Park Hotels & Resorts(US:PK)2021-11-04 20:04markdown [PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) The unaudited condensed consolidated financial statements for **Park Hotels & Resorts Inc.** provide a snapshot of the company's financial health, including balance sheets, statements of comprehensive loss, cash flows, and equity, along with detailed notes explaining the accounting policies, recent events, and specific financial items, reflecting the **significant impact** of the **COVID-19 pandemic** on operations and the company's strategic responses [Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Balance Sheets | Metric | Sep 30, 2021 (in millions) | Dec 31, 2020 (in millions) | Change (vs. Dec 31, 2020) | | :----------------------------- | :------------------------- | :------------------------- | :------------------------ | | **Assets** | | | | | Property and equipment, net | $8,549 | $9,193 | $(644) | | Cash and cash equivalents | $772 | $951 | $(179) | | Restricted cash | $70 | $30 | $40 | | Total Assets | $9,794 | $10,587 | $(793) | | **Liabilities** | | | | | Debt | $4,670 | $5,121 | $(451) | | Accounts payable & accrued expenses | $204 | $147 | $57 | | Total Liabilities | $5,326 | $5,744 | $(418) | | **Equity** | | | | | Total Stockholders' Equity | $4,515 | $4,893 | $(378) | | Total Equity | $4,468 | $4,843 | $(375) | [Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2021 and 2020](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) Statements of Comprehensive Loss | Metric | 3 Months Ended Sep 30, 2021 (in millions) | 3 Months Ended Sep 30, 2020 (in millions) | Change (YoY) | 9 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2020 (in millions) | Change (YoY) | | :-------------------------------- | :---------------------------------------- | :---------------------------------------- | :----------- | :---------------------------------------- | :---------------------------------------- | :----------- | | Total Revenues | $423 | $98 | $325 | $911 | $739 | $172 | | Total Expenses | $426 | $303 | $123 | $1,087 | $1,844 | $(757) | | Operating Loss | $(14) | $(206) | $192 | $(181) | $(1,043) | $862 | | Net Loss attributable to stockholders | $(86) | $(276) | $190 | $(392) | $(1,223) | $831 | | Loss per share – Basic | $(0.36) | $(1.17) | $0.81 | $(1.66) | $(5.19) | $3.53 | [Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Statements of Cash Flows | Metric | 9 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2020 (in millions) | Change (YoY) | | :------------------------------------ | :---------------------------------------- | :---------------------------------------- | :----------- | | Net cash used in operating activities | $(95) | $(274) | $179 | | Net cash provided by investing activities | $425 | $136 | $289 | | Net cash (used in) provided by financing activities | $(469) | $921 | $(1,390) | | Net (decrease) increase in cash and cash equivalents and restricted cash | $(139) | $783 | $(922) | | Cash and cash equivalents and restricted cash, end of period | $842 | $1,169 | $(327) | [Condensed Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2021 and 2020](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Equity) Statements of Equity | Metric | Dec 31, 2020 (in millions) | Sep 30, 2021 (in millions) | Change | | :----------------------------- | :------------------------- | :------------------------- | :------- | | Total Equity | $4,843 | $4,468 | $(375) | | Retained Earnings (Accumulated Deficit) | $376 | $(16) | $(392) | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide essential context and detail for the condensed consolidated financial statements, covering the company's organization, significant accounting policies, recent asset dispositions and acquisitions, property and equipment, variable interest entities, goodwill, debt structure, fair value measurements, income taxes, share-based compensation, earnings per share, business segments, and commitments and contingencies, highlighting the ongoing impact of **COVID-19** and the company's financial strategies in response [Note 1: Organization and Recent Events](index=7&type=section&id=Note%201:%20Organization%20and%20Recent%20Events) - **Park Hotels & Resorts Inc.** is a **Delaware corporation** and a **REIT**, owning a portfolio of **premium-branded hotels and resorts**, primarily in prime city center and resort locations, spun off from **Hilton Worldwide Holdings Inc.** on **January 3, 2017**[21](index=21&type=chunk)[23](index=23&type=chunk) - The **COVID-19 pandemic** has **significantly impacted** the hospitality industry, leading to reduced lodging demand, temporary hotel suspensions, and a **decline** in **operating cash flow**, though **increased** vaccination rates and easing restrictions in **Q2 and Q3 2021** led to **increased** travel, with seasonal **declines** and the Delta variant reducing near-term demand[24](index=24&type=chunk) - Mitigation actions include temporarily suspending operations, limiting capacity, deferring **$150 million in 2020 capital expenditures**, reducing **2021 capital expenditures to $56 million**, **suspending dividends** after **Q1 2020**, and **increasing liquidity** through **Revolver** draws and **$2.1 billion in corporate bond offerings**[25](index=25&type=chunk) [Note 2: Basis of Presentation and Summary of Significant Accounting Policies](index=7&type=section&id=Note%202:%20Basis%20of%20Presentation%20and%20Summary%20of%20Significant%20Accounting%20Policies) - The financial statements are prepared in conformity with **U.S. GAAP**, with certain information condensed or omitted