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Park Hotels & Resorts Inc
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Greetings and welcome to Park Hotels & Resorts Inc. Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [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.
Thank you operator and welcome everyone to the Park Hotels & Resorts fourth quarter and full year 2020 earnings call. Before we begin, I would like to remind everyone that many of the comments made today are considered forward-looking statements under federal securities laws.
As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed and we are not obligated to publicly update or revise these forward-looking statements.
In addition on today's call, we may discuss certain non-GAAP financial information such as adjusted EBITDA. You can find this information together with reconciliations to the most directly comparable GAAP financial measure in this morning's release as well as in our 8-K filed with the SEC and in the supplemental financial information available on our website at pkhotelsandresorts.com.
This morning Tom Baltimore, our Chairman and Chief Executive Officer will provide an overview of the industry as well as a review of Park's fourth quarter performance. He will also provide the company's views on 2021 as the industry recovers from the devastating effects of the global pandemic although we will not be providing full year guidance at this time.
Sean Dell'Orto, our Chief Financial Officer will provide a brief review of our fourth quarter and full year results as well as a more detailed view on our balance sheet and liquidity. Following our prepared remarks we will open the call for questions.
With that, I would like to turn the call over to Tom.
Thank you, Ian and welcome everyone. I want to start by expressing my profound sadness that my friend Arne Sorenson is no longer with us. Arne was a giant in our industry more importantly, we have lost a genuinely kind and compassionate human being. He was a loving father and husband and a true friend to many.
For those of us who were lucky enough to cross paths with Arne, our lives are a lot richer because of it. Arne will be greatly missed. I send my sincere condolences to his wife Ruth and their children.
As I reflect back on 2020, there is no doubt that last year was the most difficult period our industry has ever faced. And I could not be prouder of how the Park team managed through the adversity and met the challenges head on. As the pandemic began to take hold, we quickly took steps to protect our team members preserve our liquidity position and plan for the long road ahead.
Our efforts to significantly reduce operating costs by suspending operations at 38 of our 60 hotels cutting our CapEx budget by 75% suspending our dividend helped to meaningfully reduce our monthly cash burn rate to just $42 million during the fourth quarter.
In addition we made great strides to strengthen our balance sheet and liquidity position. And with the highly successful launch of two corporate bond offerings in 2020, raising nearly $1.4 billion of capital and amending our bank credit facilities.
Finally, with the business stabilized and demand trends showing signs of improvement, we began to prudently and responsibly reopen hotels while identifying additional operating efficiencies including the permanent removal of $70 million of costs across the portfolio.
We continue to actively pursue other potential cost savings as we ramp up operations at our hotels. Today 50 of our 60 hotels are opened accounting for approximately 75% of our total room count.
Despite some challenges across some of our core markets we are optimistic that we will not need to re-suspend operations at any hotels based on our current outlook. Regarding our liquidity position we currently have $1.4 billion of liquidity available to us with just $100 million of debt maturing through 2022.
Turning to our fourth quarter results, as expected, we saw little performance improvement during the quarter with RevPAR, down 85% as both group and business trends remained impaired by the effects of the pandemic. Our leisure business was down 78% overall for the quarter, drive to leisure continued to outperform on a relative basis. Occupancy at our drive to leisure portfolio averaged over 33% during the quarter, a 120 basis point improvement over the third quarter.
We witnessed relatively solid results at several of our resort properties especially across South Florida. Key West remains one of our stronger markets, our two hotels Casa Marina and The Reach continue to outperform the submarket, with hotel occupancy averaging 70% during the quarter. I'm also pleased to share that the Casa Marina celebrated its 100th anniversary this past December an important milestone for this iconic property.
Looking ahead to 2021, we expect performance at our Key West properties to remain strong, aided by increased airlift capacity, which should help to support the pent-up leisure demand for the region. The year is off to a good start with January occupancy averaging 68% across the two properties and February is expected to be well above 80%, while the average daily rate is relatively in line with pre-pandemic levels.
In Miami, we witnessed solid results at our Royal Palm Hotel as South Beach has enjoyed sustained positive leisure momentum, aided by Miami Day's decision to lift restrictions in October. Royal Palm's occupancy for the fourth quarter was 56% and increased to 69% in January with February on pace to hit 85%.
Turning to Hawaii. The islands officially reopened for business on October 15 and visitors can now bypass the state's mandatory 10-day quarantine with proof of a negative COVID test within 72 hours of departure. We reopened our first hotel 647-room Hilton Waikoloa Village in mid-November, followed by the partial reopening of our 28 -- 160-room Hilton Hawaiian Village Hotel on December 15.
At Hilton Hawaiian Village, results were encouraging during the initial two weeks that the hotel was open in December, with Christmas week occupancy in the high 20% range and New Year's popping 31%. This level of demand was enough to warrant opening two of the five towers during the holiday season. In addition, despite being nearly double the size of the nearest comp set property Hilton Hawaiian Village materially outperformed its concept properties on both occupancy and RevPAR throughout the holiday season by 33% and 19% respectively.
Throughout the pandemic, Hawaii has been one of the most restrictive states in the nation, although the situation seems to be turning a corner. With the rollout of the COVID-19 vaccines and the drop in case count, state officials are close to easing travel restrictions, allowing for unrestricted interisland travel for those individuals that have been fully vaccinated as of March 1, while the potential for Trans-Pacific travel by May 1. This is very good news for demand trends over the back half of the year, with the Continental United States making up 67% of inbound travel to Hawaii.
We expect the first quarter of 2021 to remain challenging for Hawaii given the continuation of global travel restrictions. However, we are already starting to see signs of increased demand in that market with a noticeable pickup in February with the Hilton Hawaiian Village achieving 900 rooms occupied over the Valentine and the President's Day weekend combo. Waikoloa hosted over 500 occupied rooms. Rates are improving as more bookings are funneling through the higher-rated channels with a reduced reliance on OTAs.
The back half of the year group bookings continue to hold. Our transient bookings have increased a consistent theme we heard from several of the main airline carriers to the islands. Overall, it looks like demand trends, cost efficiencies, airlift and travel restrictions are all moving in the right direction and setting a much more positive tone for 2021.
