We are committed to using our liquidity to support our hotels’ operations during the COVID-19 pandemic and subsequent recovery, while being focused on continuing to maintain and enhance our stockholders’ value.

6

 

 

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, 2019 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on February 27, 2020.

 

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 statements of comprehensive (loss) income for the three and six months ended June 30, 2019 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, 2019, filed with the SEC on February 27, 2020, contains a discussion of the significant accounting policies. There have been no significant changes to our significant accounting policies since December 31, 2019.

Recently Issued Accounting Pronouncements

Adopted Accounting Standards

 

In January 2017, the FASB issued ASU No. 2017-04 (“ASU 2017-04”), Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU eliminates Step 2 from goodwill impairment testing. The goodwill impairment test will now consist of one step which compares the fair value of the reporting unit to the carrying value of the reporting unit and we would recognize an impairment loss if the carrying value exceeds the fair value but only to the extent of the amount of the goodwill allocated to the reporting unit. We adopted the provisions of this ASU effective January 1, 2020.

 

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which replaced the existing “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For trade and other receivables, the forward looking “expected loss” model will generally result in the earlier recognition of allowances for losses. In November 2018, the FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses”, which clarified that operating lease receivables accounted for under ASC 842 are not in the scope of ASU No. 2016-13. We adopted the provisions of ASU 2016-13 and the related ASUs as of January 1, 2020 using a modified retrospective approach, which resulted in no cumulative effect adjustment to retained earnings as of January 1, 2020.  An allowance for doubtful accounts is provided on accounts receivable for the expected credit loss over the life of the receivable based on historical credit losses, current business conditions, and reasonable and supportable forecasts.    

 

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” to provide optional expedients and exceptions for applying generally accepted accounting principles if certain criteria are met to contract modifications, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued.  The ASU is effective from March 12, 2020 through December 31, 2022 and did not have a material effect on our consolidated financial statements.

7

 

 

Note 3: Acquisitions and Dispositions

Acquisitions

Merger with Chesapeake

As a result of the Merger, we acquired a 100% ownership interest in the following 18 hotels:

 

Hotel

 

Location

 

Rooms

 

Hilton Denver City Center

 

Denver, CO

 

 

613

 

W Chicago – Lakeshore

 

Chicago, IL

 

 

520

 

Hyatt Regency Boston

 

Boston, MA

 

 

502

 

Hyatt Regency Mission Bay Spa and Marina

 

San Diego, CA

 

 

438

 

Boston Marriott Newton

 

Newton, MA

 

 

430

 

Le Meridien New Orleans(1)

 

New Orleans, LA

 

 

410

 

W Chicago – City Center

 

Chicago, IL

 

 

403

 

Royal Palm South Beach Miami, a Tribute Portfolio Resort

 

Miami Beach, FL

 

 

393

 

Le Meridien San Francisco

 

San Francisco, CA

 

 

360

 

JW Marriott San Francisco Union Square

 

San Francisco, CA

 

 

344

 

Hyatt Centric Fisherman’s Wharf

 

San Francisco, CA

 

 

316

 

Hotel Indigo San Diego Gaslamp Quarter

 

San Diego, CA

 

 

210

 

Courtyard Washington Capitol Hill/Navy Yard

 

Washington, DC

 

 

204

 

Homewood Suites by Hilton Seattle Convention Center Pike Street

 

Seattle, WA

 

 

195

 

Hilton Checkers Los Angeles

 

Los Angeles, CA

 

 

193

 

Ace Hotel Downtown Los Angeles(1)

 

Los Angeles, CA

 

 

182

 

Hotel Adagio, Autograph Collection

 

San Francisco, CA

 

 

171

 

W New Orleans – French Quarter

 

New Orleans, LA

 

 

97

 

 

 

 

 

 

5,981

 

 

(1)

Hotels were subsequently sold in December 2019.

 

The total consideration for the Merger was approximately $2 billion, which included the issuance of approximately 37.8 million shares of common stock valued at $25.88 per share to Chesapeake common shareholders based on the closing price of our common stock on September 17, 2019. We accounted for the Merger using the acquisition method of accounting.  

 

We preliminarily allocated the purchase price, consisting of $978 million of common stock issued and cash of $1,013 million as follows:

 

 

 

(in millions)

 

Investment in hotel properties, net

 

$

2,220

 

Intangibles, net

 

 

45

 

Cash and cash equivalents

 

 

62

 

Restricted cash

 

 

38

 

Accounts receivable, net

 

 

26

 

Prepaid expenses

 

 

9

 

Other assets

 

 

2

 

Operating lease right-of-use asset

 

 

65

 

Debt

 

 

(311

)

Accounts payable and accrued expenses

 

 

(47

)

Due to hotel managers

 

 

(15

)

Other liabilities

 

 

(15

)

Operating lease liability

 

 

(88

)

Total consideration

 

$

1,991

 

 

8

 

The estimated fair values for the assets acquired and the liabilities assumed are preliminary and are subject to change during the one-year measurement period as additional information related to the inputs and assumptions used in determining the fair value of the assets and liabilities becomes available. We will continue to review the underlying inputs and assumptions. Therefore, the purchase price allocation is not yet complete as of the date of this filing. Once the allocation is complete, an additional adjustment to the allocation may occur.

 

We used the following valuation methodologies, inputs and assumptions to estimate the fair value of the assets acquired and liabilities assumed:

 

 

•

Investment in hotel properties – We estimated the fair values of the land and improvements, buildings and improvements, and furniture, fixtures and equipment at the hotel properties by using a combination of the market, cost and income approaches. These valuation methodologies are based on significant Level 3 inputs in the fair value hierarchy, such as estimates of future income growth, capitalization rates, discount rates, capital expenditures and cash flow projections at the respective hotel properties.

 

•

Intangible assets – We estimated the fair value of the air rights contract acquired as part of the Hyatt Regency Boston by calculating the present value of the difference between the contractual rental amounts according to the contract and the market rental rates for similar contracts, measured over a period equal to the remaining non-cancellable term of the contract. This valuation methodology is based on Level 3 inputs in the fair value hierarchy. The intangible asset is amortized using the straight-line method over the remaining term of the contract.

 

•

Above and below market lease liabilities – We estimated the fair value of our above and below market lease liabilities by calculating the present value of the difference between the contractual rental amounts paid according to the in-place lease agreements and the market rental rates for similar leased space, measured over a period equal to the remaining non-cancellable terms of the leases. This valuation methodology is based on Level 3 inputs in the fair value hierarchy. The above and below market lease liabilities are included as adjustments to the right-of-use asset in the accompanying condensed consolidated balance sheet. The above and below market lease liabilities are amortized as adjustments to ground rent expense over the remaining terms of the respective leases.

 

•

Operating lease right-of-use-asset and Operating lease liability – We estimated the fair value of the operating lease right-of-use asset and operating lease liability by calculating the present value of the fixed contractual rental amounts due over a period equal to the remaining non-cancellable terms of the leases. This valuation methodology is based on Level 3 inputs in the fair value hierarchy.

 

•

Debt – We estimated the fair value of the mortgage loans by calculating the present value of the remaining loan payments due over the term of the loans. This valuation methodology is based on Level 3 inputs in the fair value hierarchy.

 

•

Restricted cash, accounts receivable, prepaid expenses and other assets, accounts payable and accrued expenses, due to hotel managers and other liabilities – The amounts constitute the carrying amounts of the assets acquired and the liabilities assumed, which we believe approximate fair value because of their short-term nature.

 

The following unaudited condensed pro-forma financial information presents the results of operations as if the Merger had taken place on January 1, 2019. The unaudited condensed pro-forma financial information is not necessarily indicative of what our actual results of operations would have been assuming the Merger had taken place on January 1, 2019, nor is it indicative of the results of operations for future periods. The unaudited condensed pro-forma financial information is as follows:

 

 

 

Three Months Ended

June 30, 2019

 

 

Six Months Ended

June 30, 2019

 

(unaudited)

 

(in millions)

 

Total revenues

 

$

854

 

 

$

1,642

 

Operating income

 

 

145

 

 

 

291

 

Net income

 

 

106

 

 

 

208

 

 

Dispositions

 

During the six months ended June 30, 2020, we sold the Embassy Suites Washington DC Georgetown and our interests in the entity that owns the Hilton São Paulo Morumbi for total gross proceeds of $208 million and recognized a gain, net of selling costs, of $64 million on these hotels, which is included in gain (loss) on sales of assets, net in our condensed consolidated statements of comprehensive (loss) income. Additionally, the net gain includes the reclassification of a currency translation adjustment of $7 million from accumulated other comprehensive loss into earnings concurrent with the sale of the Hilton São Paulo Morumbi.

9

 

During the six months ended June 30, 2019, we sold our ownership interests in five consolidated hotels listed in the table below for total gross proceeds of $235 million and recognized a gain, net of selling costs, of $19 million on these hotels which is included in gain (loss) on sales of assets, net in our condensed consolidated statements of comprehensive (loss) income.   

 

Hotel

 

Location

 

Month Sold

Pointe Hilton Squaw Peak Resort

 

Phoenix, Arizona

 

February 2019

Hilton Nuremberg

 

Nuremberg, Germany

 

March 2019

Hilton Atlanta Airport

 

Atlanta, Georgia

 

June 2019

Hilton New Orleans Airport(1)

 

New Orleans, Louisiana

 

June 2019

Embassy Suites Parsippany(1)

 

Parsippany, New Jersey

 

June 2019

 

(1)

Hotels were sold as a portfolio in the same transaction.

 

 

Note 4: Property and Equipment

Property and equipment were:

 

 

 

June 30, 2020

 

 

December 31, 2019(1)

 

 

 

(in millions)

 

Land

 

$

3,429

 

 

$

3,512

 

Buildings and leasehold improvements

 

 

6,944

 

 

 

6,978

 

Furniture and equipment

 

 

1,092

 

 

 

1,059

 

Construction-in-progress

 

 

48

 

 

 

134

 

 

 

 

11,513

 

 

 

11,683

 

Accumulated depreciation and amortization

 

 

(2,190

)

 

 

(2,089

)

 

 

$

9,323

 

 

$

9,594

 

 

(1)

Excludes $62 million of property and equipment, net, classified as held for sale as of December 31, 2019.

 

Depreciation of property and equipment was $75 million and $60 million, respectively, during the three months ended June 30, 2020 and 2019, respectively, and $149 million and $122 million during the six months ended June 30, 2020 and 2019, respectively.

 

For the six months ended June 30, 2020, we recognized $88 million of impairment losses, primarily related to one of our hotels, and our inability to recover the carrying value of the asset because of COVID-19. Refer to Note 8: “Fair Value Measurements” for additional information.

 

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:

 

 

 

June 30, 2020

 

 

December 31, 2019

 

 

 

(in millions)

 

Property and equipment, net

 

$

220

 

 

$

221

 

Cash and cash equivalents

 

 

7

 

 

 

13

 

Restricted cash

 

 

2

 

 

 

1

 

Accounts receivable, net

 

 

1

 

 

 

5

 

Prepaid expenses

 

 

1

 

 

 

2

 

Debt

 

 

207

 

 

 

207

 

Accounts payable and accrued expenses

 

 

6

 

 

 

8

 

Due to hotel manager

 

 

—

 

 

 

2

 

Other liabilities

 

 

2

 

 

 

2

 

 

10

 

Unconsolidated Entities

Investments in affiliates were:

 

 

 

Ownership %

 

 

June 30, 2020

 

 

December 31, 2019

 

 

 

 

 

 

 

(in millions)

 

Hilton San Diego Bayfront

 

25%

 

 

$

13

 

 

$

18

 

All others (6 hotels)

 

20% - 50%

 

 

 

10

 

 

 

17

 

 

 

 

 

 

 

$

23

 

 

$

35

 

 

The affiliates in which we own investments accounted for under the equity method had total debt of approximately $943 million as of June 30, 2020 and December 31, 2019. Substantially all the debt is secured solely by the affiliates’ assets or is guaranteed by other partners without recourse to us.

 

Note 6: Goodwill

Hilton allocated goodwill to us recorded as part of the acquisition of Hilton by Blackstone in 2007. We typically evaluate the carrying value of our goodwill annually. However, due to the effects of COVID-19, including (i) the significant decline in our common stock price, (ii) negative operating cash flows in the first quarter of 2020, (iii) the suspension of operations at certain of our hotels, and (iv) significant declines in occupancy and demand, we assessed goodwill during the first quarter of 2020. We determined that the carrying value of our consolidated and unconsolidated hotel reporting units exceeded their respective estimated fair value and fully impaired our remaining goodwill balance, recognizing an impairment loss of $607 million in the first quarter of 2020. Refer to Note 8: “Fair Value Measurements” for additional information.

 

 

 

Goodwill

 

 

Accumulated

Impairment

Losses

 

 

Balance

 

 

 

(in millions)

 

Balance as of December 31, 2019

 

$

2,709

 

 

$

(2,102

)

 

$

607

 

Impairment loss

 

 

—

 

 

 

(607

)

 

 

(607

)

Balance as of June 30, 2020

 

$

2,709

 

 

$

(2,709

)

 

$

—

 

 

 

Note 7: Debt

Debt balances and associated interest rates as of June 30, 2020 were:

 

 

 

 

 

 

 

Principal balance as of

 

 

 

Interest Rate

at June 30, 2020

 

Maturity Date

 

June 30, 2020

 

 

December 31, 2019

 

 

 

 

 

 

 

(in millions)

 

SF CMBS Loan(1)

 

4.11%

 

November 2023

 

$

725

 

 

$

725

 

HHV CMBS Loan(1)

 

4.20%

 

November 2026

 

 

1,275

 

 

 

1,275

 

Mortgage loans

 

Average rate of

4.17%

 

2020 to 2026(2)

 

 

511

 

 

 

515

 

2016 Term Loan(3)(4)

 

L + 2.95%

 

December 2021

 

 

631

 

 

 

700

 

2019 Term Facility(4)

 

L + 2.65%

 

September 2024

 

 

670

 

 

 

670

 

Revolver(4)(5)

 

L + 3.00%

 

December 2021

 

 

681

 

 

 

—

 

Senior Secured Notes

 

7.50%

 

June 2025

 

 

650

 

 

 

—

 

Finance lease obligations

 

3.07%

 

2021 to 2022

 

 

1

 

 

 

1

 

 

 

 

 

 

 

 

5,144

 

 

 

3,886

 

Add: unamortized premium

 

 

 

 

 

 

4

 

 

 

3

 

Less: unamortized deferred financing costs and

   discount

 

 

 

 

 

 

(30

)

 

 

(18

)

 

 

 

 

 

 

$

5,118

 

 

$

3,871

 

 

(1)

In October 2016, we entered into a $725 million CMBS loan secured by the Hilton San Francisco Union Square and the Parc 55 Hotel San Francisco (“SF CMBS Loan”) and a $1.275 billion CMBS loan secured by the Hilton Hawaiian Village Waikiki Beach Resort (“HHV CMBS Loan”).

(2)

Assumes the exercise of all extensions that are exercisable solely at our option.  The only 2020 debt maturity is the $12 million Doubletree Spokane JV mortgage loan which matures in October.

11

 

(3)

In June 2020, we repaid $69 million of the 2016 Term Loan .

(4)

In May 2020, we amended our credit and term loan facilities which added a LIBOR floor of 25 basis points.

(5)

During the second quarter of 2020, we repaid $319 million of the Revolver.

 

 

CMBS and Mortgage Loans

We are required to deposit with lenders certain cash reserves for restricted uses. As of June 30, 2020 and December 31, 2019, our condensed consolidated balance sheets included $7 million and $13 million of restricted cash, respectively, related to our CMBS loans and mortgage loans. During the second quarter of 2020, we amended certain mortgage loan agreements to defer interest or interest and principal payments for three to six months and temporarily suspend required cash reserves.

 

 

Credit Facilities

2019 Term Facility

In advance of the Merger, in August 2019, the Company, our Operating Company and PK Domestic entered into a delayed draw term loan agreement (the “2019 Term Facility”). In September 2019, the 2019 Term Facility was fully drawn to fund the Merger and was partially repaid in December 2019. To hedge the interest rate risk on a portion of the 2019 Term Facility, we assumed an interest rate swap from Chesapeake in connection with the Merger, which is designated as a cash flow hedge. The interest rate swap requires us to pay fixed interest of 1.86% per annum maturing on April 21, 2022 on a notional amount of $225 million, in exchange for floating rate interest equal to one-month LIBOR.

 

Revolver

 

In March 2020, we fully drew down our $1 billion Revolver as a precautionary measure to increase liquidity and preserve financial flexibility in connection with the economic effect of COVID-19. During the second quarter of 2020, we repaid $319 million of the Revolver using $219 million of the proceeds from the issuance of the Senior Secured Notes and $100 million of existing cash.

 

In May 2020, in order to maintain compliance under our credit and term loan facilities in future quarters, we amended our credit and term loan facilities to suspend compliance with all existing financial covenants tested through and including March 31, 2021 and to adjust the levels of particular financial covenants after such period. As part of the amendment process, we (i) agreed to comply with a monthly minimum liquidity covenant, to pledge equity in certain subsidiaries to secure the facilities, and for certain subsidiaries to become guarantors under the facilities, and (ii) exercised our two six-month extension options on our Revolver to extend its maturity to December 24, 2021. The amendments also added additional covenants that restrict our ability to make dividend and distribution payments (except to the extent required to maintain REIT status) and stock repurchases, make prepayments of other indebtedness, make capital expenditures, conduct asset dispositions or transfers and make investments, including acquisitions or mergers, in each case subject to various exceptions. We capitalized approximately $6 million of fees related to these amendments during the three months ended June 30, 2020.

 

Senior Secured Notes

In May 2020, our Operating Company, PK Domestic and PK Finance issued an aggregate of $650 million of Senior Secured Notes.  We set aside $219 million of the net proceeds to partially repay the Revolver, $69 million to partially repay the 2016 Term Loan and the remainder was used for general corporate purposes. The Senior Secured Notes bear interest at a rate of 7.500% per annum, payable semi-annually in arrears on June 1 and December 1 of each year, beginning December 1, 2020. The Senior Secured Notes will mature on June 1, 2025. We capitalized $13 million of issuance costs during the three months ended June 30, 2020.

The Senior Secured Notes are guaranteed by us and by the subsidiaries of our Operating Company that also guarantee indebtedness under our credit facilities and the guarantees are full and unconditional and joint and several. The Senior Secured Notes are secured, subject to permitted liens, by a first priority security interest in all of the capital stock of certain wholly-owned subsidiaries of certain of the guarantors and PK Domestic, which collateral also secures the obligations under our credit and term loan facilities on a first priority basis. The indenture governing the Senior Secured Notes contains customary covenants that limit the issuers’ ability and, in certain instances, the ability of the issuers’ subsidiaries, to borrow money, create liens on assets, make distributions and pay dividends on or redeem or repurchase stock, make certain types of investments, sell stock in certain subsidiaries, enter into agreements that restrict dividends or other payments from subsidiaries, enter into transactions with affiliates, issue guarantees of indebtedness, and sell assets or merge with other companies. These covenants are subject to a number of exceptions and qualifications, including the ability to declare or pay any cash dividend or make any cash distribution to us to the extent necessary for us to fund a dividend or distribution by us that it believes is necessary to maintain our status as a REIT or to avoid payment of any tax for any calendar year that could be avoided by reason of such distribution, and the ability to make certain restricted payments not to

12

 

exceed $100.0 million, plus 95% of our cumulative Funds From Operations (as defined in the indenture), plus the aggregate net proceeds from (i) the sale of certain equity interests in, (ii) capital contributions to, and (iii) certain convertible indebtedness of the Operating Company. In addition, the indenture requires our Operating Company to maintain total unencumbered assets as of each fiscal quarter of at least 150% of total unsecured indebtedness, in each case calculated on a consolidated basis.  

We may redeem the Senior Secured Notes at any time prior to June 1, 2022, in whole or in part, at a redemption price equal to 100% of the accrued principal amount thereof plus unpaid interest, if any, to the redemption date plus a make-whole premium. On or after June 1, 2022, we may redeem the Senior Secured Notes, in whole or in part, at the applicable redemption prices set forth in the indenture. On or after June 1, 2024, we may redeem the Senior Secured Notes at 100% of the principal amount, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

 

Debt Maturities

The contractual maturities of our debt, assuming the exercise of all extensions that are exercisable solely at our option, as of June 30, 2020 were:

 

Year

 

(in millions)

 

2020

 

$

16

 

2021

 

 

1,321

 

2022

 

 

97

 

2023

 

 

827

 

2024

 

 

676

 

Thereafter(1)

 

 

2,207

 

 

 

$

5,144

 

 

(1)

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

 

Note 8: Fair Value Measurements

We did not elect the fair value measurement option for our financial assets or liabilities. The fair values of our other financial instruments not included in the table below are estimated to be equal to their carrying amounts.

The fair value of our debt and the hierarchy level we used to estimate fair values are shown below:

 

 

 

 

 

 

 

June 30, 2020

 

 

December 31, 2019

 

 

 

Hierarchy

Level

 

 

Carrying

Amount

 

 

Fair Value

 

 

Carrying

Amount

 

 

Fair Value

 

 

 

 

 

 

 

(in millions)

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SF CMBS Loan

 

 

3

 

 

$

725

 

 

$

653

 

 

$

725

 

 

$

740

 

HHV CMBS Loan

 

 

3

 

 

 

1,275

 

 

 

1,040

 

 

 

1,275

 

 

 

1,316

 

2016 Term Loan

 

 

3

 

 

 

631

 

 

 

617

 

 

 

700

 

 

 

698

 

2019 Term Facility

 

 

3

 

 

 

670

 

 

 

600

 

 

 

670

 

 

 

667

 

Revolver

 

 

3

 

 

 

681

 

 

 

666

 

 

 

—

 

 

 

—

 

Senior Secured Notes

 

 

1

 

 

 

651

 

 

 

668

 

 

 

—

 

 

 

—

 

Mortgage loans

 

 

3

 

 

 

512

 

 

 

436

 

 

 

516

 

 

 

516

 

 

13

 

During the six months ended June 30, 2020, we recognized impairment losses for goodwill and for certain assets resulting from a significant decline in market value of those assets. The estimated fair values of these assets that were measured on a nonrecurring basis were:

 

 

 

 

 

 

 

 

 

 

June 30, 2020

 

 

Fair Value

 

 

Impairment Loss

 

 

(in millions)

 

Property and equipment(1)

$

24

 

 

$

88

 

Goodwill(2)

 

—

 

 

 

607

 

Total

$

24

 

 

$

695

 

 

(1)

Fair value of our property and equipment as of June 30, 2020 was measured using significant unobservable inputs (Level 3). We estimated fair value of the assets using discounted cash flow analyses, with an estimated stabilized growth rate of 3%, a discounted cash flow term between 1.7 to 10 years, terminal capitalization rate ranging from 7.25% to 7.75%, and discount rates ranging from 9.5% to 12.5%. The discount and terminal capitalization rates used for the fair value of the assets reflected the risk profile of the markets where these properties are located.

(2)

Fair value of our consolidated and unconsolidated hotel reporting units was measured using significant unobservable inputs (Level 3), which included discounted cash flows, terminal capitalization rates, and discount rates.  

 

Note 9: Income Taxes

We are a REIT for U.S. federal income tax purposes, and we have been organized and operated, and 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. To the extent we continue to remain qualified as a REIT, we generally will not be subject to U.S. federal income tax on taxable income generated by our REIT activities that we distribute annually to our stockholders. Accordingly, no provision for U.S. federal income taxes has been included in our accompanying condensed consolidated financial statements for the three and six months ended June 30, 2020 and 2019 related to our REIT activities, other than taxes associated with built-in gains related to our assets owned at the date of our spin-off.

We will be subject to U.S. federal income tax on taxable sales of built-in gain property (representing property held by us with an excess of fair value over tax basis on January 4, 2017) during the five-year period following the date of our spin-off. In addition, we are subject to non-U.S. income tax on foreign held REIT activities and certain sales of foreign investments. Further, our taxable REIT subsidiaries (“TRSs”) are generally subject to U.S. federal, state and local, and foreign income taxes (as applicable).

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) includes several tax provisions that may impact us and our subsidiaries.  These changes include:

 

 

•

the ability for our TRSs to carry back net operating losses (“NOLs”) arising in 2020 to all post spin-off taxable years preceding the taxable year of the loss;

 

•

an increase of the business interest limitation under section 163(j) from 30 percent to 50 percent of adjusted taxable income for taxable years beginning in 2019 and 2020 and addition of an election by taxpayers to use their 2019 adjusted taxable income as their adjusted taxable income in 2020 for purposes of applying the limitation;

 

•

a “technical correction” amending section 168(e)(3)(E) to add “qualified improvement property” to “15-year property” and assigning a class life of 20-years under section 168(g)(3)(B) to qualified improvement property under section 168(e)(3)(E)(vii), and

 

•

the elimination of the taxable income limit for NOLs for all taxable years beginning before January 1, 2021, thereby permitting corporate taxpayers to use NOLs to fully offset taxable income (although as a REIT we will continue to only be able to use NOLs against taxable income remaining after taking into account any dividends paid deduction).

During the six months ended June 30, 2020, we recognized $13 million of income tax expense, which is comprised of $12 million of built-in gains tax expense from assets sold during the six months ended June 30, 2020 and $14 million of non-U.S. income tax expense on the gain from the entity that owns the Hilton São Paulo Morumbi that was sold during the six months ended June 30, 2020, partially offset by a TRS income tax benefit of $16 million from utilizing the NOL carryback provisions of the CARES Act. We expect $23 million of refunds related to the carryback of 2020 NOLs of our TRSs to prior years, as provided by the CARES Act.