for interim reporting, and management's estimates and assumptions are used, with actual results potentially differing[27](index=27&type=chunk)[29](index=29&type=chunk) - There have been **no significant changes** to the company's accounting policies since **December 31, 2020**[30](index=30&type=chunk) [Note 3: Dispositions and Acquisitions](index=8&type=section&id=Note%203:%20Dispositions%20and%20Acquisitions) - During the nine months ended **September 30, 2021**, the company sold **five consolidated hotels** for approximately **$477 million in gross proceeds**, recognizing a **net $5 million loss**, with proceeds used to repay **$37 million under the Revolver** and **$419 million of the 2019 Term Facility**[31](index=31&type=chunk)[33](index=33&type=chunk) - In **February 2020**, **two hotels were sold for $208 million**, resulting in a **$64 million net gain**[34](index=34&type=chunk) - For the three months ended **September 30, 2020**, an additional **$9 million in acquisition costs** were incurred related to the **September 2019 Chesapeake merger agreement**[35](index=35&type=chunk) [Note 4: Property and Equipment](index=9&type=section&id=Note%204:%20Property%20and%20Equipment) Property and Equipment | Category | Sep 30, 2021 (in millions) | Dec 31, 2020 (in millions) | | :-------------------------- | :------------------------- | :------------------------- | | Land | $3,333 | $3,429 | | Buildings and leasehold improvements | $6,600 | $6,951 | | Furniture and equipment | $1,000 | $1,042 | | Construction-in-progress | $63 | $52 | | Total Gross Property and Equipment | $10,996 | $11,474 | | Accumulated depreciation and amortization | $(2,447) | $(2,281) | | Property and equipment, net | $8,549 | $9,193 | - **Depreciation** of **property and equipment** was **$68 million** and **$75 million** for the three months ended **September 30, 2021** and **2020**, respectively, and **$212 million** and **$224 million** for the nine months ended **September 30, 2021** and **2020**, respectively[37](index=37&type=chunk) - **Impairment losses of $5 million** were recognized in the nine months ended **September 30, 2021**, related to a hotel classified as held for sale, while in the same period of **2020**, **$90 million of impairment losses** were recognized, primarily due to **COVID-19 pandemic** impact on asset recovery[38](index=38&type=chunk)[39](index=39&type=chunk) [Note 5: Consolidated Variable Interest Entities ("VIEs") and Investments in Affiliates](index=9&type=section&id=Note%205:%20Consolidated%20Variable%20Interest%20Entities%20(%22VIEs%22)%20and%20Investments%20in%20Affiliates) - The company consolidates VIEs that own **three U.S. hotels**, for which it is the primary beneficiary, with these VIEs having **$239 million in total assets** and **$218 million in total liabilities** as of **September 30, 2021**[40](index=40&type=chunk) - **Investments in unconsolidated affiliates totaled $14 million** as of **September 30, 2021**, with **total debt of approximately $943 million**, primarily secured solely by the affiliates' assets without recourse to the company[41](index=41&type=chunk)[42](index=42&type=chunk) [Note 6: Goodwill](index=11&type=section&id=Note%206:%20Goodwill) - Due to the effects of **COVID-19 pandemic**, the company **fully impaired** its remaining **goodwill balance** in **Q1 2020**, recognizing an **impairment loss of $607 million**[44](index=44&type=chunk) [Note 7: Debt](index=11&type=section&id=Note%207:%20Debt) Debt | Debt Type | Interest Rate (Sep 30, 2021) | Maturity Date | Principal Balance (Sep 30, 2021, in millions) | Principal Balance (Dec 31, 2020, in millions) | | :-------------------------- | :--------------------------- | :------------ | :-------------------------------------------- | :-------------------------------------------- | | **SF CMBS Loan** | **4.11%** | **Nov 2023** | $725 | $725 | | **HHV CMBS Loan** | **4.20%** | **Nov 2026** | $1,275 | $1,275 | | **Mortgage loans** | Avg **4.81%** | **2022** to **2026** | $505 | $509 | | **2019 Term Facility** | L + **2.65%** | **Aug 2024** | $78 | $670 | | **Revolver** | L + **3.00%** | **2021** to **2023** | $0 | $601 | | **2025 Senior Secured Notes** | **7.50%** | **Jun 2025** | $650 | $650 | | **2028 Senior Secured Notes** | **5.88%** | **Oct 2028** | $725 | $725 | | **2029 Senior Secured Notes** | **4.88%** | **May 2029** | $750 | $0 | | Total Debt (Principal) | | | $4,708 | $5,156 | - In **May 2021**, the company issued **$750 million of 2029 Senior Secured Notes at 4.875% interest**, maturing **May 15, 2029**, with proceeds used to repay **$564 million of the Revolver** and **$173 million of the 2019 Term Facility**[52](index=52&type=chunk) - The **2029 Senior Secured Notes** are guaranteed by the company and its subsidiaries and secured by a first priority interest in capital stock of certain subsidiaries, with the indenture including covenants limiting borrowing, liens, distributions, and requiring maintenance of **total unencumbered assets at least 150% of total unsecured indebtedness**[55](index=55&type=chunk) Contractual Debt Maturities | Year | Contractual Debt Maturities (in millions) | | :--- | :---------------------------------------- | | **2021** | $2 | | **2022** | $98 | | **2023** | $829 | | **2024** | $85 | | **2025** | $657 | | Thereafter | $3,037 | | Total | $4,708 | [Note 8: Fair Value Measurements](index=14&type=section&id=Note%208:%20Fair%20Value%20Measurements) Fair Value Measurements | Liability | Carrying Amount (Sep 30, 2021, in millions) | Fair Value (Sep 30, 2021, in millions) | Carrying Amount (Dec 31, 2020, in