Park Hotels & Resorts Inc (PK) 2017 Q1 法說會逐字稿

Good day, everyone and welcome to the Park Hotels & Resorts first-quarter 2017 earnings call. (Operator Instructions). Please note this call is being recorded. It's now my pleasure to turn the program over to Ian Weissman, Senior Vice President, Corporate Strategy.

Good morning and welcome to the Park Hotels & Resorts first-quarter 2017 earnings call. Before we begin, I would like to remind everyone that many of our comments made today are considered forward-looking statements under Federal securities laws. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed and we are not obligated to publicly update or revise these forward-looking statements.

In addition, on today's call, we will discuss certain non-GAAP financial information such as FFO and adjusted EBITDA. You can find this information, together with reconciliations to the most directly comparable GAAP financial measures in yesterday's earnings release, as well as in our 8-K filed with the SEC and the supplemental financial information available on our website at www.pkhotelsandresorts.com.

Additionally, it is important to note that all financial results for 2016 are on a pro forma basis, which takes into account post-spin adjustments, including new management fee structure and presents the results of our portfolio as it stands today.

Reconciliations to the closest GAAP financial measure in our 2016 combined consolidated financial statements, which were prepared on a carveout basis and do not contain these pro forma adjustments, may be found in the supplemental financial information available on our website.

This morning, Tom Baltimore, our Chairman and Chief Executive Officer, will provide a brief overview of our first-quarter operating results and an outlook for the remainder of the year, as well as update you on our strategic initiatives. Sean Dell'Orto, our Chief Financial Officer, will provide further detail on our first-quarter financial results and most recent activity, as well as provide an update to our annual earnings guidance. In addition, Rob Tanenbaum, our Executive Vice President of Asset Management, will be joining for Q&A.

Following our prepared remarks, we will open up the call for questions. With that, I would like to turn the call over to Tom.

Thank you, Ian, and good morning, everyone. We are pleased with our first-quarter results, which met or exceeded expectations on several key metrics, including RevPAR, margins, EBITDA and FFO, clearly demonstrating the benefits of owning a geographically-diverse portfolio of high-quality hotels and resorts with multiple sources of demand.

For Park's domestic portfolio, US RevPAR on a comparable basis was up 1.7% and even with this moderate RevPAR growth, we were able to drive EBITDA margin expansion, which was up 15 basis points better than we anticipated. We are pleased with the progress that our asset management team and our operating partners at Hilton have made in starting to improve margins across the portfolio.

A key driver of this improvement has been our enhanced focus on group business, an area that we have identified as a key opportunity. Total group revenues increased a solid 7% during the quarter, led primarily by strong group fundamentals, which in turn fueled large gains in banquet and catering revenue, up almost 13%.

Overall, comparable RevPAR grew 1.4% during the first quarter on a currency-neutral basis while margins for the portfolio as a whole were down 10 basis points with our solid US performance offset by our international portfolio, which was down 5.3%.

The drag on international was mostly felt at our Hilton asset in Brazil, which experienced a 24.1% drop in RevPAR given the challenging economic conditions in the region. Excluding Sao Paulo, RevPAR growth for our international hotels would have been a positive 3.7% overall.

Looking to where we are in the lodging cycle, while RevPAR performance has been somewhat choppy month-to-month, fundamentals remain positive, albeit at a more moderate pace with the industry delivering its 85th consecutive month of RevPAR growth.

We believe that Park remains well-positioned to deliver attractive results given our diverse geographic footprint and exposure to markets with below-average supply growth forecasted over the next several years. Additionally, in spite of the disappointing first-quarter GDP print from last Friday, we see several bright spots as it relates to the most recent economic data, including a healthy job market, signs of business investment picking up and corporate profits registering a fourth consecutive month of positive gains.

Overall, the 2.2% GDP growth forecasted through 2018, in our opinion, should be enough to keep the cycle on track, especially with the current estimates, excluding any potential benefit from proposed tax cuts, deregulation and increased infrastructure spend. That said, growing uncertainty over the timing of these initiatives has started to weigh on investor sentiment and may dampen hopes of a meaningful inflection point in lodging fundamentals this year.

Consequently, we remain cautiously optimistic, but continue to discount any upside into our forecasts.