During the three and six months ended June 30, 2019, we recognized $5 million and $12 million of income tax expense, respectively, primarily related to taxable income from our TRSs.

 

14

 

Note 10: Share-Based Compensation

We issue equity-based awards to our employees pursuant to the 2017 Omnibus Incentive Plan (“2017 Employee Plan”) and our non-employee directors pursuant to the 2017 Stock Plan for Non-Employee Directors (“2017 Director Plan”). The 2017 Employee Plan provides that a maximum of 8,000,000 shares of our common stock may be issued, and as of June 30, 2020, 4,513,582 shares of common stock remain available for future issuance. The 2017 Director Plan provides that a maximum of 450,000 shares of our common stock may be issued, and as of June 30, 2020, 94,478 shares of common stock remain available for future issuance. For both the three months ended June 30, 2020 and 2019, we recognized $4 million of share-based compensation expense, and $6 million and $8 million, respectively, for the six months ended June 30, 2020 and 2019. As of June 30, 2020, unrecognized compensation expense was $26 million, which is expected to be recognized over a weighted-average period of 1.8 years. The total fair values of shares vested (calculated as the number of shares multiplied by the vesting date share price) during the six months ended June 30, 2020 and 2019 were $17 million and $19 million, respectively.

 

Restricted Stock Awards

Restricted Stock Awards (“RSAs”) generally vest in annual installments between one and three years from each grant date. The following table provides a summary of RSAs for the six months ended June 30, 2020:

 

 

 

Number of Shares

 

 

Weighted-Average

Grant Date

Fair Value

 

Unvested at January 1, 2020

 

 

557,245

 

 

$

29.10

 

Granted

 

 

650,511

 

 

 

18.40

 

Vested

 

 

(295,120

)

 

 

26.33

 

Forfeited

 

 

(59,702

)

 

 

29.11

 

Unvested at June 30, 2020

 

 

852,934

 

 

$

21.90

 

 

Performance Stock Units

Performance Stock Units (“PSUs”) generally vest at the end of a three-year performance period and are subject to the achievement of a market condition based on a measure of our total shareholder return relative to the total shareholder return of the companies that comprise the FTSE Nareit Lodging Resorts Index (that have a market capitalization in excess of $1 billion as of the first day of the applicable performance period). The number of PSUs that may become vested ranges from zero to 200% of the number of PSUs granted to an employee, based on the level of achievement of the foregoing measure.

Additionally, in February 2020, we granted special awards with a one-year performance period that are subject to the achievement of a total shareholder return similar to the three-year awards, and, in addition, are subject to the achievement of a performance condition for certain cost synergies associated with the Merger. The number of PSUs that may become vested are zero if neither goal is achieved, 100% if one performance goal is achieved and 200% if both goals are achieved.

The following table provides a summary of PSUs for the six months ended June 30, 2020:

 

 

 

Number of Shares

 

 

Weighted-Average

Grant Date

Fair Value

 

Unvested at January 1, 2020

 

 

574,797

 

 

$

32.82

 

Granted

 

 

605,535

 

 

 

24.93

 

Vested

 

 

(456,121

)

 

 

32.39

 

Forfeited

 

 

(52,114

)

 

 

33.14

 

Unvested at June 30, 2020

 

 

672,097

 

 

$

25.98

 

 

 

The grant date fair values of the awards that are subject to the achievement of market conditions based on total shareholder return were determined using a Monte Carlo simulation valuation model with the following assumptions:

 

Expected volatility(1)

 

22.0% - 23.0%

 

Dividend yield(2)

 

 

—

 

Risk-free rate

 

1.2% - 1.5%

 

Expected term

 

1 - 3 years

 

 

(1)

The weighted average expected volatility was 22.5%.

15

 

(2)

Dividends are assumed to be reinvested in shares of our common stock and dividends will not be paid unless shares vest.

 

As of June 30, 2020, the achievement of the performance condition associated with the special one-year awards was not probable and thus no compensation expense was recognized for the three and six months ended June 30, 2020.

 

Note 11: Earnings Per Share

The following table presents the calculation of basic and diluted earnings per share (“EPS”):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(in millions, except per share amounts)

 

 

(in millions, except per share amounts)

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income attributable to stockholders

 

$

(259

)

 

$

82

 

 

$

(947

)

 

$

178

 

Earnings allocated to participating securities

 

 

—

 

 

 

(1

)

 

 

—

 

 

 

(1

)

Net (loss) income attributable to stockholders, net of earnings

   allocated to participating securities

 

$

(259

)

 

$

81

 

 

$

(947

)

 

$

177

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding – basic

 

 

235

 

 

 

201

 

 

 

236

 

 

 

201

 

Unvested restricted shares

 

 

—

 

 

 

1

 

 

 

—

 

 

 

1

 

Weighted average shares outstanding – diluted

 

 

235

 

 

 

202

 

 

 

236

 

 

 

202

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) earnings per share - Basic

 

$

(1.10

)

 

$

0.40

 

 

$

(4.01

)

 

$

0.88

 

(Loss) earnings per share - Diluted

 

$

(1.10

)

 

$

0.40

 

 

$

(4.01

)

 

$

0.88

 

 

(1)

Per share amounts are calculated based on unrounded numbers and are calculated independently for each period presented.

 

Certain of our outstanding equity awards were excluded from the above calculation of EPS for the three and six months ended June 30, 2020 and 2019 because their effect would have been anti-dilutive.

 

Note 12: Business Segment Information

As of June 30, 2020, we have two operating segments, our consolidated hotels and unconsolidated hotels. Our unconsolidated hotels operating segment does not meet the definition of a reportable segment, thus our consolidated hotels is our only reportable segment. We evaluate our consolidated hotels primarily based on hotel adjusted earnings (loss) before interest expense, taxes and depreciation and amortization (“EBITDA”). Hotel Adjusted EBITDA is calculated as EBITDA from hotel operations, adjusted to exclude:

 

•

Gains or losses on sales of assets for both consolidated and unconsolidated investments;

 

•

Costs associated with hotel acquisitions or dispositions expensed during the period;

 

•

Severance expense;

 

•

Share-based compensation expense;

 

•

Casualty gains or losses;

 

•

Impairment losses; and

 

•

Other items that we believe are not representative of our current or future operating performance.

16

 

The following table presents revenues for our consolidated hotels reconciled to our consolidated amounts and Hotel Adjusted EBITDA to net (loss) income:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(in millions)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total consolidated hotel revenue

 

$

39

 

 

$

684

 

 

$

619

 

 

$

1,325

 

Other revenues

 

 

3

 

 

 

19

 

 

 

22

 

 

 

37

 

Total revenues

 

$

42

 

 

$

703

 

 

$

641

 

 

$

1,362

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hotel Adjusted EBITDA

 

$

(108

)

 

$

209

 

 

$

(17

)

 

$

390

 

Other revenues

 

 

3

 

 

 

19

 

 

 

22

 

 

 

37

 

Depreciation and amortization expense

 

 

(75

)

 

 

(61

)

 

 

(150

)

 

 

(123

)

Corporate general and administrative expense

 

 

(14

)

 

 

(22

)

 

 

(30

)

 

 

(39

)

Impairment loss and casualty gain, net

 

 

—

 

 

 

—

 

 

 

(694

)

 

 

—

 

Other operating expenses

 

 

(4

)

 

 

(18

)

 

 

(25

)

 

 

(38

)

Gain (loss) on sales of assets, net

 

 

1

 

 

 

(12

)

 

 

63

 

 

 

19

 

Interest income

 

 

1

 

 

 

2

 

 

 

2

 

 

 

3

 

Interest expense

 

 

(50

)

 

 

(33

)

 

 

(90

)

 

 

(65

)

Equity in (losses) earnings from investments in affiliates

 

 

(8

)

 

 

10

 

 

 

(9

)

 

 

15

 

Income tax expense

 

 

(3

)

 

 

(5

)

 

 

(13

)

 

 

(12

)

Other loss, net

 

 

(1

)

 

 

(1

)

 

 

(3

)

 

 

—

 

Other items

 

 

(3

)

 

 

(4

)

 

 

(6

)

 

 

(6

)

Net (loss) income

 

$

(261

)

 

$

84

 

 

$

(950

)

 

$

181

 

 

The following table presents total assets for our consolidated hotels, reconciled to consolidated amounts:

 

 

 

June 30, 2020

 

 

December 31, 2019

 

 

 

(in millions)

 

Consolidated hotels

 

$

11,022

 

 

$

11,236

 

All other

 

 

37

 

 

 

54

 

Total

 

$

11,059

 

 

$

11,290

 

 

Note 13: Commitments and Contingencies

As of June 30, 2020, we had outstanding commitments under third-party contracts of approximately $29 million for capital expenditures at certain hotels. Our contracts contain clauses that allow us to cancel all or some portion of the work. If cancellation of a contract occurred, our commitment would be any costs incurred up to the cancellation date, in addition to any costs associated with the discharge of the contract.  

We are involved in litigation arising from the normal course of business, some of which includes claims for substantial sums, and may make certain indemnifications or guarantees to select buyers of our hotels as part of the sale process.  We are also involved in claims and litigation that is not in the ordinary course of business in connection with the spin-off from Hilton.  The spin-off agreements indemnify us from certain of these claims as well as require us to indemnify Hilton for other claims. In addition, losses related to certain contingent liabilities could be apportioned to us under the spin-off agreements. In connection with our obligation to indemnify Hilton under the spin-off agreements, we have reserved approximately $7 million related to ongoing claims as of June 30, 2020 with respect to an audit by the Australian Tax Office (“ATO”) related to the sale of the Hilton Sydney in June 2015. This amount could change as more information becomes available about the progress of Hilton’s defense against the ATO’s claim.

 

 

 

17

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of the financial condition and results of operations of Park Hotels & Resorts Inc. (“we,” “us,” “our” or the “Company”) should be read in conjunction with the accompanying unaudited condensed consolidated financial statements, related notes included elsewhere in this Quarterly Report on Form 10-Q, and with our Annual Report on Form 10-K for the year ended December 31, 2019.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). Forward-looking statements include, but are not limited to, statements related to our expectations regarding the performance of our business, our financial results, our liquidity and capital resources, the impact to our business and financial condition and that of our hotel management companies, and measures (including through potential alternative sources of revenue) being taken in response to, COVID-19, the effects of competition and the effects of future legislation or regulations and other non-historical statements. Forward-looking statements include all statements that are not historical facts, and in some cases, can be identified by the use of forward-looking terminology such as the words “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “projects,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect our results of operations, financial condition, cash flows, performance or future achievements or events. Currently, one of the most significant factors is the potential adverse effect of COVID-19, including possible resurgences, on our financial condition, results of operations, cash flows and performance, our hotel management companies and our hotels’ tenants, and the global economy and financial markets. The extent to which COVID-19 impacts us, our hotel managers, tenants and guests at our hotels will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its effect, additional closures that may be mandated or advisable even after the reopening of certain of our hotels on a limited basis, whether due to an increased number of COVID-19 cases or otherwise, and the direct and indirect economic effects of the pandemic and containment measures, among others. Moreover, investors are cautioned to interpret many of the risks identified in the risk factors discussed in this 10-Q and incorporated by reference from our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and our Annual Report on Form 10-K for the year ended December 31, 2019 as being heightened as a result of the ongoing and numerous adverse impacts of COVID-19.

All such forward-looking statements are based on current expectations of management and therefore involve estimates and assumptions that are subject to risks, uncertainties and other factors that could cause actual results to differ materially from the results expressed in the statements. You should not put undue reliance on any forward-looking statements and we urge investors to carefully review the disclosures we make concerning risks and uncertainties in Item 1A: “Risk Factors” in this Quarterly Report on Form 10-Q, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and our Annual Report on Form 10-K for the year ended December 31, 2019, as such factors may be updated from time to time in our periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov, as well as risks, uncertainties and other factors discussed in this Quarterly Report on Form 10-Q. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

We have a diverse portfolio of iconic and market-leading hotels and resorts with significant underlying real estate value. We currently hold investments in entities that have ownership or leasehold interests in 60 hotels, consisting of premium-branded hotels and resorts with over 33,000 rooms, of which over 86% are luxury and upper upscale (as defined by Smith Travel Research) and are located in prime U.S. markets and its territories. Our high-quality portfolio includes hotels in major urban and convention areas, such as New York City, Washington, D.C., Chicago, San Francisco, Boston, New Orleans and Denver; premier resorts in key leisure destinations, including Hawaii, Orlando, Key West and Miami Beach; and hotels adjacent to major gateway airports, such as Los Angeles International, Boston Logan International and Miami International, as well as hotels in select suburban locations.

 

Our objective is to be the preeminent lodging real estate investment trust (“REIT”), focused on consistently delivering superior, risk-adjusted returns to stockholders through active asset management and a thoughtful external growth strategy while maintaining a strong and flexible balance sheet. As a pure-play real estate company with direct access to capital and independent financial resources, we believe our enhanced ability to implement compelling return on investment initiatives within our portfolio represents a significant embedded growth opportunity. Finally, given our scale and investment expertise, we believe we will be able to successfully execute single-asset and portfolio acquisitions and dispositions to further enhance the value and diversification of our assets throughout the lodging cycle, including potentially taking advantage of the economies of scale that could come from consolidation in the lodging REIT industry.

18

 

We operate our business through two operating segments, our consolidated hotels and unconsolidated hotels. Our consolidated hotels operating segment is our only reportable segment. Refer to Note 12: “Business Segment Information” in our unaudited condensed consolidated financial statements included elsewhere within this Quarterly Report on Form 10-Q for additional information regarding our operating segments.

Recent Events

 

COVID-19 Effect on Our Business

 

The global outbreak of a novel strain of coronavirus and the disease it causes (“COVID-19”) have had a significant effect on the lodging industry and our company.  We cannot presently determine the extent or duration of the overall operational and financial effects that COVID-19 will have on our company.  The effects of COVID-19, including related government restrictions, border closings, quarantining, “shelter-in-place” orders and “social distancing,” have had and continue to have a significant adverse effect on the hospitality industry, including our business, and have contributed to a significant decrease in business and consumer spending, with a particularly dramatic effect on travel and hospitality spending. In March and April 2020, travel restrictions and mandated closings of non-essential businesses were imposed, which resulted in temporary suspensions of operations at certain of our hotels and significantly reduced capacity at the remainder of our hotels. Temporary closings of other restaurants and hotels across entire regions also contributed to severely reduced overall lodging demand. There continues to be significant cancellations of existing reservations, including the vast majority of group business and events throughout the remainder of 2020 and significant reductions in new reservations.

 

Since the beginning of March, we have experienced a significant decline in occupancy, Average Daily Rate (“ADR”) and Revenue per Available Room (“RevPAR”) associated with the COVID-19 pandemic throughout our consolidated portfolio, which resulted in a decline in our operating cash flow. Changes in our monthly pro-forma metrics, which exclude results from property dispositions and include results from property acquisitions, for the first six months of 2020 as compared to the same period in 2019 are as follows:

 

 

Pro-forma ADR

 

 

Pro-forma Occupancy

 

 

Pro-forma RevPAR

 

January

 

(1.0

)%

 

 

1.6

%

pts

 

1.2

%

February

 

(0.7

)

 

 

0.9

 

 

 

0.4

 

March

 

(10.1

)

 

 

(49.4

)

 

 

(63.8

)

April

 

(47.0

)

 

 

(80.9

)

 

 

(97.6

)

May

 

(54.1

)

 

 

(79.9

)

 

 

(97.3

)

June

 

(36.5

)

 

 

(78.5

)

 

 

(93.0

)

 

We believe that imposed or re-imposed government restrictions and the economic recession associated with COVID-19 will continue to significantly affect our business. We believe demand will remain significantly reduced as a result of ongoing mandatory travel restrictions, “social distancing,” and cost-saving measures, as companies continue to reduce non-essential travel and as conferences and events are cancelled and postponed. We do not expect to realize a material improvement in our results until medical advances (e.g., therapeutics, vaccines) are made available that will allow business traveler and general consumer confidence related to risks associated with the COVID-19 pandemic to improve and various government restrictions on travel, freedom of movement and the operations of our hotels are lifted. Although we were able to recommence operations at reduced capacity at certain of our previously suspended hotels during the second quarter, there remains considerable uncertainty as to both the time it will take to see travel and demand for lodging and travel-related experiences increase and the long-term impacts on consumer attitudes to travel, and we cannot predict whether our reopened hotels will be forced to suspend operations again or decrease capacity in the future, including as a result of government regulation, an increase in the number of COVID-19 cases or changes in business and other consumer preferences for travel. The pandemic has had a prolonged effect on travel within and to the United States, where all of our properties are located. In addition, due to the effects of COVID-19, during the six months ended June 30, 2020, we recognized $607 million of impairment losses for goodwill and $88 million of impairment losses primarily related to one of our hotels resulting from a significant decline in market value. Further, economic uncertainty generally will make it more difficult to execute on our external growth strategy. These factors lead us to believe that our operating results will continue to be adversely affected by COVID-19 through at least the remainder of 2020.

 

We and our hotel managers have taken various actions to mitigate the effect on our business including cost saving initiatives to reduce costs at our hotels. During the first quarter of 2020, we temporarily suspended operations at 38 of our 60 hotels, deferred approximately $150 million of the $200 million in capital expenditures previously budgeted for 2020, reduced expected 2020 capital spending to approximately $50 million, suspended dividend payments following the payment of the first quarter 2020 dividend, which was paid on April 15, 2020, and fully drew our $1 billion revolving credit facility (the “Revolver”) as a precautionary measure to increase liquidity and preserve financial flexibility in light of the current uncertainty resulting from the COVID-19 pandemic. In May 2020, despite headwinds in the debt market, Park Intermediate Holdings LLC (our “Operating Company”), PK Domestic Property LLC (“PK Domestic”) and PK Finance Co-Issuer Inc. (“PK Finance”) issued an aggregate of $650 million 7.500% senior secured

19

 

notes due 2025 (“Senior Secured Notes”). We used $219 million of the net proceeds to partially repay the Revolver and $69 million of the net proceeds to partially repay the term loan we entered into in December 2016 (“2016 Term Loan”). We also repaid an additional $100 million of the Revolver with existing cash.

 

Since originally suspending operations, we have commenced the phased reopening of 20 of our hotels at limited capacity. The timing of fully reopening our hotels will depend primarily on government restrictions imposed or re-imposed, health official recommendations and market demand. The status of our hotels as of August 5, 2020 is as follows:

 

Consolidated Hotels

 

Status

 

Number of

Hotels

 

 

Total Rooms

 

 

Rooms

Suspended

 

 

Rooms

Available

 

 

Percentage of

Rooms

Suspended

 

Open

 

 

37

 

 

 

14,968

 

 

 

4,510

 

 

 

10,458

 

 

 

30

%

Operations suspended

 

 

16

 

 

 

13,963

 

 

 

13,963

 

 

 

—

 

 

 

100

%

Total

 

 

53

 

 

 

28,931

 

 

 

18,473

 

 

 

10,458

 

 

 

64

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unconsolidated Hotels

 

Status

 

Number of

Hotels

 

 

Total Rooms

 

 

Rooms

Suspended

 

 

Rooms

Available

 

 

Percentage of

Rooms

Suspended

 

Open

 

 

5

 

 

 

2,557

 

 

 

892

 

 

 

1,665

 

 

 

35

%

Operations suspended

 

 

2

 

 

 

1,740

 

 

 

1,740

 

 

 

—

 

 

 

100

%

Total

 

 

7

 

 

 

4,297

 

 

 

2,632

 

 

 

1,665

 

 

 

61

%

 

We continue to proactively pursue alternative sources of revenue from applicable government authorities and hospitals, such as providing temporary lodging for first responders, other medical personnel, military personnel, displaced guests and residents of communities where our hotels are located. We are also pursuing potential opportunities with colleges and universities to house students for their upcoming school year as they look to mitigate potential COVID-19 exposures within their student population.

 

In addition, the operating environment for us and our hotel managers could remain challenging if the current economic recession extends beyond the lifting of government restrictions and reopening of our hotels. Historically, economic indicators such as GDP growth, corporate earnings, consumer confidence and employment are highly correlated with lodging demand, and although these factors have seen improvement, these metrics remain significantly below levels prior to the COVID-19 pandemic.  The exact impact, magnitude and duration of the economic recession is unknown at this time.  

 

We expect the significance of the COVID-19 pandemic, including the extent of its effect on our financial and operational results and the economic recession, to be dictated by, among other things, its duration, the success of efforts to contain it and the effect of actions taken in response (such as travel advisories and restrictions and social distancing), including the extent and duration of such actions. For instance, recent government action to provide substantial financial support to affected industries could provide helpful assistance to the travel and hospitality industry, including our operators. However, we cannot predict the manner in which such benefits or any of the other benefits described herein will be allocated or administered and we cannot assure you that we will be able to access such benefits in a timely manner or at all.

 

The extent and duration of the effects of COVID-19 are not yet clear. Despite cost reduction initiatives, we do not expect to be able to fully, or even materially, offset revenue losses from the COVID-19 pandemic. In addition, as states and cities have begun to lift quarantines, "shelter in place" orders and other similar restrictions, the timing and approach differs in different locations and we cannot predict whether our reopened hotels will be forced to suspend operations again in the future. These uncertainties make it difficult to predict operating results for our hotels for the remainder of 2020. Therefore, there can be no assurances that we will not experience further declines in hotel revenues or earning at our hotels. For more information, see Part II – Item 1A. Risk Factors” included in this Quarterly Report on Form 10-Q.

Key Business Metrics Used by Management

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. Room nights available to guests have not been adjusted for suspended or reduced operations at certain of our hotels as a result of COVID-19. Occupancy measures the utilization of our 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 us determine achievable ADR levels as demand for rooms increases or decreases.

20

 

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 we use ADR to assess pricing levels that we are 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

RevPAR represents rooms revenue divided by the total number of room nights available to guests for a given period. Room nights available to guests have not been adjusted for suspended or reduced operations at certain of our hotels as a result of COVID-19. We consider RevPAR to be a meaningful indicator of our 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, ADR and occupancy are presented on a currency neutral basis (prior periods are reflected using current period exchange rates), unless otherwise noted.

Comparable Hotels Data

Historically, we have presented certain data for our hotels on a comparable hotel basis as supplemental information for investors. We define our comparable hotels as those that: (i) were active and operating in our portfolio 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 or for which comparable results are not available. We presented comparable hotel results to help us and our investors evaluate the ongoing operating performance of our comparable hotels. However, given the significant effect of COVID-19 on most of our hotels and the lack of comparability to prior periods, we do not believe this supplemental information is useful to us or our investors at this time. Under “Results of Operations” below, we have provided information on the effects from acquisitions, dispositions and other factors to our results of operations for the three and six months ended June 30, 2020 as compared to the three and six months ended June 30, 2019. Change from other factors primarily relates to the effects of COVID-19.

 

 

Non-GAAP Financial Measures

We also evaluate the performance of our business through certain other financial measures that are not recognized under U.S. GAAP. Each of these non-GAAP financial measures should be considered by investors as supplemental measures to GAAP performance measures such as total revenues, operating profit and net income.

EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA

EBITDA, presented herein, reflects net income (loss) excluding depreciation and amortization, interest income, interest expense, income taxes and also interest expense, income tax and depreciation and amortization included in equity in earnings (losses) from investments in affiliates.

Adjusted EBITDA, presented herein, is calculated as EBITDA, further adjusted to exclude:

 

•

Gains or losses on sales of assets for both consolidated and unconsolidated investments;

 

•

Costs associated with hotel acquisitions or dispositions expensed during the period;

 

•

Severance expense;

 

•

Share-based compensation expense;

 

•

Casualty gains or losses;

 

•

Impairment losses; and

 

•

Other items that we believe are not representative of our current or future operating performance.

Hotel Adjusted EBITDA measures hotel-level results before debt service, depreciation and corporate expenses for our consolidated hotels, including both comparable and non-comparable hotels but excluding hotels owned by unconsolidated affiliates, and is a key measure of our profitability. We present Hotel Adjusted EBITDA to help us and our investors evaluate the ongoing operating performance of our consolidated hotels.

21

 

EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA are not recognized terms under 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, our definitions of EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA may not be comparable to similarly titled measures of other companies.

We believe that EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA provide useful information to investors about us and our financial condition and results of operations for the following reasons: (i) EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA are among the measures used by our management team to make day-to-day operating decisions and evaluate our operating performance between periods and between REITs by removing the effect of our capital structure (primarily interest expense) and asset base (primarily depreciation and amortization) from our operating results; and (ii) EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA 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 our industry.

EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA 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 our operating performance and results as reported under U.S. GAAP. Some of these limitations are:

 

•

EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA do not reflect our interest expense;

 

•

EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA do not reflect our income tax expense;

 

•

EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA do not reflect the effect on earnings or changes resulting from matters that we consider not to be indicative of our future operations; and

 

•

other companies in our industry may calculate EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA differently, limiting their usefulness as comparative measures.

We do not use or present EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA as measures of our liquidity or cash flow. These measures have limitations as analytical tools and should not be considered either in isolation or as a substitute for cash flow or other methods of analyzing our cash flows and liquidity as reported under U.S. GAAP. Some of these limitations are:

 

•

EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;

 

•

EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA do not reflect the cash requirements necessary to service interest or principal payments, on our indebtedness;

 

•

EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA do not reflect the cash requirements to pay our taxes;

 

•

EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; and

 

•

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA do not reflect any cash requirements for such replacements.

