Park Hotels & Resorts Inc

NYSE:PK

Earnings Call Transcript 2019-Q2

[Operator]

Good day, ladies and gentlemen, and welcome to the Park Hotels & Resorts Inc. Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer will follow the formal presentation. [Operator Instructions]

It is now my pleasure to introduce your host, Mr. Ian Weissman. Thank you and you may begin.

[Ian Weissman, Senior Vice President-Corporate Strategy]

Thank you, operator, and welcome everyone to Park Hotels & Resorts second quarter 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.

Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements. Please refer to the documents filed by Park with the SEC, specifically the most recent reports on Form 10-K and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in the 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 reconciliations to the most directly comparable GAAP financial measure in yesterday’s earnings release as well as in our 8-K file with the SEC and the supplemental financial information available on our website at pkhotelsandresorts.com.

This morning, Tom Baltimore, our Chairman and Chief Executive Officer will provide a review of our second quarter 2019 operating results, a summary of our capital recycling efforts, an update on our previously announced pending acquisition of Chesapeake Lodging Trust and finally, an update on 2019 earning guidance. Sean Dell'Orto, our Chief Financial Officer will provide further detail on our second quarter financial results, additional color on our earnings guidance and an update on our two exiting ROI projects; Bonnet Creek and The Reach. Rob Tanenbaum, our Executive Vice President of Asset Management will be joining for Q&A. Following our prepared remarks, we will open the call for questions.

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

[Tom Baltimore, Chairman and Chief Executive Officer]

Thank you, Ian, and welcome everyone. Consistent with our prior quarters, the second quarter was incredibly active at Park, as we remain laser focused on maximizing shareholder value over multiple fronts. As always, we have been relentlessly focused on our proactive approach to asset management, partnering with our operators to deliver outperformance in any environment. We continue to make significant strides on our capital allocation efforts, selling three additional noncore assets during the quarter.

Further improving our high-quality portfolio and also beginning work on two important ROI projects: the Bonnet Creek meeting space expansion and the conversion of The Reach Resort to a Curio. And finally, we have been thoroughly preparing for the pending acquisition of Chesapeake Lodging Trust, which is currently expected to have a mid-to-late September close with the Chesapeake special shareholder meeting to consider and vote on the proposed merger expected to take place on September 10. We remain incredibly excited about this transaction, the combination with Chesapeake is a compelling opportunity to accelerate several of our long-term strategic goals including brand, operator and geographic diversity, all positioning the company to drive superior risk-adjusted earnings growth over the long-term.

Over the last two months, the team has toured each of the Chesapeake hotels and conducted extensive property reviews with onsite senior leadership. We continue to have strong conviction in our underwriting and see upside in both revenue generation and additional expense savings. We are reaffirming our initial expectation of an incremental $24 million of EBITDA in 2020, and a total of $34 million of EBITDA upside in 2021, inclusive of our annual G&A savings of $17 million.

Additionally, given Chesapeake’s outside exposure to market such as San Francisco, Chicago, and Southern California, which are poised to benefit from strong citywide business and our renovation tailwinds in 2020 bolting on the Chesapeake portfolio should add an incremental 80 basis points of top-line growth to Park’s legacy portfolio next year.

Chesapeake also has made meaningful progress on the anticipated sales of its two New York City assets. As noted in Chesapeake’s recent press release, both hotels are under contract to a single buyer for total proceeds of $138 million or a 6% cap rate with an expected close prior to our acquisition of Chesapeake. The sale of these two assets by Chesapeake will further delever the balance sheet of the combined company going forward.

Overall, we have strong conviction about the opportunity and we remain confident in the long-term benefits of this acquisition. Although transaction offers additional leverage to generate incremental shareholder value, it does not divert our attention away from the significant embedded value within Park’s core portfolio. We remain laser focused on aggressively asset managing the portfolio and expect to continue narrowing the margin gap with our peers.

Turning to operations. In the second quarter, comparable RevPAR for the portfolio increased 0.8%, against a very difficult year-over-year comparisons in a challenging demand environment. As expected, group revenues declined by 1.7% during the quarter, a direct result of lapping the strong 18% growth rate in group revenue we produced last year. Softer citywide calendars across several of our key markets were partially offset by healthy production in markets like San Francisco and Orlando with group pace up nearly 13% and 4% respectively.

Looking forward, we expect group to remain strong for the second half of the year with overall pace forecasted to increase over 15%. On the transient side, revenues increased 1.1%, driven by a 4.6% increase in leisure demand, but offset by a 2.5% decline in business transient demand. Despite a relatively healthy economic backdrop, beginning in May, business transient occupancy started to decline, which we believe reflects some corporate uncertainty in light of the ongoing trade war with China. That said, we have not witnessed a material change in fundamentals with group and leisure trends still healthy and supply in check across most of our key markets.

Furthermore, we continue to outperform our comp set as we grew market share during the second quarter at more than 65% of our hotels by an average of 350 basis points, equating to nearly $15 million of market share growth for the portfolio. In terms of margins, comparable hotel adjusted EBITDA margin contracted by only 90 basis points in the quarter to 31.3%. Our asset management initiatives are clearly evident in these results as we kept comparable expense growth to just 2.5% in notable accomplishment in today’s low RevPAR, high labor cost environment.