As we discussed during our inaugural call last quarter, we believe Park holds a competitive advantage over many of our peers with one of the more compelling internal growth stories in the sector. The investment thesis in our story is simple. First, we believe we can unlock embedded value that exists within our core portfolio by closing the margin gap relative to our peer set, a gap that we believe we can reduce by 150 to 200 basis points over the next 18 to 24 months by employing an active asset management strategy.

The asset management story continues to take shape with Rob Tanenbaum recently expanding his team, adding two seasoned asset managers with extensive public market experience and planning to add a head of revenue management over the next several months.

Second, we have a unique opportunity to activate the real estate across several of our core properties with targeted returns on invested capital of 10% to 20% upon stabilization, including expanding the meeting space platform at Bonnet Creek and converting the Doubletree Fess Parker in Santa Barbara to a Hilton with the repositioning designed to generate more group demand.

Finally, investors in Park benefit from a robust dividend that is approximately 200 basis points higher than our peer group average. When you combine these investment positives with the three pillars of our corporate strategy -- operational excellence, prudent capital allocation and conservative balance sheet management -- we are confident that we can deliver superior returns for shareholders over the long term.

Turning to quarterly performance across our core domestic markets. Our DC hotels were among our top performers following this year's Presidential inauguration. With our comparable DC portfolio posting RevPAR growth of 10% for the quarter, we expect DC to remain one of our top-performing markets over the balance of the year.

Not surprisingly, Hawaii posted another solid quarter with RevPAR growth of 4.1% driven by strong group performance. Despite concerns over the impact of a strong dollar on international demand to the region, we witnessed less than a 1% drop in total demand from abroad, while demand out of Japan, by far the largest feeder market to the island, was actually up over 4%.

Other notable performers included New York, which posted a RevPAR increase of 2.9% for the quarter, outpacing a 1.3% decline in RevPAR reported by Smith Travel for the city as a whole. Our New York Hilton benefited from tailwinds following last year's room renovation, coupled with strategic initiatives to further drive occupancy in both the group and transient segments.

We also witnessed strong results out of Orlando with RevPAR growth of 4.2% versus 3.8% for the market and group revenues up 13% year-over-year while Chicago benefited from tailwinds from a comprehensive hotel renovation wrapped up last year with our hotels posting an 8.1% gain for the quarter.

In San Francisco, certain items negatively impacted results with our hotels averaging a 3% RevPAR decline for the quarter, our Parc 55 hotel delivered impressive growth of 4.2% for the quarter due to the growth in the group and contract segments. However, this was offset by the Hilton San Francisco, which experienced an 8% decline in RevPAR, due in part to the $26 million renovation we completed during the quarter, which resulted in revenue disruption of $3.4 million or 860 basis points of impact to the hotels' RevPAR growth.

Despite the decline in RevPAR overall, we materially outperformed our peers, which reported average RevPAR declines of approximately 6% across San Francisco during the first quarter. Second quarter will be particularly challenging in San Francisco for all hotel operators with the Moscone Convention Center closed for renovations, driving convention room nights down nearly 30% for the year.

Despite this headwind, we remain confident in our ability to continue to outpace the market given our nearly 3000 hotel rooms and 168,000 square feet of meeting space across our complex of hotels in Union Square.

Along these lines, I would like to highlight our teams' efforts at our San Francisco properties as they have taken a very proactive approach at grouping up and have replaced 26,000 of the 36,000 room nights lost associated with citywide conventions at Moscone. We are actively engaged with Hilton to generate in-house group business and will add additional resources to supplement our group efforts.

Turning your attention to our portfolio refinement strategy. Over time, we intend to reposition the Park portfolio to focus exclusively on upper upscale and luxury branded hotels across the top 25 largest MSAs in the United States. This is a longer-term initiative where we anticipate recycling the bottom 10% to 15% of our portfolio over the next several years.

Our investment team, led by Matt Sparks, is currently working on a detailed strategic plan to determine the scope of our noncore asset sale program. While the team is still in the early stages of the analysis, they have identified a potential pool of 10 to 15 noncore assets representing $40 million to $45 million of EBITDA that are likely candidates for sale.

Generally speaking, these assets are located in secondary markets both abroad and here in the United States with an average RevPAR that is 25% below the portfolio average. We expect that sale proceeds would be used to fund acquisitions through a 1031 like-kind exchange as we look to reposition the Park portfolio to focus exclusively on upper upscale and luxury branded hotels across the top 25 largest MSAs in the United States.

