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Edited Transcript of PK earnings conference call or presentation 27-Feb-20 4:00pm GMT

Q4 2019 Park Hotels & Resorts Inc Earnings Call

MC LEAN Mar 20, 2020 (Thomson StreetEvents) -- Edited Transcript of Park Hotels & Resorts Inc earnings conference call or presentation Thursday, February 27, 2020 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ian C. Weissman

Park Hotels & Resorts Inc. - SVP of Corporate Strategy

* Sean M. Dell'Orto

Park Hotels & Resorts Inc. - Executive VP, CFO & Treasurer

* Thomas Jeremiah Baltimore

Park Hotels & Resorts Inc. - Chairman, President & CEO

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Conference Call Participants

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* Anthony Franklin Powell

Barclays Bank PLC, Research Division - Research Analyst

* Arpine Kocharyan

UBS Investment Bank, Research Division - Director and Analyst

* Aryeh Klein

BMO Capital Markets Equity Research - Analyst

* Chris Jon Woronka

Deutsche Bank AG, Research Division - Research Analyst

* David Brian Katz

Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure

* Gregory Jay Miller

SunTrust Robinson Humphrey, Inc., Research Division - Associate

* Lukas Michael Hartwich

Green Street Advisors, LLC, Research Division - Senior Analyst

* Neil Lawrence Malkin

Capital One Securities, Inc., Research Division - Analyst

* Richard Allen Hightower

Evercore ISI Institutional Equities, Research Division - MD & Research Analyst

* Smedes Rose

Citigroup Inc, Research Division - Director & Senior Analyst

* William Andrew Crow

Raymond James & Associates, Inc., Research Division - Analyst

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Presentation

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Operator [1]

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Greetings, and welcome to the Park Hotels & Resorts Fourth Quarter and Full Year 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ian Weissman, Senior Vice President, Corporate Strategy. Thank you. You may begin.

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Ian C. Weissman, Park Hotels & Resorts Inc. - SVP of Corporate Strategy [2]

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Thank you, operator, and welcome everyone to the Park Hotels & Resorts Fourth Quarter and Full Year 2019 Earnings Call.

Before we begin, I would like to remind everyone that many of the comments made today are considered forward-looking statements under federal securities laws. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed, and we are not obligated to publicly update or revise these forward-looking statements. In addition, on today's call, we will discuss certain non-GAAP financial information, such as FFO and adjusted EBITDA. You can find this information, together with reconciliation to the most directly comparable GAAP financial measure in yesterday's earnings release as well as in our 8-K filed with the SEC and the supplemental financial information available on our website at pkhotelsandresorts.com. I would like to call out our enhanced disclosure in the supplemental package, where we now break out property level detail for 30 core hotels, which accounts for nearly 85% of our hotel adjusted EBITDA, further highlighting the overall quality of the Park portfolio.

This morning, Tom Baltimore, our Chairman and Chief Executive Officer, will provide a brief review of our fourth quarter and full year 2019 operating results, additional color on our integration of the Chesapeake portfolio, an update on our capital recycling efforts as well as establish guidance for 2020. Sean Dell'Orto, our Chief Financial Officer, will provide further detail on our fourth quarter financial results and 2020 guidance, in addition to an update to our CapEx plan and balance sheet initiatives. Following our prepared remarks, we will open the call for questions.

With that, I would like to turn the call over to Tom.

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Thomas Jeremiah Baltimore, Park Hotels & Resorts Inc. - Chairman, President & CEO [3]

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Thank you, Ian, and welcome, everyone. 2019 was another outstanding year for Park and I am incredibly proud of all that we've accomplished. We achieved a significant milestone in Park's evolution as we not only executed on our operational objectives and portfolio recycling goals but also positioned Park for long-term success. Most notably, we completed our $2.5 billion acquisition of Chesapeake, transaction which is accretive to both earnings and portfolio quality, and it enhances the long-term growth profile of our company. We are energized and excited about the incremental opportunity for our portfolio, and we look forward to sharing our ongoing progress.

Operationally, Park once again outperformed, with RevPAR growth topping the full-service hotel REIT sector by 30 basis points as we continue to make progress on narrowing the margin gap with our peers. We also continued to recycle capital in 2019, completing the sale of 8 noncore hotels for total proceeds of $497 million, while terminating the ground lease of the Hilton Sheffield. In addition, we closed on 2 noncore sales this month, which takes our total noncore dispositions over the last 2 years to 24 assets and over $1.2 billion in proceeds. Finally, in 2019, we returned over $420 million of capital to shareholders, taking our 3-year total to nearly $2.3 billion, the highest in the sector.

Before I discuss our priorities for 2020, I would like to address the recent management changes at Park. I want to emphasize that I couldn't be prouder of the team we have built since spinning out of Hilton 3 years ago. Park has assembled an incredibly talented group of men and women, who have each played an integral role in the company's achievements. Together, we have worked tirelessly to drive results while also fostering a supportive and respectful culture for all of our team members. Within the investments team, I thought it was the appropriate time to expand the depth and experience of the team and promote Tom Morey to our Chief Investment Officer. Tom is a key member of the Park executive team and has been intimately involved in every major transaction since joining the company as part of Park's formation. And I'm excited about the knowledge and technical expertise he brings to the investments team. I would like to sincerely thank Matt Sparks for his contributions and dedication to Park, and we wish him well on his future endeavors.