Looking at our core markets. Our second quarter results were primarily driven by strength in Key West, San Francisco, Hawaii and Santa Barbara, which was partially offset by softness in Seattle, New Orleans, Chicago and New York. Key West was our top-performing top 10 market this quarter, posting a 5.4% RevPAR growth and a clear signal that demand has not only recovered since Hurricane Irma, but surpassed 2017 pre-storm demand levels. In San Francisco despite facing a very difficult year-over-year comp, our two hotels continue to exhibit considerable strength recording a combined RevPAR increase, 4.5%, outperforming the broader San Francisco market by 320 basis points.

Group revenues were up 13%, which is particularly impressive considering group revenues increased 55% in the second quarter of 2018. In Waikoloa, our hotel exhibited a strong recovery from last year’s volcanic disruption, posting a 4.5% RevPAR growth during the quarter on solid transient demand. We are expecting a stellar group quarter in Q3 at Waikoloa, with group pace up approximately 525%, the hotel has forecasted to be our top performer over the back half of the year with RevPAR growth projected to be north of 30% on average.

I also want to highlight our Hilton Santa Barbara Beachfront Resort, which continues to ramp up and exhibit strong performance on Park’s up-branding and renovation of the asset, a project, which was completed during the second quarter of 2018. The hotel grew RevPAR by 29% over 2018 and group catering contribution was up 22% during the quarter, further highlighting the success of the repositioning by Park.

Congratulations to the Santa Barbara team, who has done a terrific job ramping up post renovation, driving over a 1000 basis points of margin improvement at the property during Q2. We continue to believe there are a number of other significant value-creation opportunities like this one throughout our portfolio. Offsetting these positive second quarter results was the underperformance at our two Seattle Airport Hotels, which together produced a RevPAR decline of nearly 11%, placing a 40 basis points drag on total portfolio RevPAR.

Excluding Seattle, our comparable RevPAR growth would have been 1.2% for the quarter. Note that we have since made leadership changes at our Seattle properties. Other softer markets included Chicago, New York, and New Orleans, all of which recorded declines in group demand that proved difficult to offset with transient. Looking ahead, we expect group to rebound with double-digit pace projected for all three hotels over the back half of the year.

on the capital recycling front, I’m very pleased with the progress made during the second quarter. Having closed on the sales of three non-core domestic assets or combined gross proceeds of $166 million, which will be used to meaningfully reduce net leverage ahead of our proposed merger of the Chesapeake. we have now sold a total of 18 assets for over $750 million of proceeds since spinning out of Hilton. While Park has returned over $2 billion of capital to shareholders. In addition, subsequent to year-end, we entered into a contract to sell our Conrad Dublin Hotel at very attractive pricing with the deal expected to close by year-end.

Total proceeds for the sale are $130 million with our joint venture interest totaling $62 million. Demand for hotel real estate among private equity buyers remain strong and we continue to explore noncore assets sales to further deliver the balance sheet. Consequently, we expect to beginning marketing process on two to three Chesapeake hotels in the coming months. We are also actively marketing the sale of our Hilton Sao Paulo, one of our last remaining international hotels.

Those proceeds for all four hotels are estimated to be between $375 million to $425 million, which together with the other completed or announced part in Chesapeake hotel sales would reduce the combined companies’ net debt-to-EBITDA leverage ratio to approximately four times and be a clear signal to our commitment to maintaining a low-levered balance sheet.

Turning to outlook for the remainder of the year. Park is well positioned for relative outperformance. Our transient trends across the U.S. have been choppy, park’s proactive efforts to group up our portfolio, should help us continue to post sector-leading growth over the next two quarters.

The RevPAR growth over the back half of the year expected to average around 3%, Q3 is projected to be the stronger of the two remaining quarters of 2019. the group pays up over 25%. San Francisco should remain one of our top markets along with Key West and Waikoloa. And finally, we expect healthy margin expansion in the second half of the year as we continue to focus on our asset management initiatives and take advantage of proactively grouping up the portfolio.

Despite our relative strong positioning, global macro concerns have weighed heavily on fundamentals across the industry with annual RevPAR growth forecast contracting across several of our key markets, primarily in the business transient segment. with this is the backdrop, we are readjusting our full-year RevPAR estimates down by 75 basis points at the midpoint to 2% to 3.5%. from margins, we’re lowering our guidance to a new range of flat to plus 50 basis points or down by 25 basis points at the midpoint partially due to increased property insurance premiums. Sean will provide additional details on our updated guidance.

and with that, I will turn it over to Sean.

[Sean Dell'Orto, Chief Financial Officer]

Thank you, Tom. Looking at our results for the second quarter, we reported total revenue of $703 million and adjusted EBITDA of $207 million. Adjusted FFO was $164 million or $0.81 per diluted share.

Turning to our core operating metrics, our comparable portfolio produced a RevPAR of $192, or an increase of 0.8%, compared to the second quarter of 2018, the entire increase related to improved occupancy. Our occupancy for the quarter was 86.6% of 0.7 percentage points over last year. Our average daily rate was flat at $221.

These top-line trends resulted in hotel adjusted EBITDA of $208 million or a comparable portfolio, while our comparable hotel adjusted EBITDA margin was 31.3%, which was 90 basis point decrease over the prior year. In addition to the choppiness Tom discussed earlier, second quarter results were negatively impacted by $5 million shortfall due to delayed timing of business interruption insurance proceeds for the Caribe Hilton, which reopened on June 19 and incurred a $4 million EBITDA loss as expenses ramped up for the reopening.