Because of these limitations, EBITDA, Adjusted EBITDA and Hotel Adjusted EBITDA should not be considered as discretionary cash available to us to reinvest in the growth of our business or as measures of cash that will be available to us to meet our obligations.

 

22

 

The following table provides a reconciliation of Net (loss) income to Hotel Adjusted EBITDA:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(in millions)

 

Net (loss) income

 

$

(261

)

 

$

84

 

 

$

(950

)

 

$

181

 

Depreciation and amortization expense

 

 

75

 

 

 

61

 

 

 

150

 

 

 

123

 

Interest income

 

 

(1

)

 

 

(2

)

 

 

(2

)

 

 

(3

)

Interest expense

 

 

50

 

 

 

33

 

 

 

90

 

 

 

65

 

Income tax expense

 

 

3

 

 

 

5

 

 

 

13

 

 

 

12

 

Interest expense, income tax and depreciation and

   amortization included in equity in earnings from

   investments in affiliates

 

 

4

 

 

 

7

 

 

 

9

 

 

 

12

 

EBITDA

 

 

(130

)

 

 

188

 

 

 

(690

)

 

 

390

 

(Gain) loss on sales of assets, net

 

 

(1

)

 

 

12

 

 

 

(63

)

 

 

(19

)

Acquisition costs

 

 

—

 

 

 

6

 

 

 

1

 

 

 

6

 

Severance expense

 

 

—

 

 

 

1

 

 

 

2

 

 

 

2

 

Share-based compensation expense

 

 

4

 

 

 

4

 

 

 

6

 

 

 

8

 

Impairment loss and casualty gain, net

 

 

—

 

 

 

—

 

 

 

694

 

 

 

—

 

Other items

 

 

5

 

 

 

(4

)

 

 

10

 

 

 

(4

)

Adjusted EBITDA

 

 

(122

)

 

 

207

 

 

 

(40

)

 

 

383

 

Less: Adjusted EBITDA from investments in affiliates

 

 

4

 

 

 

(12

)

 

 

—

 

 

 

(22

)

Add: All other(1)

 

 

10

 

 

 

14

 

 

 

23

 

 

 

29

 

Hotel Adjusted EBITDA

 

$

(108

)

 

$

209

 

 

$

(17

)

 

$

390

 

 

(1)

Includes other revenues and other expenses, non-income taxes on TRS leases included in other property-level expenses and corporate general and administrative expenses.

Nareit FFO attributable to stockholders and Adjusted FFO attributable to stockholders

We present Nareit FFO attributable to stockholders and Nareit FFO per diluted share (defined as set forth below) as non-GAAP measures of our performance. We calculate funds from (used in) 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 or 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 our 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. We believe Nareit FFO provides useful information to investors regarding our operating performance and can facilitate comparisons of operating performance between periods and between REITs. Our 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 than we do. We calculate Nareit FFO per diluted share as our Nareit FFO divided by the number of fully diluted shares outstanding during a given operating period.

We also present Adjusted FFO attributable to stockholders and Adjusted FFO per diluted share when evaluating our performance because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance. Management historically has made the adjustments detailed below in evaluating our performance and in our annual budget process. We believe that the presentation of Adjusted FFO provides useful supplemental information that is beneficial to an investor’s complete understanding of our operating performance. We adjust Nareit FFO attributable to stockholders for the following items, which may occur in any period, and refer to this measure as Adjusted FFO attributable to stockholders:

 

•

Costs associated with hotel acquisitions or dispositions expensed during the period;

 

•

Severance expense;

 

•

Share-based compensation expense; and

 

•

Other items that we believe are not representative of our current or future operating performance.

23

 

The following table provides a reconciliation of net (loss) income attributable to stockholders to Nareit FFO attributable to stockholders and Adjusted FFO attributable to stockholders:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(in millions, except per share amounts)

 

Net (loss) income attributable to stockholders

 

$

(259

)

 

$

82

 

 

$

(947

)

 

$

178

 

Depreciation and amortization expense

 

 

75

 

 

 

61

 

 

 

150

 

 

 

123

 

Depreciation and amortization expense attributable to

   noncontrolling interests

 

 

(1

)

 

 

(1

)

 

 

(2

)

 

 

(2

)

(Gain) loss on sales of assets, net

 

 

(1

)

 

 

12

 

 

 

(63

)

 

 

(19

)

Gain on sale of investments in affiliates(1)

 

 

(1

)

 

 

—

 

 

 

(1

)

 

 

—

 

Impairment loss

 

 

—

 

 

 

—

 

 

 

695

 

 

 

—

 

Equity investment adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in losses (earnings) from investments in affiliates

 

 

8

 

 

 

(10

)

 

 

9

 

 

 

(15

)

Pro rata FFO of investments in affiliates

 

 

(5

)

 

 

12

 

 

 

(4

)

 

 

21

 

Nareit FFO attributable to stockholders

 

 

(184

)

 

 

156

 

 

 

(163

)

 

 

286

 

Acquisition costs

 

 

—

 

 

 

6

 

 

 

1

 

 

 

6

 

Severance expense

 

 

—

 

 

 

1

 

 

 

2

 

 

 

2

 

Share-based compensation expense

 

 

4

 

 

 

4

 

 

 

6

 

 

 

8

 

Other items(2)

 

 

5

 

 

 

(3

)

 

 

36

 

 

 

(2

)

Adjusted FFO attributable to stockholders

 

$

(175

)

 

$

164

 

 

$

(118

)

 

$

300

 

Nareit FFO per share - Diluted(3)

 

$

(0.78

)

 

$

0.77

 

 

$

(0.69

)

 

$

1.42

 

Adjusted FFO per share - Diluted(3)

 

$

(0.75

)

 

$

0.81

 

 

$

(0.50

)

 

$

1.49

 

 

(1)

Included in other loss, net.

(2)

For the six months ended June 30, 2020, includes $26 million of tax expense on hotels sold during the period.

(3)

Per share amounts are calculated based on unrounded numbers.

 

 

Results of Operations

The following items have had a significant effect on the year-over-year comparability of our operations and are illustrated further in the table of Hotel Revenues and Operating Expenses below:

 

•

Property Acquisitions: On May 5, 2019, 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”). As a result of the Merger, we acquired 18 hotels, two of which were disposed of in December 2019. The results of operations of these hotels for the three and six months ended June 30, 2019 are not included in our consolidated results.

 

•

Property Dispositions: Since January 1, 2019, we disposed of 8 consolidated hotels excluding the 2 hotels acquired in the Merger that were subsequently sold. As a result of these dispositions, our revenues and operating expenses decreased for the three and six months ended June 30, 2020 as compared to the same periods in 2019. The results of operations during our period of ownership of these hotels are included in our consolidated results.

 

•

COVID-19: Beginning in March 2020, we experienced a significant decline in ADR, occupancy and RevPAR due to COVID-19. The economic recession resulting from the spread of COVID-19 has and is expected to continue to significantly affect our business. Consequently, the results of our portfolio during the three and six months ended June 30, 2020 will not be comparable to the same periods in 2019.

 

24

 

Hotel Revenues and Operating Expenses

 

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

2019

 

 

Change

 

 

Change from

Property

Acquisitions

 

 

Change from

Property

Dispositions

 

 

Change

from Other

Factors(1)

 

 

 

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rooms revenue

 

$

21

 

 

$

434

 

 

$

(413

)

 

$

5

 

 

$

(23

)

 

$

(395

)

Food and beverage revenue

 

 

3

 

 

 

195

 

 

 

(192

)

 

 

1

 

 

 

(6

)

 

 

(187

)

Ancillary hotel revenue

 

 

15

 

 

 

55

 

 

 

(40

)

 

 

1

 

 

 

—

 

 

 

(41

)

Rooms expense

 

 

20

 

 

 

113

 

 

 

(93

)

 

 

3

 

 

 

(4

)

 

 

(92

)

Food and beverage expense

 

 

14

 

 

 

130

 

 

 

(116

)

 

 

2

 

 

 

(4

)

 

 

(114

)

Other departmental and support

   expense

 

 

60

 

 

 

151

 

 

 

(91

)

 

 

11

 

 

 

(7

)

 

 

(95

)

Other property-level expense

 

 

56

 

 

 

49

 

 

 

7

 

 

 

10

 

 

 

(2

)

 

 

(1

)

Management fees expense

 

 

—

 

 

 

36

 

 

 

(36

)

 

 

1

 

 

 

(1

)

 

 

(36

)

 

(1)

Change from other factors primarily relates to the effects of COVID-19.

 

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

2019

 

 

Change

 

 

Change from

Property

Acquisitions

 

 

Change from

Property

Dispositions

 

 

Change

from Other

Factors(1)

 

 

 

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rooms revenue

 

$

383

 

 

$

837

 

 

$

(454

)

 

$

71

 

 

$

(43

)

 

$

(482

)

Food and beverage revenue

 

 

164

 

 

 

378

 

 

 

(214

)

 

 

18

 

 

 

(13

)

 

 

(219

)

Ancillary hotel revenue

 

 

72

 

 

 

110

 

 

 

(38

)

 

 

9

 

 

 

(2

)

 

 

(45

)

Rooms expense

 

 

132

 

 

 

220

 

 

 

(88

)

 

 

22

 

 

 

(8

)

 

 

(102

)

Food and beverage expense

 

 

137

 

 

 

254

 

 

 

(117

)

 

 

17

 

 

 

(8

)

 

 

(126

)

Other departmental and support

   expense

 

 

232

 

 

 

300

 

 

 

(68

)

 

 

40

 

 

 

(16

)

 

 

(92

)

Other property-level expense

 

 

116

 

 

 

98

 

 

 

18

 

 

 

20

 

 

 

(4

)

 

 

2

 

Management fees expense

 

 

25

 

 

 

69

 

 

 

(44

)

 

 

3

 

 

 

(2

)

 

 

(45

)

 

(1)

Change from other factors primarily relates to the effects of COVID-19.

 

Other Revenue and Operating Expenses

The decrease in other revenue and other operating expense primarily relates to the effects of COVID-19.

Other Revenue

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

Percent Change

 

 

2020

 

 

2019

 

 

Percent Change

 

 

 

(in millions)

 

 

 

 

 

 

(in millions)

 

 

 

 

 

Laundry revenue

 

$

—

 

 

$

3

 

 

 

(100.0

)%

 

$

2

 

 

$

6

 

 

 

(66.7

)%

Support service revenue

 

 

3

 

 

 

16

 

 

 

(81.3

)

 

 

20

 

 

 

31

 

 

 

(35.5

)

Total other revenue

 

$

3

 

 

$

19

 

 

 

(84.2

)%

 

$

22

 

 

$

37

 

 

 

(40.5

)%

 

Other Expense

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

Percent Change

 

 

2020

 

 

2019

 

 

Percent Change

 

 

 

(in millions)

 

 

 

 

 

 

(in millions)

 

 

 

 

 

Laundry expense

 

$

2

 

 

$

4

 

 

 

(50.0

)%

 

$

6

 

 

$

9

 

 

 

(33

)%

Support services expense

 

 

2

 

 

 

14

 

 

 

(85.7

)

 

 

19

 

 

 

29

 

 

 

(34.5

)

Total other expense

 

$

4

 

 

$

18

 

 

 

(77.8

)%

 

$

25

 

 

$

38

 

 

 

(34.2

)%

 

25

 

Corporate general and administrative

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

Percent Change

 

 

2020

 

 

2019

 

 

Percent Change

 

 

 

(in millions)

 

 

 

 

 

 

(in millions)

 

 

 

 

 

General and administrative expenses

 

$

9

 

 

$

11

 

 

 

(18.2

)%

 

$

20

 

 

$

23

 

 

 

(13.0

)%

Share-based compensation expense

 

 

4

 

 

 

4

 

 

 

—

 

 

 

6

 

 

 

8

 

 

 

(25.0

)

Acquisition costs

 

 

—

 

 

 

6

 

 

 

(100.0

)

 

 

1

 

 

 

6

 

 

 

(83.3

)

Disposition costs

 

 

1

 

 

 

1

 

 

 

—

 

 

 

1

 

 

 

1

 

 

 

—

 

Severance expense

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2

 

 

 

1

 

 

 

100.0

 

Total corporate general and administrative

 

$

14

 

 

$

22

 

 

 

(36.4

)%

 

$

30

 

 

$

39

 

 

 

(23.1

)%

 

Acquisition costs of $6 million for both the three and six months ended June 30, 2019 primarily relate to costs incurred in connection with the entry into the Merger Agreement with Chesapeake.

Impairment loss and casualty gain, net

During the six months ended June 30, 2020, we recognized a net loss of $694 million primarily as a result of $607 million of impairment losses related to our goodwill and $88 million of impairment losses primarily related to one of our hotels, and our inability to recover the carrying value because of COVID-19.

 

Gain on sales of assets, net

During the six months ended June 30, 2020, we recognized a net gain of $63 million primarily as a result of the sale of two of our consolidated hotels. Refer to Note 3: “Acquisitions and Dispositions” in our unaudited condensed consolidated financial statements included elsewhere within this Quarterly Report on Form 10-Q for additional information.

During the three and six months ended June 30, 2019, we recognized a loss of $12 million and a net gain of $19 million, respectively, as a result of the sale of five of our consolidated hotels.

Non-operating Income and Expenses

Interest expense

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

Percent Change

 

 

2020

 

 

2019

 

 

Percent Change

 

 

 

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SF and HHV CMBS Loans(1)

 

$

21

 

 

$

21

 

 

 

—

%

 

$

42

 

 

$

42

 

 

 

—

%

Mortgage Loans

 

 

6

 

 

 

2

 

 

 

200.0

 

 

 

11

 

 

 

4

 

 

 

175.0

 

2016 Term Loan(2)

 

 

5

 

 

 

8

 

 

 

(37.5

)

 

 

11

 

 

 

15

 

 

 

(26.7

)

2019 Term Facility(3)

 

 

4

 

 

 

—

 

 

 

100.0

 

 

 

10

 

 

 

—

 

 

 

100.0

 

Revolver(4)

 

 

7

 

 

 

—

 

 

 

100.0

 

 

 

8

 

 

 

—

 

 

 

100.0

 

Senior Secured Notes

 

 

4

 

 

 

—

 

 

 

100.0

 

 

 

4

 

 

 

—

 

 

 

100.0

 

Other

 

 

3

 

 

 

2

 

 

 

50.0

 

 

 

4

 

 

 

4

 

 

 

—

 

Total interest expense

 

$

50

 

 

$

33

 

 

 

51.5

%

 

$

90

 

 

$

65

 

 

 

38.5

%

 

(1)

In October 2016, we entered into a $725 million CMBS loan secured by the Hilton San Francisco Union Square and the Parc 55 Hotel San Francisco (“SF CMBS Loan”) and a $1.275 billion CMBS loan secured by the Hilton Hawaiian Village Waikiki Beach Resort (“HHV CMBS Loan”).

(2)

The 2016 Term Loan was entered into in December 2016, with a maturity date of December 2021. We repaid the 2016 Term Loan by $50 million and $69 million in December 2019 and June 2020, respectively.

(3)

In August 2019, the Company, Park Intermediate Holdings LLC and PK Domestic entered into a credit agreement with Bank of America, N.A. and certain other lenders, providing a $950 million unsecured delayed draw term loan facility (the “2019 Term Facility”), with the $850 million, five-year delayed draw term loan tranche fully drawn on September 18, 2019 to fund the Merger.  The $100 million, two-year delayed draw term loan tranche was unfunded and the commitments thereunder terminated on September 18, 2019. On December 31, 2019, we repaid $180 million of the 2019 Term Facility.

(4)

During the second quarter of 2020, we repaid $319 million of the Revolver.

26

 

Interest expense increased during three and six months ended June 30, 2020 as compared to the same periods in 2019 as a result of $310 million in mortgage loans assumed in connection with the Merger, borrowings under the 2019 Term Facility to fund the Merger, the $1 billion drawn under the Revolver in March 2020 (of which $319 million was repaid during the second quarter of 2020), and the issuance of our $650 million Senior Secured Notes.

Income tax expense

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

Percent Change

 

 

2020

 

 

2019

 

 

Percent Change

 

 

 

(in millions)

 

 

(in millions)

 

Income tax expense

 

$

3

 

 

$

5

 

 

 

(40.0

)%

 

$

13

 

 

$

12

 

 

 

8.3

%

 

Income tax expense for the six months ended June 30, 2020 includes $26 million of income tax expense from hotels sold during the period, partially offset by a TRS income tax benefit of $16 million from utilizing the NOL carryback provisions of the CARES Act. Refer to Note 9: “Income Taxes” in our unaudited condensed consolidated financial statements included elsewhere within this Quarterly Report on Form 10-Q for additional information

 

Income tax expense for the three and six months ended June 30, 2019 includes $4 million and $10 million, respectively, of income tax liabilities associated with our taxable operations.

 

Liquidity and Capital Resources

Overview

We seek to maintain sufficient amounts of liquidity with an appropriate balance of cash, debt and equity to provide financial flexibility. As of June 30, 2020, we had total cash and cash equivalents of approximately $1.3 billion and $35 million of restricted cash. Restricted cash primarily consists of cash restricted as to use by our debt agreements and reserves for capital expenditures in accordance with certain of our management agreements.

 

As a result of the economic uncertainty resulting from the effects of COVID-19 including decreased occupancy, ADR and RevPAR at our hotels, as described above under “Recent Events–COVID-19 Effect on Our Business”, we expect our cash flow from operations through at least the remainder of 2020 to be significantly lower than in the past. We have taken several steps to preserve capital and increase liquidity, including fully drawing $1 billion from our Revolver in March 2020, issuing $650 million of Senior Secured Notes in May 2020 (a portion of which was used to partially repay amounts outstanding under our Revolver and 2016 Term Loan), suspending our dividend following the payment of the first quarter 2020 dividend and implementing various cost saving initiatives at our hotels including: temporary suspension of operations at certain hotels and selected restaurants and other businesses and outlets and deferrals of approximately $150 million of the $200 million in capital expenditures budgeted for 2020. We will continue to assess when the deferred capital expenditures will resume or if any of the deferred expenditures will be cancelled.

 

While operations have been suspended or significantly reduced at most of our hotels, the duration and extent of the effects of COVID-19 remain unknown, and we cannot predict whether our reopened hotels will be forced to suspend operations again in the future.  Assuming that our hotel suspensions of operations were to expand such that hotel operations were suspended at all 60 of our hotels (including restaurants and other business and outlets) and room and other revenues were also zero between the months of August and December of 2020, we currently estimate that our average monthly cash burn for that period would be approximately $65 million, of which $42 million consists of the estimated average monthly hotel funding for hotel expenses and $23 million consists of the estimated average monthly corporate-level expenses. The estimated hotel-level cash burn rate approximates working capital funding needs and includes hotel fixed costs at each of our hotels while activities are suspended.  The estimated corporate-level cash burn consists primarily of principal and interest payments on outstanding debt and corporate general and administrative expenses, such as salary, wages and benefits.  This estimate does not take into account capital expenditures or any possible alternative sources of revenue that may arise or any hotel property dispositions for the remainder of the year or payment of future cash dividends, if any. The estimated cash burn amount has not been reduced by any amount available to us under existing or future debt facilities, or proceeds from issuance of any additional debt, equity or equity-linked securities.  We currently believe, as a result of the above-mentioned cost-reduction efforts and the overall strength of our balance sheet, based on the estimated cash burn rates described above and absent any debt required to be repaid in the event of default, we would expect to have sufficient liquidity to withstand the suspension of operations at all our hotels for two years.

 

27

 

With the net proceeds from our Revolver borrowings during 2020, net proceeds from the offering of our Senior Secured Notes and the proceeds from the sales of two consolidated hotels during the first quarter of 2020, we currently believe we have sufficient liquidity to pay our 2020 debt maturities and fund other short-term liquidity obligations. We are maintaining higher than historical cash levels due to the continued uncertainty surrounding COVID-19, and we intend to do so until markets stabilize and demand in the lodging industry begins to recover. In addition, we also may take other actions to improve our liquidity, such as the issuance of additional debt, equity or equity-linked securities, if we determine that doing so would be beneficial to us.  However, there can no assurance as to the timing of any such issuance, which may be in the near term, or that any such additional financing will be completed on favorable terms, or at all.  

 

Additionally, in May 2020, we amended our credit and term loan facilities to suspend compliance with all existing financial covenants tested through and including March 31, 2021 and to adjust the levels of particular financial covenants after such period. As part of the amendment process, we (i) agreed to comply with a monthly minimum liquidity covenant, to pledge equity in certain subsidiaries to secure the facilities, and for certain subsidiaries to become guarantors under the facilities, and (ii) exercised our two six-month extension options on our Revolver to extend its maturity to December 24, 2021. The amendments also added additional covenants that restrict our ability to make dividend and distribution payments (except to the extent required to maintain REIT status) and stock repurchases, make prepayments of other indebtedness, make capital expenditures, conduct asset dispositions or transfers and make investments, including acquisitions or mergers, in each case subject to various exceptions. We expect to be in compliance with financial covenants for the quarter ended June 30, 2021 (the first quarter for which compliance is required following the amendments). If we are unable to comply with such covenants for the quarter ended June 30, 2021, we will negotiate with our lenders to amend such covenants as needed and believe we will be able to reach an agreement in advance as we did with the previous amendments.

Our known short-term liquidity requirements primarily consist of funds necessary to pay for operating expenses and other expenditures, including reimbursements to our hotel manager for payroll and related benefits, costs associated with the operation of our hotels, interest and scheduled principal payments on our outstanding indebtedness (including the Senior Secured Notes), capital expenditures for renovations and maintenance at our hotels (to the extent not deferred for 2020), corporate general and administrative expenses, and, when resumed, dividends to our stockholders. Many of the other expenses associated with our hotels are relatively fixed, including portions of rent expense, property taxes and insurance. Since we generally are unable to decrease these costs significantly or rapidly when demand for our hotels decreases, the resulting decline in our revenues can have a greater adverse effect on our net cash flow, margins and profits. Our long-term liquidity requirements primarily consist of funds necessary to pay for scheduled debt maturities, capital improvements at our hotels (to the extent not cancelled or deferred), and costs associated with potential acquisitions. Despite the impact of COVID-19 on the global economy, including a sustained decline in our performance, we were able to access the debt capital markets during the second quarter of 2020 and complete our inaugural senior secured notes offering. However, it may be difficult or costly for us to raise additional debt or equity capital in the future to fund long-term liquidity requirements.

Our commitments to fund capital expenditures for renovations and maintenance at our hotels will be funded by cash and cash equivalents, restricted cash to the extent permitted by our lending agreements and cash flow from operations. We have established reserves for capital expenditures (“FF&E reserve”) in accordance with our management and certain debt agreements. Generally, these agreements require that we fund 4% of hotel revenues into an FF&E reserve, unless such amounts have been incurred. As a result of COVID-19, our hotel managers have temporarily delayed contributions to the FF&E reserve accounts and in addition, have allowed our hotels to utilize, as needed, their FF&E reserve for operating expenses at the respective hotels, as long as the hotels remain in compliance with their lenders.

Our cash management objectives continue to be to maintain the availability of liquidity, minimize operational costs, make debt payments and fund our capital expenditure programs and future acquisitions. Further, we have an investment policy that is focused on the preservation of capital and maximizing the return on new and existing investments.

Stock Repurchase Program

In February 2019, our Board of Directors approved a stock repurchase program allowing us to repurchase up to $300 million of our common stock over a two-year period, ending in February 2021.  Stock repurchases, if any, would be made through open market purchases, including through Rule 10b5-1 trading programs, in privately negotiated transactions, or in such other manner that would comply with applicable securities laws. The timing of future stock repurchases and the number of shares to be repurchased will depend upon prevailing market conditions and other factors. During the three months ended March 31, 2020, we repurchased 4.6 million shares of our common stock for a total purchase price of $66 million. No common stock was repurchased during the three months ended June 30, 2020. As of June 30, 2020, approximately $234 million remained available for stock repurchases. The timing of stock repurchases and the number of shares to be repurchased will depend upon prevailing market conditions and other factors, and we may suspend the repurchase program at any time. In addition, our credit facility and term loan amendments impose restrictions surrounding our ability to repurchase stock until certain financial ratio metrics are achieved.

28

 

Sources and Uses of Our Cash and Cash Equivalents

The following tables summarize our net cash flows and key metrics related to our liquidity:

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

Percent Change

 

 

 

(in millions)

 

 

 

 

 

Net cash (used in) provided by operating activities

 

$

(158

)

 

$

244

 

 

NM(1)

 

Net cash provided by investing activities

 

 

150

 

 

 

111

 

 

 

35.1

%

Net cash provided by (used in) financing activities

 

 

931

 

 

 

(300

)

 

NM(1)

 

 

(4)

Percentage change is not meaningful.

Operating Activities

Cash flow from operating activities are primarily generated from the operating income or losses generated at our hotels.

The $402 million decrease in net cash provided by operating activities for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 was primarily due to a decrease in cash from operations related to the effects of COVID-19 coupled with an increase in cash paid for interest of $19 million.

 

Investing Activities

The $150 million in net cash provided by investing activities for the six months ended June 30, 2020 was primarily attributable to $207 million in net proceeds received from the sale of hotels, partially offset by $56 million in capital expenditures.

