Park Hotels & Resorts' Q3 2025 Earnings Call: Contradictions Emerge on Government Shutdown Impact, Group Bookings, Asset Sales, Dividend Strategy, and Hawaii Market Recovery

Date of Call: None provided

Financials Results

• Revenue: $585.0M total hotel revenues in Q3; RevPAR $181, down 6% YOY (down ~5% excl. Royal Palm South Beach)
• EPS: $0.35 adjusted FFO per share (Q3); full-year adjusted FFO per share guidance $1.91 midpoint (range $1.85–$1.97)
• Operating Margin: Hotel-adjusted EBITDA margin 24.1% in Q3; full-year hotel-adjusted EBITDA margin guidance 26.3%–26.9% (20 bps change vs prior guidance)

Guidance:

• Q4 RevPAR expected between -1% and +2% (or +1% to +4% excl. Royal Palm South Beach).
• Full-year RevPAR expected down ~2% midpoint (range -2.5% to -1.75%); excl. Royal Palm down ~1% midpoint.
• Full-year adjusted EBITDA expected $595M–$620M (midpoint $608M); hotel-adjusted EBITDA margin 26.3%–26.9%.
• Adjusted FFO/sh $1.85–$1.97 (midpoint $1.91); Q4 cash dividend $0.25; no top-off for 2025 to preserve ~ $50M.
• Liquidity increased to $2.1B; plans to draw term loan(s) to address 2026 mortgage maturities.

Business Commentary:

• Capital Allocation and Strategic Investments:
• Park Hotels & Resorts allocated $325 million across its best-performing assets in high-ROI reinvestments, expecting returns approaching 20%.

• This strategy aims to maximize returns for shareholders by unlocking embedded value within their core portfolio.

• Strong RevPAR Performance in Key Markets:

• The company's Bonnet Creek complex delivered nearly 3% RevPAR growth in Orlando, with the Signia and Waldorf Astoria hotels achieving their highest third-quarter RevPAR and GOP.

• This performance was driven by successful group buyouts and strong leisure transient support.

• Challenges in Hawaii and International Demand:

• Hawaii's RevPAR declined due to the second phase of renovations, which began earlier than last year, and softer leisure and government demand.

• Declines were also attributed to reduced international visitation from Japan, which historically accounted for approximately 19% of demand.

• Dividend Strategy and Capital Retention:

• Park decided not to pay a top-off dividend, preserving over $50 million to reinvest in strategic initiatives and deleverage the balance sheet.
• The decision was made to prioritize capital allocation for portfolio enhancement and debt reduction, aligning with their disciplined capital strategy.

Sentiment Analysis:

Overall Tone: Neutral

• Management lowered full-year RevPAR and EBITDA guidance and noted Q3 RevPAR down 6%, but emphasized a fortified $2.1B liquidity position, active capital recycling, $1.4B invested since 2018, high‑ROI renovations (e.g., Royal Palm IRR 15%–20%) and optimism for 2026 tailwinds (lower rates, AI investment, major events).

Q&A:

• Question from Duane Pfennigwerth (Evercore ISI): Can you explain the surprising expense pulldowns and the planning/lead time to realize them?
  Response: Management: aggressive asset-management deep dives (staffing/productivity, procurement, brand‑standard challenges), insurance savings (~25% lower premiums) and tax appeals drove expense control, producing near‑flat expense growth and mitigating RevPAR weakness.

• Question from Smedes Rose (Citi): Why skip the top-off dividend and is the $0.25 quarterly payment mandatory for tax reasons?
  Response: Management: skipped the top‑off to preserve ~ $50M for strategic reinvestment and debt reduction; liquidity is ample and the regular $0.25 reflects a disciplined allocation decision.

• Question from Smedes Rose (Citi): What is the current pace for 2026 group bookings and which submarkets look strongest?
  Response: Management: excluding Hawaii and Royal Palm, 2026 group pace roughly flat today; strong pockets include Bonnet Creek (~+9%), Boston (double digits), Caribe (+~39%), Santa Barbara (+50%+); confident in 2026 build.