Subsequent to the quarter, the carriers authorized an additional $10 million advance, which we expect to receive in the coming weeks. We continue to work with the insurance carriers and adjusters to close out the claims for both Caribe and Key West. As such, we maintain our expectation to receive the BI proceeds embedded in our full-year guidance. Further on guidance, we are lowering our full-year adjusted EBITDA by $17 million at the midpoint to a new range of $735 million to $760 million while our adjusted FFO guidance drops by $0.08 per diluted share at the midpoint to a new range of $2.86 to $2.98 per share.

Note that our guidance does not take into account our pending acquisition of Chesapeake or any additional assets sales at this time. We thought it might be useful to bridge you from our Q1 guidance to our most recent forecast. First, $9 million is related to the last EBITDA from the three hotels we sold in late June. Second, our additional $5 million due to a higher than expected property insurance expense that Tom alluded to earlier. And finally, the additional adjustment is related to a moderately more cautious outlook for the balance of the year, which is reflected in our reduced RevPAR and margin guidance.

Turning to the balance sheet and the financing of the Chesapeake acquisition. As we mentioned when we announced the transaction, a debt financing commitment has been secured in the form of $1.1 billion delayed draw term loan consisting of an $850 million five-year charge and $250 million two-year bridge charge. Although we anticipate only meeting the former to close a transaction. As a balance of the cash needs is expected to be funded from the previously announced park and Chesapeake asset sales and cash on hand. Upon closing, we anticipate pro forma net leverage of the combined company to be approximately 4.4 times, which assumes Chesapeake’s completion of the New York hotel sales discussed earlier.

Turning to dividends on July 15, we paid our second quarter cash dividend of $0.45 per share and as of last Thursday, our board declared our third quarter cash dividend of $0.45 per share. This dividend currently translates into an implied yield of 6.8% maintaining our position as one of the highest yielding stocks in the lodging REIT sector.

Finally, I wanted to provide a brief update on two exciting ROI projects currently underway. The expansion of the meeting platform at the Hilton and Waldorf at Bonnet Creek in Orlando and the repositioning and rebranding of the Waldorf Astoria Reach Resort in Key West to a Curio. at Bonnet Creek, we’re adding over 90,000 square feet of gross meeting space, which will include 52,000 square feet of new ballroom and pre-function space at the Hilton and 11,000 square feet of new ballroom and pre-function space at the Waldorf.

Total spend is estimated to be $85 million with targeted returns in the high teens. We expect the Waldorf meeting space to open an early 2021 while the Hilton meeting platform should be up and running in early 2022. At the reach, we expect to start construction in the coming weeks and anticipate the hotel to be closed until early December. The scope of the project will include a complete guestroom renovation and a comprehensive renovation to the public space including a new restaurant.

With hotel closed for four months, we expect comparable portfolio RevPAR growth to be negatively impacted by 20 basis points for the year, equating to approximately $2 million of earnings disruption, which continues to be factored into our guidance. total spend for the rooms and public space renovation is approximately $9 million with targeted returns in the high teens. These projects illustrate embedded value in our portfolio that we are able to unlock and we are continuing to explore similar opportunities across our portfolio.

That concludes our prepared remarks. And at this point, operator, we’d like to open up to questions. in the interest of time, we’re asking all participants to limit their response to one question and one follow-up. operator, may we have the first question please?

[Operator]

Thank you. [Operator Instructions] Our first question comes from the line of David Katz with Jefferies. Please proceed with your question.

[Unidentified Analyst]

Hi, good morning guys. It’s [indiscernible]. Hi, how are you guys? Can we just talk about Chesapeake really quickly? I know it’s been a while, a few months since you’ve announced it. Can you just tell us what you’ve learned since then what you’ve uncovered on the – under that and what that means for the $24 million and $34 million?

[Tom Baltimore, Chairman and Chief Executive Officer]

We appreciate the call as I said in the prepared remarks, we certainly believe it’s a compelling and unique opportunity to combine both companies. I’ll certainly drive you back to the previous statements and disclosures that we’ve made. Obviously, it provides for us sort of improved portfolio quality, gives us the brand and operated diversification. It gives us an expanded and improved sort of geographic footprint, it improves our growth rate for next year as I outlined in my prepared remarks. We also believe that there’s embedded upside, ROI margins of opportunities to group up as well.

And as we’ve said previously, again, in our public disclosures, we believe that it is accretive force to both 2020 and 2021, and we’d certainly also get the benefits of scale. Where are we are in that process? As I also mentioned in the remarks, Rob Tanenbaum and other members of our very capable asset management team have been out and we’ve represented the Chesapeake meeting, having onsite meeting. I’m reluctant to go into those details. Chesapeake is still an independent company. We have set up now and filed a proxy issue, and the shareholder vote is by Chesapeake shareholders is scheduled for September 10.

As we’ve also said and I noted in my prepared remarks, we expect the transaction assuming it is approved by shareholders that it would close in mid to late September. obviously, we are excited about Chesapeake’s announcement and they’re selling obviously, those two New York assets, which is part of the original plan. regarding our additional due diligence, as I said, confidently, we are reaffirming our initial underwriting and our confidence that those synergies that we identified $24 million in 2020 and $34 million in 2021. We believe are achievable and we’re confident we’d have great conviction over this opportunity.