If we look out over the next 12 months, we have several key priorities we intend to focus on which we believe will help position park for long-term success. First and foremost, we remain laser-focused on deleveraging the balance sheet with a long-term goal to get back to our stated range of three to five times net debt to adjusted EBITDA. While organic growth will be the primary driver, we will initiate the marketing process for several hotels as the bid-ask spread continues to narrow with the improvement in operating fundamentals. Overall we hope to sell upwards of $300 million to $400 million in non-core hotels during 2021. We will provide further details on asset sales as they occur.
Second, we look to safely and efficiently reopen the balance of our portfolio and continue to chip away at our monthly cash burn rate with a goal of returning to breakeven over the back half of the year.
Finally, as we have noted on several past calls, we continue to work on -- we continue to work with our operating partners to enhance the hotel operating model. Overall, we believe that the efficiencies that we have already implemented over the past year and will continue to focus on as the sector recovers are sustainable and have the potential to realize incremental margin improvement over time.
With respect to the broader lodging recovery, we remain encouraged by the progress that has been made on the vaccine front with nearly 70 million doses already administered in the US. At the current pace of daily vaccinations, it is estimated that by late summer early fall upwards of 75% of the US population could be fully vaccinated.
We expect that lodging recovery will be further bolstered by a healthy US economy as massive amounts of fiscal stimulus and accommodative fit continue to support the economy including the $900 billion plan Congress passed in December and an additional $1.9 trillion recently put forth by the President with the possibility of a significant infrastructure spending bill to follow as well.
Additionally, the US personal savings rate has soared to almost 14% equating to over $1 trillion saved over the last 12 months, while GDP growth is forecasted to be near 6% for 2021. Against this backdrop, we believe there is significant pent-up demand, which should lead to accelerated growth beginning in the second half of 2021 as both business and leisure travelers seek to reclaim all that was lost in 2020.
As more of the population is vaccinated, travel restrictions eased, corporate offices reopen, demand trends will undoubtedly improve and we believe Park is incredibly well positioned to successfully lead our industry through this expected recovery phase. By and large, demand recovery is projected to follow recent trends with drive to leisure continuing to lead during the early phases of the recovery, with over 45% of our rooms located in drive to markets, we believe Park remains very well positioned for this early phase of the recovery.
We've been very encouraged with the improvement in demand since the beginning of the year with portfolio-wide occupancy is improving sequentially over the last several weeks. We have witnessed particularly strong results at several of our drive to and leisure markets, including Key West, Miami, New Orleans, Seattle and Southern California.
The next phase of the recovery, which we anticipate may begin to take shape during the third and fourth quarter of 2021 is expected to be fly to leisure a disproportionately high US savings rate and pent up desire for travel should help to support demand trends across several of our key markets including Hawaii, Orlando, Miami, Southern California and even San Francisco as restaurants and local attractions reopen.
On the corporate side, however, there remains very limited visibility with many companies remaining more focused on when to bring workers back to the office full-time and less focus on booking travel at this point. The group side is expected to be similarly impacted by the lack of corporate travel in the near term. However, we are encouraged by the lead volume and group booking activities seen since November shortly after news of the vaccines were announced. With leads for 2021 doubling and definite bookings for the year increasing fivefold in January.
In addition, looking out to 2022, group pace is largely holding firm at this point with rates up 3% over the 2019 levels. While the industry still has a long road ahead, I'm very optimistic about the lodging recovery and Park's relative position. I'm incredibly proud of the entire Park team, which worked tirelessly all year. And thanks to their hard work and dedication I am confident that we will emerge from this crisis stronger and more resilient than ever.
And with that, I'd like to turn the call over to Sean who will provide some more color on our results and an update on our balance sheet and liquidity.
Thanks Tom. Overall, fourth quarter and full year operating results were in line with our expectations with RevPAR down 85% and 73% respectively, while we recognized a $65 million adjusted EBITDA loss for the fourth quarter and a loss of $194 million for the full year. Operating losses in the fourth quarter were offset by a positive $5 million property tax adjustment associated with successful tax appeals for our hotels in Chicago, in addition to approximately $5 million in cancellation and attrition income during the quarter.
As Tom noted, we expect first quarter 2021 performance to largely mirror fourth quarter 2020 results given ongoing challenges on the corporate demand side, while travel restrictions continue to negatively impact demand. We do anticipate some positive exceptions to this trend such as in leisure markets like Key West and Miami. And also in D.C. where two of our D.C. market hotels the DoubleTree Crystal City and Hilton McLean benefited from business from the more than 25,000 National Guard Troops that were called in to provide backup support to the local authorities. Occupancy exceeded 63% in January at Crystal City and reached over 82% at our Hilton McLean hotel accounting for an incremental $2.4 million of revenues for the month.
Turning to the 10 hotels that remain suspended within our portfolio. As a reminder, almost all the hotels are located in the metropolitan areas of New York, San Francisco, and Chicago. While demand trends across all three cities remain muted, there are some positive data points worth noting. In San Francisco for example, JP Morgan's Healthcare conference which occurs in January is shaping up to return to pre pandemic strength for 2022. For Park's portfolio of San Francisco hotels, the vast majority of group contracts for 2021 have successfully been transferred to 2022 at flat rates to this year. Our Hilton Complex in Union Square has already moved over 40 groups worth $4 million into next year and the JW Marriott has contracted 75% of its 2021 commitments into next year's date.
In New York, we are starting to see the benefit of some of the hotel closures around the city, especially from larger group boxes including the Roosevelt, Grand Hyatt, and the Hilton Times Square which all permanently shut their doors last year. With the New York Hilton booking groups that had a long-standing relationship with The Roosevelt, while the pipeline of corporate clients displaced from the other two hotels is significant. We will continue to monitor the situation in these urban markets and hope to have most of these hotels open before the summer. Overall, we are encouraged by the pickup in demand across several of our key markets and anticipate achieving breakeven for the hotel portfolio in the back half of this year.