millions) | Fair Value (Dec 31, 2020, in millions) | | :-------------------------- | :------------------------------------------ | :--------------------------------------- | :------------------------------------------ | :--------------------------------------- | | **SF CMBS Loan** | $725 | $734 | $725 | $708 | | **HHV CMBS Loan** | $1,275 | $1,282 | $1,275 | $1,195 | | **2019 Term Facility** | $78 | $75 | $670 | $661 | | **Revolver** | $0 | $0 | $601 | $596 | | **2025 Senior Secured Notes** | $650 | $693 | $650 | $705 | | **2028 Senior Secured Notes** | $725 | $769 | $725 | $774 | | **2029 Senior Secured Notes** | $750 | $771 | $0 | $0 | | **Mortgage loans** | $505 | $496 | $509 | $480 | [Note 9: Income Taxes](index=14&type=section&id=Note%209:%20Income%20Taxes) - The company operates as a **REIT for U.S. federal income tax purposes** and generally is **not subject to U.S. federal income tax on distributed taxable income**, but is subject to tax on **built-in gain property sales through January 3, 2022**, non-U.S. **income tax**, and its **taxable REIT subsidiaries (TRSs)** are subject to federal, state, local, and foreign **income taxes**[59](index=59&type=chunk)[60](index=60&type=chunk) - For the nine months ended **September 30, 2021**, the company recognized a **$2 million income tax benefit**, primarily from state NOLs and derecognition of deferred tax liabilities, partially offset by adjustments related to the **CARES Act**[61](index=61&type=chunk) - For the nine months ended **September 30, 2020**, **income tax expense was $14 million**, which was comprised of **$14 million of built-in gains tax expense** from assets sold during the period and **$16 million of non-U.S. income tax expense** on the gain from the entity sold during the period, partially offset by a **TRS income tax benefit of $20 million** from utilizing the NOL carryback provisions of the **CARES Act**[62](index=62&type=chunk)[63](index=63&type=chunk) [Note 10: Share-Based Compensation](index=15&type=section&id=Note%2010:%20Share-Based%20Compensation) - **Share-based compensation expense** was **$5 million** and **$4 million** for the three months ended **September 30, 2021** and **2020**, respectively, and **$15 million** and **$10 million** for the nine months ended **September 30, 2021** and **2020**, respectively, with **unrecognized compensation expense** of **$22 million** as of **September 30, 2021**, to be recognized over **1.8 years**[64](index=64&type=chunk) Restricted Stock Awards (RSAs) | Restricted Stock Awards (RSAs) | Number of Shares | Weighted-Average Grant Date Fair Value | | :----------------------------- | :--------------- | :------------------------------------- | | Unvested at **January 1, 2021** | 834,258 | $21.68 | | Granted | 426,629 | $20.54 | | Vested | (449,406) | $19.07 | | Forfeited | (19,565) | $22.50 | | Unvested at **September 30, 2021** | 791,916 | $22.53 | Performance Stock Units (PSUs) | Performance Stock Units (PSUs) | Number of Shares | Weighted-Average Grant Date Fair Value | | :----------------------------- | :--------------- | :------------------------------------- | | Unvested at **January 1, 2021** | 1,078,555 | $18.70 | | Granted | 327,110 | $27.17 | | Vested | (428,255) | $16.33 | | Forfeited | (5,642) | $20.29 | | Unvested at **September 30, 2021** | 971,768 | $22.59 | - As of **September 30, 2021**, **75%** of special PSU awards granted in **November 2020**, subject to **Share Price Targets**, had vested due to the achievement of **six out of eight targets**[67](index=67&type=chunk) [Note 11: Earnings Per Share](index=16&type=section&id=Note%2011:%20Earnings%20Per%20Share) Earnings Per Share | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net loss attributable to stockholders | $(86) million | $(276) million | $(392) million | $(1,223) million | | Weighted average shares outstanding – basic | 236 million | 235 million | 236 million | 236 million | | Loss per share – Basic | $(0.36) | $(1.17) | $(1.66) | $(5.19) | | Loss per share – Diluted | $(0.36) | $(1.17) | $(1.66) | $(5.19) | [Note 12: Business Segment Information](index=16&type=section&id=Note%2012:%20Business%20Segment%20Information) - The company has two operating segments: **consolidated hotels** (its only reportable segment) and **unconsolidated hotels**, with performance primarily evaluated based on **Hotel Adjusted EBITDA**[73](index=73&type=chunk) Business Segment Information | Metric | 3 Months Ended Sep 30, 2021 (in millions) | 3 Months Ended Sep 30, 2020 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2020 (in millions) | | :-------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Total consolidated hotel revenue | $408 | $95 | $876 | $714 | | Hotel Adjusted EBITDA | $84 | $(76) | $90 | $(93) | [Note 13: Commitments and Contingencies](index=17&type=section&id=Note%2013:%20Commitments%20and%20Contingencies) - As of **September 30, 2021**, the company had **$116 million in outstanding capital expenditure commitments**, including **$78 million for the Bonnet Creek expansion project**[77](index=77&type=chunk) - The company is involved in **various claims and lawsuits**, including claims from the ordinary course of business and spin-off related claims, with a **reserve of approximately $8 million** made for litigation related to an Australian Tax Office audit of Hilton[78](index=78&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and operational results, emphasizing the **significant impact** of the **COVID-19 pandemic**, detailing the company's portfolio, strategic objectives, recent asset dispositions, and operational responses