With respect to the departure of our Head of Asset Management, while I was extremely disappointed by this isolated incident, it by no means distracts from the stellar results delivered by our asset management team. Our deep and talented bench is comprised of seasoned professionals with an average of nearly 20 years of industry experience. These individuals have been directly responsible for executing on our strategic goals of closing the margin gap with our peers, achieving operational excellence and realizing the synergies with the Chesapeake portfolio. We remain confident that our team is focused on executing our current playbook. We are evaluating both internal and external candidates to lead the asset management team. And in the interim, the team will report to Sean. I want to stress that these changes do not signal any shift in strategy. We remain focused on recycling capital, achieving operational excellence and creating long-term value for shareholders.

As we turn to 2020, it's hard not to ignore the heightened caution seen around the world as the coronavirus continues to dominate the headlines. With assets in global gateway cities, Park is not immune to the impact it is having on travel and group meetings. And while it is still too early to quantify the ultimate impact on our business, based on what we know today, we have assumed approximately 25 basis points of drag on RevPAR, or $5 million of EBITDA in our 2020 guidance. We will continue to closely monitor the situation and reevaluate our approach, if necessary. However, for now, the playbook for Park does not change, and we remain focused on 3 key priorities over the next 12 months.

Our first priority is the realization of the $24 million of synergies underwritten in the Chesapeake portfolio. With roughly $20 million already achieved between corporate G&A savings and management contract negotiations, we are confident in delivering on the remainder this year. And we are seeing promising results already by analyzing the mix of business within our segments, and making a strategic shift towards higher-rated transient channels.

Overall, we grew ADR share at 12 of the 16 Chesapeake hotels during the fourth quarter, and we expect additional growth in the coming year. As one example, ADR at the Hyatt Fisherman's Wharf increased 11% in the fourth quarter as we encouraged our operators to shift their tactics, be more patient and not pursue a first-to-fill strategy. At the Marriott in Newton, we recently installed parking gates at the hotel that are expected to generate a minimum of $380,000 annually in incremental revenue. There are similar examples throughout the portfolio, and we are confident and excited in our ability to unlock the embedded opportunities.

Second, we remain focused on recycling capital with a goal of continuing to improve the quality of the portfolio. We recently announced the sale of the Hilton Sao Paulo for a total proceeds of $118 million and a gross multiple of 14.9x completing our exit from international markets after having disposed off 14 non-U. S. hotels in just 3 years, an impressive accomplishment. We also closed on the sale of Park's Embassy Suites D.C. for $90 million or 14.8x forward EBITDA. Both sales were part of our broader program to sell approximately $550 million noncore hotels to reduce leverage following our acquisition of Chesapeake. With these latest transactions, we have nearly reached our goal with $470 million sold following the Chesapeake acquisition. Looking ahead, we expect to remain active sellers with another $250 million to $350 million of potential future sales by year-end 2020.

Finally, we will continue to prioritize our commitment to maintain a strong and flexible balance sheet and a healthy dividend payout for investors. To that end, we plan to utilize proceeds from our asset recycling program to reduce debt and to also activate stock buybacks during periods of share price dislocation. At the end of 2019, we repaid $230 million of debt with proceeds from our Q4 asset sales, and we look to use all or a portion of the proceeds from our recent sales to further reduce leverage.

Turning to our portfolio's performance. I am pleased with our overall results for both the quarter and full year 2019. Comparable RevPAR growth for the quarter was ahead of expectations at 0.7% and for the full year, it came in at 1.9% at the top end of our full year range. Total RevPAR growth was 2.1% for the quarter and 3.2% for the year, driven by our solid group base and our aggressive push on out-of-room spend.

Although the industry has been faced with increased challenges on the expense side, I'm very pleased with our ability to control our hotel adjusted EBITDA margin which decreased by just 10 basis points for the year, which was materially better than our peers on average. Within our revenue segments, group was up 1.8% for the quarter, following last year's nearly 4% increase, while on a full year basis, pro forma group revenues increased a very impressive 5.8%, which lapped a tough year-over-year comp.

Our strong geographic footprint in key markets like San Francisco as well as our healthy in-house group bookings at our hotels in Hawaii and Orlando will drive results throughout the year. Our current group pace in 2020 is down approximately 1%. However, excluding San Francisco, our overall group pace improves 350 basis points to over a positive 2%. Standouts for group in 2020 include the Chesapeake portfolio, up over 8%; and strong markets like Southern California, up 11%; Denver up 16%; and New York up 10%. In addition, citywide calendars are favorable this year in San Diego, Chicago, Boston and Miami. On the transient side, comparable revenue was flat for the quarter and down just 60 basis points for the year, with fourth quarter performance negatively impacted by business transient, which was down 3.6%, and down 2.2% for the year. Business transient weakness was partially offset by strength in leisure, which was up 3.1% in the fourth quarter and 0.9% for the year.

Overall, I've been pleased with our ability to drive out-of-room spend, particularly in our current low RevPAR environment, and our 2019 total RevPAR growth of 3.2% highlights the success of our revenue initiatives. Food and beverage revenues increased 3.9% during the quarter on a pro forma basis, driven by a nearly 5% increase in banquet and catering revenues, while ancillary income, which includes resort fees and parking revenues, increased an impressive 8%. While food and beverage revenues are heavily dependent on our group segment, our asset management team has continued to find ways to diversify and improve revenues across both the legacy portfolio and the Chesapeake portfolio. We believe we still have runway for additional revenue growth in the coming year.