Turning to the balance sheet, as of quarter end our liquidity stood at just over $1.4 billion including $474 million available on our revolver. And our net debt totaled $4.4 billion with less than $100 million or less than 2% of total debt outstanding maturing through 2022 with a weighted average maturity of nearly five years. While the focus last year was to strengthen the balance sheet and our liquidity, the strategic capital raises along with covenant relief our plans for 2021 and beyond include reducing leverage via asset sales and cash on hand reducing corporate level bank debt exposure and further extending maturities while maintaining financial flexibility to capitalize on potential growth opportunities.
The public debt markets remain open and constructive and we will evaluate the potential for additional capital raises to further enhance the overall quality of our balance sheet as needed. Finally, with respect to CapEx, we expect to slowly ramp up our maintenance CapEx program and restart select ROI projects including the meeting platform at Bonnet Creek. Overall in 2021, we plan to spend approximately $40 million on maintenance CapEx and an additional $20 million at Bonnet Creek, a $90 million project which we expect to fully complete by late 2023. As always, we will keep you updated on our progress.
That concludes our prepared remarks. We will now open the line for Q&A. [Operator Instructions] Operator may we have the first question please?
Thank you. [Operator Instructions] Our first question comes from the line of David Katz with Jefferies. Please proceed with your question.
Hi. Good morning everyone.
Good morning.
Good morning or afternoon. I wanted to talk specifically about two markets. And I know you've given us some commentary around Hawaii and San Francisco. But with respect to Hawaii, the notion is that access, right, by air travel is going to just continue to progress. How far out are you taking bookings? Presumably, those are there entirely leisure bookings and with all of the sort of commentary we're getting from a number of different directions this week about leisure endeavors and consumer activities help us be balanced and not get too far ahead of ourselves with what Hawaii could be in say 2022?
Dave, it's a great question. Let me try to -
Talk me off the ledge.
Okay. Yeah. If I could just kind of frame Hawaii for you a little bit. Let's keep in mind that, Hawaii has had really fewer cases than – other than Vermont and Alaska, they've had fewer cases and fewer deaths. So that's level set about 27,000 cases as of this morning about 435 deaths. Any loss of life is certainly horrible as we all know. But when you think about the restrictions they put in place, how onerous they were from the 10-day quarantine to obviously now the 72-hour test – negative test before arriving, the state is moving to Tier 3. Tier 4 is completely unrestricted.
So again, that's encouraging. Interisland travel is going to start here as of March 1 for those that have been fully vaccinated. And then when you think about vaccinations in Hawaii, 12% of the population has already been vaccinated, including most of the royal people. So all of the concerns that the governor his administration and the stress that it may put one from the facilities there, I think are being mitigated. And so that's a really encouraging backdrop, as we think about that. There is significant pent-up demand in Hawaii.
One, you've got really historical short booking patterns. You've got the airlines, so Hawaiian Airlines United and Southwest, all ramping up, I believe Hawaiian Airlines for the fourth quarter they were running at about 35% to 40% of 2019 levels, and I think as high as 50% in December. And if you just look at, what we're seeing on the last six weeks alone in Hawaii, we've gone from January three occupancy of 21% and into mid-February up to 36%.
And so again, really setting a backdrop and let's not underestimate the need that we all have to reclaim recapture our lives. And as the vaccinations continue to accelerate here in the mainland and given the fact that really 67%, historically, have traveled to the Hawaiian Islands or out of the US and Continental US, we are very, very bullish on Hawaii. We think that the second half of the year could surprise to the upside and we are very bullish on 2022 and beyond as we move forward.
Got it. San Francisco, I think is a bit more complicated, right, because we're – the business travel aspect of this in general in San Francisco in particular is a bit more complex. Can you just go a little bit further? I heard, the JP Morgan data point, but what range of strategies, do you have to generate demand assuming that business travel does come around a little bit slower?
Yeah. It's another fair question. And let's again level set, right? You've got a mayor and a governor that essentially adopted as of December 4, sort of pretty aggressive stay-at-home orders. Hotels were generally restricted to essential travelers only. We've had – and you think about the CBD six hotels four of them remain closed. And obviously, you've had 10-day quarantine for anybody traveling to or returning to San Francisco. And those probably aren't going to be relaxed, we believe until probably late February.
But if you look at the two hotels that are open, even in through Q4, we were running about 24% occupancy, and if you think even there ramping up January and February in both properties were about 16%, 17% occupancy, about 26% -- 25%, 26% in February, we expect Q1 to probably continue in that low 20% range. There's very little citywide business here in the first half, but if you look at the second half of the year, the Game Developers Conference in July is still slated to continue. The Dreamforce Conference in September is still slated to continue. And there are 18 events for about 363,000 room nights for the second half of the book.
Now that doesn't compare favorably to what was the record in 2018, 2019 of about 1.2 million room nights. But again, look, we know San Francisco is a challenging environment. It is still one of the great cities of our great nation out of the world. We're not prepared to write it off. There are some challenging issues with the healthy buildings ordinance. And we continue and I've written two op eds about it that we don't think that's a health bill or a safety bill. It's just a jobs bill.
But we are encouraged by some recent discussions recognizing that tourism is such an important part of the local economy there. And so we are optimistic over the intermediate and long-term. We certainly think that 2021 is going to continue to be a little softer and clearly going to be a little slower ramp-up there certainly within our portfolio and within the industry. But over the intermediate long-term, very bullish on San Francisco and the opportunities that so remain there.
Thank you for those. Appreciate.
My pleasure.
Our next question comes from the line of Smedes Rose with Citi. Please proceed with your question.
Hey, Smedes.
Hi. Thanks. You mentioned in New York, that you're starting to benefit from some of the permanent closures. I just wanting -- are you starting to see that in any other markets, or there are other markets where you think you could see supply contract?
Yes. It's a great question. And Sean gave color on New York. And look, if you think about New York today, 129,000 rooms plus or minus, and certainly depending on who you believe as many as half of those sort of remain closed and some of those are permanent shutdowns. We think there's a great opportunity here to right-size that.
One part of the problem in New York has really been the onset of supply that has happened over the last five to seven years and candidly brought on by limited service hotels. There are really only three hotels that have a large meeting platform.
We would respectfully submit that the Hilton New York that we own has the best and so as we see hotels that are either going to be converting or permanently closing that naturally we believe that more than our fair share of that business will accrue to us and that will help as we right-size the business.