to the pandemic, including **liquidity** management and cost-saving initiatives, with **key business metrics** and **non-GAAP financial measures** defined and reconciled to provide a comprehensive view of performance [Forward-Looking Statements](index=19&type=section&id=Forward-Looking%20Statements) - The report contains forward-looking statements regarding business performance, financial results, **liquidity**, capital resources, hotel reopenings, **COVID-19 pandemic** impact, competition, legislation, dispositions, and dividends[81](index=81&type=chunk) - Forward-looking statements involve known and unknown risks and uncertainties, with the adverse effect of **COVID-19 pandemic** being a **significant** factor, and investors are cautioned not to place undue reliance on these statements and to review **risk factors** in the **Annual Report on Form 10-K**[81](index=81&type=chunk)[82](index=82&type=chunk) [Overview](index=19&type=section&id=Overview) - **Park Hotels & Resorts Inc.** owns a diverse portfolio of **54 premium-branded hotels and resorts** with approximately **32,000 rooms**, **over 86%** of which are luxury and upper upscale, located in prime U.S. markets and territories[83](index=83&type=chunk) - The company's objective is to be the **preeminent lodging REIT**, delivering superior, risk-adjusted returns to stockholders through active asset management, external **growth**, and maintaining a strong balance sheet, while also executing acquisitions and dispositions to enhance value[84](index=84&type=chunk) - The business operates through two segments: **consolidated hotels** (the only reportable segment) and **unconsolidated hotels**[85](index=85&type=chunk) [Recent Events](index=20&type=section&id=Recent%20Events) - During **Q3 2021**, the company sold **two consolidated hotels** (**Hotel Adagio, Autograph Collection**, and **Le Meridien San Francisco**), with proceeds from these sales and two other hotels sold on **June 30, 2021**, used to repay **$419 million of the 2019 Term Facility** and **$13 million under the Revolver**, which now has **no outstanding balance**[86](index=86&type=chunk) [COVID-19 Operational Update](index=20&type=section&id=COVID-19%20Operational%20Update) - **COVID-19 pandemic** continues to **significantly impact** the lodging industry, though **increased** vaccination rates and easing restrictions led to **improved travel** and hospitality spending in **Q2 and Q3 2021** compared to **2020**, with a broader recovery expected in **late Q4 2021 and into 2022**[87](index=87&type=chunk) COVID-19 Operational Update | Metric | Q1 2021 vs. 2020 | Q1 2021 vs. 2019 | Q2 2021 vs. 2020 | Q2 2021 vs. 2019 | Q3 2021 vs. 2020 | Q3 2021 vs. 2019 | Q3 2021 Pro-forma Occupancy | | :-------------------- | :--------------- | :--------------- | :--------------- | :--------------- | :--------------- | :--------------- | :-------------------------- | | Change in Pro-forma ADR | (**28.9%)** | (**30.6%)** | **44.8%** | (**16.7%)** | **50.0%** | (**7.0%)** | N/A | | Change in Pro-forma Occupancy | (**35.0 pts**) | (**50.7 pts**) | **36.1 pts** | (**43.4 pts**) | **32.2 pts** | (**33.0 pts**) | **51.3%** | | Change in Pro-forma RevPAR | (**69.3%)** | (**76.2%)** | **897.0%** | (**58.9%)** | **301.6%** | (**43.4%)** | N/A | - As of **November 4, 2021**, **46 consolidated hotels** (**26,551 rooms**) are open, with **2 consolidated hotels** (**1,338 rooms**) still suspended, and all but two hotels have commenced phased reopening[90](index=90&type=chunk) - The company has taken actions to mitigate **COVID-19 pandemic** effects, including deferring **capital expenditures**, **suspending dividends**, and securing **$2.1 billion in corporate bond offerings** and **five asset sales** to **increase liquidity** and repay **debt**[89](index=89&type=chunk) [Key Business Metrics Used by Management](index=21&type=section&id=Key%20Business%20Metrics%20Used%20by%20Management) - **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, measuring utilization of available capacity[93](index=93&type=chunk) - **Average Daily Rate (ADR)** represents **rooms revenue** divided by **total number of room nights sold**, measuring average room price attained and providing information on the pricing environment[94](index=94&type=chunk) - **Revenue per Available Room (RevPAR)** represents **rooms revenue** divided by the **total number of room nights available** to guests, serving as a meaningful indicator of performance correlated to **occupancy** and **ADR**[95](index=95&type=chunk) [Non-GAAP Financial Measures](index=21&type=section&id=Non-GAAP%20Financial%20Measures) - The company uses **non-GAAP financial measures** like **EBITDA**, **Adjusted EBITDA**, **Hotel Adjusted EBITDA**, **Nareit FFO**, and **Adjusted FFO** to evaluate performance, make operating decisions, and compare results across periods and **REITs**[96](index=96&type=chunk)[99](index=99&type=chunk)[105](index=105&type=chunk)[106](index=106&type=chunk) - **EBITDA** reflects **net income (loss)** excluding **depreciation** and amortization, **interest income**, **interest expense**, and **income taxes**, while **Adjusted EBITDA** further excludes **gains or losses on asset sales**, acquisition or disposition costs, severance, **share-based compensation**, **impairment losses**, and other non-representative items, and **Hotel Adjusted EBITDA** measures hotel-level results before **debt service**, **depreciation**, and corporate expenses for **consolidated hotels**[97](index=97&type=chunk)[101](index=101&type=chunk) - **Nareit FFO attributable to stockholders** is **net income (loss)** attributable to stockholders, excluding **depreciation** and amortization, **gains or losses on asset sales**, **impairment**, and adjustments for unconsolidated joint ventures, and **Adjusted FFO attributable to stockholders** further adjusts **Nareit FFO** for acquisition or disposition costs, severance, **share-based compensation**, and other non-representative items[105](index=105&type=chunk)[106](index=106&type=chunk) Non-GAAP Financial Measures | Metric | 3 Months Ended Sep 30, 2021 (in millions) | 3 Months Ended Sep 30, 2020 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2020 (in millions) | | :------------------------------------ | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Net loss | $(82) | $(276) | $(387) | $(1,226) | | EBITDA | $52 | $(139) | $27 | $(829) | | Adjusted EBITDA | $77 | $(89) | $61 | $(129) | | Hotel Adjusted EBITDA | $84 | $(76) | $90 | $(93) | | Nareit FFO attributable to stockholders | $(5) | $(195) | $(165) | $(357) | | Adjusted FFO attributable to stockholders | $5 | $(147) | $(146) | $(264) | | Nareit FFO per share - Diluted | $(0.02) | $(0.83) | $(0.70) | $(1.52) | | Adjusted FFO per share - Diluted | $0.02 | $(0.62) | $(0.62) | $(1.12) | [Results of Operations](index=24&type=section&id=Results%20of%20Operations) The results of operations for the three and nine months ended **September 30, 2021**, show **significant improvements** in revenues and a **reduction in losses** compared to **2020**, primarily driven by the reopening of hotels and **increased leisure travel** following **COVID-19 pandemic** impacts, though comparability is affected by property dispositions and the ongoing pandemic [Hotel Revenues and Operating Expenses](index=25&type=section&id=Hotel%20Revenues%20and%20Operating%20Expenses) - Revenues and **operating expenses increased significantly** for the three months ended **September 30, 2021**, compared to **2020**, primarily due to the reopening of most hotels and **improved occupancy** from **increased leisure travel**[111](index=111&type=chunk) Hotel Revenues and Operating Expenses | Metric | 3 Months Ended Sep 30, 2021 (in millions) | 3 Months Ended Sep 30, 2020 (in millions) | Change | 9 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2020 (in millions) | Change | | :-------------------------- | :---------------------------------------- | :---------------------------------------- | :----- | :---------------------------------------- | :---------------------------------------- | :----- | | Rooms revenue | $274 | $70 | $204 | $587 | $453 | $134 | | Food and beverage revenue | $76 | $10 | $66 | $152 | $174 | $(22) | | Ancillary hotel revenue | $58 | $15 | $43 | $137 | $87 | $50 | | Rooms expense | $76 | $30 | $46 | $170 | $162 | $8 | | Food and beverage expense | $63 | $18 | $45 | $126 | $155 | $(29) | | Other departmental and support expense | $119 | $64 | $55 | $298 | $296 | $2 | | Other property-level expense | $51 | $84 | $(33) | $151 | $200 | $(49) | | Management fees expense | $19 | $2 | $17 | $40 | $27 | $13 | Rooms Revenue Segment | Rooms Revenue Segment | 3 Months Ended Sep 30, 2021 (in millions) | 3 Months Ended Sep 30, 2020 (in millions) | Change | 9 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2020 (in millions) | Change | | :-------------------- | :---------------------------------------- | :---------------------------------------- | :----- | :---------------------------------------- | :---------------------------------------- | :----- | | Group rooms revenue | $36 | $9 | $27 | $59 | $129 | $(70) | | Transient rooms revenue | $219 | $49 | $170 | $482 | $275 | $207 | | Contract rooms revenue | $14 | $10 | $4 | $36 | $38 | $(2) | | Other rooms revenue | $5 | $2 | $3 | $10 | $11 | $(1) | | Total Rooms revenue | $274 | $70 | $204 | $587 | $453 | $134 | [Other revenue and Other expense](index=26&type=section&id=Other%20revenue%20and%20Other%20expense) - **Support services revenue and expense increased significantly** due to the reopening of hotels with service arrangements with **Hilton Grand Vacations**, while laundry operations were **permanently closed in H2 2020**, resulting in a **decrease** in both laundry revenue and expense[116](index=116&type=chunk) Other revenue and Other expense | Metric | 3 Months Ended Sep 30, 2021 (in millions) | 3 Months Ended Sep 30, 2020 (in millions) | Percent Change | 9 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2020 (in millions) | Percent Change | | :-------------------- | :---------------------------------------- | :---------------------------------------- | :------------- | :---------------------------------------- | :---------------------------------------- | :------------- | | Total other revenue | $15 | $3 | **400.0%** | $35 | $25 | **40.0%** | | Total other expense | $14 | $6 | **133.3%** | $34 | $31 | **9.7%** | [Corporate general and administrative](index=26&type=section&id=Corporate%20general%20and%20administrative) Corporate general and administrative | Metric | 3 Months Ended Sep 30, 2021 (in millions) | 3 Months Ended Sep 30, 2020 (in millions) | Percent Change | 9 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2020 (in millions) | Percent Change | | :------------------------------------ | :---------------------------------------- | :---------------------------------------- | :------------- | :---------------------------------------- | :---------------------------------------- | :------------- | | General and administrative expenses | $9 | $9 | **0%** | $33 | $29 | **13.8%** | | Share-based compensation expense | $5 | $4 | **25.0%** | $15 | $10 | **50.0%** | | Total