Park Hotels & Resorts Inc

NYSE:PK

Earnings Call Transcript 2019-Q4

[Operator]

Greetings and welcome to the Park Hotels & Resorts Fourth Quarter and Full year 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. [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.

[Ian Weissman, SVP, Corporate Strategy]

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 law. 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 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.

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 and update on our capital recycling efforts as well as established guidance for 2020.

Sean Dell'Orto our Chief Financial Ifficer 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.

[Tom Baltimore, Chairman & Chief Executive Officer]

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 Parks 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 a 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 the RevPAR growth tapping the full service hotel REIT sector by 30 basis points. As we continue to make progress on narrowing, the margin gap at our peers. We also continue to recycle capital in 2019 completing the sale of eight non-core hotels for total proceeds of 497 million of terminating the ground lease of the Hilton Sheffield.

In addition, we closed on two non-core sales this month, which takes our total non-core dispositions over the last two years to 24 assets and over $1.2 billion in proceeds. Finally, in 2019, we've returned over 420 million of capital shareholders, taking our three 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've built since spinning out of Hilton three years ago. Park is 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 Maury, 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 who 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're 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. 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 three key priorities over the next 12 months. Our first priority is a 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 of 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 transit 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 Higher Fisherman's Wharf increased 11% in the fourth quarter, as we encourage 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 and our ability to unlock the embedded opportunities. Second, we remain focused on recycling capital for the goal of continuing to improve the quality of the portfolio. We recently announced the sale to Hilton San Paolo for total proceeds of $118 million and a grows multiple 14.9 times, completing our exits from international markets after having disposed of 14 non-U.S. hotels in just three years, an impressive accomplishment.

We're also closing the sale of Park Embassy Suite DC for $90 million or 14.8 times forward EBITDA. Both sales are part of our broader program to sell approximately $550 million of non-core hotels to reduce leverage styling our acquisition of Chesapeake. With these latest transactions, we have nearly reached our goal with $470 million sold following 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 commitments 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 were paid $230 million of debt with proceeds from our Q4 assets sales and we will look to us all or a portion of the proceeds from our recent sales to further reduce leverage.

Turning to our portfolios 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 of 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 am very pleased with our ability to control our hotel adjusted EBITDA margin, which decreased 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 only full year basis performer group revenues increased a very impressive 5.8%, which left a tough year-over-year comp.

Our strong geographic footprint and 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, palpable revenue was flat for the quarter and down just 60 basis points for the year.

The fourth quarter performance negatively impacted by this is transient, which was down 3.6% and down 2.2% for the year. This is transient weakness was partially offset by strength and 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 performance basis, driven by a nearly a 5% increase in banquet and catering revenues while our ancillary income which includes resort fees and parking revenues increased an impressive 8%. Our 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 still have runway for additional revenue growth in the coming year.

Turning the guidance, as I looked to the remainder of 2020, I am encouraged by broader macro trends as the economy continues to be supported by healthy employment gains, a sturdy and resilient U.S. consumer and low rates from an accommodate a federal reserve.

As it relates to Park, we remain confident in our ability to continue achieving our objectives because we are 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, Austin, 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 Corona virus, not only on the global economy, but also in U.S. lodging fundamentals in particular, has us taking a more conservative approach for 2020 guidance.

Accordingly, you're 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 San Paolo and Embassy Suites DC, 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.

[Sean Dell'Orto, Chief Financial Officer]

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 $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%or 80 basis points higher than prior year, while our average dealer rate end the quarter at $221 or a decrease of 30 basis points year-over-year. These top line results produce 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 at 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 hotels RevPAR was over 18.5%, again outperforming the comp set by 1,000 basis points in the Big Island submarket by roughly 1,200 basis points. These are the maintenance of the Big Island sharply rebounded in 2019 following the prior year's disruption from the Kellaway of Volcano, coupled with strong growth in a contract segment and two group buyouts at the resort.

With the successful handoff or the remaining 466 Ocean Tower rooms, the Hilton Grand vacations on January 1st, Hilton Waikoloa Village now operates as a two tower 644 room complex, which we expect to be efficiently right size to remain strategically focused on a group segment while more aggressively yielding transient demand.

Hawaii resorts 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 a 130 basis points of disruption related to phase one of our top of tower guest rooms renovation.

Hilton Hawaiian Village also increased market share by 170 basis points during the quarter and reported 2.1% RevPAR growth for the year. Given the solid measure trends in Hawaii combined with increased airlift from Southwest and ANA. We are currently forecasting modest growth in Hawaii for 2020; however, this does not consider any impacts from the corona virus.

Other solid performance during the quarter included Denver with RevPAR growth up nearly 10%. Our three hotels in Orlando which wrote 5.5% combined and they help in Santa Barbara, which is up 8.6% on continued tailwinds from our brand conversion in 2018.