The $111 million in net cash provided by investing activities for the six months ended June 30, 2019 was primarily attributable to the $229 million in net proceeds received from the sale of hotels, partially offset by $120 million used for capital expenditures for property and equipment at our hotels.  

Financing Activities

The $931 million in net cash provided by financing activities for the six months ended June 30, 2020 is primarily attributable to borrowings of $1 billion from our Revolver as a result of COVID-19, the issuance of our $650 million Senior Secured Notes, partially offset by $392 million of debt repayments, $241 million in dividends paid and the repurchase of 4.5 million shares of our common stock for $66 million.

The $300 million in net cash used in financing activities for the six months ended June 30, 2019 is primarily attributable to $291 million in dividends paid.

Dividends

As a REIT, we are required to distribute at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain, to our stockholders on an annual basis. Therefore, as a general matter, it is unlikely that we will be able to retain substantial cash balances that could be used to meet our liquidity needs from our annual taxable income. Instead, we will need to meet these needs from external sources of capital and amounts, if any, by which our cash flow generated from operations exceeds taxable income. However, as a precautionary measure in light of COVID-19, after the payment of the first quarter dividend, we suspended our quarterly dividend until such time that our Board of Directors determines our year-end dividend, if any.

We declared the following dividends to holders of our common stock during 2020:

 

Record Date

 

Payment Date

 

Dividend per Share

 

March 31, 2020

 

April 15, 2020

 

$

0.45

 

 

Debt

As of June 30, 2020, our total indebtedness was approximately $5.1 billion, including $681 million of borrowings from our Revolver and $650 million of Senior Secured Notes, as disclosed above, and excluding approximately $225 million of our share of debt of investments in affiliates. Substantially all the debt of such unconsolidated affiliates is secured solely by the affiliates’ assets or is guaranteed by other partners without recourse to us. Refer to Note 7: “Debt” in our unaudited condensed consolidated financial statements included elsewhere within this Quarterly Report on Form 10-Q for additional information.

29

 

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements as of June 30, 2020 included construction contract commitments of approximately $29 million for capital expenditures at our properties. Our contracts contain clauses that allow us to cancel all or some portion of the work. If cancellation of a contract occurred, our commitment would be any costs incurred up to the cancellation date, in addition to any costs associated with the discharge of the contract. As a liquidity preservation initiative to mitigate the effects of COVID-19, we have deferred approximately $150 million of the originally budgeted $200 million of capital expenditures for 2020. None of these deferred expenditures will affect the ability of the hotels to quickly resume operations once normal travel patterns return. We will continue to assess when the deferred capital expenditures will resume or if any of the deferred expenditures will be cancelled.

 

Critical Accounting Policies and Estimates

The preparation of our financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of our financial statements, the reported amounts of revenues and expenses during the reporting periods and the related disclosures in our condensed consolidated financial statements and accompanying footnotes. We have discussed those policies and estimates that we believe are critical and require the use of complex judgment in their application in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission on February 27, 2020. There have been no material changes to our critical accounting policies or the methods or assumptions we apply.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risk primarily from changes in interest rates, which may affect our future income, cash flows and fair value, depending on changes to interest rates. In certain situations, we may seek to reduce cash flow volatility associated with changes in interest rates by entering into financial arrangements intended to provide a hedge against a portion of the risks associated with such volatility. We continue to have exposure to such risks to the extent they are not hedged.

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Our management has evaluated, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, the effectiveness of the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, the (“Exchange Act”), as required by paragraph (b) of Rules 13a-15 and 15d-15 of the Exchange Act. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of June 30, 2020, our disclosure controls and procedures were effective to ensure that information we are required to disclose in reports filed or submitted with the SEC (i) is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.

Changes in Internal Control over Financial Reporting

 

There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

30

 

PART II. OTHER INFORMATION

We are involved in various claims and lawsuits arising in the ordinary course of business, some of which include claims for substantial sums, including proceedings involving tort and other general liability claims, employee claims and consumer protection claims. Most occurrences involving liability, claims of negligence and employees are covered by insurance with solvent insurance carriers. For those matters not covered by insurance, which include commercial matters, we recognize a liability when we believe the loss is probable and can be reasonably estimated. The ultimate results of claims and litigation cannot be predicted with certainty. We believe we have adequate reserves against such matters. We currently believe that the ultimate outcome of such lawsuits and proceedings will not, individually or in the aggregate, have a material adverse effect on our consolidated financial position, results of operations or liquidity. However, depending on the amount and timing, an unfavorable resolution of some or all of these matters could materially affect our future results of operations in a particular period.

Item 1A. Risk Factors.

Other than the additional risk factors below related to COVID-19, there have been no material changes from the risk factors previously disclosed in response to “Part I – Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019 and “Part II – Item 1A. Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, which risk factors are incorporated by reference herein.

The current outbreak of the novel coronavirus and the COVID-19 disease it causes have significantly adversely impacted and disrupted, and is expected to continue to significantly adversely impact and disrupt, our business, financial performance and condition, operating results and cash flows.

Since first being reported in December 2019, COVID-19 has spread globally, including to every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19.

The outbreak of COVID-19 has had and continues to have, and another pandemic in the future could similarly have, significant repercussions across regional and global economies and financial markets. The global impact of the outbreak has been rapidly evolving and many countries, including the United States, reacted by instituting a wide variety of control measures including states of emergency, mandatory quarantines, implementing "shelter in place" orders, border closures, and restricting travel and large gatherings. We have been and expect to continue to be negatively affected by additional governmental regulations and travel advisories to fight the pandemic, including recommendations by the U.S. Department of State, the Center for Disease Control and Prevention and the World Health Organization. In addition, the COVID-19 pandemic has triggered a global recession.

COVID-19 has disrupted and has had a significant adverse effect on, and will continue to significantly adversely impact and disrupt, our business, financial performance and condition, operating results and cash flows. The effects of the pandemic on the hotel industry are unprecedented. Global demand for lodging has been drastically reduced and occupancy levels have reached historic lows. Since late February, we have experienced a significant decline in occupancy and RevPAR associated with COVID-19 throughout our portfolio, and by March 31, 2020, we had temporarily suspended operations at 38 of our 60 properties (18 of which are still suspended as of August 6, 2020). The remainder of our properties are currently operating at reduced levels. We may need or elect to temporarily suspend the operations at additional hotels in the future as a result of the COVID-19 pandemic. Additionally, the vast majority of our group business through the remainder of 2020 has now been canceled and we are seeing a significant reduction in new reservations. Additionally, travel, especially business and leisure travel in the United States, where all of our hotels are located, has continued to be adversely affected as result of COVID-19. It is not currently known when the suspended operations at our hotel properties will resume at any level, when our hotels operating at a reduced capacity will return to regular operations or if we will need to suspend operations or decrease capacity at additional hotel properties in the future, including as a result of government regulation, an increase in the number of COVID-19 cases or changes in business and other consumer preferences for travel. Additional factors that would negatively impact our ability to successfully operate during or following COVID-19 or another pandemic, or that could otherwise significantly adversely impact and disrupt our business, financial performance and condition, operating results and cash flows, include:

 

•

sustained negative consumer or business sentiment, economic metrics (including unemployment levels, discretionary spending and declines in personal wealth) or demand for travel, including beyond the end of the COVID-19 pandemic and the lifting of travel restrictions and advisories, which could further adversely impact demand for lodging;

 

•

an expansion of the number of postponed and cancelled conferences and similar events;

 

•

our inability to reopen our hotels in a timely manner, or our inability to attract customers to our hotels when we are able to reopen;

31

 

 

•

a change in government regulations;

 

•

our growth strategy could be negatively impacted by the COVID-19 pandemic, including limiting opportunities to acquire new properties, and we may be required to dispose of properties to meet liquidity needs;

 

•

increased costs to maintain hotels, including hotels whose operations are suspended, and increased sanitation and hygiene requirements, social distancing and other mitigation measures at hotels that continue to operate or that begin operating again;

 

•

the scaling back or delay of a significant amount of planned capital expenditures, including planned renovation projects, which could adversely affect the value of our properties and guest experience at our properties;

 

•

our estimated cash burn rates are subject to numerous risks and uncertainties, including uncertainties related to hotel working capital needs as well as the terms of any financing available to us. Accordingly, it is possible that our monthly cash burn rate could be significantly higher than the levels we currently anticipate, which could mean we do not have sufficient liquidity to withstand the suspension of our operations for the remainder of 2020;

 

•

reduction or elimination of quarterly dividends;

 

•

significant non-cash impairment charges due to adverse effects on our properties from reduced travel demand;

 

•

our increased indebtedness and decreased operating revenues, which could increase our risk of default on our loans;

 

•

continued volatility of our stock price;

 

•

our dependence on our hotel managers, who are facing similar challenges from the COVID-19 pandemic;

 

•

disruptions in our supply chains, which may impact our hotels that are still operating;

 

•

fluctuations in regional and local economies;

 

•

the continued service and availability of personnel, including our senior leadership team and key field personnel, such as general managers, and our ability to recruit, attract and retain skilled personnel to the extent our management or personnel are impacted by the outbreak of pandemic or epidemic disease and are not available or allowed to conduct work;

 

•

disruptions as a result of corporate employees working remotely, including risk of cybersecurity incidents and disruptions to internal control procedures; and

 

•

benefits of government action to provide financial support to affected industries, including the travel and hospitality industry, may not be available to us or our operators.

Moreover, many risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2019 should be interpreted as heightened risks as a result of the impact of the COVID-19 pandemic. In addition, historical data regarding our business, properties, results of operations, financial condition and liquidity prior to the first quarter of 2020 does not reflect the impact of the COVID-19 pandemic and related containment measures, and therefore comparability of our results between periods may be limited.

The significance, extent and duration of the impacts caused by the COVID-19 outbreak on our business, financial condition, operating results and cash flows, remains largely uncertain and dependent on future developments that cannot be accurately predicted at this time, such as the continued severity, duration (including the extent of any resurgences in the future), transmission rate and geographic spread of COVID-19 in the United States, the extent and effectiveness of the containment measures taken, the timing of and manner in which containment efforts are reduced or lifted, the timing and ability of vaccinations and other treatments to combat COVID-19, and the response of the overall economy, the financial markets and the population, particularly in areas in which we operate, once the current containment measures are reduced or lifted.  As a result, we cannot provide an estimate of the overall impact of the COVID-19 pandemic on our business or when, or if, we will be able to resume normal, pre-COVID-19 level operations. Nevertheless, COVID-19 presents material uncertainty and risk with respect to our business, financial performance and condition, operating results and cash flows.

The spread of the COVID-19 outbreak has caused severe disruptions in the U.S. and global economy and financial markets and could potentially create widespread business continuity issues of an as yet unknown magnitude and duration, which may impact our liquidity and access to capital.

The COVID-19 pandemic has also caused, and is likely to continue to cause, severe economic, market and other disruptions worldwide. We cannot assure you that conditions in the bank lending, capital and other financial markets will not continue to deteriorate as a result of the pandemic, or that our access to capital and other sources of funding will not become constrained, which could adversely affect the availability and terms of future borrowings, renewals or refinancings.

32

 

In addition, the terms of future debt agreements could include more restrictive covenants or require incremental collateral, which may restrict our business operations or make such debt unavailable due to our covenant restrictions then in effect. There is no guarantee that debt financings will be available in the future to fund our obligations, or that they will be available on terms consistent with our expectations.

 

While we have taken several steps to preserve capital and increase liquidity as described under “Liquidity and Capital Resources,” our short-term liquidity needs are still significant, including funds necessary to pay for operating expenses and other expenditures, including reimbursements to our hotel managers for payroll and related benefits, costs associated with the operation of our hotels, interest and scheduled principal payments on our outstanding indebtedness, capital expenditures for renovations and maintenance at our hotels (to the extent not deferred for 2020) and corporate general and administrative expenses.  Additionally, many of the other expenses associated with our hotels are relatively fixed, including portions of rent expense, property taxes and insurance. Since we generally are unable to decrease these costs significantly or rapidly when demand for our hotels decreases, the resulting decline in our revenues due to COVID-19 may have a greater adverse effect on our net cash flow, margins and profits. We may take actions in the near term to improve our liquidity, such as the issuance of additional debt, equity or equity-linked securities, if we determine that doing so would be beneficial to us.  However, there can be no assurance as to the timing of any such issuance or that any such additional financing will be completed on favorable terms, or at all, due to the impact of COVID-19 on the global economy and our business as described above.

Additionally, a prolonged economic recession, including lower GDP growth, corporate earnings, consumer confidence and employment rates, could result in significantly below-average lodging demand by both group and transient travelers that continues beyond the lifting of travel and other government restrictions and after the COVID-19 pandemic has largely subsided. There can also be no guarantee that the demand for lodging, and consumer confidence in travel generally, will recover as quickly as other industries. All of the above factors could materially negatively impact our business, financial performance and condition, operating results and cash flows.

Item 2. Unregistered Sales of Equity Securities.

2(a): Unregistered Sales of Equity Securities and Use of Proceeds

None.

 

2(b): Use of Proceeds from Registered Securities

None.

 

2(c): Purchases of Equity Securities

 

In February 2019, our Board of Directors approved a stock repurchase program allowing us to repurchase up to $300 million of our common stock over a two-year period, ending in February 2021.  Stock repurchases may be made through open market purchases, including through Rule 10b5-1 trading programs, in privately negotiated transactions, or in such other manner that would comply with applicable securities laws. The timing of stock repurchases and the number of shares to be repurchased will depend upon prevailing market conditions and other factors, and we may suspend the repurchase program at any time. In addition, our credit facility and term loan amendments impose restrictions surrounding our ability to repurchase stock until certain financial ratio metrics are achieved.

33

 

 

During the six months ended June 30, 2020, repurchases made pursuant to our repurchase program were as follows:

 

Record Date

 

Total number of

shares

purchased(1)

 

 

Weighted average

price paid

per share(2)

 

 

Total number of

shares purchased

as part of publicly

announced plans

or programs

 

 

Maximum number

(or approximate

dollar value) of

common shares

that may yet be

purchased under

the plans or

programs

(in millions)

 

January 1, 2020 through January 31, 2020

 

 

9,248

 

 

$

22.99

 

 

 

—

 

 

$

300

 

February 1, 2020 through February 29, 2020

 

 

75,032

 

 

$

23.57

 

 

 

—

 

 

$

300

 

March 1, 2020 through March 31, 2020

 

 

4,557,446

 

 

$

14.48

 

 

 

4,550,882

 

 

$

234

 

April 1, 2020 through April 30, 2020

 

 

224

 

 

$

6.50

 

 

 

—

 

 

$

234

 

May 1, 2020 through May 31, 2020

 

 

2,027

 

 

$

8.64

 

 

 

—

 

 

$

234

 

June 1, 2020 through June 30, 2020

 

 

70

 

 

$

11.96

 

 

 

—

 

 

$

234

 

 

 

 

4,644,047

 

 

 

 

 

 

 

4,550,882

 

 

 

 

 

 

(1)

The number of shares purchased represents shares of common stock repurchased under the previously announced stock repurchase program as well as shares of common stock surrendered by certain of our employees to satisfy their federal and state tax obligations associated with the vesting of restricted common stock.

(2)

The weighted average price paid per share for shares of common stock surrendered by certain employees is based on the closing price of our common stock on the trading date immediately prior to the date of delivery of the shares. The weighted average price paid per share for shares repurchased excludes commissions paid.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

34

 

Item 6. Exhibits

 

Exhibit

Number

 

Description

 

 

 

    2.1

 

Distribution Agreement by and among Hilton Worldwide Holdings Inc., Park Hotels & Resorts Inc., Hilton Grand Vacations Inc. and Hilton Domestic Operating Company Inc., dated as of January 2, 2017 (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K, filed on January 4, 2017).

 

 

 

   2.2

 

Agreement and Plan of Merger by and among Park Hotels & Resorts Inc., PK Domestic Property LLC, PK Domestic Sub LLC, and Chesapeake Lodging Trust, dated as of May 5, 2019 (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K, filed on May 6, 2019).

 

 

 

    3.1

 

Amended and Restated Certificate of Incorporation of Park Hotels & Resorts Inc. (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K, filed on April 30, 2019).

 

 

 

    3.2

 

Amended and Restated By-laws of Park Hotels & Resorts Inc. (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K, filed on February 26, 2019).

 

 

 

  4.1

 

Indenture, dated as of May 29, 2020, among Park Intermediate Holdings LLC, PK Domestic Property LLC, PK Finance Co-Issuer Inc., Park Hotels & Resorts Inc., the subsidiary guarantors party thereto and The Bank of New York Mellon, as trustee. (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K, filed on May 29, 2020).

 

 

 

  10.1

 

Third Amendment to Credit Agreement, dated as of May 8, 2020, among Park Intermediate Holdings LLC and PK Domestic Property LLC, as Borrowers, Park Hotels & Resorts Inc., the lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on May 8, 2020).

 

 

 

 

 

 

  10.2

 

First Amendment to Loan Agreement, dated as of May 8, 2020, among Park Intermediate Holdings LLC and PK Domestic Property LLC, as Borrowers, Park Hotels & Resorts Inc., the lenders party thereto and Bank of America, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K, filed on May 8, 2020).

 

 

 

 

 

 

  11.1

 

Computation of Per Share Earnings from Operations (included in the notes to the unaudited financial statements contained in this Report).

 

 

 

  31.1*

 

Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

  31.2*

 

Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

  32.1*

 

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished herewith.

 

 

 

  32.2*

 

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished herewith.

 

 

 

101.INS*

 

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

 

 

 

101.SCH*

 

Inline XBRL Taxonomy Extension Schema Document.

 

 

 

101.CAL*

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

 

 

 

101.DEF*

 

Inline XBRL Taxonomy Extension Definition Linkbase Document.

 

 

 

101.LAB*

 

Inline XBRL Taxonomy Extension Label Linkbase Document.

 

 

 

101.PRE*

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

 

 

 

104*

 

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

 

 

  *

 

Filed herewith

 

35

 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Park Hotels & Resorts Inc.

 

 

 

 

Date: August 6, 2020

By:

 

/s/ Thomas J. Baltimore Jr.

 

 

 

Thomas J. Baltimore, Jr.

 

 

 

Chairman of the Board,

President and Chief Executive Officer

(Principal Executive Officer)

 

 

 

 

Date: August 6, 2020

By:

 

/s/ Sean M. Dell’Orto

 

 

 

Sean M. Dell’Orto

 

 

 

Executive Vice President and

Chief Financial Officer

(Principal Financial Officer)

 

 

 

 

Date: August 6, 2020

By:

 

/s/ Darren W. Robb

 

 

 

Darren W. Robb

 

 

 

Senior Vice President and

Chief Accounting Officer

(Principal Accounting Officer)

 

36

 pk-ex311_8.htm

 

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Thomas J. Baltimore, Jr., certify that:

1.

I have reviewed this Quarterly Report on Form 10-Q of Park Hotels & Resorts Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Securities Exchange Act of 1934, as amended, Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 6, 2020

By:

/s/ Thomas J. Baltimore, Jr.

 

 

Thomas J. Baltimore, Jr.

 

 

Chairman of the Board, President and

Chief Executive Officer

 

 

pk-ex312_9.htm

 

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Sean M. Dell’Orto, certify that:

1.

I have reviewed this Quarterly Report on Form 10-Q of Park Hotels & Resorts Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Securities Exchange Act of 1934, as amended, Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 6, 2020

By:

/s/ Sean M. Dell’Orto

 

 

Sean M. Dell’Orto

 

 

Executive Vice President and

Chief Financial Officer

 

 

pk-ex321_10.htm

Exhibit 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Park Hotels & Resorts Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas J. Baltimore, Jr., President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

Date: August 6, 2020

 

By:

/s/ Thomas J. Baltimore, Jr.

 

 

 

Thomas J. Baltimore, Jr.

 

 

 

Chairman of the Board, President and

Chief Executive Officer

 

In accordance with SEC Release NO. 34-47986, this Exhibit is furnished to the SEC as an accompanying document and is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended.

 

pk-ex322_6.htm

Exhibit 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Park Hotels & Resorts Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sean M. Dell’Orto, Executive Vice President and Chief Financial Officer, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

Date: August 6, 2020

 

By:

/s/ Sean M. Dell’Orto

 

 

 

Sean M. Dell’Orto

 

 

 

Executive Vice President and

Chief Financial Officer

 

In accordance with SEC Release NO. 34-47986, this Exhibit is furnished to the SEC as an accompanying document and is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended.

 