Other than that, David, I hope if there not any additional questions, we would really draw you to all the public filings as you can appreciate just given where we are in this transaction, and so we want to be sensitive.

[Unidentified Analyst]

Understood. Thank you.

[Operator]

Thank you. Our next question comes from the line of Rich Hightower with Evercore. Please proceed with your question.

[Rich Hightower, Evercore]

Hi, good morning guys.

[Tom Baltimore, Chairman and Chief Executive Officer]

Good morning, Rich. How are you?

[Rich Hightower, Evercore]

I’m good and it’s been a busy week. We’re going to get through it. So, I guess Tom to follow-up on the question around Chesapeake and in the context of reaffirming the targets that you just mentioned. how much of those original targets? We’re predicated on demand patterns or what have you as of 90 days ago and given maybe the – whatever magnitude of shifts you think we’ve seen in demand patterns since then. I mean, how much of those targets is predicated on things that are specific to the industry or things that are specific to park’s asset management. Maybe, just break that down for us and give us a little more color around the level of conviction if you don’t mind.

[Tom Baltimore, Chairman and Chief Executive Officer]

Yes. it’s a delicate balance here. So, let me talk about sort of the broader economy. Look, there’s no doubt that we – and I think our peers have all noticed that there’s been a little bit of softening and little bit choppiness, particularly on the business transient side. We made the strategic decision a few years ago to really be focused on our internal growth strategies, right? Recycling capital, we sold 18 assets now for $750 million. Obviously, continuing on ROI projects, which we talked about continuing to improve margins, where we’ve made great progress on that front.

And then of course, grouping up really for this portfolio for park, really believe a game changer. What we always liked about Chesapeake irrespective of market conditions was that we could bolt on that portfolio and continue to implement our guiding principles if you will as it relates to asset management, we believe over the intermediate and long-term that creates tremendous value for shareholders, but market conditions are choppy for now.

I personally don’t believe and I think – we think about the abundance right now. There’s really little risk of a near-term recession, right. RevPAR still looks good in the 1% to 2% range, GDP above 2%, lower rates probably lower for longer, low unemployment and improving a savings rate for the consumer. Consumers are in good shape, consumer balance sheets are solid, low inflation probably continuing certainly indefinitely. I would tell you the one thing that probably concerned you the most sort of non-residential fixed investment spend.

The fact that that turned a little negative, although still slated to be positive for the year. That’s how I see something that we’re watching very, very carefully. But we would still say that we don’t see a recession. And in over the long-term, we were very confident that this transaction makes sense. Again, all the lines along the lines that we’ve said in all the public documents and all the disclosure stuff. Hopefully, that answers your question. And for us at part, we’re focused on the long-term. We are committed to creating a long-term sustainable platform to create significant value for shareholders.

[Rich Hightower, Evercore]

Okay. Tom, I do appreciate that color. one other question, it is a shorter-term focused question, but maybe you just answered it. but just related to the guidance for the back half of the year, the midpoint came down 75 basis points, as you said earlier, it still implies roughly 3% implied growth for the second half. You threw out some pretty strong group-based numbers for 3Q and 4Q, but maybe how much of that 3% forecast could be at risk, if we see continued degradation on the transient side, maybe stacked up against the group based if you’ve already formed.

[Tom Baltimore, Chairman and Chief Executive Officer]

It’s a very good question, Richard. The reality and I think part of the reason why we wanted to – lower guidance was really that factor on the transient side. It can be and given the softening and that we certainly saw in – largely in June, that is certainly continued a little bit in July. I would also note for listeners that we expected July that to be relatively soft and now internal forecasts are a little softer. For us given the group case that we have again, 25% we’re expecting very strong August and September.

So, we’ll be watching that carefully. We feel confident based on where we sit today and what we know that the guidance – that provided guidance makes sense. I would also note that as you did, obviously, 3% on the backend, we are still significantly outperforming our peers in terms of that RevPAR growth rate because of all the initiatives that we’ve worked so harder one.

I would also note for the second quarter, while disappointing and we certainly don’t like to, we’d like to be a beat in every situation. I think if you really isolate, we really had significant underperformance in Seattle that rest with us and our operating partner. We take responsibility for that. But if you take that out, we really ended the quarter at 1.2% and we would have exceeded that. We would’ve been at least to beat through all the other key metrics.

So, I’d like to point out occasionally you have a football, we have a bad quarter, you make a mistake. We clearly had that in Seattle. We take responsibility if you’ve been broadened it and look a little deeper. If the second quarter, we really saw sort of a fall off in New York, even though the line go with slightly even San Francisco slightly on the margin, even though they were up in a 4.5% and even in Chicago, we just saw a little bit in that business transient. They just gave us a little pause that we thought we should be more cautious as we look at in the second half of the year. We’re also seeing and we believe a lot is just driven by the uncertainty given the trade right now. Candidly, we think businesses, CEOs, those men and women are just being a little more cautious. I don’t see recession and we all see a fundamental shift, but we certainly see a need to just be there being a little more cautious and it’s clearly as affecting travel on the margins.

[Rich Hightower, Evercore]

Got It. Thank you for that, Tom.

[Operator]

Thank you. Our next question comes from the line of Smedes Rose with Citi. Please proceed with your question.