Our portfolio of six 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 kept the landmark group year. Looking ahead to 2020, San Francisco faced very difficult comps with convention count room nights down materially to 850,000 room nights.

Moving toward balance sheet, we remain in great shape with pro forma net debt to adjusted EBITDA at just 4.2 times as of yearend 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 PC performing net leverage would drop by another 10th of a turn to 4.1 times. Overall, we feel very good about our leverage ratio and liquidity position with over $1.3 billion between our on tap revolver and cash on hand.

Turning to the dividends similar to prior periods, we paid a fourth quarter step up dividends of $0.55 per share equate real 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 and $0.45 per share to be paid on April 15th, the stockholders of record as a March 31st. 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 dividends 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 $249 inclusive of our rebuild of the Bay Hilton, while our maintenance CapEx figure was $169 for or under 6% of revenues.

A 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 Signia Hilton in Phase 1 of the guestroom innovation that doesn't wind below just top a 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 is 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 non-comparable in 2022 to account for the room give backs, while the Caribe Hilton will also remain a non-comp hotel.

I would also like to point out that there will be some variability in our quarterly performance with Q1 expects to be one of our weakest quarters, given very difficult year-over-year comps with RevPAR growth for our San Francisco portfolio lapping at 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 and New Orleans in 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 in the Bonnet Creek ROI project.

That concludes our prepared remarks. We will now open the line for Q&A. To address each of your questions, we ask that you limit yourself to one question and one follow-up. Operator, may we have the first question please.

[Operator]

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from line as David Katz with Jefferies. Please proceed with your question. Mr. Katz, your line is live. Mr. Katz, perhaps you have your line on mute. Our next question comes from line of Anthony Powell with Barclays. Please proceed with your question.

[Anthony Powell, Barclays]

Question on the coronavirus impacts you outlined in the prepared remarks. Where specifically was that impact? And did it relate either group cancellations or leisure transients? And generally would you expect there will be more impact on group versus leisure in your portfolio?

[Tom Baltimore, Chairman & Chief Executive Officer]

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 a $1.5 million plus a minus, there was about $1 million for Chinese group in Hawaii. And then a plus or minus, another million dollars and what we saw in sort of a Chinese crew coming out of New York City, again, very isolated, 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 is example, certainly Japan accounts for about 3% of our overall demand, about 250,000 room nights and probably at 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 the totally in Hawaii, we were watching carefully, we were 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 priorities that we outlined in our prepared remarks.

[Anthony Powell, Barclays]

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

[Tom Baltimore, Chairman & Chief Executive Officer]

It's a great question. And again, as we outlined in our prepared remarks and consistent with what the playbook that I've shared with many analysts and some of the many of investors, the priorities are going to remain the same based on where we sit today and that is integrating Chesapeake portfolio, continuing to sell noncore assets and reduce leverage and activate the buyback.

Clearly at these levels, in fact that we're trading at such a huge discount 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.

[Operator]

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

[Rich Hightower, Evercore]

I guess really just to 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. 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?

[Tom Baltimore, Chairman & Chief Executive Officer]

That is correct. We want it to be transparent and to share what we know at this time.

[Rich Hightower, Evercore]

I think that answers that then. And just on a follow-up to the capital allocation question. As 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, it's 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?

[Tom Baltimore, Chairman & Chief Executive Officer]

That's a great question. Rich, I think it's important to sort of step back and think about part when spun out, right? 67 largely Hilton branded hotel sort of a barbell. We had a top 10 or 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 and putting assets in South Africa, Germany and the UK, 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 an increased selling disclosure and information on the top 30 assets. We would respectfully submit those top 30 assets or as 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 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 certainly are well aware of our stock performance and the discounted NAV. You can argue whether that any of these come in slightly or not, but the reality is that we clearly are trading at a significant discount NAV.

[Operator]

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

[Smedes Rose, Citi]

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

[Tom Baltimore, Chairman & Chief Executive Officer]

Yes, we ran -- we assumed about 3.8% of wages 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, as most of those union contracts were negotiated last year. So we can expect as we move forward in terms of wage rates and benefits peaking, I would say that it's going to peak certainly this year and 3.8% to 4% range.

[Smedes Rose, Citi]

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. I mean, it looks like the dividend becomes kind of tight. I mean, 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?

[Tom Baltimore, Chairman & Chief Executive Officer]

No, we remain committed to the dividend as the current levels. We do not believe consistent with what Sean said in the past, paying out our FFO in that 67% range that we are comfortable, we do not see risk at all. And we can maintain our, I mean, this CapExin in that 5.5% 6% range.