v3.20.2
Document and Entity Information - shares
 6 Months Ended
Jun. 30, 2020
Jul. 31, 2020
Cover [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Jun. 30, 2020  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q2  
Trading Symbol PK  
Entity Registrant Name Park Hotels & Resorts Inc.  
Entity Central Index Key 0001617406  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Common Stock, Shares Outstanding   235,604,666
Entity Current Reporting Status Yes  
Entity Shell Company false  
Entity Interactive Data Current Yes  
Title of 12(b) Security Common Stock, $0.01 par value per share  
Security Exchange Name NYSE  
Entity Incorporation, State or Country Code DE  
Document Quarterly Report true  
Document Transition Report false  
Entity File Number 001-37795  
Entity Tax Identification Number 36-2058176  
Entity Address, Address Line One 1775 Tysons Boulevard  
Entity Address, Address Line Two 7th Floor  
Entity Address, City or Town Tysons  
Entity Address, State or Province VA  
Entity Address, Postal Zip Code 22102  
City Area Code 571  
Local Phone Number 302-5757  
v3.20.2
Condensed Consolidated Balance Sheets - USD ($)
$ in Millions
Jun. 30, 2020
Dec. 31, 2019
ASSETS    
Property and equipment, net $ 9,323 $ 9,594 [1]
Assets held for sale, net   71
Investments in affiliates 23 35
Goodwill   607
Intangibles, net 45 46
Cash and cash equivalents 1,274 346
Restricted cash 35 40
Accounts receivable, net of allowance for doubtful accounts of $7 and $2 31 180
Prepaid expenses 43 83
Other assets 46 40
Operating lease right-of-use assets 239 248
TOTAL ASSETS (variable interest entities - $231 and $242) 11,059 11,290
Liabilities    
Debt 5,118 3,871
Accounts payable and accrued expenses 129 217
Due to hotel managers 74 159
Deferred income tax liabilities 36 50
Other liabilities 123 282
Operating lease liabilities 253 260
Total liabilities (variable interest entities - $215 and $219) 5,733 4,839
Commitments and contingencies - refer to Note 13
Stockholders' Equity    
Common stock, par value $0.01 per share, 6,000,000,000 shares authorized, 235,900,906 shares issued and 235,604,979 shares outstanding as of June 30, 2020 and 239,589,639 shares issued and 239,386,877 shares outstanding as of December 31, 2019 2 2
Additional paid-in capital 4,508 4,575
Retained earnings 871 1,922
Accumulated other comprehensive loss (6) (3)
Total stockholders' equity 5,375 6,496
Noncontrolling interests (49) (45)
Total equity 5,326 6,451
TOTAL LIABILITIES AND EQUITY $ 11,059 $ 11,290
[1] Excludes $62 million of property and equipment, net, classified as held for sale as of December 31, 2019.
v3.20.2
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Millions
Jun. 30, 2020
Dec. 31, 2019
Allowance for doubtful accounts receivable $ 7 $ 2
Variable interest entities - assets 11,059 11,290
Variable interest entities - liabilities $ 5,733 $ 4,839
Common stock, par value (per share) $ 0.01 $ 0.01
Common stock, authorized shares 6,000,000,000 6,000,000,000
Common stock, issued shares 235,900,906 239,589,639
Common stock, outstanding shares 235,604,979 239,386,877
Consolidated VIEs [Member]    
Variable interest entities - assets $ 231 $ 242
Variable interest entities - liabilities $ 215 $ 219
v3.20.2
Condensed Consolidated Statements of Comprehensive (Loss) Income - USD ($)
shares in Millions, $ in Millions
 3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Revenues        
Total revenues $ 42 $ 703 $ 641 $ 1,362
Operating expenses        
Other property-level 56 49 116 98
Management fees   36 25 69
Impairment loss and casualty gain, net     694  
Depreciation and amortization 75 61 150 123
Corporate general and administrative 14 22 30 39
Other 4 18 25 38
Total expenses 243 580 1,541 1,141
Gain (loss) on sales of assets, net 1 (12) 63 19
Operating (loss) income (200) 111 (837) 240
Interest income 1 2 2 3
Interest expense (50) (33) (90) (65)
Equity in (losses) earnings from investments in affiliates (8) 10 (9) 15
Other loss, net (1) (1) (3)  
(Loss) income before income taxes (258) 89 (937) 193
Income tax expense (3) (5) (13) (12)
Net (loss) income (261) 84 (950) 181
Net loss (income) attributable to noncontrolling interests 2 (2) 3 (3)
Net (loss) income attributable to stockholders (259) 82 (947) 178
Other comprehensive (loss) income, net of tax expense:        
Currency translation adjustment, net of tax expense of $0 (1) 1 (3) 1
Total other comprehensive (loss) income (1) 1 (3) 1
Comprehensive (loss) income (262) 85 (953) 182
Comprehensive loss (income) attributable to noncontrolling interests 2 (2) 3 (3)
Comprehensive (loss) income attributable to stockholders $ (260) $ 83 $ (950) $ 179
(Loss) Earnings per share:        
(Loss) earnings per share - Basic $ (1.10) $ 0.40 $ (4.01) $ 0.88
(Loss) earnings per share - Diluted $ (1.10) $ 0.40 $ (4.01) $ 0.88
Weighted average shares outstanding - Basic 235 201 236 201
Weighted average shares outstanding - Diluted 235 202 236 202
Rooms [Member]        
Revenues        
Total revenues $ 21 $ 434 $ 383 $ 837
Operating expenses        
Expenses 20 113 132 220
Food and Beverage [Member]        
Revenues        
Total revenues 3 195 164 378
Operating expenses        
Expenses 14 130 137 254
Ancillary Hotel [Member]        
Revenues        
Total revenues 15 55 72 110
Other [Member]        
Revenues        
Total revenues 3 19 22 37
Other Departmental and Support [Member]        
Operating expenses        
Expenses $ 60 $ 151 $ 232 $ 300
v3.20.2
Condensed Consolidated Statements of Comprehensive (Loss) Income (Parenthetical) - USD ($)
$ in Millions
 3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Income Statement [Abstract]        
Foreign currency translation adjustment, tax $ 0 $ 0 $ 0 $ 0
v3.20.2
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Millions
 3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Operating Activities:        
Net (loss) income $ (261) $ 84 $ (950) $ 181
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:        
Depreciation and amortization 75 61 150 123
Gain on sales of assets, net (1) 12 (63) (19)
Impairment loss and casualty gain, net     694  
Equity in loss (earnings) from investments in affiliates 8 (10) 9 (15)
Other loss, net     3  
Share-based compensation expense     6 8
Amortization of deferred financing costs     3 2
Distributions from unconsolidated affiliates     5 13
Deferred income taxes     2  
Changes in operating assets and liabilities     (17) (49)
Net cash (used in) provided by operating activities     (158) 244
Investing Activities:        
Capital expenditures for property and equipment     (56) (120)
Proceeds from asset dispositions, net     207 229
Contributions to unconsolidated affiliates     (2)  
Insurance proceeds for property damage claims     1 2
Net cash provided by investing activities     150 111
Financing Activities:        
Borrowings on Revolver     1,000  
Repayments of Revolver     (319)  
Debt issuance costs     (15)  
Dividends paid     (241) (291)
Distributions to noncontrolling interests, net     (1) (3)
Tax withholdings on share-based compensation     (6) (6)
Repurchase of common stock     (66)  
Net cash provided by (used in) financing activities     931 (300)
Net increase in cash and cash equivalents and restricted cash     923 55
Cash and cash equivalents and restricted cash, beginning of period     386 425
Cash and cash equivalents and restricted cash, end of period $ 1,309 480 1,309 480
Non-cash financing activities:        
Dividends declared but unpaid   $ 90   $ 90
Senior Secured Notes [Member]        
Financing Activities:        
Proceeds from issuance of Senior Secured Notes     652  
2016 Term Loan [Member]        
Financing Activities:        
Repayment of 2016 Term Loan     (69)  
Mortgage Debt [Member]        
Financing Activities:        
Repayment of mortgage debt     $ (4)  
v3.20.2
Condensed Consolidated Statements of Equity (Unaudited) - USD ($)
$ in Millions
Total
Common Stock [member]
Additional Paid-in Capital [member]
Retained Earnings [member]
Accumulated Other Comprehensive (Loss) Income [member]
Non-Controlling Interests [member]
Balance at Dec. 31, 2018 $ 5,586 $ 2 $ 3,589 $ 2,047 $ (6) $ (46)
Balance (shares) at Dec. 31, 2018   201,000,000        
Share-based compensation, net (1)   (1)      
Net income (loss) 97     96   1
Dividends and dividend equivalents [1] (91)     (91)    
Distributions to noncontrolling interests (3)         (3)
Cumulative effect of change in accounting principle (8)     (8)    
Balance at Mar. 31, 2019 5,580 $ 2 3,588 2,044 (6) (48)
Balance (shares) at Mar. 31, 2019   201,000,000        
Balance at Dec. 31, 2018 5,586 $ 2 3,589 2,047 (6) (46)
Balance (shares) at Dec. 31, 2018   201,000,000        
Net income (loss) 181          
Other comprehensive income (loss) 1          
Balance at Jun. 30, 2019 5,576 $ 2 3,591 2,034 (5) (46)
Balance (shares) at Jun. 30, 2019   202,000,000        
Balance at Mar. 31, 2019 5,580 $ 2 3,588 2,044 (6) (48)
Balance (shares) at Mar. 31, 2019   201,000,000        
Share-based compensation, net 3   3      
Share-based compensation, net (Shares)   1,000,000        
Net income (loss) 84     82   2
Other comprehensive income (loss) 1       1  
Dividends and dividend equivalents [1] (92)     (92)    
Balance at Jun. 30, 2019 5,576 $ 2 3,591 2,034 (5) (46)
Balance (shares) at Jun. 30, 2019   202,000,000        
Balance at Dec. 31, 2019 $ 6,451 $ 2 4,575 1,922 (3) (45)
Balance (shares) at Dec. 31, 2019 239,386,877 239,000,000        
Share-based compensation, net $ (4)   (5) 1    
Net income (loss) (689)     (688)   (1)
Other comprehensive income (loss) (2)       (2)  
Dividends and dividend equivalents [1] (106)     (106)    
Distributions to noncontrolling interests (1)         (1)
Repurchase of common stock (66)   (66)      
Repurchases of common stock (Shares)   (4,000,000)        
Balance at Mar. 31, 2020 5,583 $ 2 4,504 1,129 (5) (47)
Balance (shares) at Mar. 31, 2020   235,000,000        
Balance at Dec. 31, 2019 $ 6,451 $ 2 4,575 1,922 (3) (45)
Balance (shares) at Dec. 31, 2019 239,386,877 239,000,000        
Net income (loss) $ (950)          
Other comprehensive income (loss) (3)          
Balance at Jun. 30, 2020 $ 5,326 $ 2 4,508 871 (6) (49)
Balance (shares) at Jun. 30, 2020 235,604,979 236,000,000        
Balance at Mar. 31, 2020 $ 5,583 $ 2 4,504 1,129 (5) (47)
Balance (shares) at Mar. 31, 2020   235,000,000        
Share-based compensation, net 5   4 1    
Share-based compensation, net (Shares)   1,000,000        
Net income (loss) (261)     (259)   (2)
Other comprehensive income (loss) (1)       (1)  
Balance at Jun. 30, 2020 $ 5,326 $ 2 $ 4,508 $ 871 $ (6) $ (49)
Balance (shares) at Jun. 30, 2020 235,604,979 236,000,000        
[1] Dividends declared per common share were $0.45 for the three months ended March 31, 2020, March 31, 2019 and June 30, 2019, respectively.   
v3.20.2
Condensed Consolidated Statements of Equity (Unaudited) (Parenthetical) - $ / shares
 3 Months Ended
Mar. 31, 2020
Jun. 30, 2019
Mar. 31, 2019
Statement Of Stockholders Equity [Abstract]      
Dividends declared per common share $ 0.45 $ 0.45 $ 0.45
v3.20.2
Organization and Recent Events
 6 Months Ended
Jun. 30, 2020
Accounting Policies [Abstract]  
Organization and Recent Events

Note 1: Organization and Recent Events

 

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 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 treated as a real estate investment trust (“REIT”) for United States (“U.S.”) federal income tax purposes, and we believe we have been organized and operated, and expect to continue to be organized and operate in a manner to qualify as a REIT. 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. We own 100% of the interests in our Operating Company.

 

Recent Events

The novel strain of coronavirus and the disease it causes (“COVID-19”) have had a significant effect on the hospitality industry and our business.  The effects of COVID-19, including government restrictions such as mandated closings of non-essential businesses and travel restrictions, have severely reduced overall lodging demand.  Since the beginning of March, we have 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. We expect that COVID-19 will continue to negatively affect our operating results for at least the remainder of 2020, as well as the debt and equity capital markets, which in the near-term could make obtaining financing or refinancing debt obligations more challenging.

During the first quarter of 2020, we and our hotel managers took various actions to mitigate the effects of COVID-19, including temporarily suspending operations at 38 of our 60 hotels, limiting capacity at our hotels that remained open, deferring approximately $150 million of capital expenditures planned for 2020, suspending our dividend after the first quarter of 2020, and as a precautionary measure to increase liquidity and preserve financial flexibility, fully drawing our $1 billion revolving credit facility (“Revolver”). We have since commenced a phased reopening of 20 of our hotels as restrictions are removed and demand returns. The timing of fully reopening these and the remainder of our hotels will depend primarily on government restrictions imposed or re-imposed, recommendations of health officials and market demand. Additionally, in May 2020, in order to maintain compliance under our credit and term loan facilities in future quarters, we amended our credit and term loan facilities to suspend compliance with all existing financial covenants tested through and including March 31, 2021 and to adjust the levels of particular financial covenants after such period. As part of the amendment process, we (i) agreed to comply with a monthly minimum liquidity covenant, to pledge equity in certain subsidiaries to secure the facilities, and for certain subsidiaries to become guarantors under the facilities, and (ii) exercised our two six-month extension options on our Revolver to extend its maturity to December 24, 2021. The amendments also added additional covenants that restrict our ability to make dividend and distribution payments (except to the extent required to maintain REIT status) and stock repurchases, make prepayments of other indebtedness, make capital expenditures, conduct asset dispositions or transfers and make investments, including acquisitions or mergers, in each case subject to various exceptions. We expect to be in compliance with financial covenants for the quarter ended June 30, 2021 (the first quarter for which compliance is required following the amendments). If we are unable to comply with such covenants for the quarter ended June 30, 2021, we intend to negotiate with our lenders to amend such covenants as needed and believe we will be able to reach an agreement in advance as we did with the previous amendments.

In May 2020, our Operating Company, PK Domestic and PK Finance Co-Issuer Inc. (“PK Finance”), an indirect, wholly-owned subsidiary of the Company, issued an aggregate of $650 million of senior secured notes due 2025 (“Senior Secured Notes”). We set aside $350 million of the net proceeds for general corporate purposes, further increasing our liquidity, and used the remainder of the net proceeds to repay portions of our Revolver and the term loan we entered into in December 2016 (“2016 Term Loan”). We are committed to using our liquidity to support our hotels’ operations during the COVID-19 pandemic and subsequent recovery, while being focused on continuing to maintain and enhance our stockholders’ value.
v3.20.2
Basis of Presentation and Summary of Significant Accounting Policies
 6 Months Ended
Jun. 30, 2020
Accounting Policies [Abstract]  
Basis of Presentation and Summary of Significant Accounting Policies

 

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, 2019 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on February 27, 2020.

 

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 statements of comprehensive (loss) income for the three and six months ended June 30, 2019 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, 2019, filed with the SEC on February 27, 2020, contains a discussion of the significant accounting policies. There have been no significant changes to our significant accounting policies since December 31, 2019.

Recently Issued Accounting Pronouncements

Adopted Accounting Standards

 

In January 2017, the FASB issued ASU No. 2017-04 (“ASU 2017-04”), Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU eliminates Step 2 from goodwill impairment testing. The goodwill impairment test will now consist of one step which compares the fair value of the reporting unit to the carrying value of the reporting unit and we would recognize an impairment loss if the carrying value exceeds the fair value but only to the extent of the amount of the goodwill allocated to the reporting unit. We adopted the provisions of this ASU effective January 1, 2020.

 

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which replaced the existing “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For trade and other receivables, the forward looking “expected loss” model will generally result in the earlier recognition of allowances for losses. In November 2018, the FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses”, which clarified that operating lease receivables accounted for under ASC 842 are not in the scope of ASU No. 2016-13. We adopted the provisions of ASU 2016-13 and the related ASUs as of January 1, 2020 using a modified retrospective approach, which resulted in no cumulative effect adjustment to retained earnings as of January 1, 2020.  An allowance for doubtful accounts is provided on accounts receivable for the expected credit loss over the life of the receivable based on historical credit losses, current business conditions, and reasonable and supportable forecasts.    

 

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” to provide optional expedients and exceptions for applying generally accepted accounting principles if certain criteria are met to contract modifications, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued.  The ASU is effective from March 12, 2020 through December 31, 2022 and did not have a material effect on our consolidated financial statements.

v3.20.2
Acquisitions and Dispositions
 6 Months Ended
Jun. 30, 2020
Business Combinations [Abstract]  
Acquisitions and Dispositions

Note 3: Acquisitions and Dispositions

Acquisitions

Merger with Chesapeake

As a result of the Merger, we acquired a 100% ownership interest in the following 18 hotels:

 

Hotel

 

Location

 

Rooms

 

Hilton Denver City Center

 

Denver, CO

 

 

613

 

W Chicago – Lakeshore

 

Chicago, IL

 

 

520

 

Hyatt Regency Boston

 

Boston, MA

 

 

502

 

Hyatt Regency Mission Bay Spa and Marina

 

San Diego, CA

 

 

438

 

Boston Marriott Newton

 

Newton, MA

 

 

430

 

Le Meridien New Orleans(1)

 

New Orleans, LA

 

 

410

 

W Chicago – City Center

 

Chicago, IL

 

 

403

 

Royal Palm South Beach Miami, a Tribute Portfolio Resort

 

Miami Beach, FL

 

 

393

 

Le Meridien San Francisco

 

San Francisco, CA

 

 

360

 

JW Marriott San Francisco Union Square

 

San Francisco, CA

 

 

344

 

Hyatt Centric Fisherman’s Wharf

 

San Francisco, CA

 

 

316

 

Hotel Indigo San Diego Gaslamp Quarter

 

San Diego, CA

 

 

210

 

Courtyard Washington Capitol Hill/Navy Yard

 

Washington, DC

 

 

204

 

Homewood Suites by Hilton Seattle Convention Center Pike Street

 

Seattle, WA

 

 

195

 

Hilton Checkers Los Angeles

 

Los Angeles, CA

 

 

193

 

Ace Hotel Downtown Los Angeles(1)

 

Los Angeles, CA

 

 

182

 

Hotel Adagio, Autograph Collection

 

San Francisco, CA

 

 

171

 

W New Orleans – French Quarter

 

New Orleans, LA

 

 

97

 

 

 

 

 

 

5,981

 

 

(1)

Hotels were subsequently sold in December 2019.

 

The total consideration for the Merger was approximately $2 billion, which included the issuance of approximately 37.8 million shares of common stock valued at $25.88 per share to Chesapeake common shareholders based on the closing price of our common stock on September 17, 2019. We accounted for the Merger using the acquisition method of accounting.  

 

We preliminarily allocated the purchase price, consisting of $978 million of common stock issued and cash of $1,013 million as follows:

 

 

 

(in millions)

 

Investment in hotel properties, net

 

$

2,220

 

Intangibles, net

 

 

45

 

Cash and cash equivalents

 

 

62

 

Restricted cash

 

 

38

 

Accounts receivable, net

 

 

26

 

Prepaid expenses

 

 

9

 

Other assets

 

 

2

 

Operating lease right-of-use asset

 

 

65

 

Debt

 

 

(311

)

Accounts payable and accrued expenses

 

 

(47

)

Due to hotel managers

 

 

(15

)

Other liabilities

 

 

(15

)

Operating lease liability

 

 

(88

)

Total consideration

 

$

1,991

 

 

The estimated fair values for the assets acquired and the liabilities assumed are preliminary and are subject to change during the one-year measurement period as additional information related to the inputs and assumptions used in determining the fair value of the assets and liabilities becomes available. We will continue to review the underlying inputs and assumptions. Therefore, the purchase price allocation is not yet complete as of the date of this filing. Once the allocation is complete, an additional adjustment to the allocation may occur.

 

We used the following valuation methodologies, inputs and assumptions to estimate the fair value of the assets acquired and liabilities assumed:

 

 

•

Investment in hotel properties – We estimated the fair values of the land and improvements, buildings and improvements, and furniture, fixtures and equipment at the hotel properties by using a combination of the market, cost and income approaches. These valuation methodologies are based on significant Level 3 inputs in the fair value hierarchy, such as estimates of future income growth, capitalization rates, discount rates, capital expenditures and cash flow projections at the respective hotel properties.

 

•

Intangible assets – We estimated the fair value of the air rights contract acquired as part of the Hyatt Regency Boston by calculating the present value of the difference between the contractual rental amounts according to the contract and the market rental rates for similar contracts, measured over a period equal to the remaining non-cancellable term of the contract. This valuation methodology is based on Level 3 inputs in the fair value hierarchy. The intangible asset is amortized using the straight-line method over the remaining term of the contract.

 

•

Above and below market lease liabilities – We estimated the fair value of our above and below market lease liabilities by calculating the present value of the difference between the contractual rental amounts paid according to the in-place lease agreements and the market rental rates for similar leased space, measured over a period equal to the remaining non-cancellable terms of the leases. This valuation methodology is based on Level 3 inputs in the fair value hierarchy. The above and below market lease liabilities are included as adjustments to the right-of-use asset in the accompanying condensed consolidated balance sheet. The above and below market lease liabilities are amortized as adjustments to ground rent expense over the remaining terms of the respective leases.

 

•

Operating lease right-of-use-asset and Operating lease liability – We estimated the fair value of the operating lease right-of-use asset and operating lease liability by calculating the present value of the fixed contractual rental amounts due over a period equal to the remaining non-cancellable terms of the leases. This valuation methodology is based on Level 3 inputs in the fair value hierarchy.

 

•

Debt – We estimated the fair value of the mortgage loans by calculating the present value of the remaining loan payments due over the term of the loans. This valuation methodology is based on Level 3 inputs in the fair value hierarchy.

 

•

Restricted cash, accounts receivable, prepaid expenses and other assets, accounts payable and accrued expenses, due to hotel managers and other liabilities – The amounts constitute the carrying amounts of the assets acquired and the liabilities assumed, which we believe approximate fair value because of their short-term nature.

 

The following unaudited condensed pro-forma financial information presents the results of operations as if the Merger had taken place on January 1, 2019. The unaudited condensed pro-forma financial information is not necessarily indicative of what our actual results of operations would have been assuming the Merger had taken place on January 1, 2019, nor is it indicative of the results of operations for future periods. The unaudited condensed pro-forma financial information is as follows:

 

 

 

Three Months Ended

June 30, 2019

 

 

Six Months Ended

June 30, 2019

 

(unaudited)

 

(in millions)

 

Total revenues

 

$

854

 

 

$

1,642

 

Operating income

 

 

145

 

 

 

291

 

Net income

 

 

106

 

 

 

208

 

 

Dispositions

 

During the six months ended June 30, 2020, we sold the Embassy Suites Washington DC Georgetown and our interests in the entity that owns the Hilton São Paulo Morumbi for total gross proceeds of $208 million and recognized a gain, net of selling costs, of $64 million on these hotels, which is included in gain (loss) on sales of assets, net in our condensed consolidated statements of comprehensive (loss) income. Additionally, the net gain includes the reclassification of a currency translation adjustment of $7 million from accumulated other comprehensive loss into earnings concurrent with the sale of the Hilton São Paulo Morumbi.

During the six months ended June 30, 2019, we sold our ownership interests in five consolidated hotels listed in the table below for total gross proceeds of $235 million and recognized a gain, net of selling costs, of $19 million on these hotels which is included in gain (loss) on sales of assets, net in our condensed consolidated statements of comprehensive (loss) income.   

 

Hotel

 

Location

 

Month Sold

Pointe Hilton Squaw Peak Resort

 

Phoenix, Arizona

 

February 2019

Hilton Nuremberg

 

Nuremberg, Germany

 

March 2019

Hilton Atlanta Airport

 

Atlanta, Georgia

 

June 2019

Hilton New Orleans Airport(1)

 

New Orleans, Louisiana

 

June 2019

Embassy Suites Parsippany(1)

 

Parsippany, New Jersey

 

June 2019

 

(1)

Hotels were sold as a portfolio in the same transaction.

 
v3.20.2
Property and Equipment
 6 Months Ended
Jun. 30, 2020
Property Plant And Equipment [Abstract]  
Property and Equipment

Note 4: Property and Equipment

Property and equipment were:

 

 

 

June 30, 2020

 

 

December 31, 2019(1)

 

 

 

(in millions)

 

Land

 

$

3,429

 

 

$

3,512

 

Buildings and leasehold improvements

 

 

6,944

 

 

 

6,978

 

Furniture and equipment

 

 

1,092

 

 

 

1,059

 

Construction-in-progress

 

 

48

 

 

 

134

 

 

 

 

11,513

 

 

 

11,683

 

Accumulated depreciation and amortization

 

 

(2,190

)

 

 

(2,089

)

 

 

$

9,323

 

 

$

9,594

 

 

(1)

Excludes $62 million of property and equipment, net, classified as held for sale as of December 31, 2019.

 

Depreciation of property and equipment was $75 million and $60 million, respectively, during the three months ended June 30, 2020 and 2019, respectively, and $149 million and $122 million during the six months ended June 30, 2020 and 2019, respectively.

 

For the six months ended June 30, 2020, we recognized $88 million of impairment losses, primarily related to one of our hotels, and our inability to recover the carrying value of the asset because of COVID-19. Refer to Note 8: “Fair Value Measurements” for additional information.
v3.20.2
Consolidated Variable Interest Entities ("VIEs") and Investments in Affiliates
 6 Months Ended
Jun. 30, 2020
Consolidated Variable Interest Entities And Investments In Affiliates [Abstract]  
Consolidated Variable Interest Entities ("VIEs") and Investments in Affiliates

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:

 

 

 

June 30, 2020

 

 

December 31, 2019

 

 

 

(in millions)

 

Property and equipment, net

 

$

220

 

 

$

221

 

Cash and cash equivalents

 

 

7

 

 

 

13

 

Restricted cash

 

 

2

 

 

 

1

 

Accounts receivable, net

 

 

1

 

 

 

5

 

Prepaid expenses

 

 

1

 

 

 

2

 

Debt

 

 

207

 

 

 

207

 

Accounts payable and accrued expenses

 

 

6

 

 

 

8

 

Due to hotel manager

 

 

—

 

 

 

2

 

Other liabilities

 

 

2

 

 

 

2

 

 

Unconsolidated Entities

Investments in affiliates were:

 

 

 

Ownership %

 

 

June 30, 2020

 

 

December 31, 2019

 

 

 

 

 

 

 

(in millions)

 

Hilton San Diego Bayfront

 

25%

 

 

$

13

 

 

$

18

 

All others (6 hotels)

 

20% - 50%

 

 

 

10

 

 

 

17

 

 

 

 

 

 

 

$

23

 

 

$

35

 

 

The affiliates in which we own investments accounted for under the equity method had total debt of approximately $943 million as of June 30, 2020 and December 31, 2019. Substantially all the debt is secured solely by the affiliates’ assets or is guaranteed by other partners without recourse to us.
v3.20.2
Goodwill
 6 Months Ended
Jun. 30, 2020
Goodwill And Intangible Assets Disclosure [Abstract]  
Goodwill

Note 6: Goodwill

Hilton allocated goodwill to us recorded as part of the acquisition of Hilton by Blackstone in 2007. We typically evaluate the carrying value of our goodwill annually. However, due to the effects of COVID-19, including (i) the significant decline in our common stock price, (ii) negative operating cash flows in the first quarter of 2020, (iii) the suspension of operations at certain of our hotels, and (iv) significant declines in occupancy and demand, we assessed goodwill during the first quarter of 2020. We determined that the carrying value of our consolidated and unconsolidated hotel reporting units exceeded their respective estimated fair value and fully impaired our remaining goodwill balance, recognizing an impairment loss of $607 million in the first quarter of 2020. Refer to Note 8: “Fair Value Measurements” for additional information.

 

 

 

Goodwill

 

 

Accumulated

Impairment

Losses

 

 

Balance

 

 

 

(in millions)

 

Balance as of December 31, 2019

 

$

2,709

 

 

$

(2,102

)

 

$

607

 

Impairment loss

 

 

—

 

 

 

(607

)

 

 

(607

)

Balance as of June 30, 2020

 

$

2,709

 

 

$

(2,709

)

 

$

—

 

 
v3.20.2
Debt
 6 Months Ended
Jun. 30, 2020
Debt Disclosure [Abstract]  
Debt

Note 7: Debt

Debt balances and associated interest rates as of June 30, 2020 were:

 

 

 

 

 

 

 

Principal balance as of

 

 

 

Interest Rate

at June 30, 2020

 

Maturity Date

 

June 30, 2020

 

 

December 31, 2019

 

 

 

 

 

 

 

(in millions)

 

SF CMBS Loan(1)

 

4.11%

 

November 2023

 

$

725

 

 

$

725

 

HHV CMBS Loan(1)

 

4.20%

 

November 2026

 

 

1,275

 

 

 

1,275

 

Mortgage loans

 

Average rate of

4.17%

 

2020 to 2026(2)

 

 

511

 

 

 

515

 

2016 Term Loan(3)(4)

 

L + 2.95%

 

December 2021

 

 

631

 

 

 

700

 

2019 Term Facility(4)

 

L + 2.65%

 

September 2024

 

 

670

 

 

 

670

 

Revolver(4)(5)

 

L + 3.00%

 

December 2021

 

 

681

 

 

 

—

 

Senior Secured Notes

 

7.50%

 

June 2025

 

 

650

 

 

 

—

 

Finance lease obligations

 

3.07%

 

2021 to 2022

 

 

1

 

 

 

1

 

 

 

 

 

 

 

 

5,144

 

 

 

3,886

 

Add: unamortized premium

 

 

 

 

 

 

4

 

 

 

3

 

Less: unamortized deferred financing costs and

   discount

 

 

 

 

 

 

(30

)

 

 

(18

)

 

 

 

 

 

 

$

5,118

 

 

$

3,871

 

 

(1)

In October 2016, we entered into a $725 million CMBS loan secured by the Hilton San Francisco Union Square and the Parc 55 Hotel San Francisco (“SF CMBS Loan”) and a $1.275 billion CMBS loan secured by the Hilton Hawaiian Village Waikiki Beach Resort (“HHV CMBS Loan”).