Turning to guidance. As I look to the remainder of 2020, I am encouraged by broader macro trends that the economy continues to be supported by healthy employment gains, a sturdy and resilient U.S. consumer and low rates from an accommodative federal reserve. As it relates to Park, we remain confident in our ability to continue achieving our objectives as we have prepared ourselves to reap the benefits of the operational synergies embedded within the Chesapeake portfolio and take advantage of relative strength across our core portfolio with relatively healthy operating results across several of our core markets, including Hawaii, Miami, Key West, San Diego, Boston, Denver and Chicago. Despite this relative optimism, it's hard to ignore the ongoing headwinds our industry faces in the wake of slower global growth, a stronger U.S. dollar, increased wage pressure and the uncertainty around the U.S. election.

Additionally, heightened concern over the impact of the coronavirus, not only on the global economy, but also in U.S. lodging fundamentals, in particular, has us taking a more conservative approach to 2020 guidance. Accordingly, we are establishing comparable RevPAR guidance of negative 1% to a positive 1% for the full year 2020, with a comparable hotel adjusted EBITDA margin range of negative 175 basis points to a negative 100 basis points. Additionally, we anticipate adjusted EBITDA to be in the range of $800 million to $830 million while adjusted FFO per share to be in the range of $2.55 to $2.67 per share. Note that our 2020 guidance takes into account the recent sales of both the Hilton Sao Paulo and Embassy Suites D.C., which reduced earnings by approximately $16.5 million over the balance of this year.

And with that, I'd like to turn the call over to Sean, who will provide further details on our performance and earnings guidance.

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Sean M. Dell'Orto, Park Hotels & Resorts Inc. - Executive VP, CFO & Treasurer [4]

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Thanks, Tom, and welcome, everyone. Looking at our results for the fourth quarter, we reported better-than-expected results for both RevPAR and earnings. As Tom mentioned, RevPAR growth for the quarter was 0.7% versus the flat growth we had expected as of Q3, while adjusted EBITDA was nearly $223 million and our adjusted FFO was $173 million or $0.72 per diluted share.

On a full year basis, which includes Chesapeake since the September 18th closing, we reported total revenues of approximately $2.8 billion, adjusted EBITDA of $786 million and adjusted FFO of $613 million or $2.88 per diluted share.

Turning to our core operating metrics. For the fourth quarter, we reported comparable RevPAR of $178 and total RevPAR of $276. Our occupancy for the quarter was 80.9%, and our -- or 80 basis points higher than prior year, while our average daily rate ended the quarter at $221 or a decrease of 30 basis points year-over-year. These top line results produced comparable hotel adjusted EBITDA of $211 million, while our comparable margins decreased 40 basis points to 28.3%.

For the full year 2019, our pro forma comparable portfolio, which includes the results from the Chesapeake assets for the fourth quarter only produced a RevPAR of $183 and total RevPAR of $284. Our occupancy for the year was 82.6%, up 50 basis points, while our average daily rate was $222 or an increase of 1.2% versus the prior year. These top line results produced a pro forma comparable hotel adjusted EBITDA of $769 million, with margins falling just 10 basis points year-over-year to 29.2%.

Looking more closely at our performance across our core markets. Hawaii was a standout market for us with RevPAR up 8.7% in the fourth quarter and 5.5% for the year, driven by incredibly strong results at our Waikoloa Village Resort. RevPAR at Waikoloa was up nearly 29% for the quarter, outperforming the comp set by 1,000 basis points and coming in 9.3 percentage points higher than we had expected at the end of the third quarter. For the full year, the hotel's RevPAR was up 18.5%, again, outperforming the comp set by 1,000 basis points and the Big Island submarket by roughly 1,200 basis points. Leisure demand to the Big Island sharply rebounded in 2019 following the prior year's disruption from the Kilauea Volcano, coupled with strong growth in the contract segment and 2 group buyouts at the resort. With the successful handoff of the remaining 466 Ocean Tower rooms to Hilton Grand Vacations on January 1, Hilton Waikoloa Village now operates as a 2-tower 644-room complex, which we expect to be efficiently rightsized to remain strategically focused on the group segment, while more aggressively yielding transient demand.

Hawaii results were also supported by strong performance at our Hilton Hawaiian Village Resort with RevPAR up 4% during the quarter due to strong transient and contract demand, despite 130 basis points of disruption related to Phase 1 of our Tapa Tower guestrooms renovation. Hilton Hawaiian Village also increased market share by 170 basis points during the quarter and recorded 2.1% RevPAR growth for the year. Given the solid leisure trends we have seen in Hawaii, combined with increased airlift from Southwest and AA, we are currently forecasting modest growth in Hawaii for 2020. However, this does not consider any impacts from the coronavirus. Other solid performance during the quarter included Denver with RevPAR growth up nearly 10%, our 3 hotels in Orlando which were up 5.5% combined and the Hilton Santa Barbara, which was up 8.6% on continued tailwinds from our brand conversion in 2018.

Our portfolio of 6 hotels located in San Francisco generated RevPAR growth just north of 3% during the quarter, as strong group revenues of nearly 30% were partially offset by weakness in business transient demand. Our San Francisco properties finished the year with 6.3% RevPAR growth, which outperformed the San Francisco market by 210 basis points and capped the landmark group year. Looking ahead to 2020. San Francisco faces very difficult comps with convention count on room nights down materially to 850,000 room nights.