[Operator]

Next question comes from line of Gregory Miller with SunTrust. Please proceed with your question.

[Gregory Miller, SunTrust]

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 blockchain? And how are you and Hilton are working together to market that new brand, both to the transients and the group guests?

[Sean Dell'Orto, Chief Financial Officer]

Hey, Greg, it's Sean. The Signia brand should ultimately come through around kind of late 2021 we believe. Obviously, 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 additional just the meeting space, so more kind of towards the back end of the next year on that.

[Johnny] is doing plenty of great marketing on the meeting space. Certainly, you've got a lot of good traction on booking into that main 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 as a second year right now. But it's really been working closely with those and they kind of ramp up those efforts in due course.

[Tom Baltimore, Chairman & Chief Executive Officer]

Greg, one of the things that we've heard from both Hilton and our onsite operators 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 reserve of 350 acres championship golf course plus having both the building and the Waldorf brand. So, we're making that long-term investment. We believe this is a great ROI project that will generate high tunes returns and the booking pace in this feedback that we're hearing from many 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 that have well-positioned assets that had sort of elevated, if you will something depressed, compete with the JW Marriott brand as an example. So, we are really excited about it. We think there is huge upside in our portfolio and this clearly is a world-class accent that is also possibly with the business.

[Gregory Miller, SunTrust]

Same things for all the great color there, I do want to keep going further south for the follow-up question and ask about the Caribe. Given what you've guided for this year, how much of the challenge do you see is driven by a perhaps supply or demand issues in the Caribbean in general versus say challenges and attracting demand to Puerto Rico specifically?

[Tom Baltimore, Chairman & Chief Executive Officer]

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

[Operator]

Our next question comes from the line of Ari Klein with BMO Capital Markets. Please proceed with your question.

[Ari Klein, BMO Capital Markets]

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

[Tom Baltimore, Chairman & Chief Executive Officer]

Klein, I would probably say it worked well that our group pace for the portfolio is down or 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's going to continue kind of the course of the other spend as you do the RevPAR to the margin type of equation. Cool, that's equation and part of the equation that, people don't discuss a lot, they try to do RevPAR down to that. But our spend and certainly, we're seeing that in parking and you're facing great growth there, but at least a little bit -- a little lower than in the past just given the setup for this year.

[Ari Klein, BMO Capital Markets]

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?

[Sean Dell'Orto, Chief Financial Officer]

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

[Operator]

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

[Arpine Kocharyan, UBS]

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

[Tom Baltimore, Chairman & Chief Executive Officer]

Robin, we've got, as we said in our prepared remarks another $250 million to $360 million in assets. We currently are marketing one asset now and expect obviously to receive a real time bps here in the very near future. We still think it's an active market, there's plenty of equities. There's plenty of big capital as well. And I think as we've indicated, by selling eight assets last year in terminating our, the ground lease in Sheffield in the UK, we've had great success continuing to sell a non-core asset.

So, there's an active market out there. Whether that is temporarily disrupted or different, a little more cautious we'll see. We're not hearing that as we, as we've talked with prospective buyers, about assets that we are marketing or are considering the market. So we remain cautiously optimistic. And we will also bring it back to our track record of really having, I think, demonstrated our ability to sell non-core assets, many of which has been very compensated from both our legal, tax, restructuring, particularly given the fact that we've unloaded 14 International assets, many of those with foreign buyers.

[Arpine Kocharyan, UBS]

And then, transit business obviously seems softer, but does that get worse on year-over-year basis versus Q3 or sort of continue to weaker trends in terms of what you're seeing in transit business?

[Tom Baltimore, Chairman & Chief Executive Officer]

No, clearly October was really soft. November came back, so in December we're strong. As Sean mentioned in his prepared remarks, obviously first quarter and to remind listeners, will be our --- we believe our softest quarter given the fact that we're lapping RevPAR growth last year for 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 another 1% to 2% range or RevPAR. But with obviously stronger back half of the year, we're expecting transients, clearly leisure continues to be stronger than what we've seen in business transient and although we did this is what causes on December front.

[Operator]

Our next question comes from one of Chris Woronka with Deutsche Bank. Please proceed with your question.

[Chris Woronka, Deutsche Bank]

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

[Tom Baltimore, Chairman & Chief Executive Officer]

Yes, it's a great question, Chris. We are continuing to study at ourselves. We think back to the original plan and the 24 million largely weighted towards replacing and eliminating, honestly 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, it's really encouraging.

We also think that we'd be benefits from having a favorable convention calendar and many of those markets coupled with renovation tailwinds. As we sort of dig in, I'll take the two in Chicago is Newcastle this week, dig in there and we've huddled with work with our partners, with Marriott. We are seeing other opportunities to performance there.