[Smedes Rose, Citi]

Hi. Thank you. I wanted to ask you, so you talked about the strong group rate paced through the back half of 2019. I was just wondering if you could give us an update on your thoughts about the group pace in 2020 and what percent of rooms will go into group. and are you – will that be kind of the level that you have to be going forward given the sort of grouping up process and do it excluding Chesapeake?

[Tom Baltimore, Chairman and Chief Executive Officer]

Yes. We clearly don’t. We are excluding Chesapeake, I don’t want to talk about that information. As you may recall, last quarter, I believe we were in that 4% to 7% range group pace. I’d say now for 2020, we’re in that 2.5% to 4% range. So, slight pullback at this point. But again, that’s an evolving and moving target. And keep in mind, we’re having such a very strong group pace this year. If you take out San Francisco, obviously San Francisco is pretty strong and certainly be on the higher end of that range just given the tough comps that will have next year given the strength that we’re seeing in San Francisco.

It’s still a real focus for us to meet. It’s something that we’re working on carefully with our partners and operating partners. We believe that it really is a competitive advantage, particularly for our top 10 assets, anchoring our business with group layering in contract and that allows us to more efficiently yield out our transients and obviously, drive against our sources of revenue. So, we’re committed to this. We think it makes a difference and candlelit it’s part of the reason why we think we’ve had outperformance of our peers over the last few years.

[Smedes Rose, Citi]

Just kind of on that, so you mentioned very strong group bookings at Waikoloa. is that – I don’t know, sort of one-time in nature or has it shifted that asset to really move it to much more of a group house versus where it was previously?

[Tom Baltimore, Chairman and Chief Executive Officer]

Yes, Well, part of the strategic initiative going back to the spin was sort of right-size the properties. So, as you know, we’re giving back and transferring 600 keys plus or minus to HEV [ph] and then we’re right sizing the hotel operations. We think it’s a more efficient box with 600 keys plus or minus, plus given the meeting space that we have. Keys what we have this year, which certainly happens in a while you get these incentive travels that as large commitments, we haven’t had two groups that are essentially buying out the hotel. So, it’s significant. I wouldn’t necessarily say it’s one-time, but it’s certainly not annual business. That’s going to be a huge benefit for us. Obviously, as we talked about the group pace, obviously in that back half the year and until why – Hilton Waikoloa will be our strongest performer in the second half and it is significant and it’s certainly beneficial.

[Smedes Rose, Citi]

Great. Appreciate your color. Thank you.

[Operator]

Thank you. Our next question comes from the line of Patrick Scholes with SunTrust Robinson Humphrey. Please proceed with your question.

[Patrick Scholes, SunTrust Robinson Humphrey]

Hi, good morning. Good morning, Tom and Sean, you noticed – you noted a group up 25%. I’m just wondering what’s the offsetting percentage on transit and I imagine that transient is a lower-rated type of transient? But just wondering, how does that balance out?

[Tom Baltimore, Chairman and Chief Executive Officer]

You’re asking Patrick, for the year, for the quarter or something…

[Patrick Scholes, SunTrust Robinson Humphrey]

For the comparables, I think you said for the rest of the year group was up 25%. I’m just wondering, how does that balance out with the transient revenues that you’re giving up with the mixed shift?

[Tom Baltimore, Chairman and Chief Executive Officer]

Yes. I mean, let me answer this way, we are 25% in Q3, we’re up 6% in through pace in the fourth quarter, third quarter slightly down from the last quarter in what we thought. but the fourth quarter is up. So again, transient is still choppy. And I would say still net positive, we were up in a 1.1%. We’re making the strategic decision though to trade some transient for group, particularly given the nature of our portfolio for the points that we’ve made, right. Well again, anchoring our business with group layering in contract – contract and stuff of 11%, we’re making that. We think it’s more efficient for our portfolio. transient, then we can more efficiently price it and certainly, the right thing for park as we’ve done as we move forward. And we’ve demonstrated that in those periods, where we have really strong group. We’ve had more effective trends. We didn’t have that in the second quarter, we knew that we were also lapping a very strong performance in 2018 second quarter.

[Patrick Scholes, SunTrust Robinson Humphrey]

Okay. Thank you. That’s all from me.

[Operator]

Thank you. Our next question comes from the line of Robin Farley with UBS. Please proceed with your question.

[Robin Farley, UBS]

great. Just to ask a little bit more about the group issue. I guess some of the strength in Q3 is a function of the calendar and maybe, some holidays shifting to Q4. So, just thinking about the visibility on Q4 group business, I guess how much we think about last year that may be some in the year, for the year, group business came in, in Q4 or I guess I’m trying to understand if it’s – do you think it would be a function of lower attendance in the year, for the year as we approach Q4, where there could be some risk in the group outlook?

[Tom Baltimore, Chairman and Chief Executive Officer]

Robin, Rob can answer the question please?

[Rob Tanenbaum, Executive Vice President-Asset Management]

Our Q4 pace improved over the last quarter by over 100 basis points. So, we’re – we had opportunity and what they to do in the marketplace and we don’t – given the holiday ship is just always going into October. We don’t see it checked until the September 30 and then October 17 for Q4. But overall, we don’t see a concern, there has been a Q4 based and in our transient pacing, Q4 is also strong as well.