(2)

Assumes the exercise of all extensions that are exercisable solely at our option.  The only 2020 debt maturity is the $12 million Doubletree Spokane JV mortgage loan which matures in October.

(3)

In June 2020, we repaid $69 million of the 2016 Term Loan .

(4)

In May 2020, we amended our credit and term loan facilities which added a LIBOR floor of 25 basis points.

(5)

During the second quarter of 2020, we repaid $319 million of the Revolver.

 

 

CMBS and Mortgage Loans

We are required to deposit with lenders certain cash reserves for restricted uses. As of June 30, 2020 and December 31, 2019, our condensed consolidated balance sheets included $7 million and $13 million of restricted cash, respectively, related to our CMBS loans and mortgage loans. During the second quarter of 2020, we amended certain mortgage loan agreements to defer interest or interest and principal payments for three to six months and temporarily suspend required cash reserves.

 

 

Credit Facilities

2019 Term Facility

In advance of the Merger, in August 2019, the Company, our Operating Company and PK Domestic entered into a delayed draw term loan agreement (the “2019 Term Facility”). In September 2019, the 2019 Term Facility was fully drawn to fund the Merger and was partially repaid in December 2019. To hedge the interest rate risk on a portion of the 2019 Term Facility, we assumed an interest rate swap from Chesapeake in connection with the Merger, which is designated as a cash flow hedge. The interest rate swap requires us to pay fixed interest of 1.86% per annum maturing on April 21, 2022 on a notional amount of $225 million, in exchange for floating rate interest equal to one-month LIBOR.

 

Revolver

 

In March 2020, we fully drew down our $1 billion Revolver as a precautionary measure to increase liquidity and preserve financial flexibility in connection with the economic effect of COVID-19. During the second quarter of 2020, we repaid $319 million of the Revolver using $219 million of the proceeds from the issuance of the Senior Secured Notes and $100 million of existing cash.

 

In May 2020, in order to maintain compliance under our credit and term loan facilities in future quarters, we amended our credit and term loan facilities to suspend compliance with all existing financial covenants tested through and including March 31, 2021 and to adjust the levels of particular financial covenants after such period. As part of the amendment process, we (i) agreed to comply with a monthly minimum liquidity covenant, to pledge equity in certain subsidiaries to secure the facilities, and for certain subsidiaries to become guarantors under the facilities, and (ii) exercised our two six-month extension options on our Revolver to extend its maturity to December 24, 2021. The amendments also added additional covenants that restrict our ability to make dividend and distribution payments (except to the extent required to maintain REIT status) and stock repurchases, make prepayments of other indebtedness, make capital expenditures, conduct asset dispositions or transfers and make investments, including acquisitions or mergers, in each case subject to various exceptions. We capitalized approximately $6 million of fees related to these amendments during the three months ended June 30, 2020.

 

Senior Secured Notes

In May 2020, our Operating Company, PK Domestic and PK Finance issued an aggregate of $650 million of Senior Secured Notes.  We set aside $219 million of the net proceeds to partially repay the Revolver, $69 million to partially repay the 2016 Term Loan and the remainder was used for general corporate purposes. The Senior Secured Notes bear interest at a rate of 7.500% per annum, payable semi-annually in arrears on June 1 and December 1 of each year, beginning December 1, 2020. The Senior Secured Notes will mature on June 1, 2025. We capitalized $13 million of issuance costs during the three months ended June 30, 2020.

The Senior Secured Notes are guaranteed by us and by the subsidiaries of our Operating Company that also guarantee indebtedness under our credit facilities and the guarantees are full and unconditional and joint and several. The Senior Secured Notes are secured, subject to permitted liens, by a first priority security interest in all of the capital stock of certain wholly-owned subsidiaries of certain of the guarantors and PK Domestic, which collateral also secures the obligations under our credit and term loan facilities on a first priority basis. The indenture governing the Senior Secured Notes contains customary covenants that limit the issuers’ ability and, in certain instances, the ability of the issuers’ subsidiaries, to borrow money, create liens on assets, make distributions and pay dividends on or redeem or repurchase stock, make certain types of investments, sell stock in certain subsidiaries, enter into agreements that restrict dividends or other payments from subsidiaries, enter into transactions with affiliates, issue guarantees of indebtedness, and sell assets or merge with other companies. These covenants are subject to a number of exceptions and qualifications, including the ability to declare or pay any cash dividend or make any cash distribution to us to the extent necessary for us to fund a dividend or distribution by us that it believes is necessary to maintain our status as a REIT or to avoid payment of any tax for any calendar year that could be avoided by reason of such distribution, and the ability to make certain restricted payments not to

exceed $100.0 million, plus 95% of our cumulative Funds From Operations (as defined in the indenture), plus the aggregate net proceeds from (i) the sale of certain equity interests in, (ii) capital contributions to, and (iii) certain convertible indebtedness of the Operating Company. In addition, the indenture requires our Operating Company to maintain total unencumbered assets as of each fiscal quarter of at least 150% of total unsecured indebtedness, in each case calculated on a consolidated basis.  

We may redeem the Senior Secured Notes at any time prior to June 1, 2022, in whole or in part, at a redemption price equal to 100% of the accrued principal amount thereof plus unpaid interest, if any, to the redemption date plus a make-whole premium. On or after June 1, 2022, we may redeem the Senior Secured Notes, in whole or in part, at the applicable redemption prices set forth in the indenture. On or after June 1, 2024, we may redeem the Senior Secured Notes at 100% of the principal amount, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

 

Debt Maturities

The contractual maturities of our debt, assuming the exercise of all extensions that are exercisable solely at our option, as of June 30, 2020 were:

 

Year

 

(in millions)

 

2020

 

$

16

 

2021

 

 

1,321

 

2022

 

 

97

 

2023

 

 

827

 

2024

 

 

676

 

Thereafter(1)

 

 

2,207

 

 

 

$

5,144

 

 

(1)

Assumes the exercise of all extensions that are exercisable solely at our option.
v3.20.2
Fair Value Measurements
 6 Months Ended
Jun. 30, 2020
Fair Value Disclosures [Abstract]  
Fair Value Measurements

Note 8: Fair Value Measurements

We did not elect the fair value measurement option for our financial assets or liabilities. The fair values of our other financial instruments not included in the table below are estimated to be equal to their carrying amounts.

The fair value of our debt and the hierarchy level we used to estimate fair values are shown below:

 

 

 

 

 

 

 

June 30, 2020

 

 

December 31, 2019

 

 

 

Hierarchy

Level

 

 

Carrying

Amount

 

 

Fair Value

 

 

Carrying

Amount

 

 

Fair Value

 

 

 

 

 

 

 

(in millions)

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SF CMBS Loan

 

 

3

 

 

$

725

 

 

$

653

 

 

$

725

 

 

$

740

 

HHV CMBS Loan

 

 

3

 

 

 

1,275

 

 

 

1,040

 

 

 

1,275

 

 

 

1,316

 

2016 Term Loan

 

 

3

 

 

 

631

 

 

 

617

 

 

 

700

 

 

 

698

 

2019 Term Facility

 

 

3

 

 

 

670

 

 

 

600

 

 

 

670

 

 

 

667

 

Revolver

 

 

3

 

 

 

681

 

 

 

666

 

 

 

—

 

 

 

—

 

Senior Secured Notes

 

 

1

 

 

 

651

 

 

 

668

 

 

 

—

 

 

 

—

 

Mortgage loans

 

 

3

 

 

 

512

 

 

 

436

 

 

 

516

 

 

 

516

 

 

During the six months ended June 30, 2020, we recognized impairment losses for goodwill and for certain assets resulting from a significant decline in market value of those assets. The estimated fair values of these assets that were measured on a nonrecurring basis were:

 

 

 

 

 

 

 

 

 

 

June 30, 2020

 

 

Fair Value

 

 

Impairment Loss

 

 

(in millions)

 

Property and equipment(1)

$

24

 

 

$

88

 

Goodwill(2)

 

—

 

 

 

607

 

Total

$

24

 

 

$

695

 

 

(1)

Fair value of our property and equipment as of June 30, 2020 was measured using significant unobservable inputs (Level 3). We estimated fair value of the assets using discounted cash flow analyses, with an estimated stabilized growth rate of 3%, a discounted cash flow term between 1.7 to 10 years, terminal capitalization rate ranging from 7.25% to 7.75%, and discount rates ranging from 9.5% to 12.5%. The discount and terminal capitalization rates used for the fair value of the assets reflected the risk profile of the markets where these properties are located.

(2)

Fair value of our consolidated and unconsolidated hotel reporting units was measured using significant unobservable inputs (Level 3), which included discounted cash flows, terminal capitalization rates, and discount rates.  

 
v3.20.2
Income Taxes
 6 Months Ended
Jun. 30, 2020
Income Tax Disclosure [Abstract]  
Income Taxes

Note 9: Income Taxes

We are a REIT for U.S. federal income tax purposes, and we have been organized and operated, and 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. To the extent we continue to remain qualified as a REIT, we generally will not be subject to U.S. federal income tax on taxable income generated by our REIT activities that we distribute annually to our stockholders. Accordingly, no provision for U.S. federal income taxes has been included in our accompanying condensed consolidated financial statements for the three and six months ended June 30, 2020 and 2019 related to our REIT activities, other than taxes associated with built-in gains related to our assets owned at the date of our spin-off.

We will be subject to U.S. federal income tax on taxable sales of built-in gain property (representing property held by us with an excess of fair value over tax basis on January 4, 2017) during the five-year period following the date of our spin-off. In addition, we are subject to non-U.S. income tax on foreign held REIT activities and certain sales of foreign investments. Further, our taxable REIT subsidiaries (“TRSs”) are generally subject to U.S. federal, state and local, and foreign income taxes (as applicable).

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) includes several tax provisions that may impact us and our subsidiaries.  These changes include:

 

 

•

the ability for our TRSs to carry back net operating losses (“NOLs”) arising in 2020 to all post spin-off taxable years preceding the taxable year of the loss;

 

•

an increase of the business interest limitation under section 163(j) from 30 percent to 50 percent of adjusted taxable income for taxable years beginning in 2019 and 2020 and addition of an election by taxpayers to use their 2019 adjusted taxable income as their adjusted taxable income in 2020 for purposes of applying the limitation;

 

•

a “technical correction” amending section 168(e)(3)(E) to add “qualified improvement property” to “15-year property” and assigning a class life of 20-years under section 168(g)(3)(B) to qualified improvement property under section 168(e)(3)(E)(vii), and

 

•

the elimination of the taxable income limit for NOLs for all taxable years beginning before January 1, 2021, thereby permitting corporate taxpayers to use NOLs to fully offset taxable income (although as a REIT we will continue to only be able to use NOLs against taxable income remaining after taking into account any dividends paid deduction).

During the six months ended June 30, 2020, we recognized $13 million of income tax expense, which is comprised of $12 million of built-in gains tax expense from assets sold during the six months ended June 30, 2020 and $14 million of non-U.S. income tax expense on the gain from the entity that owns the Hilton São Paulo Morumbi that was sold during the six months ended June 30, 2020, partially offset by a TRS income tax benefit of $16 million from utilizing the NOL carryback provisions of the CARES Act. We expect $23 million of refunds related to the carryback of 2020 NOLs of our TRSs to prior years, as provided by the CARES Act.

During the three and six months ended June 30, 2019, we recognized $5 million and $12 million of income tax expense, respectively, primarily related to taxable income from our TRSs.

 
v3.20.2
Share-Based Compensation
 6 Months Ended
Jun. 30, 2020
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Share-Based Compensation

Note 10: Share-Based Compensation

We issue equity-based awards to our employees pursuant to the 2017 Omnibus Incentive Plan (“2017 Employee Plan”) and our non-employee directors pursuant to the 2017 Stock Plan for Non-Employee Directors (“2017 Director Plan”). The 2017 Employee Plan provides that a maximum of 8,000,000 shares of our common stock may be issued, and as of June 30, 2020, 4,513,582 shares of common stock remain available for future issuance. The 2017 Director Plan provides that a maximum of 450,000 shares of our common stock may be issued, and as of June 30, 2020, 94,478 shares of common stock remain available for future issuance. For both the three months ended June 30, 2020 and 2019, we recognized $4 million of share-based compensation expense, and $6 million and $8 million, respectively, for the six months ended June 30, 2020 and 2019. As of June 30, 2020, unrecognized compensation expense was $26 million, which is expected to be recognized over a weighted-average period of 1.8 years. The total fair values of shares vested (calculated as the number of shares multiplied by the vesting date share price) during the six months ended June 30, 2020 and 2019 were $17 million and $19 million, respectively.

 

Restricted Stock Awards

Restricted Stock Awards (“RSAs”) generally vest in annual installments between one and three years from each grant date. The following table provides a summary of RSAs for the six months ended June 30, 2020:

 

 

 

Number of Shares

 

 

Weighted-Average

Grant Date

Fair Value

 

Unvested at January 1, 2020

 

 

557,245

 

 

$

29.10

 

Granted

 

 

650,511

 

 

 

18.40

 

Vested

 

 

(295,120

)

 

 

26.33

 

Forfeited

 

 

(59,702

)

 

 

29.11

 

Unvested at June 30, 2020

 

 

852,934

 

 

$

21.90

 

 

Performance Stock Units

Performance Stock Units (“PSUs”) generally vest at the end of a three-year performance period and are subject to the achievement of a market condition based on a measure of our total shareholder return relative to the total shareholder return of the companies that comprise the FTSE Nareit Lodging Resorts Index (that have a market capitalization in excess of $1 billion as of the first day of the applicable performance period). The number of PSUs that may become vested ranges from zero to 200% of the number of PSUs granted to an employee, based on the level of achievement of the foregoing measure.

Additionally, in February 2020, we granted special awards with a one-year performance period that are subject to the achievement of a total shareholder return similar to the three-year awards, and, in addition, are subject to the achievement of a performance condition for certain cost synergies associated with the Merger. The number of PSUs that may become vested are zero if neither goal is achieved, 100% if one performance goal is achieved and 200% if both goals are achieved.

The following table provides a summary of PSUs for the six months ended June 30, 2020:

 

 

 

Number of Shares

 

 

Weighted-Average

Grant Date

Fair Value

 

Unvested at January 1, 2020

 

 

574,797

 

 

$

32.82

 

Granted

 

 

605,535

 

 

 

24.93

 

Vested

 

 

(456,121

)

 

 

32.39

 

Forfeited

 

 

(52,114

)

 

 

33.14

 

Unvested at June 30, 2020

 

 

672,097

 

 

$

25.98

 

 

 

The grant date fair values of the awards that are subject to the achievement of market conditions based on total shareholder return were determined using a Monte Carlo simulation valuation model with the following assumptions:

 

Expected volatility(1)

 

22.0% - 23.0%

 

Dividend yield(2)

 

 

—

 

Risk-free rate

 

1.2% - 1.5%

 

Expected term

 

1 - 3 years

 

 

(1)

The weighted average expected volatility was 22.5%.

(2)

Dividends are assumed to be reinvested in shares of our common stock and dividends will not be paid unless shares vest.

 

As of June 30, 2020, the achievement of the performance condition associated with the special one-year awards was not probable and thus no compensation expense was recognized for the three and six months ended June 30, 2020.
v3.20.2
Earnings Per Share
 6 Months Ended
Jun. 30, 2020
Earnings Per Share [Abstract]  
Earnings Per Share

Note 11: Earnings Per Share

The following table presents the calculation of basic and diluted earnings per share (“EPS”):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(in millions, except per share amounts)

 

 

(in millions, except per share amounts)

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income attributable to stockholders

 

$

(259

)

 

$

82

 

 

$

(947

)

 

$

178

 

Earnings allocated to participating securities

 

 

—

 

 

 

(1

)

 

 

—

 

 

 

(1

)

Net (loss) income attributable to stockholders, net of earnings

   allocated to participating securities

 

$

(259

)

 

$

81

 

 

$

(947

)

 

$

177

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding – basic

 

 

235

 

 

 

201

 

 

 

236

 

 

 

201

 

Unvested restricted shares

 

 

—

 

 

 

1

 

 

 

—

 

 

 

1

 

Weighted average shares outstanding – diluted

 

 

235

 

 

 

202

 

 

 

236

 

 

 

202

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) earnings per share - Basic

 

$

(1.10

)

 

$

0.40

 

 

$

(4.01

)

 

$

0.88

 

(Loss) earnings per share - Diluted

 

$

(1.10

)

 

$

0.40

 

 

$

(4.01

)

 

$

0.88

 

 

(1)

Per share amounts are calculated based on unrounded numbers and are calculated independently for each period presented.

 

Certain of our outstanding equity awards were excluded from the above calculation of EPS for the three and six months ended June 30, 2020 and 2019 because their effect would have been anti-dilutive.

v3.20.2
Business Segment Information
 6 Months Ended
Jun. 30, 2020
Segment Reporting [Abstract]  
Business Segment Information

Note 12: Business Segment Information

As of June 30, 2020, we have two operating segments, our consolidated hotels and unconsolidated hotels. Our unconsolidated hotels operating segment does not meet the definition of a reportable segment, thus our consolidated hotels is our only reportable segment. We evaluate our consolidated hotels primarily based on hotel adjusted earnings (loss) before interest expense, taxes and depreciation and amortization (“EBITDA”). Hotel Adjusted EBITDA is calculated as EBITDA from hotel operations, adjusted to exclude:

 

•

Gains or losses on sales of assets for both consolidated and unconsolidated investments;

 

•

Costs associated with hotel acquisitions or dispositions expensed during the period;

 

•

Severance expense;

 

•

Share-based compensation expense;

 

•

Casualty gains or losses;

 

•

Impairment losses; and

 

•

Other items that we believe are not representative of our current or future operating performance.

The following table presents revenues for our consolidated hotels reconciled to our consolidated amounts and Hotel Adjusted EBITDA to net (loss) income:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(in millions)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total consolidated hotel revenue

 

$

39

 

 

$

684

 

 

$

619

 

 

$

1,325

 

Other revenues

 

 

3

 

 

 

19

 

 

 

22

 

 

 

37

 

Total revenues

 

$

42

 

 

$

703

 

 

$

641

 

 

$

1,362

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hotel Adjusted EBITDA

 

$

(108

)

 

$

209

 

 

$

(17

)

 

$

390

 

Other revenues

 

 

3

 

 

 

19

 

 

 

22

 

 

 

37

 

Depreciation and amortization expense

 

 

(75

)

 

 

(61

)

 

 

(150

)

 

 

(123

)

Corporate general and administrative expense

 

 

(14

)

 

 

(22

)

 

 

(30

)

 

 

(39

)

Impairment loss and casualty gain, net

 

 

—

 

 

 

—

 

 

 

(694

)

 

 

—

 

Other operating expenses

 

 

(4

)

 

 

(18

)

 

 

(25

)

 

 

(38

)

Gain (loss) on sales of assets, net

 

 

1

 

 

 

(12

)

 

 

63

 

 

 

19

 

Interest income

 

 

1

 

 

 

2

 

 

 

2

 

 

 

3

 

Interest expense

 

 

(50

)

 

 

(33

)

 

 

(90

)

 

 

(65

)

Equity in (losses) earnings from investments in affiliates

 

 

(8

)

 

 

10

 

 

 

(9

)

 

 

15

 

Income tax expense

 

 

(3

)

 

 

(5

)

 

 

(13

)

 

 

(12

)

Other loss, net

 

 

(1

)

 

 

(1

)

 

 

(3

)

 

 

—

 

Other items

 

 

(3

)

 

 

(4

)

 

 

(6

)

 

 

(6

)

Net (loss) income

 

$

(261

)

 

$

84

 

 

$

(950

)

 

$

181

 

 

The following table presents total assets for our consolidated hotels, reconciled to consolidated amounts:

 

 

 

June 30, 2020

 

 

December 31, 2019

 

 

 

(in millions)

 

Consolidated hotels

 

$

11,022

 

 

$

11,236

 

All other

 

 

37

 

 

 

54

 

Total

 

$

11,059

 

 

$

11,290

 

 
v3.20.2
Commitments and Contingencies
 6 Months Ended
Jun. 30, 2020
Commitments And Contingencies Disclosure [Abstract]  
Commitments and Contingencies

Note 13: Commitments and Contingencies

As of June 30, 2020, we had outstanding commitments under third-party contracts of approximately $29 million for capital expenditures at certain hotels. Our contracts contain clauses that allow us to cancel all or some portion of the work. If cancellation of a contract occurred, our commitment would be any costs incurred up to the cancellation date, in addition to any costs associated with the discharge of the contract.  

We are involved in litigation arising from the normal course of business, some of which includes claims for substantial sums, and may make certain indemnifications or guarantees to select buyers of our hotels as part of the sale process.  We are also involved in claims and litigation that is not in the ordinary course of business in connection with the spin-off from Hilton.  The spin-off agreements indemnify us from certain of these claims as well as require us to indemnify Hilton for other claims. In addition, losses related to certain contingent liabilities could be apportioned to us under the spin-off agreements. In connection with our obligation to indemnify Hilton under the spin-off agreements, we have reserved approximately $7 million related to ongoing claims as of June 30, 2020 with respect to an audit by the Australian Tax Office (“ATO”) related to the sale of the Hilton Sydney in June 2015. This amount could change as more information becomes available about the progress of Hilton’s defense against the ATO’s claim.

v3.20.2
Basis of Presentation and Summary of Significant Accounting Policies (Policies)
 6 Months Ended
Jun. 30, 2020
Accounting Policies [Abstract]  
Principles of Consolidation

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, 2019 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on February 27, 2020.
Use of Estimates

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

Reclassifications

Certain line items on the condensed consolidated statements of comprehensive (loss) income for the three and six months ended June 30, 2019 have been reclassified to conform to the current period presentation.
Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

Adopted Accounting Standards

 

In January 2017, the FASB issued ASU No. 2017-04 (“ASU 2017-04”), Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU eliminates Step 2 from goodwill impairment testing. The goodwill impairment test will now consist of one step which compares the fair value of the reporting unit to the carrying value of the reporting unit and we would recognize an impairment loss if the carrying value exceeds the fair value but only to the extent of the amount of the goodwill allocated to the reporting unit. We adopted the provisions of this ASU effective January 1, 2020.

 

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which replaced the existing “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For trade and other receivables, the forward looking “expected loss” model will generally result in the earlier recognition of allowances for losses. In November 2018, the FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses”, which clarified that operating lease receivables accounted for under ASC 842 are not in the scope of ASU No. 2016-13. We adopted the provisions of ASU 2016-13 and the related ASUs as of January 1, 2020 using a modified retrospective approach, which resulted in no cumulative effect adjustment to retained earnings as of January 1, 2020.  An allowance for doubtful accounts is provided on accounts receivable for the expected credit loss over the life of the receivable based on historical credit losses, current business conditions, and reasonable and supportable forecasts.    