We've always believed that we've got to play to our natural strength. It is a group house. You anchor with group and then you layer in contract. And obviously, we can then yield in the transient. But still again New York is another one of those great cities of the world, taking it a bit on a chin right now.
And obviously, the epi-center of what we all saw at the beginning of the pandemic. But there's no doubt that New York is going to come back and we are seeing some green shoots and some evidence of that. Again, I think opening this year is probably going to be -- middle of the year probably at the earliest as we sort of look out and we look at demand patterns. We will continue to track that carefully as we've done across our portfolio.
I remind listeners that, once we closed all of our 85% of our hotels and then we gradually reopened in almost every situation, once we reopen we have not had to re-suspend operations. Limit reduced slightly but not re-suspend. And it's a real credit to Sean and the asset management team in how we address the challenges in front of us.
So there are some green shoots there in New York. And I suspect as we start looking out for group business in 2022 given what we expect to be contraction there in supply, we think that's going to bode well for New York over the intermediate in the long-term.
Thanks. And then, I guess just maybe a little bigger picture as the recovery kind of gets underway at some point hopefully later this year. Are you thinking at all differently about Park's strategy in terms of initially the sort of expectations to group up, or do you think maybe there could be more of a focus on leisure and resort sort of historical drives to given its resilience, or how are you just thinking about the portfolio, I guess over the next few years?
Yes. Smedes, it's a great question. Look, we are confident, and I repeat, very confident that our strategy of focusing on assembling a portfolio, of upper upscale and luxury assets in top 25 markets or premium resort destinations is really the right positioning.
Having said that, we will follow the demand patterns, we will follow the population growth. You can certainly expect that we will continue to evaluate opportunities in their natural markets that make sense Phoenix, obviously, we've got a presence in Denver but looking to expand that over time. Clearly to Austin it's a market that I certainly know well from my past life. Obviously what we're seeing in Nashville and what we're seeing, obviously, in the southeast and particularly in South Florida, we think that those areas are just going to continue to grow and slowed, but we are not prepared to begin to look for what we would call non-top 25 markets that may have a more suburban bent to it and don't have the multiple sources of demand. We believe in that three legs of a stool, having strong leisure, strong transient -- business transient in addition to a strong group as well.
And if you look at our portfolio, keep in mind that we would respectfully submit that it's 35% to 40% leisure today, but we have a really strong leisure footprint. When you think about why you think about San Diego, Southern California even parts of Northern California, clearly South Florida, fairly New Orleans and you think about our drive to or fly to leisure it's about 61% of our hotels, about 35, 36 of our hotels. So we believe that we're really well-positioned today and we will continue to alter that and adjust that, but we're not going to make any rash decisions to abandon those strong markets where you have huge barriers to entry really high replacement cost and even today we're probably trading at 50% of replacement cost. It would be near impossible to replicate most of this portfolio as you think about our geographic footprint.
Thank you.
Our next question comes from the line of Dany Asad with Bank of America. Please proceed with your question.
Hey, good afternoon everybody.
Good afternoon, Danny. How are you?
I’m doing great. Thanks. So you guys have done a pretty commendable job at being as nimble as you've been with your CapEx deployment. But then just looking ahead to this year and possibly 2022 are there major ROI projects we should be thinking about that are kind of coming up? And then looking on the maintenance front, is there anything that's been either delayed or deferred in the last call it 12 months or so that we'll need to either think about or that needs to be addressed?
Dany, it's a great question and thank you for the compliment. I again want to commend the Park team. When you think about what we were faced with nearly a year ago, we made clear and decisive actions, we suspended operations, we suspended our dividend, we reduced CapEx by 75%, we immediately focused on liquidity and our cash burn rate. And I would submit that this is a very experienced team not our first crisis. Obviously this was the worst crisis that any of us have seen. But we were steady. We didn't panic. We knew exactly what to do. A lot of credit to Sean and our finance team as we went out and did two bond deals to push out maturities and secure liquidity. And candidly I think there were some out there that wrote us off for dead. And I think we've shown just how experienced and capable the men and women of Park are. So I want to state that because I think it's really important.
As we think about CapEx as Sean mentioned we are going to restart, obviously, our Bonnet Creek world-class resort. We think the positioning for that over the intermediate and long-term is to expand the facility and upgrade the brand to the Signia brand by Hilton. So we're really excited about that. You'll see that ramp up. When you look at really all of the embedded opportunities within our portfolio and I'll just mention a few Hilton Hawaiian Village, we're working on getting an outparcel, which would allow us to do a six tower.
Hilton New Orleans Riverside they are the whale lot there there's eight acres adjacent to our hotel and the convention center that has probably the equivalent of five million square feet FAR. If you think about the Waldorf Casa Marina we have two adjacent sites there and Key West gives us also continued optionality. The double treat that we have in San Jose, we're slating that for an upgrade to the Hilton brand.
The Hilton Santa Barbara that we converted from a DoubleTree is a huge success. And of course The Reach Resort that we completed last year making that a karaoke collection has been a huge home run as well.
So we'll continue to comb through. We'll have more information as to our ROI. But there is significant upside in this portfolio embedded within our existing footprint that we really want to continue to focus on here in the next few years to realize some of that great upside.
Got it. Thank you very much.
Thank you.
Our next question comes from the line of Rich Hightower with Evercore. Please proceed with your question.
Hey, good afternoon everybody. Thanks for taking my questions here.
Hi, Rich.
Hey. Tom. So I'd like to follow-up on the New York Hilton really quickly. So we all sort of know that the issues perhaps with that asset pre-COVID never really surrounded occupancy. It was more of a rate and an overall profitability hurdle that we had to sort of get over for various reasons.
So maybe take us through the future in that regard? As you steal share from hotels that are closing down permanently would that be higher-rated business? And then, help us understand maybe the cost structure given the union presence and some of the other moving parts there going forward?
Yeah. A lot of -- a lot in that one question there. Rich, so let me just cut to the chase because -- and I think you would appreciate that. Look, the operating environment just given the current CBA is onerous. I think we all know that. And I think anybody who owns hotels in New York. And it clearly is the lower -- on the lower end of our EBITDA margin for the portfolio.