[Robin Farley, UBS]

Okay. And then the commentary about the 2020 group pace, I think you had a quarter ago is a 4 to 7, now it’s up 2.5 to 4. I assuming that includes the higher numbers that were on the books a quarter ago, can you maybe, give us a sense of what the pace of new bookings just in the quarter – in the last quarter itself was in other words, the sort of current rate rather than the in the cumulative pace?

[Tom Baltimore, Chairman and Chief Executive Officer]

Yes. Robin continues to be encouraging, again, a real focus for our team and certainly, our partners at Hilton. And like it’s kind of evolved and clearly, in the 4% number, we’ve got some pending business that we’ve put into pending and that hasn’t been signed yet. But I’d say we’ve got 62% of our business on the books for next year and we’re at about 96%. So, to be in a more than many months out and has 62% for us is comparable and really comparable to what we saw last year and in previous years. So, we feel good about our position right now.

[Robin Farley, UBS]

Okay. Thanks. One last thing.

[Tom Baltimore, Chairman and Chief Executive Officer]

Yes.

[Robin Farley, UBS]

Go ahead.

[Tom Baltimore, Chairman and Chief Executive Officer]

No. What is your question?

[Robin Farley, UBS]

I just have – the last thing was just to clarify, I think in your remarks, I think I heard that you mentioned market share up 350 basis points at 65% of the portfolio or if it’s some combination like that. Do you have that figure for the full portfolio, the market share change?

[Tom Baltimore, Chairman and Chief Executive Officer]

Yes. it’s 350 basis points for our comp hotels. So, it’s 24 out of our 37 comp hotels, gain share in the second quarter. We’re very, very proud of that. And that’s just a lot of work in blocking and tackling from our asset management team, partnering with our operators, and doing very good about that. So despite a choppy quarter, despite a quarter obviously that we knew we were lapping top of the group and obviously had softer transient, we still gain significant share.

[Robin Farley, UBS]

Okay. Great. Thank you.

[Operator]

Thank you. Our next question comes from the line of Neil Malkin with Capital One Securities. Please proceed with your question.

[Neil Malkin, Capital One Securities]

Hey guys, good morning.

[Tom Baltimore, Chairman and Chief Executive Officer]

Hey.

[Neil Malkin, Capital One Securities]

The question on Orlando, obviously a big market for you guys. There’s a pretty significant large project that’s going to be delivered, I believe, later in this year and then another phase early next year, universal, I think it’s well over 2000 rooms. How are you thinking about that in terms of getting ahead of it? Maybe getting some more group on the books or more heads in beds ahead of that, or is that kind of a market where you kind of need to wait and see just given the size of it? How are you thinking about that?

[Tom Baltimore, Chairman and Chief Executive Officer]

Yes, I would say a couple of observations. We love Orlando and particularly we love all three assets there, particularly Bonnet Creek. Bonnet Creek is really underrepresented from a meeting space standpoint. We’ve known that we’ve missed out on a lot of group business as a result of that. We have carefully studied the market. We’re going to be adding obviously two ballrooms, one adjacent to the Waldorf and expanded about 40,000 square foot to 50,000 square foot ballroom at the Hilton are also going to be reconfiguring the golf course and also adding a lot more outside of meeting and event space that we’re really excited about. So we also as part of that have agreed with Hilton to up-brand Signia to be one of the first three Signia. So, a lot of our positioning there, the 400 acres given the proximity that we have, we’ve got an expanded relationship with Disney.

If you look at Orlando, Orlando is one of the top five conventional markets, I don’t see and we don’t see that changing at any point in the near future. You look at the amount of room nights coming through city-wise about $1.9 million in 2019. I think it’s going to think about $1.8 million in 2020. So still solid – doesn’t from a competitive standpoint new product as added from there and certainly interesting resorts that’s being talked about with universal. You think about what’s happening with Disney and Phase 1 and Phase 2 with Star Wars, we just see long-term if there’s going to be considerable growth there, love our positioning and certainly aren’t fearful of that additional competition.

[Neil Malkin, Capital One Securities]

I appreciate that. Then last one for me, on the renovation opportunities, you’ve obviously, Tom has been had success that your former company was sort of a repositioning or reinvisioning. Just wondering if you could elaborate on the additional opportunities you’ve alluded to or maybe Rob, with regard to more type ROI type or type of opportunities within your legacy portfolio. And then maybe as you’ve looked at Chesapeake a little bit more, do you see more or additional ROI opportunities there?

[Tom Baltimore, Chairman and Chief Executive Officer]

Yes. We’ll, stay away from the Chesapeake given the fact that they remain an independent company. Obviously we’re waiting for the shareholder vote in September and more to come, assuming that we get a favorable vote there as relates to Park really excited as both Sean and I mentioned about The Reach converting that to Curio that work will start soon. That will be done by early December. You see the results that we’re getting from the Santa Barbara been a huge success for us. The other two that we’re beginning to evaluate, it’s we’ve had the DoubleTree in San Jose, a great real estate or really well located to a lot of significant demand generators. We are going to explore converting that to a Hilton. And of course, we’ve got the DoubleTree in Crystal City at the front door of Amazon’s office complex and their expanded development here in the Arlington and the DC area. And we certainly are working with internally and also with Hilton about a redevelopment of that asset and converting that brand that as well possibly to a Hilton, but we could also co-brand that as well. So we are very excited. Those are just two that we think are going to be significant contributors to Park going forward.

[Neil Malkin, Capital One Securities]

Thank you guys.