As for the transaction market, in general, given the global thirst for yield, coupled with renewed confidence on the sustainability of the lodging recovery, we believe the window of opportunity to sell noncore secondary market assets remains open. We will update the investment community as the plan materializes in the weeks and months ahead.

In terms of straight acquisitions, we currently remain on the sidelines in the near term as our primary focus is on operational excellence given the enormous value creation opportunity we see on the margin front. Although we remain committed to growing our footprint over the long term.

To summarize, we are very pleased with our operating results as our geographically-diversified portfolio of hotels located in markets with below average supply growth, with multiple levels of demand helped to deliver stronger-than-expected RevPAR performance for the quarter. While we anticipate second quarter to be one of the more challenging in quarters this year due to tougher year-over-year comps and weaker expectations on the group side, we remain cautiously optimistic on performance for the year and reiterate our 0% to plus 2% comparable RevPAR guidance for the year.

I will now turn the call over to Sean who will provide you with some detail on our first-quarter activity and address some housekeeping matters, which speak to our increased guidance for the year.

Thanks, Tom and welcome, everyone. As Tom noted, we reported very solid results for the quarter, underscoring the benefits of owning a high-quality, well-diversified portfolio. Looking at our results for the first quarter, adjusted EBITDA was $177 million while adjusted FFO was $138 million or $0.64 per share, both of which were slightly ahead of our own internal forecasts.

Portfolio performance was largely driven by strength across our top 10 assets despite the challenges based in San Francisco. Overall, across our top 10 assets, hotel-adjusted EBITDA increased 7.1% during the quarter with margins increasing by 70 basis points driven primarily from very strong results at the Hilton Chicago and Hilton New York.

As Tom alluded to earlier in his comments, Q1 was a noisy quarter with various events affecting year-over-year comparisons. In San Francisco, we attribute approximately 80 basis points of RevPAR impact to the portfolio for last year's Super Bowl.

On the positive side, we estimate that the inauguration in DC attributed 10 basis points of benefit while the Easter shift also positively affected the portfolio's first-quarter performance by 40 basis points.

Turning to the balance sheet, we continue to adhere to our principle of conservative balance sheet management. As of March 31, we had $3.2 billion in debt outstanding, inclusive of our pro rata share of unconsolidated JV debt, along with $336 million of total cash and $1 billion available on our revolver, which we believe is ample liquidity to execute on our strategic plan.

Our trailing 12-month net debt to adjusted EBITDA ratio was 3.8 times, well within our stated target range of 3 to 5 times.

In terms of dividend activity for the quarter, on March 9, as part of our intended reconversion, we completed the purge of our historical earnings and profits, paying a $551 million dividend to stockholders, which included $110 million in cash and the issuance of 16.6 million shares of common stock to account for the balance.

As it stands now, we have just over 214 million shares of common stock outstanding. Additionally, on April 17, we paid our first quarterly cash dividend of $0.43 per share, and, as of last Friday, our Board declared our second-quarter dividend of $0.43 per share to be paid on July 17 to stockholders of record as of June 30. This dividend currently translates into an implied yield north of 6.5% maintaining its position as one of the highest yields in the lodging REIT sector.

Rounding out the quarter's activity, Blackstone completed its sale of a 25% stake in Park to Chinese conglomerate, HNA Group, in March, with HNA obtaining the right to nominate two Directors to our Board as part of the transaction. While we have nothing to report on this front just yet, we expect the HNA-nominated directors to join our Board in the near future.

Finally, onto guidance. While Tom noted in his comments that we have maintained our guidance for comparable RevPAR, there are some moving parts that will impact earnings guidance for the year.

First, we are increasing our guidance for comparable EBITDA margin improvement by 10 basis points at the midpoint, adjusting our range to negative 80 basis points to flat given the better-than-expected Q1 results. Additionally, with respect to the 600 room transfer to Hilton Grand Vacations at our Hilton Waikoloa Village Resort that we detailed last quarter, we had originally anticipated 140 rooms would be removed from the hotel's inventory in June of 2017 for HGV to begin construction, negatively impacting our adjusted EBITDA by an estimated $7 million to $8 million this year.