• Question from Chris Woronka (Deutsche Bank): How confident are you in selling your remaining non-core assets and will sales accelerate?
  Response: Management: confident given track record (47 assets >$3B since spin), multiple assets marketed/LOI in process; expect progress but some closings may slip into early 2026.

• Question from Chris Woronka (Deutsche Bank): Can brand/franchisors materially reduce owner costs and is that a tangible 2026 benefit?
  Response: Management: actively working with Hilton/other partners to reduce costs; expect further opportunities over time, with AI-driven productivity gains as a medium‑term benefit.

• Question from David Katz (Jefferies): What are the main drivers and headwinds in Hawaii and timing for recovery?
  Response: Management: Hawaii headwinds include lower Japan visitation, lingering strike disruption, renovation-related room outages and weaker Canadian travel; expect sequential improvement and ramp into 2026/2027 but recovery is gradual.

• Question from Patrick Scholes (Truist Securities): Why did guidance only assume government shutdown impact through October rather than longer?
  Response: Management: guidance reflects known ~$2.5M October impact; midpoint and lower end of range provide coverage if shutdown persists; team believes resolution likely and will update if impacts grow.

• Question from Steven Grambling (Morgan Stanley): Will the top-off dividend reallocation be reversed in the future and how will you weigh buybacks vs reinvestment?
  Response: Management: dividend policy remains flexible; priority is paying down debt and reinvesting in high‑ROI projects, with opportunistic buybacks depending on valuation and capital needs.

• Question from Chris Darling (Green Street): After government shutdowns historically, does demand rebound quickly or is recovery lagged?
  Response: Management: some rebooking expected (groups tend to rebook), but timing varies; recovery may be spread over months rather than immediate; November/December group pace already showing strength in parts of portfolio.

• Question from Jay Kornreich (Canter Fitzgerald): What drove the Q4 RevPAR deceleration vs prior expectations?
  Response: Management: ~350 bps total hit comprised of ~150 bps general transient softness, ~100 bps government shutdown impact, ~50 bps Chicago (National Guard deployment), and ~50 bps Waikoloa renovation disruption.

• Question from Cooper Clark (Wells Fargo): Who are the bidders for assets today and what buyer types are active?
  Response: Management: buyer pool is mixed—owner‑operators, family offices, private equity; some buyers cautious amid macro/visibility concerns, but active interest remains and Park is marketing multiple assets.

• Question from Dan Politzer (JP Morgan): Are you cutting CapEx to preserve capital or will reinvestment continue?
  Response: Management: not cutting core renovation CapEx; spend timing may shift but projects (Royal Palm, Hawaii towers, New Orleans, etc.) remain priorities and spend will ramp into next year.

• Question from Robin Farley (UBS): If the shutdown persists, would Nov/Dec be similarly impacted and is Hawaii group benefiting from strike comps?
  Response: Management: expect November/December to be less impacted than October; Hawaii benefits from easier comps as prior strike lapped, but group is a smaller portion of Hawaii demand and convention-center timing noted.

• Question from Ari Klein (BMO Capital Markets): If AI and non-residential investment diverge from historical correlations, how do you forecast demand and does that change outlook?
  Response: Management: believes sustained non‑residential investment (AI, CHIPS, infrastructure) will be a tailwind for lodging; if investment and GDP reaccelerate, lodging fundamentals should improve materially in 2026+.

• Question from Ken Billingsley (Compass Point): Why is total RevPAR outpacing room RevPAR in some markets and will spend for events (e.g., 250th) alter room expectations?
  Response: Management: out‑of‑room spend (banquets, outlets) has held up and typically provides ~100 bps benefit to total RevPAR versus room RevPAR; special events should boost room rate and incremental non‑room spend.

Contradiction Point 1

Government Shutdown Impact and Recovery Expectations

This contradiction involves the company's stance on the impact of a government shutdown and expectations for recovery, which could affect business operations and investor confidence.