[Operator]

Thank you. Our next question comes from the line of Chris Woronka with Deutsche Bank. Please proceed with your question.

[Chris Woronka, Deutsche Bank]

Hey, good morning guys.

[Tom Baltimore, Chairman and Chief Executive Officer]

Good morning, Chris.

[Chris Woronka, Deutsche Bank]

Hey, morning. Want to ask you, it’s I think pretty clear to a lot of us that, that the Hilton brands are outperforming, recently or perhaps for several quarters now. And the question is kind of how do you guys look at that going forward? How do you underwrite the legacy Park assets in terms of that you’ve been out punching for some time now? Does that, does that kind of automatically continue or does, if Marriott doing a lot of things right, does that eventually kind of a road that, that advantage or how do you underwrite looking forward?

[Tom Baltimore, Chairman and Chief Executive Officer]

Yes. Chris, it’s great question. I obviously, as many of the listeners know, I worked for Hilton twice and I worked for three of the Marriott companies. So, I have pretty strong feelings about this. I had believed for some time having those two strong formidable companies being one here in the DC area, being competitive, pushing each other as a result, they’re pushing each other to be better. We think that’s going to be great for the entire industry. We believe passionately. One of the motivations for us as part of the Chesapeake deal is obviously to have the brand and operator diversification, but that does, is to get all of that good best practices that you see from the other brands, from other independent operators, from the brand operators. And we believe that over the long-term that makes us also a better owner. And we think we can make our partners better managers, better franchise owners.

We would also say the same thing for Hyatt and we have tremendous respect for. So we’re really excited to be moving and diversifying over time. There are going to be pockets where, one is outperforming the other. But when I think, when you think about, Marriott, Hilton and also Hyatt you think about the growth, but I was, when I rejoined Hilton four years ago, they had 53 million members in their loyalty program. I think Chris announced last week, there’s 94 million plus or minus now about 63% of their occupancies, that is really formidable. I think Marriott is north of 120 million and probably growing.

So when you think about that engagement and that opportunity and that loyalty, the real benefit, most importantly RevPAR premiums, both of those brands are averaging about a 14% premiums over their competitors in particular as an owner, we want obviously the right real estate. We also want the right brands. And of course we want to generate those RevPAR premiums in theory that should generate into more revenue, higher margins, and hopefully more return on investment. So we’re excited about it, not fearful. Clearly Hilton has had an incredible run. Chris and his team have done a fabulous job and I would expect, I’ve seen those slow down and all of that. And Marriott still working through transition issues obviously with the Starwood integration, but I certainly wouldn’t bet against them and I know that they’re also going to be vulnerable and moving forward.

[Chris Woronka, Deutsche Bank]

Okay, great, great color. I appreciate that Tom. And just the follow-up on San Francisco where, I think it’s pretty well understood that the group numbers are very strong. And that I think that kind of gets you through at least 20 and not to pick too much, but I think we have seen the transient does seem to be something going on in the transient side in San Francisco and you have any thoughts on that? On why kind of given, what we think is a pretty strong backdrop for the industries that are out there. Why San Francisco is struggling on transient?

[Tom Baltimore, Chairman and Chief Executive Officer]

Yes. I think it’s a fair question, but let’s all sort of keep an introspective here. I mean, you’re looking at 1.2 million on citywide room nights there. That probably drops down to a million, probably close to a million in 2021 is well based on the forecast today probably down to about 800,000 looking at the low watermark was 2017 and 2018 obviously during the renovation, 600,000 to 700,000 and, of course, back in 2016 still 900,000 so given the destination, the amount of limited new supply San Francisco and our view continues to be very strong market as we look out, there are some issues, the homeless, some housing, some other issues that I think certainly the city is addressing and working through, but we’ve certainly remain bullish and even on our own forecast we fully expect that RevPAR for the year is probably going to be somewhere in the 8% to 9% range and we’re an industry is probably in the one in change.

So we still feel very good even if it’s a little bit of pullback on the transient. I think it goes back to my earlier comment that I think CEOs, I think those men and women right now are just pausing. That’s a little bit of caution. I think people want clarity as it relates to some of these outstanding issues and particularly on the trade battle. But again, we don’t see – we don’t see recession and fearful of that in the near term. Hopefully just a soft patch often we get clarity of the fundamentals of the business are still are still sound.

[Chris Woronka, Deutsche Bank]

Okay. Very good. Thanks, Tom.

[Operator]

Thank you. Next question comes from the line of Bill Crow with Raymond James. Please proceed with your question.

[Bill Crow, Raymond James]

Great, thank you. I just wanted to follow-up. Tom, do you think San Francisco can be positive next year given the tough comp and the decline in convention nights? And also would like to get your perspective about New York in 2020 relative to maybe the broader industry. Is it another year of an underperformer? Is it an outperformer? What do you see there?

[Tom Baltimore, Chairman and Chief Executive Officer]

Yes. Great questions Bill. I was going to speak with you. I would still see despite the tougher cops coming in San Francisco, so you don’t expect it’s going to be 8% or 9%, but keep in mind just on the citywide just still looking at about a million. That’s 16% down from where we are today. Still over the last high watermark, which had been 2016 when you take out 2019, so still a solid year. I would say it’s probably low to mid single digits with totally new the range, but that can also change depending on the operator. As we look out clearly we’re still seeing positive through pace, not going to be in the range 20 – north of 20% that we’re seeing this year, but we still are very bullish and are still focused very much on that group of strategies in San Francisco, I would see San Francisco as the stronger performer vis-à-vis New York.