Due to a delay to the construction start, the removal of those rooms has been pushed back to Q4. As a result, the impact on our EBITDA will be materially less this year with estimated disruption expected to be just $3 million to $4 million in 2017. Therefore, accounting for the Waikoloa addback, coupled with a slight earnings beat during the quarter, we are increasing our adjusted EBITDA guidance by $5 million at the midpoint, with the new range coming in at $735 million to $765 million. Despite this increase, we are reducing our adjusted FFO guidance range to $2.65 to $2.77 per share to account for refined estimates for our tax provision and other reconciling items as we launch our new company. We have included the bridge in our financial supplement to walk you through these changes to our previous guidance range.

As Tom said, we're very pleased with our first quarter as a standalone company, and we are making steady progress towards the key priorities we set for 2017.

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

Anthony Powell, Barclays.

Hi, good morning, guys. The group revenue growth was pretty strong in the quarter. Could you describe how much of that was due to the Easter shift compared to some of your own efforts to group-up? In addition, could you talk about metrics like forward group production and pace?

I think a couple things, Anthony. One, we're not seeing any kind of deceleration in the group pace. I think we said in the last call we expected around 1% for the year. We stand by that and are certainly cautiously optimistic. I do think it's worth noting, obviously, second quarter is going to be the slowest in terms of group pace, but if you -- and that's largely related to San Francisco. If you take out San Francisco in the second quarter, we expect to be up about 1.1% in group and if you look for the full year, we would expect to be up in group pace about 2.4%.

So we are encouraged, give tremendous credit to Rob Tanenbaum and our asset management team and just how proactive they've been. I also want to complement our operating partners at Hilton, the collaborative spirit, the focus, the frequent meetings. Again, a quarter doesn't make a year, but we're very encouraged by the early progress we're seeing across the board, and particularly in our strategy to group up, as we've said, a fundamental tenet for us for the balance of the year. Rob, anything you want to add?

Sure. Anthony, with regards to the group, corporate group was up 16% fourth quarter, which was very encouraging, and we've also seen an increase in business transient for the quarter, which was up 6.5%. As we look into 2018, we are very encouraged by our group booking pace, which is up in the high single digits.

Thanks a lot for that detail. And on the noncore asset sales program, what kind of timing are you looking at and what do you think the pricing environment is for those types of assets?

That's a great question, Anthony. A couple things I'd point out. Obviously, we think, if you look at our three guiding principles -- obviously operational excellence -- operational excellence, being a prudent capital allocator and, of course, having a low levered balance sheet. We think obviously being a prudent capital allocator is terribly important to recycle capital.

When you look at our portfolio, obviously our top 10 assets account for about 61% of our EBITDA, a RevPAR of about $203, plus or minus. Our top 25 hotels account for about 82% of our EBITDA with a RevPAR of about $182. Then there's a dropoff, and so we believe strongly that it makes sense to recycle that capital in those slower growth markets into higher growth markets. And if you look at some of the assets that we've identified so far early in the process, they have a RevPAR that's at least 25% below the portfolio average.

So again, we're beginning the process. We will be thoughtful about it. I don't see any of that happening here in the next quarter or two. I think it will take time as we study, but we will begin that journey and begin that process. We think it's a very prudent course to be recycling capital again on slower growth markets into higher growth markets. We are also saving CapEx dollars, so a very efficient use of capital as we move forward.

So not dissimilar to a playbook you've see me use in the past and you'll see the Park team use it as well and we will be thoughtful and laser-focused on it to make sure it's done appropriately.

All right, great. Thanks.

Robin Farley, UBS.

Great. Two questions, thanks. One is just -- there's been some consolidation, some M&A activity among small or midsized REITs in the industry. Is that a strategy that you think you may use to advance your focus on this (inaudible) upper upscale and luxury in the top 25? Is that rather than doing asset by asset?

And then also I just wanted to clarify from your earlier comments about group business. You mentioned that 2018 was up, but I'm just trying to understand if what you saw is consistent with what we've heard from others about bookings in Q1 for the rest of 2017. Have you also seen a decline in that? I didn't know if you were saying that you were seeing something different than what we've heard from others. Thanks.

Yes, it's two great questions, Robin. Let me just be crystal clear on the group comment and if I missed something, my colleague, Rob, can jump in here. We are not seeing any kind of deceleration in our group pace for 2017. We said last quarter that we expected group to be up 1% and we are maintaining that without issue.