corporate general and administrative | $14 | $13 | **7.7%** | $48 | $42 | **14.3%** | [Acquisition costs](index=26&type=section&id=Acquisition%20costs) - During the nine months ended **September 30, 2020**, the company incurred **$10 million in acquisition costs**, primarily due to a **$9 million transfer tax** related to the **Chesapeake merger agreement**, with **no acquisition costs** incurred in **2021**[119](index=119&type=chunk) [Impairment and casualty loss, net](index=26&type=section&id=Impairment%20and%20casualty%20loss,%20net) - For the nine months ended **September 30, 2021**, the company recognized a **$5 million impairment loss** on a hotel classified as held for sale and **$2 million in casualty losses** from **Hurricane Ida**[120](index=120&type=chunk) - For the nine months ended **September 30, 2020**, a **net loss of $696 million** was recognized, primarily from **$607 million in goodwill impairment** and **$90 million in hotel impairment** due to **COVID-19 pandemic**[121](index=121&type=chunk) [(Loss) gain on sales of assets, net](index=27&type=section&id=(Loss)%20gain%20on%20sales%20of%20assets,%20net) - The company recognized a **net loss of $11 million** and **$5 million** for the three and nine months ended **September 30, 2021**, respectively, primarily from **consolidated hotel sales**[122](index=122&type=chunk) - For the nine months ended **September 30, 2020**, a **net gain of $62 million** was recognized, primarily from the sale of **two consolidated hotels**[122](index=122&type=chunk) [Non-operating Income and Expenses](index=27&type=section&id=Non-operating%20Income%20and%20Expenses) **Non-operating income and expenses** primarily reflect changes in **interest expense** due to new **debt** issuances and repayments, and fluctuations in **income tax benefit/expense** influenced by **REIT** status, asset sales, and the **CARES Act** [Interest expense](index=27&type=section&id=Interest%20expense) - **Interest expense increased by 11.9% to $66 million** for the three months ended **September 30, 2021**, and by **30.9% to $195 million** for the nine months ended **September 30, 2021**, compared to the same periods in **2020**[123](index=123&type=chunk) - The **increase** was due to the issuance of **$2.1 billion in Senior Secured Notes** in **2020** and **May 2021**, partially offset by the full repayment of the **2016 Term Loan** and **Revolver**, and partial repayment of the **2019 Term Facility**[123](index=123&type=chunk) Interest expense | Debt Type | 3 Months Ended Sep 30, 2021 (in millions) | 3 Months Ended Sep 30, 2020 (in millions) | Percent Change | 9 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2020 (in millions) | Percent Change | | :-------------------------- | :---------------------------------------- | :---------------------------------------- | :------------- | :---------------------------------------- | :---------------------------------------- | :------------- | | **SF and HHV CMBS Loans** | $21 | $21 | **0%** | $63 | $63 | **0%** | | **Mortgage Loans** | $7 | $5 | **40.0%** | $19 | $16 | **18.8%** | | **2019 Term Facility** | $2 | $5 | (**60.0%)** | $11 | $15 | (**26.7%)** | | **Revolver** | $1 | $6 | (**83.3%)** | $9 | $14 | (**35.7%)** | | **2025 Senior Secured Notes** | $13 | $13 | **0%** | $37 | $17 | **117.6%** | | **2028 Senior Secured Notes** | $11 | $2 | **450.0%** | $32 | $2 | **1,500.0%** | | **2029 Senior Secured Notes** | $9 | $0 | NM | $14 | $0 | NM | | Total interest expense | $66 | $59 | **11.9%** | $195 | $149 | **30.9%** | [Income tax expense](index=27&type=section&id=Income%20tax%20expense) - For the nine months ended **September 30, 2021**, the company recognized a **$2 million income tax benefit**, primarily from state NOLs and derecognition of deferred tax liabilities, partially offset by adjustments related to the **CARES Act**[126](index=126&type=chunk) - For the nine months ended **September 30, 2020**, **income tax expense was $14 million**, including **$30 million** from **built-in gains tax** on asset sales, partially offset by a **$20 million TRS income tax benefit** from **CARES Act** NOL carryback provisions[127](index=127&type=chunk) Income tax expense | Metric | 3 Months Ended Sep 30, 2021 (in millions) | 3 Months Ended Sep 30, 2020 (in millions) | Percent Change | 9 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2020 (in millions) | Percent Change | | :-------------------------- | :---------------------------------------- | :---------------------------------------- | :------------- | :---------------------------------------- | :---------------------------------------- | :------------- | | Income tax (benefit) expense | $(3) | $1 | (**400.0%)** | $(2) | $14 | (**114.3%)** | [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains sufficient **liquidity** through **cash**, **debt**, and **equity**, with **$772 million in cash and cash equivalents** and **$70 million in restricted cash** as of **September 30, 2021**, and despite the ongoing impact of **COVID-19 pandemic**, strategic actions like **debt** offerings and asset sales have bolstered **liquidity**, enabling the company to meet short-term obligations and fund **capital expenditures** [Overview](index=28&type=section&id=Overview_Liquidity) - As of **September 30, 2021**, the company had **$772 million in cash and cash equivalents** and **$70 million in restricted cash**, primarily for **debt** agreements and **capital expenditure** reserves[128](index=128&type=chunk) - Due to **COVID-19 pandemic**, **cash flows** are expected to be **significantly lower**, with mitigation