We do think that given the crisis. And you don't want to let any crisis go to waste. We have been working hard and working with our operating partners and also talking with the union about opportunities to right-size that model. Nothing is easy, nothing is guaranteed. But I do think given the fact that you're looking at 25% to 50% of the supply that's a natural benefit.
10 years ago, New York was the best hotel market certainly or among the best hotel markets in the land as we all know. I've got a history with investment, my first tour of duty working with Hilton 25-plus years ago. So, I know the history well. Clearly with the onslaught of limited service supply there was rate erosion.
We still believe that there are only three hotels that have that meeting footprint for that group business. And we think we've got the best meeting footprint. And we do think that if we can anchor it with group businesses that comes back that again, layer in contract that allows us to then yield in the transient.
So we are optimistic over the intermediate and long-term. I mean today, it's closed. It's been closed for a year but remember that, we're dealing with travel restrictions, indoor dining limitations, gatherings are limited to 50 people so again, we're dealing with government mandates by no fault of the management team or anybody else there in the city.
And we also know that there's capital flight. And people are looking at how New York will perform in the future. I think it would be a huge mistake to write New York off. People have tried that before. And I think lost. And I think that would be a wrong bet again, as we sort of move forward.
When you think about 2011, a year I remember well in New York you had about 140 super compression days, when the market was over 95% and you had significant pricing power. If you fast forward to probably 2019, 2020 you were probably less than 2020. And 20 days of super compression days in 2019 and I can't imagine we were created in zero, if you think about 2020.
So there is the opportunity for reset and to right-size operations and whether that's a job combination in 2020 that's partnering with other owners, as we think about ways there's cost there. All of those topics are on the table. And we continue to explore.
But no doubt, given the iconic nature of that asset, there is significant embedded value. And it doesn't mean that we also won't look. We do have a timeshare component there today. We have lots of optionality with the asset and we'll continue to explore that degree of value for shareholders.
Okay. I appreciate those thoughts, Tom. Maybe to switch gears to another topic, but how do we think about the trade-off in terms of equity issuance, so to speak, via asset sales for equity issuance in the normal manner with increasing the share count? And we can obviously see where Park, as a whole, is trading versus pre-COVID and maybe compare that to the implied discount, if there is one, on the $300-or-so million of non-core asset sales. So help us think through maybe the cost and the benefit of the trade-offs between those two forms of equity in the context of the ultimate goal of deleveraging?
Yes. I think it's pretty simple and pretty clear, Rich. I think you know I've been steadfast for many, many months. The last thing you'll see this management team do is a dilutive equity trade. We see no benefit of that.
And if you think about where we're trading today, we're still trading at a 50%, 55% discount to replacement cost. We're still trading at a significant discount to our own internal NAV. So we don't see that being a smart move for shareholders, for us to go out and do an equity offering today.
We think the more prudent capital allocation decision is to continue to sell non-core assets. We intentionally were a seller at the beginning of last year, the middle of last year as the COVID discount was at 20%, 30%, 40%. We didn't have to do anything based on the other prudent and wise moves that we made.
So we've decided and we believe that conditions will improve and be more favorable, particularly as the vaccines came back. We get more shots in the arms and confidence is restored and people begin to travel.
We believe that it will make more sense to move those assets in 2021. And we are saying publicly, these are our targets and we've got activities already underway. And we're cautiously optimistic. We will also take those proceeds to use them to delever. And we will continue to delever organically.
We will use equity, again, as the stock continues to recover. We'll use that for growth opportunities and perhaps over-equitize a little at that time. But we see no need to go and do an equity offering at this time. In fact, we've got more than a fair share of calls from bankers. When we were trading at 13 or 14 or 15, particularly after the vaccine, it didn't make sense then, and it certainly doesn't make sense now.
And we also have a lot of calls about ATM programs. We were -- I'd say, we've prudently passed on all of those. And as we got any of it, I think, we certainly would have regretted, based on how the stock has performed, but the stock is still undervalued. We're still trading significant discount that’s any good.
Got it. Thank you.
Thank you.
Our next question comes from the line of Anthony Powell with Barclays. Please proceed with your question.
Hi. Good afternoon, everyone.
Hey, Anthony.
How’s it going? Just a question on CapEx, I guess, competitive CapEx. One of your large peers is spending a lot on various hotels in your markets and they're saying, they expect to gain market share as kind of business comes back over the next several years.
Do you buy that argument? And do any of your hotels in markets like New York, San Francisco, Orlando, Boston needing any kind of just regular way maintenance CapEx in order to compete with those refreshed properties that are going to be competing with you?
Yes. It's a fair question, Anthony. I would make a couple of comments. One, our run rate -- I mean, CapEx been about 6% of revenue. We've been pretty consistent with that prior to the spin, which we're in our fifth year now.
The Hilton Blackstone had spent significant dollars on the portfolio at our 6% level we were continuing to maintain. Obviously, we wish we could have proceeded with Bonnet Creek, but we thought the wiser decision was button down the hatches and make sure that we have liquidity for the overall enterprise. We will ramp that up.
And as I mentioned, we have a lot of embedded ROI opportunities. You'll continue to see us evaluate study and we'll prioritize those in the near future as we move forward. But we are -- there is not a lot of deferred maintenance in this portfolio. So we're confident where we are and we'll be thoughtful and careful as we look to invest in the future.
Got it. And, I guess, on market concentration you're selling some non-core assets. I'm guessing those aren't in Hawaii or San Francisco. How do you view earning over 20% of your EBITDA in those two markets 25% or higher in Hawaii? And just how you look at the risk of having that exposure to any one market as you evolve the portfolio?
Yes. It's a fair question. I think you'll -- look we are confident as I said earlier in the overall strategy. We were also very confident. We remain confident in the strategic rationale for the Chesapeake acquisition. It upgraded our portfolio. It gave us brand and operating diversification. It gave us improved geographic diversification. We picked our San Diego and Denver additional footprint in Miami and Los Angeles. We obviously, expanded some more in San Francisco in Boston and D.C. So really pleased with that and we think it's really improved our growth profile.
Look I would in a pure sense really not like to have any one market over 15% to 18%. But if you're going to have a market over I think having a truly iconic portfolio particularly, what we have in Hawaii. You could never replicate that. When we get back to a more normalized time just given the generations that have been there the generations that will go back certainly believe that that is one that we keep.