If anything, we are seeing encouraging signs on short-term group pickup and what I wanted to point out in my earlier comment is that if you take out San Francisco for both the second quarter, we would be up 1.1%. More importantly, if you take out San Francisco for the balance of the year, for the entire year, we would be up 2.4% in group pace.

So, no deceleration. Reiterating what we said earlier, we're cautiously optimistic. When we back up and look at both GDP, even though it was a soft print in Q1, we do believe if you look out for the balance of this year and next year, a 2.2, 2.3 print for GDP is encouraging for lodging.

Even more important than that is nonresidential fixed investment. Obviously, negative last year, down of negative 0.5%, forecasted to be up 3% this year. We see that as a huge tailwind and a real benefit for lodging given the strong correlation between business investment and lodging demand.

So very encouraged and the other point that Rob made, again, as we look to 2018, the booking pace again, mid to high single digits already and we have about 80% of our group business already on the books for 2017. So we're feeling very good about our positioning and again, we've got tremendous efforts and activities underway with our own internal asset management team, coupled with our operating partners at Hilton.

Regarding your question on M&A, let me -- I've been pretty consistent through the roadshow and all subsequent meetings. I see really four levers of growth for Park as we move forward. First, obviously, and embedded ROI opportunities, which we see in the near term. That internal growth story is terribly important. We see the opportunity for single asset opportunities. Again, we want assets upper upscale and luxury in top 25 markets in premium resort destinations and deals of scale because we think, obviously, that's -- those assets will trade at a higher cap rate. There is less competition. We think over time we will be very formidable in that area.

M&A, no secret to any listener. I have been one of the strongest advocates for the need for consolidation. We want to be part of that discussion and dialog at the appropriate time. We don't have the currency today and we certainly want to prove ourselves, build our track record; hence focusing on the operational excellence and the embedded ROI opportunities that will hopefully give us the currency to be able to activate and to go on offense.

Last is you are certainly going to see us look to brand and operator-diversify over time. Love our partners at Hilton, but you certainly will see us add other family of brands to the mix as we move forward.

So hopefully that answers your questions and answers some of the questions that perhaps we've gotten from other listeners as well.

Great, yes. Thank you. Thanks.

Bill Crow, Raymond James.

Hey, good morning. Thank you. First topic, on the asset sales, the noncore asset sales, I was under the impression that maybe you'd take the first year to kind of settle in and not be real active and this seems like maybe a departure from that. I'm just wondering whether the timing is a little bit sooner than you might have contemplated.

The second part of that first question is really about the use of proceeds. Will you be forced to use 1031 exchanges and then you will be out there in the acquisition market?

Yes, I think, Bill, look, the messaging might be a little sooner than perhaps you thought. If I could change anything perhaps in the prepared remarks, it would be probably more hearing from us in the months ahead, probably not weeks ahead. This will take time. This is a large portfolio. We want to be careful. We want to study the portfolio. We've put assets into buckets, those that we believe are obviously strategic, others that we see as opportunistic and then in others that we think, candidly, are in lower quality assets, again, slower growth markets, still capital-intensive.

We don't think that's going to be a prudent use of capital, so we think beginning that process to analyze and study and then we are getting some brokers to give us value, so that will take really some time to sort out. And then as we look to execute and sell, whether it is single assets, small portfolios, again, given the built-in gain of the tax requirement as part of a spin, the 1031 like exchange will likely be the vehicle that we use with the proceeds. But, again, we will continue to study that and to have more to say about that in the months ahead.

Great. And then my second question is -- I'm just curious whether you are benefiting in New York at all either on a very short-term basis or as you think about group booking pace in future years from the Waldorfs closing.

Yes, Rob is going to give you a little more color on that. I would say a couple things. Look, we are very encouraged by what we saw in the first quarter. Again, we did benefit obviously from some -- a tailwind, but a 2.9% print in New York is strong.

I would also add, as you look at April, and I didn't talk about this earlier, but let me just say one thing that I think shows again our cautious optimism. We expected April across the portfolio to be down probably a negative 2% to 3%. We're expecting April now to come in probably just south of 1% positive, so that's encouraging. And again, we benefit from a little bit of tailwind in New York, but New York was up 8% in April. So those are positive nuggets, as we move forward, I want to make sure of listeners here. Rob?