actions including drawing on the **Revolver** (since repaid), issuing **$2.1 billion in Senior Secured Notes**, **suspending dividends**, and reducing **capital expenditures to $56 million for 2021**[129](index=129&type=chunk) - Proceeds from **five hotel sales** in **2021** were used to repay **$37 million of the Revolver** (now fully repaid) and **$419 million of the 2019 Term Facility**[130](index=130&type=chunk) - The company generated **positive Hotel Adjusted EBITDA** for **Q3 2021** and has **sufficient liquidity** to meet near-term **debt maturities** and short-term obligations, maintaining higher than historical **cash levels** due to **COVID-19 pandemic** uncertainty[131](index=131&type=chunk) [Stock Repurchase Program](index=29&type=section&id=Stock%20Repurchase%20Program) - The **$300 million stock repurchase program**, approved in **February 2019**, **expired in February 2021 and has not been renewed**[135](index=135&type=chunk) - During **Q1 2020**, **4.6 million shares were repurchased for $66 million**, with no additional common stock repurchased in the remainder of **2020** or the first two months of **2021** under the program[135](index=135&type=chunk) [Sources and Uses of Our Cash and Cash Equivalents](index=29&type=section&id=Sources%20and%20Uses%20of%20Our%20Cash%20and%20Cash%20Equivalents) Sources and Uses of Our Cash and Cash Equivalents | Cash Flow Activity | 9 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2020 (in millions) | Percent Change | | :------------------------------------ | :---------------------------------------- | :---------------------------------------- | :------------- | | Net cash used in operating activities | $(95) | $(274) | **65.3%** | | Net cash provided by investing activities | $425 | $136 | **212.5%** | | Net cash (used in) provided by financing activities | $(469) | $921 | NM | [Operating Activities](index=29&type=section&id=Operating%20Activities) - **Net cash used in operating activities decreased by $179 million** for the nine months ended **September 30, 2021**, compared to **2020**, primarily due to **increased cash from operations** as hotels recovered from **COVID-19 pandemic**, partially offset by **higher cash paid for taxes ($27 million) and interest ($25 million)**[138](index=138&type=chunk) [Investing Activities](index=29&type=section&id=Investing%20Activities) - **Net cash provided by investing activities was $425 million** for the nine months ended **September 30, 2021**, mainly from **$454 million in net proceeds from five hotel sales**, partially offset by **$28 million in capital expenditures**[139](index=139&type=chunk) - For the nine months ended **September 30, 2020**, **net cash provided by investing activities was $136 million**, primarily from **$207 million in net proceeds from hotel sales**, offset by **$70 million in capital expenditures**[140](index=140&type=chunk) [Financing Activities](index=29&type=section&id=Financing%20Activities) - **Net cash used in financing activities was $469 million** for the nine months ended **September 30, 2021**, primarily due to **$1.2 billion in debt repayments** and **$15 million in debt issuance costs**, partially offset by **$750 million from 2029 Senior Secured Notes** and a **$14 million mortgage loan**[141](index=141&type=chunk) - For the nine months ended **September 30, 2020**, **net cash provided by financing activities was $921 million**, mainly from **$1 billion in Revolver borrowings** and **$1.375 billion from Senior Secured Notes**, partially offset by **$1.1 billion in debt repayments**, **$241 million in dividends**, and **$66 million in common stock repurchases**[142](index=142&type=chunk) [Dividends](index=29&type=section&id=Dividends) - As a **REIT**, the company must **distribute at least 90% of its REIT taxable income annually**, however, as a precautionary measure due to **COVID-19 pandemic**, the quarterly dividend was **suspended** after the **Q1 2020** payment[143](index=143&type=chunk) [Debt](index=30&type=section&id=Debt_Liquidity) - As of **September 30, 2021**, **total indebtedness was approximately $4.7 billion**, including **$2.1 billion of Senior Secured Notes**, and excluding **$225 million of debt** from **unconsolidated affiliates**[144](index=144&type=chunk) [Off-Balance Sheet Arrangements](index=30&type=section&id=Off-Balance%20Sheet%20Arrangements) - As of **September 30, 2021**, **off-balance sheet arrangements** included **$116 million in construction contract commitments** for **capital expenditures**, with **$78 million allocated to the Bonnet Creek expansion project**[145](index=145&type=chunk) [Critical Accounting Policies and Estimates](index=30&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - There have been **no material changes to the company's critical accounting policies** or the methods/assumptions applied since the **Annual Report on Form 10-K** for the year ended **December 31, 2020**[146](index=146&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is primarily exposed to **market risk** from changes in **interest rates**, which can impact future income, **cash flows**, and **fair value**, and while financial arrangements may be used to hedge against some volatility, **unhedged risks remain** - The company is exposed to **market risk** primarily from changes in **interest rates**, affecting future income, **cash flows**, and **fair value**[147](index=147&type=chunk) - Financial arrangements may be used to **reduce cash flow volatility** from **interest rate** changes, but **unhedged risks remain**[147](index=147&type=chunk) [Item 4. Controls