 

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” to provide optional expedients and exceptions for applying generally accepted accounting principles if certain criteria are met to contract modifications, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued.  The ASU is effective from March 12, 2020 through December 31, 2022 and did not have a material effect on our consolidated financial statements.

v3.20.2
Acquisitions and Dispositions (Tables)
 6 Months Ended
Jun. 30, 2020
Business Combinations [Abstract]  
Summary of Hotel Portfolio Properties Acquired

As a result of the Merger, we acquired a 100% ownership interest in the following 18 hotels:

 

Hotel

 

Location

 

Rooms

 

Hilton Denver City Center

 

Denver, CO

 

 

613

 

W Chicago – Lakeshore

 

Chicago, IL

 

 

520

 

Hyatt Regency Boston

 

Boston, MA

 

 

502

 

Hyatt Regency Mission Bay Spa and Marina

 

San Diego, CA

 

 

438

 

Boston Marriott Newton

 

Newton, MA

 

 

430

 

Le Meridien New Orleans(1)

 

New Orleans, LA

 

 

410

 

W Chicago – City Center

 

Chicago, IL

 

 

403

 

Royal Palm South Beach Miami, a Tribute Portfolio Resort

 

Miami Beach, FL

 

 

393

 

Le Meridien San Francisco

 

San Francisco, CA

 

 

360

 

JW Marriott San Francisco Union Square

 

San Francisco, CA

 

 

344

 

Hyatt Centric Fisherman’s Wharf

 

San Francisco, CA

 

 

316

 

Hotel Indigo San Diego Gaslamp Quarter

 

San Diego, CA

 

 

210

 

Courtyard Washington Capitol Hill/Navy Yard

 

Washington, DC

 

 

204

 

Homewood Suites by Hilton Seattle Convention Center Pike Street

 

Seattle, WA

 

 

195

 

Hilton Checkers Los Angeles

 

Los Angeles, CA

 

 

193

 

Ace Hotel Downtown Los Angeles(1)

 

Los Angeles, CA

 

 

182

 

Hotel Adagio, Autograph Collection

 

San Francisco, CA

 

 

171

 

W New Orleans – French Quarter

 

New Orleans, LA

 

 

97

 

 

 

 

 

 

5,981

 

 

(1)

Hotels were subsequently sold in December 2019.
Schedule of Preliminary Allocation of Assets Acquired and Liabilities Assumed

 

We preliminarily allocated the purchase price, consisting of $978 million of common stock issued and cash of $1,013 million as follows:

 

 

 

(in millions)

 

Investment in hotel properties, net

 

$

2,220

 

Intangibles, net

 

 

45

 

Cash and cash equivalents

 

 

62

 

Restricted cash

 

 

38

 

Accounts receivable, net

 

 

26

 

Prepaid expenses

 

 

9

 

Other assets

 

 

2

 

Operating lease right-of-use asset

 

 

65

 

Debt

 

 

(311

)

Accounts payable and accrued expenses

 

 

(47

)

Due to hotel managers

 

 

(15

)

Other liabilities

 

 

(15

)

Operating lease liability

 

 

(88

)

Total consideration

 

$

1,991

 
Schedule of Unaudited Condensed Pro-forma Financial Information The unaudited condensed pro-forma financial information is as follows:

 

 

 

Three Months Ended

June 30, 2019

 

 

Six Months Ended

June 30, 2019

 

(unaudited)

 

(in millions)

 

Total revenues

 

$

854

 

 

$

1,642

 

Operating income

 

 

145

 

 

 

291

 

Net income

 

 

106

 

 

 

208

 

 
Summary of Assets and Liabilities Held for Sale and Dispositions

Hotel

 

Location

 

Month Sold

Pointe Hilton Squaw Peak Resort

 

Phoenix, Arizona

 

February 2019

Hilton Nuremberg

 

Nuremberg, Germany

 

March 2019

Hilton Atlanta Airport

 

Atlanta, Georgia

 

June 2019

Hilton New Orleans Airport(1)

 

New Orleans, Louisiana

 

June 2019

Embassy Suites Parsippany(1)

 

Parsippany, New Jersey

 

June 2019

 

(1)

Hotels were sold as a portfolio in the same transaction.
v3.20.2
Property and Equipment (Tables)
 6 Months Ended
Jun. 30, 2020
Property Plant And Equipment [Abstract]  
Property and Equipment

Property and equipment were:

 

 

 

June 30, 2020

 

 

December 31, 2019(1)

 

 

 

(in millions)

 

Land

 

$

3,429

 

 

$

3,512

 

Buildings and leasehold improvements

 

 

6,944

 

 

 

6,978

 

Furniture and equipment

 

 

1,092

 

 

 

1,059

 

Construction-in-progress

 

 

48

 

 

 

134

 

 

 

 

11,513

 

 

 

11,683

 

Accumulated depreciation and amortization

 

 

(2,190

)

 

 

(2,089

)

 

 

$

9,323

 

 

$

9,594

 

 

(1)

Excludes $62 million of property and equipment, net, classified as held for sale as of December 31, 2019.
v3.20.2
Consolidated Variable Interest Entities ("VIEs") and Investments in Affiliates (Tables)
 6 Months Ended
Jun. 30, 2020
Consolidated Variable Interest Entities And Investments In Affiliates [Abstract]  
Schedule of Assets and Liabilities Included in Consolidated Balance Sheets Our condensed consolidated balance sheets include the following assets and liabilities of these entities:

 

 

 

June 30, 2020

 

 

December 31, 2019

 

 

 

(in millions)

 

Property and equipment, net

 

$

220

 

 

$

221

 

Cash and cash equivalents

 

 

7

 

 

 

13

 

Restricted cash

 

 

2

 

 

 

1

 

Accounts receivable, net

 

 

1

 

 

 

5

 

Prepaid expenses

 

 

1

 

 

 

2

 

Debt

 

 

207

 

 

 

207

 

Accounts payable and accrued expenses

 

 

6

 

 

 

8

 

Due to hotel manager

 

 

—

 

 

 

2

 

Other liabilities

 

 

2

 

 

 

2

 

 
Schedule of Investment in Affiliates

Investments in affiliates were:

 

 

 

Ownership %

 

 

June 30, 2020

 

 

December 31, 2019

 

 

 

 

 

 

 

(in millions)

 

Hilton San Diego Bayfront

 

25%

 

 

$

13

 

 

$

18

 

All others (6 hotels)

 

20% - 50%

 

 

 

10

 

 

 

17

 

 

 

 

 

 

 

$

23

 

 

$

35

 
v3.20.2
Goodwill (Tables)
 6 Months Ended
Jun. 30, 2020
Goodwill And Intangible Assets Disclosure [Abstract]  
Schedule of Goodwill

 

 

 

Goodwill

 

 

Accumulated

Impairment

Losses

 

 

Balance

 

 

 

(in millions)

 

Balance as of December 31, 2019

 

$

2,709

 

 

$

(2,102

)

 

$

607

 

Impairment loss

 

 

—

 

 

 

(607

)

 

 

(607

)

Balance as of June 30, 2020

 

$

2,709

 

 

$

(2,709

)

 

$

—

 

 
v3.20.2
Debt (Tables)
 6 Months Ended
Jun. 30, 2020
Debt Disclosure [Abstract]  
Schedule of Debt

Debt balances and associated interest rates as of June 30, 2020 were:

 

 

 

 

 

 

 

Principal balance as of

 

 

 

Interest Rate

at June 30, 2020

 

Maturity Date

 

June 30, 2020

 

 

December 31, 2019

 

 

 

 

 

 

 

(in millions)

 

SF CMBS Loan(1)

 

4.11%

 

November 2023

 

$

725

 

 

$

725

 

HHV CMBS Loan(1)

 

4.20%

 

November 2026

 

 

1,275

 

 

 

1,275

 

Mortgage loans

 

Average rate of

4.17%

 

2020 to 2026(2)

 

 

511

 

 

 

515

 

2016 Term Loan(3)(4)

 

L + 2.95%

 

December 2021

 

 

631

 

 

 

700

 

2019 Term Facility(4)

 

L + 2.65%

 

September 2024

 

 

670

 

 

 

670

 

Revolver(4)(5)

 

L + 3.00%

 

December 2021

 

 

681

 

 

 

—

 

Senior Secured Notes

 

7.50%

 

June 2025

 

 

650

 

 

 

—

 

Finance lease obligations

 

3.07%

 

2021 to 2022

 

 

1

 

 

 

1

 

 

 

 

 

 

 

 

5,144

 

 

 

3,886

 

Add: unamortized premium

 

 

 

 

 

 

4

 

 

 

3

 

Less: unamortized deferred financing costs and

   discount

 

 

 

 

 

 

(30

)

 

 

(18

)

 

 

 

 

 

 

$

5,118

 

 

$

3,871

 

 

(1)

In October 2016, we entered into a $725 million CMBS loan secured by the Hilton San Francisco Union Square and the Parc 55 Hotel San Francisco (“SF CMBS Loan”) and a $1.275 billion CMBS loan secured by the Hilton Hawaiian Village Waikiki Beach Resort (“HHV CMBS Loan”).

(2)

Assumes the exercise of all extensions that are exercisable solely at our option.  The only 2020 debt maturity is the $12 million Doubletree Spokane JV mortgage loan which matures in October.

(3)

In June 2020, we repaid $69 million of the 2016 Term Loan .

(4)

In May 2020, we amended our credit and term loan facilities which added a LIBOR floor of 25 basis points.

(5)

During the second quarter of 2020, we repaid $319 million of the Revolver.

Debt Maturities, Assuming the Exercise of all Extensions that are Exercisable Solely at our Option

The contractual maturities of our debt, assuming the exercise of all extensions that are exercisable solely at our option, as of June 30, 2020 were:

 

Year

 

(in millions)

 

2020

 

$

16

 

2021

 

 

1,321

 

2022

 

 

97

 

2023

 

 

827

 

2024

 

 

676

 

Thereafter(1)

 

 

2,207

 

 

 

$

5,144

 

 

(1)

Assumes the exercise of all extensions that are exercisable solely at our option.
v3.20.2
Fair Value Measurements (Tables)
 6 Months Ended
Jun. 30, 2020
Fair Value Disclosures [Abstract]  
Fair Value of Debt and Hierarchy Level Used to Estimate Fair Values

The fair value of our debt and the hierarchy level we used to estimate fair values are shown below:

 

 

 

 

 

 

 

June 30, 2020

 

 

December 31, 2019

 

 

 

Hierarchy

Level

 

 

Carrying

Amount

 

 

Fair Value

 

 

Carrying

Amount

 

 

Fair Value

 

 

 

 

 

 

 

(in millions)

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SF CMBS Loan

 

 

3

 

 

$

725

 

 

$

653

 

 

$

725

 

 

$

740

 

HHV CMBS Loan

 

 

3

 

 

 

1,275

 

 

 

1,040

 

 

 

1,275

 

 

 

1,316

 

2016 Term Loan

 

 

3

 

 

 

631

 

 

 

617

 

 

 

700

 

 

 

698

 

2019 Term Facility

 

 

3

 

 

 

670

 

 

 

600

 

 

 

670

 

 

 

667

 

Revolver

 

 

3

 

 

 

681

 

 

 

666

 

 

 

—

 

 

 

—

 

Senior Secured Notes

 

 

1

 

 

 

651

 

 

 

668

 

 

 

—

 

 

 

—

 

Mortgage loans

 

 

3

 

 

 

512

 

 

 

436

 

 

 

516

 

 

 

516

 

 
Schedule of Estimated Fair Values of Assets Measured on Nonrecurring Basis The estimated fair values of these assets that were measured on a nonrecurring basis were:

 

 

 

 

 

 

 

 

 

 

June 30, 2020

 

 

Fair Value

 

 

Impairment Loss

 

 

(in millions)

 

Property and equipment(1)

$

24

 

 

$

88

 

Goodwill(2)

 

—

 

 

 

607

 

Total

$

24

 

 

$

695

 

 

(1)

Fair value of our property and equipment as of June 30, 2020 was measured using significant unobservable inputs (Level 3). We estimated fair value of the assets using discounted cash flow analyses, with an estimated stabilized growth rate of 3%, a discounted cash flow term between 1.7 to 10 years, terminal capitalization rate ranging from 7.25% to 7.75%, and discount rates ranging from 9.5% to 12.5%. The discount and terminal capitalization rates used for the fair value of the assets reflected the risk profile of the markets where these properties are located.

(2)

Fair value of our consolidated and unconsolidated hotel reporting units was measured using significant unobservable inputs (Level 3), which included discounted cash flows, terminal capitalization rates, and discount rates.  
v3.20.2
Share-Based Compensation (Tables)
 6 Months Ended
Jun. 30, 2020
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Schedule of Restricted Stock Awards ("RSAs")

Restricted Stock Awards (“RSAs”) generally vest in annual installments between one and three years from each grant date. The following table provides a summary of RSAs for the six months ended June 30, 2020:

 

 

 

Number of Shares

 

 

Weighted-Average

Grant Date

Fair Value

 

Unvested at January 1, 2020

 

 

557,245

 

 

$

29.10

 

Granted

 

 

650,511

 

 

 

18.40

 

Vested

 

 

(295,120

)

 

 

26.33

 

Forfeited

 

 

(59,702

)

 

 

29.11

 

Unvested at June 30, 2020

 

 

852,934

 

 

$

21.90

 
Schedule of Performance Stock Units ("PSUs") The following table provides a summary of PSUs for the six months ended June 30, 2020:

 

 

Number of Shares

 

 

Weighted-Average

Grant Date

Fair Value

 

Unvested at January 1, 2020

 

 

574,797

 

 

$

32.82

 

Granted

 

 

605,535

 

 

 

24.93

 

Vested

 

 

(456,121

)

 

 

32.39

 

Forfeited

 

 

(52,114

)

 

 

33.14

 

Unvested at June 30, 2020

 

 

672,097

 

 

$

25.98

 

 
Schedule of Grant Date Fair Values of Awards Using Monte Carlo Simulation Valuation Model

 

The grant date fair values of the awards that are subject to the achievement of market conditions based on total shareholder return were determined using a Monte Carlo simulation valuation model with the following assumptions:

 

Expected volatility(1)

 

22.0% - 23.0%

 

Dividend yield(2)

 

 

—

 

Risk-free rate

 

1.2% - 1.5%

 

Expected term

 

1 - 3 years

 

 

(1)

The weighted average expected volatility was 22.5%.

(2)

Dividends are assumed to be reinvested in shares of our common stock and dividends will not be paid unless shares vest.
v3.20.2
Earnings Per Share (Tables)
 6 Months Ended
Jun. 30, 2020
Earnings Per Share [Abstract]  
Basic and Diluted Earnings Per Share

The following table presents the calculation of basic and diluted earnings per share (“EPS”):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(in millions, except per share amounts)

 

 

(in millions, except per share amounts)

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income attributable to stockholders

 

$

(259

)

 

$

82

 

 

$

(947

)

 

$

178

 

Earnings allocated to participating securities

 

 

—

 

 

 

(1

)

 

 

—

 

 

 

(1

)

Net (loss) income attributable to stockholders, net of earnings

   allocated to participating securities

 

$

(259

)

 

$

81

 

 

$

(947

)

 

$

177

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding – basic

 

 

235

 

 

 

201

 

 

 

236

 

 

 

201

 

Unvested restricted shares

 

 

—

 

 

 

1

 

 

 

—

 

 

 

1

 

Weighted average shares outstanding – diluted

 

 

235

 

 

 

202

 

 

 

236

 

 

 

202

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) earnings per share - Basic

 

$

(1.10

)

 

$

0.40

 

 

$

(4.01

)

 

$

0.88

 

(Loss) earnings per share - Diluted

 

$

(1.10

)

 

$

0.40

 

 

$

(4.01

)

 

$

0.88

 

 

(1)

Per share amounts are calculated based on unrounded numbers and are calculated independently for each period presented.

v3.20.2
Business Segment Information (Tables)
 6 Months Ended
Jun. 30, 2020
Segment Reporting [Abstract]  
Reconciliation of Revenues from Consolidated Hotels to Condensed Combined Consolidated Amounts and Hotel Adjusted EBITDA to Net (Loss) Income

The following table presents revenues for our consolidated hotels reconciled to our consolidated amounts and Hotel Adjusted EBITDA to net (loss) income:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(in millions)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total consolidated hotel revenue

 

$

39

 

 

$

684

 

 

$

619

 

 

$

1,325

 

Other revenues

 

 

3

 

 

 

19

 

 

 

22

 

 

 

37

 

Total revenues

 

$

42

 

 

$

703

 

 

$

641

 

 

$

1,362

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hotel Adjusted EBITDA

 

$

(108

)

 

$

209

 

 

$

(17

)

 

$

390

 

Other revenues

 

 

3

 

 

 

19

 

 

 

22

 

 

 

37

 

Depreciation and amortization expense

 

 

(75

)

 

 

(61

)

 

 

(150

)

 

 

(123

)

Corporate general and administrative expense

 

 

(14

)

 

 

(22

)

 

 

(30

)

 

 

(39

)

Impairment loss and casualty gain, net

 

 

—

 

 

 

—

 

 

 

(694

)

 

 

—

 

Other operating expenses

 

 

(4

)

 

 

(18

)

 

 

(25

)

 

 

(38

)

Gain (loss) on sales of assets, net

 

 

1

 

 

 

(12

)

 

 

63

 

 

 

19

 

Interest income

 

 

1

 

 

 

2

 

 

 

2

 

 

 

3

 

Interest expense

 

 

(50

)

 

 

(33

)

 

 

(90

)

 

 

(65

)

Equity in (losses) earnings from investments in affiliates

 

 

(8

)

 

 

10

 

 

 

(9

)

 

 

15

 

Income tax expense

 

 

(3

)

 

 

(5

)

 

 

(13

)

 

 

(12

)

Other loss, net

 

 

(1

)

 

 

(1

)

 

 

(3

)

 

 

—

 

Other items

 

 

(3

)

 

 

(4

)

 

 

(6

)

 

 

(6

)

Net (loss) income

 

$

(261

)

 

$

84

 

 

$

(950

)

 

$

181

 

 
Schedule of Total Assets by Consolidated Hotels, Reconciled To Condensed Combined Consolidated Amounts

The following table presents total assets for our consolidated hotels, reconciled to consolidated amounts:

 

 

 

June 30, 2020

 

 

December 31, 2019

 

 

 

(in millions)

 

Consolidated hotels

 

$

11,022

 

 

$

11,236

 

All other

 

 

37

 

 

 

54

 

Total

 

$

11,059

 

 