Moving to our balance sheet. We remain in great shape with pro forma net debt to adjusted EBITDA at just 4.2x as of year-end 2019, which takes into account the full year impact of last year's acquisition and disposition activity. Accounting for last week's announced sales of the Hilton Sao Paulo and the Embassy Suites D.C., pro forma net leverage would drop by another tenth of a turn to 4.1x. Overall, we feel very good about our leverage ratio and liquidity position with over $1.3 billion between our untapped revolver and cash on hand.

Turning to the dividend. Similar to prior periods, we paid a fourth quarter step-up dividend of $0.55 per share, equating to a full year distribution of $1.90 per share, currently north of a 9% dividend yield, by far the most attractive in the sector. Looking ahead, our Board recently declared our first quarter dividend of $0.45 per share to be paid on April 15 to the stockholders of record as of March 31. Based on our full year adjusted FFO guidance and targeted payout ratio in the range of 65% to 70%, we remain committed to paying out the $0.45 per share quarterly dividend with potential upside in the fourth quarter.

With respect to CapEx we invested $61 million in our hotels during the fourth quarter, over half of which was for guest-facing areas, taking our full year total CapEx spend to $240 million, inclusive of our rebuild of the Caribe Hilton, while our maintenance CapEx figure was $160 million or just under 6% of revenues. The renovation and conversion of our Reach Resort in Key West wrapped up in the fourth quarter, with the resort reopening in December a completely renovated and repositioned product as a Curio by Hilton. Early returns are strong, and we are really excited about the future for this resort. We also completed guest room renovations at Hilton Boston Logan Airport, Hilton Bonnet Creek, as we make progress towards upgrading the Hilton to a Signia Hilton in Phase 1 of the guest room renovations at Hilton Hawaiian Village's Tapa Tower that I mentioned earlier. For 2020, we continue to target 6% maintenance CapEx spend, while our ROI pipeline is expected to meaningfully increase. Our largest active ROI project remains the expansion of the meeting platform at our Bonnet Creek complex, which is currently underway at the Waldorf with its new meeting platform expected to open by the second quarter of 2021, and the Hilton meeting space expansion expected to open by the second quarter of 2022.

Turning to 2020 guidance, I would like to provide a few more details on some of the key assumptions driving our expectations. First, I remind listeners that Waikoloa will be noncomparable in 2020 to account for the room give backs, while the Caribe Hilton will also remain a noncomp hotel. I would also like to point out that there will be some variability in our quarterly performance, with Q1 expected to be one of our weakest quarters, given very difficult year-over-year comps with RevPAR growth for our San Francisco portfolio lapping its 22% growth in Q1 of last year. We expect much better performance over the back half of the year, especially during Q4, which is anticipated to be our strongest quarter in the year, driven by several of our core markets, including San Francisco, New Orleans and Key West, which should benefit from renovation tailwinds at The Reach.

Finally, given some of the renovation and ROI projects we have in progress for 2020, we expect about 80 basis points of disruption which has been factored into our comparable RevPAR growth guidance range. This includes roughly 50 basis points of RevPAR disruption and approximately $12 million of EBITDA disruption from the Bonnet Creek ROI project. That concludes our prepared remarks.

We will now open the line for Q&A. (Operator Instructions) Operator, may we have the first question please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of David Katz with Jefferies. And our next question comes from the line of Anthony Powell with Barclays.

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Anthony Franklin Powell, Barclays Bank PLC, Research Division - Research Analyst [2]

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A question on the coronavirus impact you outlined in the prepared remarks. Where specifically was that impact? And did it relate to either group cancellations or leisure transient? And generally, would you expect there to be more impact on group versus leisure in your portfolio?

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Thomas Jeremiah Baltimore, Park Hotels & Resorts Inc. - Chairman, President & CEO [3]

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As we outlined in our remarks -- in our prepared remarks, Anthony, we're seeing about $5 million. The biggest piece was the Facebook group cancellation in San Francisco, so accounting for probably $1.5 million, plus or minus. There was about $1 million for a Chinese group in Hawaii. And then plus or minus another $1 million to what we saw in sort of a Chinese group coming out of New York City, again, very isolated. If I could perhaps frame for listeners, Chinese demand in our portfolio is about 0.5%. It's about 50,000 room nights what we saw last year, about $10 million to $12 million in revenue. As you think about what's happening in Japan, as an example. Certainly, Japan accounts for about 3% of our overall demand, about 250,000 room nights and probably about 90% of that coming into Hawaii. As you think about our portfolio, given the fact that clearly a strong presence on the coastal and certainly in Hawaii, we are watching carefully. We are in frequent discussions with our operators. At this point, it's been minimal, as we've outlined. We thought it was important to be transparent and to share what we know at this time. We don't see this changing the part playbook, what we're focused on, and the priorities that we outlined in our prepared remarks.

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Anthony Franklin Powell, Barclays Bank PLC, Research Division - Research Analyst [4]

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Got it. And maybe a separate question. You mentioned that you could activate a share repurchase activity this year. Given the current dislocation in the stock of the 9% yield, does it make sense to maybe accelerate some of those repurchases and fund later via asset sales?

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Thomas Jeremiah Baltimore, Park Hotels & Resorts Inc. - Chairman, President & CEO [5]

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It's a great question. And again, as we outlined in our prepared remarks, and consistent with the playbook that I've shared with many analysts and some of the many investors, the priorities are going to remain the same based on where we sit today, and that is integrating the Chesapeake portfolio, continuing to sell noncore assets and reduce leverage and activate the buyback. Clearly, at these levels and the fact that we're trading at such a huge discount to NAV, clearly, you can expect us to be more active on that front. We also are committing to maintain the dividend, and we certainly believe that we can do all of this on a leverage-neutral basis. So that's the plan, and that we plan on maintaining that as we proceed through the year.