Let’s be honest, I think that New York has really missed this cycle. I’m hoping as the supplier will peak next year at about 4%, I believe in the city is still runs high occupancies in the 85. We just don’t have the pricing power. And obviously I think that candidly comes back to owners and operators needing to do a better job yielding a little more courage as we look at in New York, long-term most on New York. But I would still say that it would be a slight under performers we look out our group pace next year since definitely it’s up. We’re really pushing to get north of 200,000 room nights as we look out for New York next year. It’s in strong and we’re up, I believe about 30% plus or minus in the group room nights for next year.

[Bill Crow, Raymond James]

Great. That’s helpful commentary. Thank you.

[Operator]

Thank you. Our next question comes from the line of Shaun Kelly with Bank of America. Please proceed with your question.

[Shaun Kelly, Bank of America]

Hi. Good morning everyone. So, I just wanted to ask, most of my questions have already been covered, but maybe a little bit more color Tom, if you could on, so what you’re seeing on some of the activity outside for outside the room spend. I mean obviously you’re doing great on the overall group booking side. It looks like that’s going to continue for the back half. Are you seeing any just behavioral changes as it relates to outside the room spend, and/or attrition cancellation, just kind of how are the groups performing once you’re actually getting them on property relative to your expectations?

[Rob Tanenbaum, Executive Vice President-Asset Management]

Hi, Shaun. It’s Rob Tanenbaum, in terms of that group pace and contribution. We were really pleased to see the growth that we experienced in Q2 of 1.1% in the retailing contribution, [indiscernible] three quick examples; we had a lot of hotels experienced and increase on group contribution on a group pace with 20% group contribution [indiscernible] 34% respectively, we’d like to allow with the 63% group contributions. We’re very pleased to see that increase. You have seen an increase in our resort study at the practice from overall added for non-room revenue based on the sort of portfolio of the quarter.

[Shaun Kelly, Bank of America]

Thanks for that, Rob. And you getting commitments when you’re signing up the groups, are you getting commitments for advanced spend, better minimums, larger blocks, anything again on the behavioral side as it relates to the booking patterns?

[Rob Tanenbaum, Executive Vice President-Asset Management]

Shaun, nothing’s changed in terms of the data, the book you’ve had on the papers associated with it.

[Shaun Kelly, Bank of America]

Thanks very much.

[Operator]

Thank you. Our next question comes from the line of Lukas Hartwich with Green Street Advisors. Please proceed with your question.

[Tom Baltimore, Chairman and Chief Executive Officer]

Hey Lukas.

[David Guarino, Green Street Advisors]

Hey this is David on for Lukas. I noticed there was a $10 million gap between the sales price of the three hotels you sold in June from the first quarter earnings release. Was there – maybe a change of buyers’ expectations for underwriting those assets or was that something different? And then if you could maybe just tie that with your comments earlier about the strength in the transaction market, that’d be great.

[Tom Baltimore, Chairman and Chief Executive Officer]

Yes, let me, we sold the three pack originally under contract for $175 million close for $166 million candidly related to some due diligence matters with one hotel. Again, all three noncore assets RevPARs that were 35% to 40% below our portfolio average and we saved about $50 million in deferred CapEx by not proceeding and holding. Again, consistent with our strategy which we’ve communicated and which we’ve had successfully of these two sell noncore. We’ve now sold 18 assets for $750 million when you add up all of the deferred CapEx also that we’ve saved to about another $250 million. So we really think we’ve created significant value for shareholders. That particular asset was in real outlier and really difficult asset with some complicated issues really is not the right asset for a for Park and the type of portfolio that we’re looking to build and as a better fit for the private equity buyer that given their strategy.

So pleased with the transaction, if you may also recall what we said in our combined documents that we were looking to sell. We’re hoping that – Park selling our free pack and then Chesapeake obviously selling their two assets in New York that we could generate proceeds net of 300 million. We’re pleased to say that we’re in that range and then that’s a positive for the combined company again assuming it gets approved by shareholders.

[David Guarino, Green Street Advisors]

Great. And then, if you could just kind of elaborate a little more maybe on your comments and your prepared remarks about the strength in the transaction market. Is that more buyers coming to the table? Is that pricing kind of coming in higher than you thought?

[Tom Baltimore, Chairman and Chief Executive Officer]

David, I would say there’s plenty of liquidity both on the equity markets down the capital. So we don’t see that at all being a hindrance to getting deals done. In fact, we received a ton of inbound calls from whether that’s private equity, whether that’s at other reeds, whether that’s family offices, whether that’s owner operators. We think it’s a very healthy environment.

[David Guarino, Green Street Advisors]

Great. Thanks for the color.

[Operator]

Thank you. Ladies and gentlemen at this time there are no further questions. I would like to turn the floor back to management for closing comments.

[Tom Baltimore, Chairman and Chief Executive Officer]

Thank you. It’s Tom Baltimore. Enjoy the rest of your summer. We’ve enjoyed your discussion with the board and talking to you at the end of our third quarter and hopefully we’ll see many of you talking about in our various meetings and subsequent weeks and months.

[Operator]

Thank you. Ladies and gentlemen, this concludes today’s teleconference. You may disconnect your lines at this. Thank you for your participation.