And it's one that we can reduce the exposure over time by continuing to grow in other markets as we see opportunities. It wouldn't be inconceivable for us to take a -- to lighten load slightly in San Francisco from a weighting standpoint, but that should be no indication of our confidence and belief in the market over the long-term. So as we think about growth markets as I said there are natural.
And obviously markets that I think a lot of people are also interested in the Phoenixes of the world, the Austins, clearly the Nashvilles, South Florida, even Central Florida you should think about opportunities that that area is just going to continue to explode. And other markets in the Southeast, I think, we'll also continue to have population growth. We will follow the demand. We will follow the population historically being anchored in those markets that have multiple sources of demand is the most prudent decision.
Got it. Thank you.
Thank you.
Our next question comes from the line of Bill Crow with Raymond James. Please proceed with your question.
Good morning. Hey, Tom. So you all stopped making debt service payments on the W Chicago and I know that's a market that you have written an editorial about as well with the labor issues. What's the future of your footprint in Chicago? Should you've sold -- I mean those are assets that The Street kind of knew from Chesapeake and didn't particularly like them to begin with. So is that something you should have gotten out sooner maybe?
Well, it's always easy to look back Bill. I mean as you think about when we close in September of 2019 then of course getting hit by the asteroid or all of us got hit by the asteroid called COVID look I would put Chicago in the same bucket of New York and San Francisco. Clearly challenged right now for all the reasons you understand as well as anybody because you've written about it. But I would also say, I would not write-off Chicago another one of the great cities it will come back.
The issue related to that asset is really unique and that is we'd like to have a discussion with the special servicer. You can't have a discussion and -- while you're paying. So we have significant liquidity and more than 2.5 years we have tremendous optionality. As you know, you know the moves that we've made and I wouldn't read anything more than that. And that's just to have a dialogue to look we're also working with Marriott to combine operations at the two Ws. And we think in both cases excellent realistic and there's a lot of optionality there.
But Tom just to challenge you a little bit you talked about the markets coming back. I think you're right. But in New York for example the Hilton -- was it NOI positive in 2019 or 2018, or I mean it feels like some of these markets were already spiraling down before everything happened. And now we've got companies relocating into other markets and look at dispersed workforce and so even if they come back do they reach profitability?
Yes. If you think back historically Bill, and I've got a long relationship given how long I've been in the business, so dating myself a little bit, but I can remember when that asset was generating higher margins and significant cash flow. But even when I rejoined Hilton to spin out, it was still a top five, top seven asset in this portfolio in terms of the amount of EBITDA. So it's always been NOI positive.
Lower margins is in the other assets in the portfolio. It was not last year, because obviously it was closed and we still have the underlying costs that exist there. And there's no doubt that this is an opportunity for a reset. And I'm -- we're not fooling ourselves. We're veterans here. We're working through. We think that there's -- there are opportunities to continue to take cost out of it. You saw we've taken $70 million in costs about 200 basis points out of the whole portfolio and we continue to work our tails off to find more opportunities and New York is a big challenge.
We're up to it and we're working through. It's the only asset that we have obviously in Manhattan, but you couldn't replicate that asset. There's also optionality of things that we can do over time as we look for other sources of revenue. The greater question, I mean, everybody is down in New York and there's capital flight, and yes, people are relocating. I think that's part, because we're in the middle of the pandemic. There's some deficits that exist. There are some concerns about security and safety and look leaders whoever the new mayor is going to be, the governor business and leaders. I mean, people have got to step up, but again one of the great cities of the world. And we all I think yearning to get back. I know I -- when I enjoy the great restaurants, the theater scene, the shopping, those that are just writing off New York gets an abyss, I would -- I'd say, I'd be a little more careful, I think that's a risky bet. I think New York will come back. Do I think it will be in 2021? I do not.
All right. I appreciate the time. Thank you.
No, thank you.
Our next question comes from the line of Neil Malkin with Capital One Securities. Please proceed with your question.
Hello everyone. Good afternoon.
Hi, Neil. How are you?
Hey, pretty good you know, end of earning, so never a bad thing. Just -- I'm sure you feel that same way. Just kind of piggybacking off of Bill's comments. And I just want to be clear because it kind of seems like you're maybe a little bit mixed messaging in terms of you don't want to get away from the sort of core market, but at the same time you're following demand. And again, with your commentary about sort of the great American cities, I don't doubt that from a -- I guess, a top line standpoint those things are true. But again, with labor being the way it is you mentioned safety legislation. I mean in California it's only a matter of time before legislation around Prop 13 continues to push forward ridiculous taxes. I mean, people may want to go there maybe to travel, I suppose the same, but from an operating or EBITDA standpoint, do you -- you're confident that you're going to get back to a pre-COVID sort of paradigm in those major markets? I mean is that fair to say?
Yes. It is fair to say and I hope I'm not giving sort of mixed messages. Look we understand that in the near term, you can cite those three markets, obviously, New York Chicago and San Francisco, which they're largely closed by government mandate given the fact that we're still here pandemic and we will be coming out of that.
But there are significant investments across this great nation that have been invested in those cities. To completely write them off, I think is a bit premature. And to think now that we're all going to relocate, you're going to see some capital flight. You're going to see certainly some migration, probably more coming out of New York right now. And part of that is going into Florida for all the reasons that we know. But I also think that that creates an opportunity to sort of rightsize.
Remember, we have a completely diversified portfolio from incredible iconic real estate and other parts, whether it's Hawaii, whether it's in Boston, whether it's in D.C., San Diego, New Orleans, South Florida, so this is not dependent on just those three markets. Those markets may lag a little, but I think it would be premature to sort of write them off and say we should abandon them at this point.
I also think it's probably not reasonable to think that we would abandon our top 25 market strategy and then pivot, so that we're chasing more suburban assets top 30 top 40. You're not going to have the barriers to entry. You're not going to have the sources of demand. We certainly want to add more resorts as would everybody, given the opportunities that exist but that will also be a very competitive footprint. You've got to be careful. We think there are really prudent investment ideas within our existing footprint given the amount of ROI opportunities that also exist.