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Operator [6]

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Our next question comes from the line of Rich Hightower with Evercore.

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Richard Allen Hightower, Evercore ISI Institutional Equities, Research Division - MD & Research Analyst [7]

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I guess, really, just a follow-up on both of Anthony's questions there. The first one, just to clarify in terms of the coronavirus impact that's embedded within guidance. Is it -- it sounds like those were either past events or events that are known on the books, and so you can sort of quantify it within that $5 million EBITDA impact. So is that to say that there is no sort of assumed unknown future impact to forward bookings or whatever that are included in that number?

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Thomas Jeremiah Baltimore, Park Hotels & Resorts Inc. - Chairman, President & CEO [8]

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That is correct. We are -- we wanted to be transparent and to share what we know at this time.

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Richard Allen Hightower, Evercore ISI Institutional Equities, Research Division - MD & Research Analyst [9]

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Okay. Yes, I think that answers that. And just on -- a follow-up to the capital allocation question. Has your view of the company's NAV changed at all in the past 6 to 12 months as we talk about sort of discounts to NAV to varying degrees, maybe given -- outside of coronavirus, just the changing sort of fundamental picture in lodging over that time? And how does that factor into the repurchase decision?

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Thomas Jeremiah Baltimore, Park Hotels & Resorts Inc. - Chairman, President & CEO [10]

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It's a great question, Rich. I think it's important to sort of step back and think about Park when we were spun out, right? 67 largely Hilton branded hotels, sort of a barbell. We had a top 10 of 15. And then, of course, we got a collection of other assets. This team has worked tirelessly, as you know, in helping to recycle capital. We have sold 24 assets, including 14 international, including assets in South Africa and Germany and the U.K. and Brazil, which obviously, we concluded a joint venture in Dublin. So we've really been able to reshape the portfolio, coupled with bolting on the Chesapeake portfolio. So as Ian noted in his prepared remarks, we're providing increased certainly disclosure and information on the top 30 assets. We would respectfully submit that those top 30 assets are a high quality, high RevPAR and comparable to any of the high-quality portfolios in our sector. They account for about 85% of our EBITDA and north of 90% of the value. So if anything, we think that core portfolio is clearly close to best-in-class. You will see us continue to recycle capital so that we can use those proceeds to continue to reduce debt and activate the buyback. We are -- we certainly are well aware of our stock performance and the discounted NAV. You can argue whether that NAV has come in slightly or not, but the reality is that we clearly are trading at a significant discount to NAV.

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Operator [11]

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Our next question comes from the line of Smedes Rose with Citi.

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Smedes Rose, Citigroup Inc, Research Division - Director & Senior Analyst [12]

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I wanted to ask you what are you seeing in terms of the pace of wage and benefit growth in 2020. And just since I think your portfolio is a little more -- has a little more heavy union presence here, can you give any -- do you have any sense of is this a peak year or what does 2021 look like?

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Thomas Jeremiah Baltimore, Park Hotels & Resorts Inc. - Chairman, President & CEO [13]

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Yes, I -- we ran -- we assumed about 3.8% of wage and benefits, Smedes. In '19, we're assuming about the same run rate. I think the one benefit in our portfolio recognizing we're about 60% union is most of those union contracts were negotiated last year. So we can expect, as we move forward in terms of the wage rate and benefits peaking, I would say that it's going to peak certainly this year in that 3.8% to 4% range.

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Smedes Rose, Citigroup Inc, Research Division - Director & Senior Analyst [14]

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Okay. And then I just wanted to ask you, if you take the low end of your guidance and make some assumptions on maintenance CapEx. I know you said it's using a percent of revenues. But I mean, it looks like the dividend becomes kind of tight. I mean, are you -- would you be willing to fund it with debt on a short-term basis? Or do you think you could cut back on maybe some of the maintenance CapEx spending, if need be?

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Thomas Jeremiah Baltimore, Park Hotels & Resorts Inc. - Chairman, President & CEO [15]

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No, we remain committed to the dividend at the current levels. We do not believe, consistent with what Sean has said in the past, paying out our AFFO in that 67% range that we are comfortable. We do not see a risk at all, Smedes. And we can maintain our maintenance CapEx in that 5.5%, 6% range.

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Operator [16]

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Our next question comes from the line of Gregory Miller with SunTrust.

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Gregory Jay Miller, SunTrust Robinson Humphrey, Inc., Research Division - Associate [17]

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So first question I have is on Bonnet Creek. I apologize if I missed this, but do you have an update on the timing of the Signia flag change, and how are you and Hilton are working together to market that new brand, both to the transient and the group guests?

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Sean M. Dell'Orto, Park Hotels & Resorts Inc. - Executive VP, CFO & Treasurer [18]

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Greg, it's Sean. The Signia brand should ultimately come through around kind of late 2021, we believe. It's obvious that we've got a few things to do within the asset to achieve that brand conversion as well as kind of tie off things related to the construction of the additional meeting space. So more kind of towards the back end, I think, of next year on that. Surely we're doing plenty of great marketing on the meeting space. Certainly, you've got a lot of good traction on booking into that meeting space beyond it's opening in mid-2022, right now. But I think it's probably a little bit more premature to kind of be marketing it as a Signia right now, but surely, we'll be working closely with Hilton to kind of ramp up those efforts in due course.