$

11,290

 
v3.20.2
Organization and Recent Events - Additional Information (Details)
$ / shares in Units, $ in Millions
 1 Months Ended 6 Months Ended
May 31, 2020
USD ($)
Option
Mar. 31, 2020
USD ($)
Hotel
Jun. 30, 2020
USD ($)
Option
$ / shares
May 05, 2019
$ / shares
shares
Jan. 03, 2017
Organization [Line Items]          
Borrowings on Revolver     $ 1,000    
Senior Secured Notes [Member] | PK Domestic and PK Finance Co-Issuer Inc [Member]          
Organization [Line Items]          
Gross debt balance $ 650        
Net proceeds from secured notes $ 350        
COVID-19 [Member]          
Organization [Line Items]          
Number of hotels temporarily suspend operations | Hotel   38      
Number of hotels, total | Hotel   60      
Deferring maintenance and ROI Capital expenditures     $ 150    
Number of hotels reopened due to restrictions removed | Hotel   20      
Park Intermediate Holdings LLC [Member]          
Organization [Line Items]          
Percentage of ownership interest         100.00%
Chesapeake Lodging Trust [Member]          
Organization [Line Items]          
Business acquisition,par value per common share | $ / shares     $ 25.88 $ 0.01  
Business acquisition, cash consideration transferred, per share | $ / shares       $ 11.00  
Business acquisition, consideration transferred number of shares per share | shares       0.628  
Fractional shares of common stock to be issued in merger agreement | shares       0  
Revolver [Member]          
Organization [Line Items]          
Gross debt balance [1],[2]     $ 681    
Revolver [Member] | COVID-19 [Member]          
Organization [Line Items]          
Borrowings on Revolver   $ 1,000 $ 1,000    
Number of extension options | Option 2   2    
Term of extension options period 6 months   6 months    
Line of credit facility extended maturity date Dec. 24, 2021   Dec. 24, 2021    
[1] During the second quarter of 2020, we repaid $319 million of the Revolver.
[2] In May 2020, we amended our credit and term loan facilities which added a LIBOR floor of 25 basis points.
v3.20.2
Acquisitions and Dispositions - Additional Information (Detail) - USD ($)
$ / shares in Units, shares in Millions, $ in Millions
 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
May 05, 2019
Business Acquisition [Line Items]      
Gross proceeds on sale of hotel portfolio properties $ 208 $ 235  
Net gain on selling cost of hotel portfolio properties 64 $ 19  
Hilton Sao Paulo Morumbi [Member]      
Business Acquisition [Line Items]      
Reclassification of currency translation adjustment from accumulated other comprehensive loss to earnings on disposition of hotel portfolio properties $ 7    
Chesapeake Lodging Trust [Member]      
Business Acquisition [Line Items]      
Percentage of ownership interest in properties 100.00%    
Total consideration $ 2,000    
Business acquisition, consideration transferred number of shares issued 37.8    
Business acquisition,par value per common share $ 25.88   $ 0.01
Cash issued for acquisition $ 1,013    
Chesapeake Lodging Trust [Member] | Common Stock [member]      
Business Acquisition [Line Items]      
Shares issued for acquisition $ 978    
v3.20.2
Acquisitions and Dispositions - Summary of Hotel Portfolio Properties Acquired (Detail) - Chesapeake Lodging Trust [Member]
 6 Months Ended
Jun. 30, 2020
Room
Business Acquisition [Line Items]  
Rooms 5,981
Hilton Denver City Center [Member]  
Business Acquisition [Line Items]  
Location Denver, CO
Rooms 613
W Chicago Lakeshore [Member]  
Business Acquisition [Line Items]  
Location Chicago, IL
Rooms 520
Hyatt Regency Boston [Member]  
Business Acquisition [Line Items]  
Location Boston, MA
Rooms 502
Hyatt Regency Mission Bay Spa and Marina [Member]  
Business Acquisition [Line Items]  
Location San Diego, CA
Rooms 438
Boston Marriott Newton [Member]  
Business Acquisition [Line Items]  
Location Newton, MA
Rooms 430
Le Meridien New Orleans [Member]  
Business Acquisition [Line Items]  
Location New Orleans, LA [1]
Rooms 410 [1]
W Chicago ? City Center [Member]  
Business Acquisition [Line Items]  
Location Chicago, IL
Rooms 403
Royal Palm South Beach Miami, A Tribute Portfolio Resort [Member]  
Business Acquisition [Line Items]  
Location Miami Beach, FL
Rooms 393
Le Meridien San Francisco [Member]  
Business Acquisition [Line Items]  
Location San Francisco, CA
Rooms 360
JW Marriott San Francisco Union Square [Member]  
Business Acquisition [Line Items]  
Location San Francisco, CA
Rooms 344
Hyatt Centric Fisherman’s Wharf [Member]  
Business Acquisition [Line Items]  
Location San Francisco, CA
Rooms 316
Hotel Indigo San Diego Gaslamp Quarter [Member]  
Business Acquisition [Line Items]  
Location San Diego, CA
Rooms 210
Courtyard Washington Capitol Hill/Navy Yard [Member]  
Business Acquisition [Line Items]  
Location Washington, DC
Rooms 204
Homewood Suites by Hilton Seattle Convention Center Pike Street [Member]  
Business Acquisition [Line Items]  
Location Seattle, WA
Rooms 195
Hilton Checkers Los Angeles [Member]  
Business Acquisition [Line Items]  
Location Los Angeles, CA
Rooms 193
Ace Hotel Downtown Los Angeles [Member]  
Business Acquisition [Line Items]  
Location Los Angeles, CA [1]
Rooms 182 [1]
Hotel Adagio Autograph Collection [Member]  
Business Acquisition [Line Items]  
Location San Francisco, CA
Rooms 171
W New Orleans French Quarter [Member]  
Business Acquisition [Line Items]  
Location New Orleans, LA
Rooms 97
[1] Hotels were subsequently sold in December 2019.
v3.20.2
Acquisitions and Dispositions - Schedule of Preliminary Allocation of Assets Acquired and Liabilities Assumed (Detail) - Chesapeake Lodging Trust [Member]
$ in Millions
Jun. 30, 2020
USD ($)
Business Acquisition [Line Items]  
Investment in hotel properties, net $ 2,220
Intangibles, net 45
Cash and cash equivalents 62
Restricted cash 38
Accounts receivable, net 26
Prepaid expenses 9
Other assets 2
Operating lease right-of-use asset 65
Debt (311)
Accounts payable and accrued expenses (47)
Due to hotel managers (15)
Other liabilities (15)
Operating lease liability (88)
Total consideration $ 1,991
v3.20.2
Acquisitions and Dispositions - Schedule of Unaudited Condensed Pro-forma Financial Information (Detail) - Chesapeake Lodging Trust [Member] - USD ($)
$ in Millions
 3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2019
Business Acquisition [Line Items]    
Total revenues $ 854 $ 1,642
Operating income 145 291
Net income $ 106 $ 208
v3.20.2
Acquisitions, Dispositions and Assets Held for Sale - Summary of Hotel Portfolio Properties Sold (Detail)
 6 Months Ended
Jun. 30, 2020
Pointe Hilton Squaw Peak Resort [Member]  
Business Acquisition [Line Items]  
Location Phoenix, Arizona
Month Sold 2019-02
Hilton Nuremberg [Member]  
Business Acquisition [Line Items]  
Location Nuremberg, Germany
Month Sold 2019-03
Hilton Atlanta Airport [Member]  
Business Acquisition [Line Items]  
Location Atlanta, Georgia
Month Sold 2019-06
Hilton New Orleans Airport [Member]  
Business Acquisition [Line Items]  
Location New Orleans, Louisiana [1]
Month Sold 2019-06 [1]
Embassy Suites Parsippany [Member]  
Business Acquisition [Line Items]  
Location Parsippany, New Jersey [1]
Month Sold 2019-06 [1]
[1] Hotels were sold as a portfolio in the same transaction.
v3.20.2
Property and Equipment - Schedule of Property and Equipment (Detail) - USD ($)
$ in Millions
Jun. 30, 2020
Dec. 31, 2019
 [1]
Property Plant And Equipment [Abstract]    
Land $ 3,429 $ 3,512
Buildings and leasehold improvements 6,944 6,978
Furniture and equipment 1,092 1,059
Construction-in-progress 48 134
Property and equipment, gross 11,513 11,683
Accumulated depreciation and amortization (2,190) (2,089)
Property and equipment, net $ 9,323 $ 9,594
[1] Excludes $62 million of property and equipment, net, classified as held for sale as of December 31, 2019.
v3.20.2
Property and Equipment - Schedule of Property and Equipment (Parenthetical) (Detail)
$ in Millions
Dec. 31, 2019
USD ($)
Property Plant And Equipment [Abstract]  
Property and equipment, net $ 62
v3.20.2
Property and Equipment - Additional Information (Detail) - USD ($)
$ in Millions
 3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Property Plant And Equipment [Abstract]        
Depreciation $ 75 $ 60 $ 149 $ 122
Impairment Loss, Property and equipment     $ 88  
v3.20.2
Consolidated Variable Interest Entities ("VIEs") and Investments in Affiliates - Additional Information (Detail)
$ in Millions
Jun. 30, 2020
USD ($)
Entity
Dec. 31, 2019
USD ($)
Organization Consolidation And Presentation Of Financial Statements [Abstract]    
Number of consolidated VIEs | Entity 3  
Debt of unconsolidated joint ventures | $ $ 943 $ 943
v3.20.2
Consolidated Variable Interest Entities ("VIEs") and Investments in Affiliates - Schedule of Assets and Liabilities Included in Consolidated Balance Sheets (Detail) - USD ($)
$ in Millions
Jun. 30, 2020
Dec. 31, 2019
Variable Interest Entity [Line Items]    
Property and equipment, net $ 9,323 $ 9,594 [1]
Cash and cash equivalents 1,274 346
Restricted cash 35 40
Accounts receivable, net 31 180
Prepaid expenses 43 83
Debt 5,118 3,871
Accounts payable and accrued expenses 129 217
Due to hotel manager 74 159
Other liabilities 123 282
Consolidated VIEs [Member]    
Variable Interest Entity [Line Items]    
Property and equipment, net 220 221
Cash and cash equivalents 7 13
Restricted cash 2 1
Accounts receivable, net 1 5
Prepaid expenses 1 2
Debt 207 207
Accounts payable and accrued expenses 6 8
Due to hotel manager   2
Other liabilities $ 2 $ 2
[1] Excludes $62 million of property and equipment, net, classified as held for sale as of December 31, 2019.
v3.20.2
Consolidated Variable Interest Entities ("VIEs") and Investments in Affiliates - Schedule of Investments in Affiliates (Detail) - USD ($)
$ in Millions
Jun. 30, 2020
Dec. 31, 2019
Schedule Of Equity Method Investments [Line Items]    
Investments in affiliates $ 23 $ 35
Hilton San Diego Bayfront [Member]    
Schedule Of Equity Method Investments [Line Items]    
Ownership Percentage 25.00%  
Investments in affiliates $ 13 18
All others (6 hotels) [Member]    
Schedule Of Equity Method Investments [Line Items]    
Investments in affiliates $ 10 $ 17
All others (6 hotels) [Member] | Minimum [Member]    
Schedule Of Equity Method Investments [Line Items]    
Ownership Percentage 20.00%  
All others (6 hotels) [Member] | Maximum [Member]    
Schedule Of Equity Method Investments [Line Items]    
Ownership Percentage 50.00%  
v3.20.2
Goodwill - Additional Information (Detail) - USD ($)
$ in Millions
 3 Months Ended 6 Months Ended
Mar. 31, 2020
Jun. 30, 2020
Goodwill And Intangible Assets Disclosure [Abstract]    
Goodwill impairment loss $ 607 $ 607
v3.20.2
Goodwill - Schedule of Goodwill (Detail) - USD ($)
$ in Millions
 3 Months Ended 6 Months Ended
Mar. 31, 2020
Jun. 30, 2020
Goodwill And Intangible Assets Disclosure [Abstract]    
Goodwill beginning balance, gross $ 2,709 $ 2,709
Goodwill ending balance, gross   2,709
Accumulated impairment losses, beginning balance (2,102) (2,102)
Accumulated impairment losses, impairment loss   (607)
Accumulated impairment losses, ending balance   (2,709)
Goodwill, beginning balance 607 607
Impairment loss $ (607) $ (607)
v3.20.2
Debt - Schedule of Debt (Detail) - USD ($)
$ in Millions
 6 Months Ended
Jun. 30, 2020
Dec. 31, 2019
Oct. 31, 2016
Debt Instrument [Line Items]      
Finance lease obligations $ 1 $ 1  
Debt and financing lease obligations, gross 5,144 3,886  
Add: unamortized premium 4 3  
Less: unamortized deferred financing costs and discount (30) (18)  
Debt 5,118 3,871  
SF CMBS Loan [Member]      
Debt Instrument [Line Items]      
Debt, gross $ 725 [1] 725 [1] $ 725
Debt instrument, interest rate, stated percentage [1] 4.11%    
Maturity Date [1] 2023-11    
HHV CMBS Loan [Member]      
Debt Instrument [Line Items]      
Debt, gross $ 1,275 [1] 1,275 [1] $ 1,275
Debt instrument, interest rate, stated percentage [1] 4.20%    
Maturity Date [1] 2026-11    
Mortgage Loans [Member]      
Debt Instrument [Line Items]      
Debt, gross $ 511 515  
Debt instrument, weighted average interest rate 4.17%    
Maturity Date, start year [2] 2020    
Maturity Date, end year [2] 2026    
2016 Term Loan [Member]      
Debt Instrument [Line Items]      
Debt, gross [3],[4] $ 631 700  
Maturity Date [3],[4] 2021-12    
2016 Term Loan [Member] | LIBOR [Member]      
Debt Instrument [Line Items]      
Debt instrument, interest rate [3],[4] 2.95%    
Senior Secured Notes [Member]      
Debt Instrument [Line Items]      
Senior Secured Notes $ 650    
Debt instrument, interest rate, stated percentage 7.50%    
Maturity Date 2025-06    
Finance Lease Obligations [Member]      
Debt Instrument [Line Items]      
Debt instrument, interest rate, stated percentage 3.07%    
Maturity Date, start year 2021    
Maturity Date, end year 2022    
2019 Term Facility [Member]      
Debt Instrument [Line Items]      
Debt, gross [4] $ 670 $ 670  
Maturity Date [4] 2024-09    
2019 Term Facility [Member] | LIBOR [Member]      
Debt Instrument [Line Items]      
Debt instrument, interest rate [4] 2.65%    
Revolver [Member]      
Debt Instrument [Line Items]      
Debt, gross [4],[5] $ 681    
Maturity Date [4],[5] 2021-12    
Revolver [Member] | LIBOR [Member]      
Debt Instrument [Line Items]      
Debt instrument, interest rate [4],[5] 3.00%    
[1] In October 2016, we entered into a $725 million CMBS loan secured by the Hilton San Francisco Union Square and the Parc 55 Hotel San Francisco (“SF CMBS Loan”) and a $1.275 billion CMBS loan secured by the Hilton Hawaiian Village Waikiki Beach Resort (“HHV CMBS Loan”).
[2] Assumes the exercise of all extensions that are exercisable solely at our option.  The only 2020 debt maturity is the $12 million Doubletree Spokane JV mortgage loan which matures in October.
[3] In June 2020, we repaid $69 million of the 2016 Term Loan .
[4] In May 2020, we amended our credit and term loan facilities which added a LIBOR floor of 25 basis points.
[5] During the second quarter of 2020, we repaid $319 million of the Revolver.
v3.20.2
Debt - Schedule of Debt (Parenthetical) (Detail) - USD ($)
$ in Millions
 1 Months Ended 3 Months Ended 6 Months Ended
Jun. 30, 2020
May 31, 2020
Jun. 30, 2020
Jun. 30, 2020
Dec. 31, 2019
Oct. 31, 2016
Debt Instrument [Line Items]            
Repayments under Revolver       $ 319    
Debt instrument description of interest rate       LIBOR floor of 25 basis points    
Debt instrument, interest rate   25.00%        
Revolver [Member]            
Debt Instrument [Line Items]            
Debt, gross [1],[2] $ 681   $ 681 $ 681    
Repayments under Revolver     319      
SF CMBS Loan [Member]            
Debt Instrument [Line Items]            
Debt, gross 725 [3]   725 [3] 725 [3] $ 725 [3] $ 725
HHV CMBS Loan [Member]            
Debt Instrument [Line Items]            
Debt, gross 1,275 [3]   1,275 [3] 1,275 [3] 1,275 [3] $ 1,275
Doubletree Spokane JV Mortgage Loan [Member]            
Debt Instrument [Line Items]            
Debt, gross 12   12 12    
2016 Term Loan [Member]            
Debt Instrument [Line Items]            
Debt, gross [2],[4] 631   $ 631 $ 631 $ 700  
Debt instrument repaid amount $ 69          
[1] During the second quarter of 2020, we repaid $319 million of the Revolver.
[2] In May 2020, we amended our credit and term loan facilities which added a LIBOR floor of 25 basis points.
[3] In October 2016, we entered into a $725 million CMBS loan secured by the Hilton San Francisco Union Square and the Parc 55 Hotel San Francisco (“SF CMBS Loan”) and a $1.275 billion CMBS loan secured by the Hilton Hawaiian Village Waikiki Beach Resort (“HHV CMBS Loan”).
[4] In June 2020, we repaid $69 million of the 2016 Term Loan .
v3.20.2
Debt - Additional Information (Detail)
$ in Millions
 1 Months Ended 3 Months Ended 6 Months Ended
May 31, 2020
USD ($)
Option
Mar. 31, 2020
USD ($)
Jun. 30, 2020
USD ($)
Jun. 30, 2020
USD ($)
Option
Dec. 31, 2019
USD ($)
Debt Instrument [Line Items]          
Restricted cash     $ 35.0 $ 35.0 $ 40.0
Derivative fixed interest rate     1.86% 1.86%  
Derivative maturity date       Apr. 21, 2022  
Derivative notional amount     $ 225.0 $ 225.0  
Borrowings on Revolver       1,000.0  
Repayments under Revolver       319.0  
Revolver [Member]          
Debt Instrument [Line Items]          
Repayments under Revolver     319.0    
Revolver [Member] | COVID-19 [Member]          
Debt Instrument [Line Items]          
Borrowings on Revolver   $ 1,000.0   $ 1,000.0  
Repayments under Revolver     319.0    
Number of extension options | Option 2     2  
Term of extension options period 6 months     6 months  
Line of credit facility extended maturity date Dec. 24, 2021     Dec. 24, 2021  
Amendment fee     6.0    
Revolver [Member] | COVID-19 [Member] | Cash [Member]          
Debt Instrument [Line Items]          
Repayments under Revolver     100.0    
CMBS and mortgage loans [Member]          
Debt Instrument [Line Items]          
Restricted cash     $ 7.0 $ 7.0 $ 13.0
Senior Secured Notes [Member]          
Debt Instrument [Line Items]          
Proceeds from issuance of Senior Secured Notes       $ 652.0  
Debt instrument, interest rate, stated percentage     7.50% 7.50%  
Senior Secured Notes [Member] | PK Domestic and PK Finance [Member]          
Debt Instrument [Line Items]          
Senior secured notes issued $ 650.0        
Debt instrument, interest rate, stated percentage 7.50%        
Payment, description       The Senior Secured Notes bear interest at a rate of 7.500% per annum, payable semi-annually in arrears on June 1 and December 1 of each year, beginning December 1, 2020.  
Maturity date Jun. 01, 2025        
Debt issuance cost     $ 13.0 $ 13.0  
Line of credit facility, covenant terms       These covenants are subject to a number of exceptions and qualifications, including the ability to declare or pay any cash dividend or make any cash distribution to us to the extent necessary for us to fund a dividend or distribution by us that it believes is necessary to maintain our status as a REIT or to avoid payment of any tax for any calendar year that could be avoided by reason of such distribution, and the ability to make certain restricted payments not to exceed $100.0 million, plus 95% of our cumulative Funds From Operations (as defined in the indenture), plus the aggregate net proceeds from (i) the sale of certain equity interests in, (ii) capital contributions to, and (iii) certain convertible indebtedness of the Operating Company.  
Debt instrument, redemption, description       We may redeem the Senior Secured Notes at any time prior to June 1, 2022, in whole or in part, at a redemption price equal to 100% of the accrued principal amount thereof plus unpaid interest, if any, to the redemption date plus a make-whole premium. On or after June 1, 2022, we may redeem the Senior Secured Notes, in whole or in part, at the applicable redemption prices set forth in the indenture. On or after June 1, 2024, we may redeem the Senior Secured Notes at 100% of the principal amount, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.  
Redemption price percentage 100.00%        
Redemption price percentage of principal amount 100.00%        
Redemption period, start date Jun. 01, 2024        
Senior Secured Notes [Member] | PK Domestic and PK Finance [Member] | Minimum [Member]          
Debt Instrument [Line Items]          
Percentage of cumulative Funds From Operations 95.00%        
Percentage of unsecured indebtedness 150.00%        
Senior Secured Notes [Member] | PK Domestic and PK Finance [Member] | Maximum [Member]          
Debt Instrument [Line Items]          
Line of credit facility maximum payment restricted $ 100.0        
Senior Secured Notes [Member] | Revolver [Member] | PK Domestic and PK Finance [Member]          
Debt Instrument [Line Items]          
Repayments under Revolver 219.0        
Senior Secured Notes [Member] | Revolver [Member] | COVID-19 [Member]          
Debt Instrument [Line Items]          
Proceeds from issuance of Senior Secured Notes     $ 219.0    
Senior Secured Notes [Member] | 2016 Term Loan [Member] | PK Domestic and PK Finance [Member]          
Debt Instrument [Line Items]          
Partial repayments of term loan $ 69.0        
v3.20.2
Debt - Debt Maturities, Assuming the Exercise of all Extensions that are Exercisable Solely at our Option (Detail)
$ in Millions
Jun. 30, 2020
USD ($)
Debt Disclosure [Abstract]  
2020 $ 16
2021 1,321
2022 97
2023 827
2024 676
Thereafter(1) 2,207 [1]
Debt and capital lease obligations, gross $ 5,144
[1] Assumes the exercise of all extensions that are exercisable solely at our option.
v3.20.2
Fair Value Measurements - Fair Value of Debt and Hierarchy Level Used to Estimate Fair Values (Detail) - USD ($)
$ in Millions
Jun. 30, 2020
Dec. 31, 2019
Carrying amount [Member] | SF CMBS Loan [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Loan $ 725 $ 725
Carrying amount [Member] | HHV CMBS Loan [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Loan 1,275 1,275
Carrying amount [Member] | 2016 Term Loan [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Loan 631 700
Carrying amount [Member] | 2019 Term Facility [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Loan 670 670
Carrying amount [Member] | Revolver [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Loan 681  
Carrying amount [Member] | Senior Secured Notes [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Loan 651  
Carrying amount [Member] | Mortgage Loans [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Loan 512 516
Fair Value [Member] | SF CMBS Loan [Member] | Level 3 [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Loan 653 740
Fair Value [Member] | HHV CMBS Loan [Member] | Level 3 [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Loan 1,040 1,316
Fair Value [Member] | 2016 Term Loan [Member] | Level 3 [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Loan 617 698
Fair Value [Member] | 2019 Term Facility [Member] | Level 3 [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Loan 600 667
Fair Value [Member] | Revolver [Member] | Level 3 [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Loan 666  
Fair Value [Member] | Senior Secured Notes [Member] | Level 3 [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Loan 668  
Fair Value [Member] | Mortgage Loans [Member] | Level 3 [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Loan $ 436 $ 516
v3.20.2
Fair Value Measurements - Estimated Fair Values of Assets Measured on Nonrecurring Basis (Detail) - USD ($)
$ in Millions
 3 Months Ended 6 Months Ended
Mar. 31, 2020
Jun. 30, 2020
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Impairment Loss, Property and equipment   $ 88
Goodwill impairment loss $ 607 607
Fair Value, Nonrecurring [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Fair Value, Property and equipment [1]   24
Fair Value, Total   24
Impairment Loss, Property and equipment [1]   88
Goodwill impairment loss [2]   607
Impairment Loss, Total   $ 695
[1] Fair value of our property and equipment as of June 30, 2020 was measured using significant unobservable inputs (Level 3). We estimated fair value of the assets using discounted cash flow analyses, with an estimated stabilized growth rate of 3%, a discounted cash flow term between 1.7 to 10 years, terminal capitalization rate ranging from 7.25% to 7.75%, and discount rates ranging from 9.5% to 12.5%. The discount and terminal capitalization rates used for the fair value of the assets reflected the risk profile of the markets where these properties are located.
[2] Fair value of our consolidated and unconsolidated hotel reporting units was measured using significant unobservable inputs (Level 3), which included discounted cash flows, terminal capitalization rates, and discount rates.  
v3.20.2
Fair Value Measurements - Estimated Fair Values of Assets Measured on Nonrecurring Basis (Parenthetical) (Detail) - Fair Value, Nonrecurring [Member] - Fair Value, Inputs, Level 3 [Member]
 6 Months Ended
Jun. 30, 2020
Measurement Input, Long-term Revenue Growth Rate [Member]  
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]  
Measurement input 3
Minimum [Member]  
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]  
Discounted cash flow term 1 year 8 months 12 days
Terminal capitalization rate 7.25%
Minimum [Member] | Discount Rate [Member]  
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]  
Measurement input 9.5
Maximum [Member]  
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]  
Discounted cash flow term 10 years
Terminal capitalization rate 7.75%
Maximum [Member] | Discount Rate [Member]  
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]  
Measurement input 12.5
v3.20.2
Income Taxes - Additional Information (Detail) - USD ($)
 3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Income Taxes [Line Items]        
Income tax expense $ 3,000,000 $ 5,000,000 $ 13,000,000 $ 12,000,000
Percentage of adjusted taxable income     50.00% 30.00%
Built-in gains tax expense from assets sold     $ 12,000,000  
Income tax benefit partially offset by TRS     16,000,000  
Refunds related to carryback of NOLs, CARES Act     23,000,000  
Hilton Sao Paulo Morumbi [Member]        
Income Taxes [Line Items]        
Non-U.S. income tax expense     14,000,000  
U.S. Federal Tax [Member] | REIT [Member]        
Income Taxes [Line Items]        
Income tax expense $ 0   $ 0  
v3.20.2
Share-Based Compensation - Additional Information (Detail) - USD ($)
 1 Months Ended 3 Months Ended 6 Months Ended
Feb. 29, 2020
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]            
Common stock, authorized shares   6,000,000,000   6,000,000,000   6,000,000,000
Share-based compensation arrangement by share-based payment award performance period       1 year    
2017 Employee Plan [Member]            
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]            
Shares of common stock reserved for future issuance   4,513,582   4,513,582    
Compensation expense   $ 4,000,000 $ 4,000,000 $ 6,000,000 $ 8,000,000  
Unrecognized compensation costs related to unvested awards   $ 26,000,000   $ 26,000,000    
Unrecognized compensation costs related to unvested awards, weighted-average period       1 year 9 months 18 days    
Total fair value of shares vested       $ 17,000,000 $ 19,000,000  
2017 Employee Plan [Member] | Maximum [Member]            
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]            
Common stock, authorized shares   8,000,000   8,000,000    
2017 Director Plan [Member]            
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]            
Shares of common stock reserved for future issuance   94,478   94,478    
2017 Director Plan [Member] | Maximum [Member]            
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]            
Common stock, authorized shares   450,000   450,000    
Performance Stock Units ("PSUs") [Member]            
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]            
Compensation expense   $ 0   $ 0    
Share-based compensation arrangement by share-based payment award performance period 1 year     3 years    
Market capitalization   $ 1,000,000,000   $ 1,000,000,000    
Vesting rights       zero to 200    
Performance Stock Units ("PSUs") [Member] | Tranche Two [Member]            
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]            
Vesting rights 100%          
Performance Stock Units ("PSUs") [Member] | Maximum [Member]            
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]            
Vesting rights       200%    
Performance Stock Units ("PSUs") [Member] | Maximum [Member] | Tranche Three [Member]            
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]            
Vesting rights 200%          
Performance Stock Units ("PSUs") [Member] | Minimum [Member]            
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]            
Vesting rights       0%    
Performance Stock Units ("PSUs") [Member] | Minimum [Member] | Tranche One [Member]            
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]            
Vesting rights 0%          
v3.20.2
Share-Based Compensation - Schedule of Restricted Stock Awards ("RSAs") (Detail) - Restricted stock awards (RSAs) [Member]
 6 Months Ended
Jun. 30, 2020
$ / shares
shares
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]  
Number of Shares, Beginning balance | shares 557,245
Number of Shares, Granted | shares 650,511
Number of Shares, Vested | shares (295,120)
Number of Shares, Forfeited | shares (59,702)
Number of Shares, Ending balance | shares 852,934
Weighted Average Grant Date Fair Value, Beginning balance | $ / shares $ 29.10
Weighted Average Grant Date Fair Value, Granted | $ / shares 18.40
Weighted Average Grant Date Fair Value, Vested | $ / shares 26.33
Weighted Average Grant Date Fair Value, Forfeited | $ / shares 29.11
Weighted Average Grant Date Fair Value, Ending balance | $ / shares $ 21.90
v3.20.2
Share-Based Compensation - Schedule of Performance Stock Units ("PSUs") (Detail) - Performance Stock Units ("PSUs") [Member]
 6 Months Ended
Jun. 30, 2020
$ / shares
shares
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]  
Number of Shares, Beginning balance | shares 574,797
Number of Shares, Granted | shares 605,535
Number of Shares, Vested | shares (456,121)
Number of Shares, Forfeited | shares (52,114)
Number of Shares, Ending balance | shares 672,097
Weighted Average Grant Date Fair Value, Beginning balance | $ / shares $ 32.82
Weighted Average Grant Date Fair Value, Granted | $ / shares 24.93
Weighted Average Grant Date Fair Value, Vested | $ / shares 32.39
Weighted Average Grant Date Fair Value, Forfeited | $ / shares 33.14
Weighted Average Grant Date Fair Value, Ending balance | $ / shares $ 25.98
v3.20.2
Share-Based Compensation - Schedule of Grant Date Fair Values of Awards Using Monte Carlo Simulation Valuation Model (Detail)
 6 Months Ended
Jun. 30, 2020
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]  
Expected volatility, minimum 22.00% [1]
Expected volatility, maximum 23.00% [1]
Risk-free rate, minimum 1.20%
Risk-free rate, maximum 1.50%
Minimum [Member]  
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]  
Expected term 1 year
Maximum [Member]  
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]  
Expected term 3 years
[1] The weighted average expected volatility was 22.5%.
v3.20.2
Share-Based Compensation - Schedule of Grant Date Fair Values of Awards Using Monte Carlo Simulation Valuation Model (Parenthetical) (Detail)
 6 Months Ended
Jun. 30, 2020
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Weighted average expected volatility 22.50%
v3.20.2
Earnings Per Share (Detail) - USD ($)
$ / shares in Units, shares in Millions, $ in Millions
 3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Numerator:        
Net (loss) income attributable to stockholders $ (259) $ 82 $ (947) $ 178
Earnings allocated to participating securities   (1)   (1)
Net (loss) income attributable to stockholders, net of earnings allocated to participating securities $ (259) $ 81 $ (947) $ 177
Denominator:        
Weighted average shares outstanding – basic 235 201 236 201
Unvested restricted shares   1   1
Weighted average shares outstanding – diluted 235 202 236 202
(Loss) earnings per share - Basic $ (1.10) $ 0.40 $ (4.01) $ 0.88
(Loss) earnings per share - Diluted $ (1.10) $ 0.40 $ (4.01) $ 0.88
v3.20.2
Business Segment Information - Additional Information (Detail)
 6 Months Ended
Jun. 30, 2020
Segment
Segment Reporting [Abstract]  
Number of operating business segments 2
Number of reportable segment 1
v3.20.2
Business Segment Information - Reconciliation of Revenues from Consolidated Hotels to Condensed Combined Consolidated Amounts and Hotel Adjusted EBITDA to Net (Loss) Income (Detail) - USD ($)
$ in Millions
 3 Months Ended 6 Months Ended
Jun. 30, 2020
Mar. 31, 2020
Jun. 30, 2019
Mar. 31, 2019
Jun. 30, 2020
Jun. 30, 2019
Reconciliation of Revenue and Adjusted EBITDA from Segments to Consolidated Amounts [Line Items]            
Total revenues $ 42   $ 703   $ 641 $ 1,362
Hotel Adjusted EBITDA (108)   209   (17) 390
Depreciation and amortization expense (75)   (61)   (150) (123)
Corporate general and administrative expense (14)   (22)   (30) (39)
Impairment loss and casualty gain, net         (694)  
Other operating expenses (4)   (18)   (25) (38)
Gain (loss) on sales of assets, net 1   (12)   63 19
Interest income 1   2   2 3
Interest expense (50)   (33)   (90) (65)
Equity in (losses) earnings from investments in affiliates (8)   10   (9) 15
Income tax expense (3)   (5)   (13) (12)
Other loss, net (1)   (1)   (3)  
Other items (3)   (4)   (6) (6)
Net (loss) income (261) $ (689) 84 $ 97 (950) 181
Total consolidated hotel revenue [Member]            
Reconciliation of Revenue and Adjusted EBITDA from Segments to Consolidated Amounts [Line Items]            
Total revenues 39   684   619 1,325
Other [Member]            
Reconciliation of Revenue and Adjusted EBITDA from Segments to Consolidated Amounts [Line Items]            
Total revenues $ 3   $ 19   $ 22 $ 37
v3.20.2
Business Segment Information - Schedule of Total Assets by Consolidated Hotels, Reconciled To Condensed Combined Consolidated Amounts (Detail) - USD ($)
$ in Millions
Jun. 30, 2020
Dec. 31, 2019
Segment Reporting Asset Reconciling Item [Line Items]    
Total assets $ 11,059 $ 11,290
Consolidated Hotels [Member]    
Segment Reporting Asset Reconciling Item [Line Items]    
Total assets 11,022 11,236
All Other [Member]    
Segment Reporting Asset Reconciling Item [Line Items]    
Total assets $ 37 $ 54
v3.20.2
Commitments and Contingencies - Additional Information (Details)
$ in Millions
Jun. 30, 2020
USD ($)
Other Commitments [Line Items]  
Purchase commitment, remaining minimum amount committed $ 29
Spin-off Agreements [Member] | Hilton Sydney [Member]  
Other Commitments [Line Items]  
Reserve for ongoing claims $ 7