And I do think the Bonvoy Marriot has 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 coating system as well. So the jury's still out. We continue to study and monitor that ourselves and we'll certainly have more to report back in the future.

[Chris Woronka, Deutsche Bank]

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 moved to reduce their exposure to the market?

[Tom Baltimore, Chairman & Chief Executive Officer]

Yes, it's a great question. We all struggle. As you think about New York, one of the great cities of the world, we all have to believe that it's going to come back, but it's really miss the cycle. And as we think about again, putting down 4.7% in the quarter and another 1.8% and then watching sort of cash flow continue to erode and it's quite frustrating. A supply I would tell you is the biggest issue. And I would encourage the brands to haul on it. Enough is enough in New York is a very direct comment there on that.

And I also think we need to think about what's happening with shadow supply. You think back to 2011, there were a super compression days there was a man in the city North of 95% about 141 days. We estimate this year we'll beat down probably mid teens as an example. So really a road and the pricing integrity in New York and made it a very typical environment. And now as we all hear about, potential owners who are in jeopardy.

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 of platform. And so we're not throwing in the hotel, and we continue to work hard with our partners, have build and continue to drive value. But clearly it's been frustrating quite frustrating as we think about this decade and this cycle for New York.

[Operator]

Next question comes from one of Bill Crow with Raymond James. Please proceed with your question.

[Bill Crow, Raymond James]

Apologize I got a little bit late, if you've covered it just move on, but you tend to have embraced the crew business, the contract business a little bit more than maybe some other owners. And I'm wondering how bigger impact you're seeing from coronavirus cancel flights in the particular San Francisco, Hawaii, New York? Is that really a headwind for you?

[Tom Baltimore, Chairman & Chief Executive Officer]

It is not, Bill. As we -- early in the Q&A, you may have missed. We talk a little bit about some Chinese food 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 it all, any kind of fall off in that respect.

The crew contracts about 5% 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 to transient. We've had success in our short duration since we respond out. So we continue to see us use that playbook as we move forward.

[Bill Crow, Raymond James]

No impact from San Francisco from the group business thus far.

[Tom Baltimore, Chairman & Chief Executive Officer]

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

[Operator]

Our next question comes from David Katz with Jefferies. Please proceed with your question.

[David Katz, Jefferies]

Good morning, everyone. 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, but I want 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?

[Tom Baltimore, Chairman & Chief Executive Officer]

David, it's a great question. I think back to my past life when, at peak we had 16 to 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 might make up that we have today, meaning having 7 to 8 financial companies including Hilton and Marriott, our partners our 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 of the big resorts. Generally by and large, the brands management companies have the wherewithal having scope and capacity and the resources to be able to support those. Other hotels that may be 300 rooms urban, largely rooms boss with limited food and beverage and limited brew. You could have a more nimble management company that may have a particular brand focus or regional or an asset tight focus.

So I think finding the right situation makes sense for us, obviously, given the fact that we were spun out of Hilton. Clearly I should think about our top 10 assets and those iconic assets. Those are obviously under the 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 that 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. And 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 that are unencumbered by flagging in for management. So that's clearly something that we'll continue to evaluate it over time, but make no mistake I think. 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. We are incorporating that into the asset management tool.

[David Katz, Jefferies]

If I may follow that up, would a circumstance like New York, right, where there is general pressure and searching for best outcomes with 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've looked more into third party opportunities?

[Tom Baltimore, Chairman & Chief Executive Officer]

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 Sam Cisco's example where we have, again, multiple operators given six hotels up there and being able to share best practices, looking at revenue management strategies, thinking about different ways to manage the yield there. It's 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 is that we just had too much supply. That's a road in any kind of pricing integrity coupled with the shadow supply and enough is enough, and I think brands have got step forward and show leadership in that regard.

[Operator]

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

[Neil Malkin, Capital One]

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 this due to corona fears?

[Tom Baltimore, Chairman & Chief Executive Officer]

Nothing more than what we've shared.

[Neil Malkin, Capital One]

And then just related to the dividend, you said 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?

[Tom Baltimore, Chairman & Chief Executive Officer]

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 in that phase.

[Operator]

Next question comes from line of Lukas Hartwich with Green Street Advisors. Please proceed with your question .

[Lukas Hartwich, Green Street Advisors]

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 it that was the non-room revenue line or total revenue line?

[Sean Dell'Orto, Chief Financial Officer]

2% is plus or minus of total revenue.

[Lukas Hartwich, Green Street Advisors]

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

[Sean Dell'Orto, Chief Financial Officer]

No. Little bit. Little bit to be little bit lower, I think on out of room spend.

[Operator]

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.

[Tom Baltimore, Chairman & Chief Executive Officer]

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.

[Operator]

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.