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Thomas Jeremiah Baltimore, Park Hotels & Resorts Inc. - Chairman, President & CEO [19]

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And Greg, one of the things that we heard from both Hilton and our on-site operators is that we needed more meeting capacity to certainly be competitive in that market. As you know, it's certainly one of the top convention markets, top leisure markets, 75 million visitors. We are really blessed to have a resort with 350 acres, championship golf course, plus having both the Hilton and the Waldorf brand. So we're making that long-term investment. We believe this is a great ROI project that will generate high-teens returns. And the booking pace and the feedback that we're hearing from meeting planners and others has been overwhelmingly positive. Hilton, I believe, has a pipeline of several Signias, and I know that it's a real focus for them to -- particularly on the group side, to have these well positioned assets that have that sort of elevated, if you will, something to perhaps compete with the JW Marriott brand, as an example. So we are really excited about it. We think there's huge upside in our portfolio. And this clearly is a world-class asset, an asset that is also proximate to Disney.

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Gregory Jay Miller, SunTrust Robinson Humphrey, Inc., Research Division - Associate [20]

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I don't want to keep going further south for the follow-up question and ask about the Caribe. Given what you guided for this year, how much of the challenge do you see is driven by perhaps supply or demand issues in the Caribbean in general versus, say, challenges in attracting demand to Puerto Rico specifically?

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Thomas Jeremiah Baltimore, Park Hotels & Resorts Inc. - Chairman, President & CEO [21]

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I would say, Greg, it's really a ramp-up. I mean, keep in mind the trauma that the island experienced post-Hurricane Maria, as we all know. We took 18 months to rebuild and to relaunch. And there are many assets that are still in that renovation or restoration phase. So it's really beginning to get better airlift, better visitation. We believe greatly in the island, greatly in the asset and are very optimistic. We just think the ramp-up is going to take a little longer, hence, the reason that you see relatively flat performance here in 2020.

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Operator [22]

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Our next question comes from the line of Aryeh Klein with BMO Capital Markets.

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Aryeh Klein, BMO Capital Markets Equity Research - Analyst [23]

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I was a little surprised that perhaps there wasn't perhaps a better comparable margin outlook considering the synergies. Can you provide some color on the underlying assumptions on expense growth? I know you mentioned wage growth, but was there anything else in there that's worth calling out?

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Sean M. Dell'Orto, Park Hotels & Resorts Inc. - Executive VP, CFO & Treasurer [24]

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Klein, I would probably say it worked well that our group pace for the portfolio is down or kind of almost flattish versus kind of the group activity we had last year, so kind of the extra F&B revenue that we benefited from last year. The growth is a little bit lower this year. So I think that kind of contributed to kind of that portion of the out-of-room spend, as you do the RevPAR to margin type of equation. Clearly, that's the best equation and part of the equation that we don't -- people don't discuss a lot. They try to do room RevPAR down to that. But out-of-room spend is certainly key. And we're seeing that in parking and resort fees, seeing great growth there, but F&B is a little bit -- a little lower than in the past just given the group setup for this year.

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Aryeh Klein, BMO Capital Markets Equity Research - Analyst [25]

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Okay. And then maybe just on total RevPAR growth, as you mentioned, you expect to see some lighter F&B growth, but how do you expect total RevPAR growth relative to RevPAR growth for 2020?

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Sean M. Dell'Orto, Park Hotels & Resorts Inc. - Executive VP, CFO & Treasurer [26]

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Certainly higher, it's probably kind of circa 2%, plus or minus.

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Operator [27]

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Our next question comes from the line of Robin Farley with UBS.

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Arpine Kocharyan, UBS Investment Bank, Research Division - Director and Analyst [28]

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I have 2 quick ones. This is Arpine for Robin. Others have mentioned tougher pricing environment and that perhaps that's good for sellers and tougher for buyers. Could you remind us what remains of your disposition plan and whether you're actively marketing any assets now?

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Thomas Jeremiah Baltimore, Park Hotels & Resorts Inc. - Chairman, President & CEO [29]

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We are -- Robin (sic) [Arpine] , we've got, as we said in our prepared remarks, another $250 million to $350 million in assets. We currently are marketing 1 asset now and expect, obviously, to receive real-time bids here in the very near future. We still think it's an active market. There's plenty of equity. There's plenty of debt capital as well. And I think as we've indicated by selling 8 assets last year and terminating our -- the ground lease in Sheffield in the U.K., we've had great success continuing to sell our noncore assets. So there's an active market out there. Whether that is temporarily disrupted or people are a little more cautious, we'll see. We're not hearing that as we talk with prospective buyers about assets that we are marketing or considering to market. So we are -- we remain cautiously optimistic and we would also bring you back to our track record of really having -- I think, demonstrated our ability to sell noncore assets, many of which have been very complicated from both a legal, tax structuring, particularly given the fact that we've unloaded 14 international assets, many of those with foreign buyers.

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Arpine Kocharyan, UBS Investment Bank, Research Division - Director and Analyst [30]

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And then transient business obviously seems softer, but did that get worse on year-over-year basis versus Q3 or sort of continue the weaker trend since Q3 in terms of what you're seeing in transient business?

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Thomas Jeremiah Baltimore, Park Hotels & Resorts Inc. - Chairman, President & CEO [31]

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No. Clearly, October was really soft. November came back and the chilling December was strong. As Sean mentioned in his prepared remarks, obviously, first quarter, and to remind listeners, will be our soft -- we believe our softest quarter, given the fact that we're lapping RevPAR growth last year at 4% to 4.2%, and I believe, group up well north of 20% in the first quarter of last year. So we would expect first quarter to probably be down in the 1% to 2% range of RevPAR, but with obviously stronger back half of the year. We're expecting transient -- clearly, leisure continues to be stronger than what we've seen. And this is transient, although we did see somewhat positive on the December front.