and Procedures](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the **effectiveness** of **disclosure controls and procedures** as of **September 30, 2021**, concluding they were **effective**, and there were **no material changes in internal control over financial reporting** during the fiscal quarter - Management, under the supervision of the CEO and CFO, concluded that **disclosure controls and procedures** were **effective** as of **September 30, 2021**[148](index=148&type=chunk) - There were **no material changes in internal control over financial reporting** during the most recent fiscal quarter[149](index=149&type=chunk) [PART II. OTHER INFORMATION](index=31&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=31&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in **various claims and lawsuits** arising from normal business operations, some involving **substantial sums**, and while most are **covered by insurance**, the company maintains adequate reserves for uninsured matters and believes the ultimate outcome will **not materially adversely affect** its financial position, results of operations, or **liquidity** - The company is involved in **various claims and lawsuits**, some for **substantial sums**, arising in the ordinary course of business[152](index=152&type=chunk) - Most liability claims are **covered by insurance**; for uninsured matters, a **liability is recognized when loss is probable and estimable**[152](index=152&type=chunk) - Management believes the ultimate outcome of these legal matters will **not materially adversely affect** the company's consolidated financial position, results of operations, or **liquidity**[152](index=152&type=chunk) [Item 1A. Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors) There have been **no material changes** to the **risk factors** previously disclosed in the company's **Annual Report on Form 10-K** for the year ended **December 31, 2020** - **No material changes** from the **risk factors** previously disclosed in the **Annual Report on Form 10-K** for the year ended **December 31, 2020**[153](index=153&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=31&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported **no unregistered sales of equity securities**, and **equity security purchases** during the nine months ended **September 30, 2021**, primarily involved shares surrendered by employees for tax obligations related to restricted stock vesting, with the previously authorized **stock repurchase program** having **expired** in **February 2021** - **No unregistered sales of equity securities** occurred[154](index=154&type=chunk) - The **stock repurchase program**, authorized in **February 2019** for up to **$300 million**, **expired** on **February 28, 2021**, and was **not renewed**[157](index=157&type=chunk) Unregistered Sales of Equity Securities and Use of Proceeds | Period | Total Shares Purchased | Weighted Average Price Paid per Share | | :------------------------------------ | :--------------------- | :------------------------------------ | | **January 1, 2021** through **January 31, 2021** | 3 | $17.15 | | **February 1, 2021** through **February 28, 2021** | 95,565 | $20.91 | | **March 1, 2021** through **March 31, 2021** | 392 | $21.15 | | **April 1, 2021** through **April 30, 2021** | 230 | $21.82 | | **May 1, 2021** through **May 31, 2021** | 58 | $22.31 | | **June 1, 2021** through **June 30, 2021** | 50 | $20.52 | | **July 1, 2021** through **July 31, 2021** | 168 | $20.33 | | **August 1, 2021** through **August 31, 2021** | 31 | $17.63 | | **September 1, 2021** through **September 30, 2021** | 6,659 | $19.42 | | Total (9 months ended **Sep 30, 2021**) | 103,156 | N/A | [Item 3. Defaults Upon Senior Securities](index=31&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is **Not applicable** to the company for the reporting period - **Not applicable**[158](index=158&type=chunk) [Item 4. Mine Safety Disclosures](index=32&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is **Not applicable** to the company for the reporting period - **Not applicable**[159](index=159&type=chunk) [Item 5. Other Information](index=32&type=section&id=Item%205.%20Other%20Information) **None** other information is reported under this item for the period - **None**[160](index=160&type=chunk) [Item 6. Exhibits](index=33&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q, including **Distribution Agreement**, **merger agreements**, corporate governance documents, **certifications**, and **XBRL**-related documents - The report includes various exhibits such as the **Distribution Agreement**, **Agreement and Plan of Merger**, Amended and Restated Certificate of Incorporation and By-laws, and **certifications** from executive officers[161](index=161&type=chunk) - **XBRL** instance and taxonomy documents are also filed as exhibits[161](index=161&type=chunk) [Signatures](index=34&type=section&id=Signatures) The report is **duly signed** on behalf of **Park Hotels & Resorts Inc.** by its **Chairman of the Board, President and Chief Executive Officer**, **Executive Vice President and Chief Financial Officer**, and **Senior Vice President and Chief Accounting Officer**, certifying its submission as of **November 4, 2021** - The report is **signed** by **Thomas J. Baltimore, Jr.** (**Chairman of the Board, President and Chief Executive Officer**), **Sean M. Dell'Orto** (**Executive Vice President and Chief Financial Officer**), and **Darren W. Robb** (**Senior Vice President and Chief Accounting Officer**) on **November 4, 2021**[165](index=165&type=chunk)