Okay. I always appreciate that. Thank you. Last one for me. I think actually more for Sean, who's been relatively quiet. But just in terms of I guess, how you think about balance sheet, progression versus growth, I guess maybe Tom to take this as well, but you guys have done a good job getting ahead of sort of liquidity maturity issues. But at the same time, you also have more leverage and now higher coupon parts in your capital stack.
So a lot of companies talk about sort of being opportunistic having the capacity, your ability to sort of acquire, it seems like you guys maybe have a little bit other things to work on kind of before you'd start being acquisitive. So maybe can you just kind of talk about your thinking on that? I understand it's early very early in sort of recovery but how you kind of weigh those things just given Tom, you're outspoken in nature about being an industry consolidator? Thanks.
Yes. I mean, I'll take the comment here about sort of industry consolidation. Look we are – I've been saying it now for certainly north of a decade or more that it makes sense. The fact that we've got – I can't remember, how many lodging REITs we have and some baby REITs along the way. We're 10, 11, 12, 13, 14 be a more efficient use of capital to have a fewer players.
But look, I also acknowledge that when you think about us buying Chesapeake or the other two deals with RLJ, FelCor or Pebblebrook and LaSalle, none, one of them have been incredibly well received by investors. And so that clearly is something that we'll continue to monitor. But we don't see consolidation here in the near term.
We are focused, as we articulated on – continuing to reopen hotels, sell non-core assets, reduce debt, use those proceeds plus excess cash to continue to reduce debt. I would disagree with your point of given our leverage we don't have optionality. We have plenty of optionality, given within the covenant framework.
We also have the ability, as Sean noted, we'll continue to look at the balance sheet and continue to push out maturities. I also don't think you're going to see a lot of transactions but I would say bigger. With those more strategic, I don't see those occurring this year. I think those as we work through the recovery continue to get better visibility. I think those of being 2022 and beyond, you can rest assure that Park will be in position to be able to compete at the appropriate time.
And I'd just add real quick too just to think about the balance sheet and some of the kind of things we've accessed is for us too in our scale, we do have access to a lot of different markets. We'll continue to monitor those and opportunity just to address, as Tom said, our maturities as well. But I think, certainly cost of debt, it depends on what you go after. And certainly the bank debt has been one that I think the entire sector kind of took advantage of the last cycle and I think it's been overexposed to it. So, certainly our drive is to kind of reduce that exposure and have far more flexibility with some of the things like bonds going forward.
Okay. Appreciate you guys thought. Thank you.
Our next question comes from the line of Brandt Montour with JPMorgan. Please proceed with your question.
Good afternoon, everyone. Thanks for taking my question. So just on the operating model enhancements and the $70 million of permanent labor expense from where you guys are initiating soon. Just curious what types of jobs are being cut? Is it mostly redundancy related, or is it more of a tactical removal of certain services? And then I guess on a follow-up would be is it uniform across the portfolio, or is it heavier in your larger assets?
It's -- yes. So it's -- I would say it's pretty well across the portfolio. It's a lot of kind of management positions where you might have a banquet manager or front desk manager type of position throughout a captain -- captain or something like that. So clearly, you're going to see some more bigger customers on the bigger properties just from a number of employees. We had about 1100 property level folks that were unfortunately let go through this process.
But in the end it adds up and I wouldn't say we're reducing services by any means just ultimately getting a chance to where when you can basically you're in a situation where you reduce your revenues to zero, when you book the business back from square one, you have that opportunity to rethink things and take some extreme measures. So we're pretty confident about these cuts being permanent as this has been recovery here just have more efficient operation over time.
Okay. Thanks for that. Sean and maybe another one for you and maybe you can answer it, but are you able to maybe give us a measure of EBITDA sensitivity or flow through to RevPAR top line growth as you sort of build back demand as maybe your peers were able to measure that in a certain range? But I don't know if you could give us anything that could help us understand how that could play out?
Well, I think if you build back occupancy so your flow-through is going to be hurt through that. You're going to -- we're going to be bringing back some amenities over time at food, beverage. So you're going to start -- you're certainly going to see it as that dollar comes back, it's going to be anywhere from 50% to 60% flow through you don't have the rate profile right? So then with the pure rate profile you're going to be more in the 89% flow through depending.
So for us as we kind of go through here, I think generally that's what it's been in the past. I think it's probably a little bit better than that certainly on the occupancy side. As that goes back just given some of the things that have been put in place like clean stay, which we've seen is generally slightly positive on the cost side. It's overcoming, certainly overcoming the embedded costs or the additional cost of the DPD and the materials being used the extra labor we noticed, but slightly incremental positive. So as that kind of comes back and the length of stays both get a little bit longer across the portfolio. I think we'll see some benefit from that early on to offset some of the kind of gradual costs that come online when you bring back other services like F&B.
Excellent. Thanks for the comment, guys.
Yes.
Our next question comes from the line of Stephen Grambling with Goldman Sachs. Please proceed with your question.
Hi. Thanks. I guess a few follow-ups. And starting with the margins and Brandt's questions there. Does the $70 million consider any benefits from changes to distribution that could be permanent as you I think you mentioned less OTA mix? And are there any offsets we should think about in our models whether it's labor insurance or taxes, or is that in that $70 million number?
The $70 million I mean strictly just a reduction in force type of exercise. So I'm not sure I'm following with related to -- concern to taxes and the like.
Yes. I guess -- and then on the -- I guess just considering any other permanent cost-outs that we should be thinking about as you think the business I mean you gave the sensitivity in a recovery, but like OTAs is that something that should be permanently lower based on what you've seen now, or could that also creep back?
I think OTAs right now is a little bit -- obviously I think a bigger portion right now versus where it has been historically. So we certainly see that come back brand and other sources being a little more bigger drivers over time. We're certainly seeing the discount leisure come to the OTAs a lot more in those channels today than we expect as we ramp back up. I do think in the near-term, we'll see some savings on property taxes. Certainly jurisdictions where you have kind of income based approach for assessments. We're starting to see some actually happened already where we're seeing drops in assessments is also the bills themselves. So not just waiting for them to kind of jack the rate up to make it equivalent, but we're actually seeing reductions in certain jurisdictions from the build we had a onetime appeal and decrease in Chicago which we expect we'll get another decrease I think this year for its tri-annual assessment. So I think we'll see some benefits some tailwinds on property taxes going forward.