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Operator [32]

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Our next question comes from the line of Chris Woronka from Deutsche Bank.

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Chris Jon Woronka, Deutsche Bank AG, Research Division - Research Analyst [33]

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Wanted to ask on the -- obviously, you guys have given us a lot of color about the Chesapeake synergies. Wanted to ask, with some of the recent changes to the Marriott, the Bonvoy program at those hotels, are you -- could you see additional upside from some of those changes? Or is that kind of baked into your prior synergy and upside guidance?

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Thomas Jeremiah Baltimore, Park Hotels & Resorts Inc. - Chairman, President & CEO [34]

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Yes. It's a great question, Chris. We're continuing to study that ourselves. We -- to think back to the original plan and the $24 million largely weighted towards replacing and eliminating, obviously, the G&A, we've done that. The opportunity to renegotiate management contracts, we've done that. And as we said in our prepared remarks, we're very confident in the $20 million out of the $24 million. As we think about other opportunities, clearly, remixing the mix, as we talked about in the early feedback that we're getting there is really encouraging. We also think that we benefit from having a favorable convention calendar in many of those markets, coupled with renovation tailwinds. As we sort of dig in, and I'll take the 2 Ws in Chicago as an example, as we dig in there and we huddle and work with our partners at Marriott, we are seeing other opportunities because we're seeing improved performance there. And I do think the Bonvoy, well, Marriott's got 137 million members, and they continue to think creative ways to monetize it. We're studying carefully to see whether or not those costs, in fact, are rising versus decreasing, not only for Bonvoy, but across the Hilton system as well. So the jury is still out. We continue to study and monitor that ourselves, and we'll certainly have more to report back in the future.

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Chris Jon Woronka, Deutsche Bank AG, Research Division - Research Analyst [35]

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Okay. Great. And then just wanted to ask you about New York and realizing one hotel, 5% or 6% of EBITDA for the company. But any change in kind of your secular long-term view there, as we've seen a lot of your public peers move to reduce their exposure to the market?

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Thomas Jeremiah Baltimore, Park Hotels & Resorts Inc. - Chairman, President & CEO [36]

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Yes. It's a great question. We all struggle. As you think about New York, one of the great cities of the world, and we all have to believe that it's going to come back, but it's really missed this cycle. And as we think about, again, being down 4.7% in the quarter and another 1.8% and then watching sort of cash flow continue to erode, it is quite frustrating. Supply, I would say, here was the biggest issue. And I would encourage the brand, put a hold on it. Enough is enough in New York, is a blunt, very direct comment there on that. And I also think when you just think about what's happening with shadow supply, you think back to 2011, there were super compression days there where demand in the city north of 95%, about 141 days. We estimate this year will be down into probably the mid-teens, as an example.

So that's really eroded the pricing integrity in New York and made it a very difficult environment. And now as we all hear about potential owners who are in jeopardy. And I personally believe that that is going to expand over time. That's not going to shrink. And I think a lot of that is driven by too much supply. We benefit, we believe, by having the best group house in the city, given the status, given the size, given the meeting space platform. And so we're not throwing in the towel, and we'll continue to work hard with our partners at Hilton, continue to drive value. But clearly, it's been quite frustrating as we think about this decade and this cycle for New York.

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Operator [37]

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Our next question comes from the line of Bill Crow with Raymond James.

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William Andrew Crow, Raymond James & Associates, Inc., Research Division - Analyst [38]

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I apologize, I got on a little bit late. So if you covered it, just move on. But you tend to have embraced the group business, the contract business a little bit more than maybe some other owners. And I'm wondering how big an impact you're seeing from coronavirus from canceled flights, in particular, San Francisco, Hawaii, New York? I mean is that really a headwind for you?

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Thomas Jeremiah Baltimore, Park Hotels & Resorts Inc. - Chairman, President & CEO [39]

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It is not, Bill. As we -- early in the Q&A that you may have missed, we've talked a little bit about some Chinese group business and what we've seen in New York. But if you think about Hawaii, particularly with what's happening with Southwest and their expansion plans and the relationship we have with them, we're not seeing at all any kind of fall off in that respect. The group contract's about 5%. And as you know, really part of the strategy for Park was to anchor our business with group, layer in some contract and then really yield the transient. And we've had success in our short duration since we were spun out of Hilton. So we continue to see -- you'll continue to see us use that playbook as we move forward.

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William Andrew Crow, Raymond James & Associates, Inc., Research Division - Analyst [40]

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So no impact in San Francisco from the group business thus far?

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Thomas Jeremiah Baltimore, Park Hotels & Resorts Inc. - Chairman, President & CEO [41]

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Not at this time. We've seen, obviously, the Facebook cancellation, and we said earlier, about $5 million, and it's largely coming San Francisco, Hawaii and New York, where we've seen it. And again, that's really been minimal when you think about the scope of our operation.

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Operator [42]

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Our next question comes from the line of David Katz with Jefferies.

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David Brian Katz, Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure [43]

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Apologies, we're dancing back and forth among a number of things this morning. So my guess is that we have discussed the near-term impact fairly thoroughly. What I wanted to ask your opinion about is, we have more and more discussions about owners contemplating the notion of third-party managers rather than using the brands as managers. Can you just philosophize a bit about that and the boundaries and circumstances under which you think through those alternatives?