Why not factor in government shutdown risks beyond today's guidance? - Patrick Scholes (Truist Securities)

2025Q3: Our guidance reflects known impacts through October. We believe our guidance range covers potential continued shutdown impacts. We expect this shutdown to be resolved soon, driven by public pressure. - Tom Baltimore(CEO)

Can you explain the guidance bridge between Q1 and Q2, and how expenses offset revenue declines? - Smedes Rose (Citi)

2025Q2: In addition, we expect the government shutdown, if it continues, to impact us for the remainder of the quarter. On the positive side, we've actually seen some strength in group bookings so far in the quarter. - Tom Baltimore(CEO)

Contradiction Point 2

Group Booking Dynamics and Market Performance

This contradiction concerns the company's outlook on group booking dynamics and market performance, which are crucial for revenue forecasting and strategic planning.

Is the remaining quarterly $0.25 dividend solely tax-related, or are there other options when considering cash retention? - Smedes Rose (Citi)

2025Q3: Group pace in '26 is expected to be flat, with a strong increase in '27. Bonnet Creek is expected to rise by 9%, San Diego by 53%, Chicago by 11%, Hilton Caribe by over 40%, and Seattle by double digits. - Tom Baltimore(CEO)

Can you explain the refinancing process for the 2026 debt maturities? - Unidentified Analyst (Evercore)

2025Q2: Q4 '25 shows a broad-based improvement, especially in group pace. While Q3 '26 is softer due to tough comps, Q4 '26 will be strong. In 2027, we expect group pace to rise 4-5%. - Tom Baltimore(CEO)

Contradiction Point 3

Asset Sales Strategy and Market Conditions

This contradiction involves the company's commitment and confidence in selling non-core assets, with differing perspectives on the market environment and liquidity.

What is your level of commitment to asset sales, and what is needed to finalize these sales? - Chris Woronka (Deutsche Bank)

2025Q3: We are very focused on selling non-core assets, with 15 hotels comprising 90% of our value. We've sold or disposed of 47 assets since the spin. The environment is challenging, but we're confident in our ability to execute. - Tom Baltimore(CEO)

Can you comment on the planned asset sales and how confident you are in achieving decent prices and securing willing buyers in the current market environment? - Floris Van Dijkum (Compass Point)

2025Q1: Tom Baltimore acknowledges the challenges in the market due to uncertainties like geopolitical tensions and trade wars, noting that business leaders remain cautious. However, he indicates that Park Hotels & Resorts has a strong track record of selling assets under challenging conditions. - Tom Baltimore(CEO)

Contradiction Point 4

Dividend Strategy and Cash Retention

This contradiction highlights differing perspectives on the company's dividend strategy and cash retention given current market conditions and investor expectations.

Is the $0.25 dividend solely tax-related, or are there plans to adjust dividends in light of cash retention? - Smedes Rose (Citi)

2025Q3: The dividend represents 9% to 10% yield, far in excess of peers. We've returned $1.3 billion to shareholders. We've concluded that a 9% to 10% dividend is appropriate, with flexibility to manage it in the future. - Tom Baltimore(CEO)

How do you balance share repurchases with liquidity needs amid market uncertainties? - Chris Darling (Green Street)

2025Q1: Stock repurchases are one of our key capital allocation priorities. We will continue to opportunistically repurchase our stock in our leveraged-neutral share repurchase program. - Tom Baltimore(CEO)

Contradiction Point 5

Hawaii Market Demand and Recovery

This contradiction involves differing expectations and assessments of the demand recovery in the Hawaii market, which is crucial for the company's performance.

Can you provide an update on the current state of the Hawaii market and its challenges and opportunities? - David Katz (Jefferies)

2025Q3: Hawaii's market has historically outpaced the U.S. in RevPAR growth. Japanese visitation is down, but we see improvement since last year. We're encouraged by recent discussions, and investments at key resorts are expected to drive long-term growth. - Tom Baltimore(CEO)

What are the total expectations for Hawaii this year? How does group pacing impact EBITDA growth for this asset? - Duane Pfennigwerth (Evercore ISI)

2024Q4: Demand into the Hawaiian Islands is expected to ramp up, with domestic travel increasing. The first quarter is expected to be soft, but the second half will see a strong rebound. - Thomas Baltimore(CEO)