On insurance, it still remains a pretty challenged market but I do think it's softening up somewhat. So we'll get a renewal in June one and hope that we're going to get some. It's not only a rate -- a slight rate increase maybe but we'll see some offsets to insurable values because of BI levels being reduced given the lower levels of income. So I think will these kind of see maybe a pause of some of the increases that the market has seen over the last couple of years and ensure us to get a break there.
That's helpful color. And then as another follow-up just on the balance sheet, I think folks have historically been looking at net debt-to-EBITDA ratios but with where interest rates are and the flexibility in your covenants, how is your perspective on the right leverage for the enterprise evolve? And what are the most important metrics that you're watching from here on out?
I mean I think we still hold by the range of 3 to 5x leverage. We've always wanted to kind of get to the lower part of that range. We've been hovering about 4x pre-pandemic so we'll obviously with the burn, we'll see net leverage to graduate up to about a turn or so based on kind of 2019 levels of EBITDA. So we'll have some work as we've talked about at selling assets, utilizing cash flow as you go forward to reduce debt and get closer to that target. But I think that's the right target even with -- if you think about interest rates popping up some I think that's we're fine at the 3 lower 3x.
Got it. Thanks so much.
Our next question comes from the line of Chris Woronka with Deutsche Bank. Please proceed with your question.
Hey good afternoon guys and thanks for hanging around with us, pass the hour. Yes, doing well and thank you Tom. Thanks. A question for you Tom is, how do you think cancellation policies evolve as we kind of come out of this? And there have been a lot of progress over the years? And then obviously things change pretty quickly. But how do you see it evolving coming out of this? Do you see any kind of new opportunities that might come out to further yield up, or just any of your thoughts there would be great?
Yes. It's a great question Chris because as you know we all -- we made a lot of progress pre-pandemic and I would hope that as we get to the post-COVID era that we would really kind of get back to where we were. I think it really started to minimize the impact of the hotels side and the other services that were sort of the race to the bottom. So I'm cautiously optimistic that that can happen.
I clearly don't see that happening right now in the near-term as we're still working through the pandemic and still trying to get to the other side. I would say just as a global statement that through this crisis, I've never seen more communication and more collaboration between owners and operators the brand companies and really working hard to right-size and take cost out.
And I know both Hilton and Marriott made really tough decisions to sort of reduce their workforce and to become more efficient. And I think that's only going to continue to accelerate. We won't go back to the old way of doing business. And I think advances in technology and will force us all to think about it differently. We think about ways that we continue to get cost out of the business.
Okay. Very helpful. That’s all for me. Thanks.
Thank you.
Our next question comes from the line of Robin Farley with UBS. Please proceed with your question.
Great, thanks. Just to maybe take one more try. I had a little bit of clarification on the comment about asset sales. I know you talked a lot about the markets that you see us still growing and markets that over the long-term may take longer to get back. Can you sort of characterize for the assets that you would sell that you see as non-core? Can you kind of characterize what that means then right? Because I think we have a good idea of kind of what you value in assets. So, how would you characterize the noncore when you think about that $300 million to $400 million?
Well, if you think about what we've done historically Robin as you may recall we've sold 25 assets for about $1.2 billion. In every case, they -- 14 of those were international. So clearly, we made that appropriate decision at the right time, but as you think about the other assets the other 11 plus or 9 is they were lower RevPAR, they were in slower growth markets, they either were functionally obsolete or require excessive CapEx and we'll really go through the same sort of analysis here as well. It could be smaller properties that don't really fit our strategy over the intermediate and long term. There could be some markets where we just have a little bit more concentration than we want. I would use this as an opportunity to rightsize and recalibrate from that standpoint.
And candidly, there are some assets that there could be a better play for an owner-operator as part of our ability to sell and be unencumbered by flag into our management. So all of that will fit into the calculus as to how we can maximize value for shareholders. We wanted to be really thoughtful. While we had discussions last year, we weren't comfortable with where the pricing is coming obviously in the middle of the pandemic but as we get improved visibility we're optimistic here that we will be able to sell it at reasonably attractive pricing again using those proceeds, primarily to reduce leverage. And we think that's the right capital allocation decision right now.
Okay. Great. Thank you for that added color. And you mentioned wanting to add resorts. And I guess would you wait until your balance sheet is investment grade, or kind of what is your target for that before you'd be willing to buy something?
Yes. We certainly aren't going to wait for investment-grade and obviously that we believe investment-grade would be a little ways off. And as Sean mentioned, we need to get into the low 3s. And clearly we're above that today. You would expect I think more activity on the buy side here the latter part of this year into 2022 and beyond. And clearly, as the recovery takes hold and I don't think it's inconceivable that it could be a pretty significant snapback particularly on the leisure side. I would also expect it's going to be a fair amount of competition also for those types of assets for the obvious reason. I think we all know that this recovery is going to be led by leisure both drive to and fly to.
Okay. Great. Thank you, very much.
Our next question comes from the line of Lukas Hartwich with Green Street. Please proceed with your question.
Hi Tom. So just one question left for me. In Hawaii I'm just curious do you -- how do you think the recovery is going to progress between Oahu and the big island? Do you expect a similar recovery or some divergence there?
If you think of Waikoloa right now, I just think we -- a lot of credit to Sean and the team all the work that was done sort of pre-spin that hotel was always probably too large at 1,200 rooms and getting it rightsized now to just over 600 rooms in the right meeting footprint,t it's a very efficient and what typically happens for those that visit is not on commentary to begin in Oahu and then end up on the big island. That's a common track and it's obviously a lot of place and I think together as we continue to look at ways of saving costs across the two properties that having that synergy between them is a really, really positive. So we're very bullish on both assets.
Great. Thank you.
Thank you.
There are no further questions. I'd like to hand the call back to management for closing remarks.
Thank you. We really appreciate everybody taking time today and we look forward to discussions with many of you over Raymond James and the Citi conferences and stay safe and be well. We look forward to seeing you all in person hopefully sometime this summer or early fall.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.