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Thomas Jeremiah Baltimore, Park Hotels & Resorts Inc. - Chairman, President & CEO [44]

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David, it's a great question. I think back to my past life when, at peak, we had 16 or 17 different management companies including all of the brands, coupled with a lot of independent operators. And what I would tell you is that we like the makeup that we have today, meaning having 7, 8 management companies, including Hilton, Marriott, our partners at Hyatt plus independent. And what we find is that sometimes there are the right operator for the right situation. Clearly, you would think of the big convention center hotels or the big resorts. Generally, by and large, the brands, management companies have the wherewithal, they have the scope and capacity and the resources to be able to support those. Other hotels that may be a 300-room urban, largely a rooms box with limited food and beverage and limited group, you could have a more nimble management company that may have a particular brand focus or regional or an asset-type focus. So I think finding the right situation makes sense for us, obviously, given the fact that we were spun out of Hilton. Clearly, as you think about our top 10 assets, those iconic assets, those are obviously under long-term management agreements.

But I would say that we have a very healthy working relationship, and there's a good push and pull. And I think if the system works right, we should make them a better manager and they should make us a better owner. And we have a wonderful partnership and it's worked well from that standpoint. Are there some situations where it may make sense to take out a brand manager from our independent? Absolutely. We continue to explore many of the assets that we've been selling. We have been able to sell those either unencumbered by flag and for management. So that's clearly something that we'll continue to evaluate over time. But make no mistake, I think having multiple managers and looking at best practices and being able to use that and push and encourage your management companies is really a good thing. And we are incorporating that into the asset management toolkit here at Park.

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David Brian Katz, Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure [45]

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If I may follow that up with a circumstance like New York, right, where there is general pressure and searching for best outcomes, would those kinds of circumstances be one where you'd be more inclined, obviously, not with big box flagship hotels, but would that be a circumstance where you'd look more into third-party opportunities?

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Thomas Jeremiah Baltimore, Park Hotels & Resorts Inc. - Chairman, President & CEO [46]

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Yes, it's a great question. I think New York, unfortunately, oftentimes it's sort of split beyond whether or not you're an existing union shop or not. Because I think if you have an existing union operation, more than likely, you would need to find a management company who operates under that framework. Other cities clearly, and I think San Francisco is an example where we have, again, multiple operators given the 6 hotels that we have there, and being able to share best practices, looking at revenue management strategies, thinking about different ways to manage and yield there has been really, really helpful to us. So we see that being a positive. But no doubt, in New York, I think all things are on the table, I think the biggest issue -- among the biggest issues that we just had too much supply that's eroding any kind of pricing integrity, coupled with the shadow supply and enough is enough. And I think the brands have got to step forward and show leadership in that regard.

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Operator [47]

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Our next question comes from the line of Neil Malkin with Capital One.

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Neil Lawrence Malkin, Capital One Securities, Inc., Research Division - Analyst [48]

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Just kind of on the West Coast. Have you seen any incremental cancellations of group just from your maybe larger accounts inkling or kind of asking you about either deferring it or canceling just due to corona fears?

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Thomas Jeremiah Baltimore, Park Hotels & Resorts Inc. - Chairman, President & CEO [49]

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Nothing more than what we've shared.

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Neil Lawrence Malkin, Capital One Securities, Inc., Research Division - Analyst [50]

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Okay. Great. And then just related to the dividend, you said a 60% to 70% payout. I'm assuming you're talking about FFO because in terms of AFFO, I think it's much higher, like 85% plus. So I think that's the question someone was asking before about what you would do in terms of either labor or CapEx to preserve that, because if EBITDA drops high-single digits around 10% or something like that, I think you'd be at breakeven. So just curious to hear kind of what potential contingency plans would be and if you stress tested the balance sheet in that way?

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Thomas Jeremiah Baltimore, Park Hotels & Resorts Inc. - Chairman, President & CEO [51]

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We, of course, have stress tested the balance sheet and I will restate what I said earlier that we remain committed to the dividend at the current level and believe that we have plenty of cushion on that basis.

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Operator [52]

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Our next question comes from the line of Lukas Hartwich with Green Street Advisors.

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Lukas Michael Hartwich, Green Street Advisors, LLC, Research Division - Senior Analyst [53]

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I just have a quick clarification question. Earlier, you mentioned in the discussion on non-room revenue and total revenue, I think you said 2% growth in '20. And I just didn't catch if that was the non-room revenue line or total revenue line.

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Sean M. Dell'Orto, Park Hotels & Resorts Inc. - Executive VP, CFO & Treasurer [54]

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2% is plus or minus of total revenue.

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Lukas Michael Hartwich, Green Street Advisors, LLC, Research Division - Senior Analyst [55]

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Okay. So it sounds like relative to where this year should cap at, that kind of implies a bit of a pickup in terms of out-of-room spending. Is that right?

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Sean M. Dell'Orto, Park Hotels & Resorts Inc. - Executive VP, CFO & Treasurer [56]

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No. A little bit -- it should be a little bit lower, I think, on out-of-room spend.

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Operator [57]

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Mr. Baltimore, we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.

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Thomas Jeremiah Baltimore, Park Hotels & Resorts Inc. - Chairman, President & CEO [58]

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Thank you. We enjoyed our discussion today. We look forward to seeing many of you at the Citi conference next week. Safe travels. Look forward to seeing you.

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Operator [59]

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Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.