Bill, good morning. When we look at New York in particular, we started the quarter with a group pace deficit of 7.5% and we ended up with a group pace positive up 5.9%. That is a credit to the team at the property who just adjusted their sales strategies led to the volume increase, so we're really thrilled by what they are doing.

In terms of the Waldorf, there was minimal impact in the quarter by the Waldorf because the Waldorf closed on March 1. We saw maybe about 500 rooms of demand being transferred over from there.

And overall, the Waldorf impact on the Hilton New York is approximately $14.5 million in definite business. 70% of that, that was catering, 30% of that is rooms. The majority of the rooms are coming in through the fourth quarter and while the catering definitely it is coming in all -- in many three quarters for us. We like what we're seeing from the team and we feel very confident as they approach and they take these groups, being able to rebook them in future years as well.

Great. Thanks for the color.

Ryan Meliker, Canaccord Genuity.

Hey, good morning, everybody. I wanted to talk a little bit about San Francisco. If I think -- what you mentioned in your prepared remarks was that you have about 26,000 out of 36,000 group room nights already booked for your San Francisco asset. I'm wondering what the likelihood of booking those other 10,000 rooms is. If it's not likely, how you guys are thinking about that and then what type of number you feel like you need to see out of those 10,000 remaining rooms to try to book to get you to that targeted RevPAR growth of flat to down 1% in San Francisco that you mentioned on the last call. Thanks.

All great questions, Ryan. Let me try to frame a couple things on first quarter for San Francisco. If you look at the two hotels in the CBD, Union Square and obviously Parc 55, we were down 3.8%. Parc 55 was up 4.2% in RevPAR. Hilton San Francisco is down 8%.

It's important to note, obviously, we had renovation disruption, as I said, 860 basis points. If you take out the renovation disruption, our two hotels in San Francisco actually would've been up for the quarter in RevPAR 1.9%. I think it's important to recognize that.

So, again, and significantly would have outperformed the market. I would say that we still feel confident that we're going to outperform our peers. I would say we've seen probably a little bit of erosion and said, and you astutely pointed out -- I said down 1%. I would say now we're probably looking to be down 2% for the balance of the year, probably a little bit of conservatism in that. I'm confident that Rob and team will make up some of that ground, but still we still expect that we will outperform our peers in that 200 to 300 basis points, if not more, for the balance of the year.

A lot of that is just because of second quarter -- and obviously second quarter group is down pretty significantly. Again, we did announce that we had backfilled 26,000 of those 36,000 group rooms.

In terms of some of the tactics that we're employing, I'll let Rob give you some additional color on that.

Ryan, good morning. With regard to tactics, really looking at other sources of business for the hotel and in particular the contract business, which is quite a bit in the San Francisco market.

Also, with our sales strategy, the team has been very, very diligent in how they are doing their e-commerce and digital marketing, so we're starting to see some positive benefits from that strategy.

That's helpful. And, Rob, any idea how many of those remaining 10,000 rooms you feel like you need to book to hit that targeted RevPAR growth that Tom just talked about?

Probably about a few thousand rooms.

A few thousand? Okay, thanks. And then one last one real quickly from me is, with the Waikoloa delay in terms of the transfer of the rooms to HGV, I'm wondering what drove that delay and whether there is the possibility for further delays and maybe that slips later into 2018.

Hi, Ryan; this is Sean. I wouldn't -- a short-term delay, I think, ultimately nothing to read into it. I think the teams on the HGV side just wanted to take a little more time to make sure to get it right. It's a long-term strategy for both companies. They have obviously been looking to sell some good oceanfront inventory and we're looking to reduce the size of the hotel and benefit from the (inaudible) owners who will be there and take advantage of the ancillary demand that we'll get.

So I think it's just, again, long-term strategy and just a short delay just to kind of make sure things are right. Likelihood of delay? Hard to tell at this point. I think again nothing dramatic in terms of rethinking, maybe it's room design or whatnot, so I suspect we will, in Q4, get this project going.

All right. Thanks, guys. It's helpful.

Jeff Donnelly, Wells Fargo.

Good morning, guys. I had just a question on guidance, maybe just clarifying something is that EBITDA guidance moved up at the midpoint really because of the move at the low end. I'm just curious, considering much of the revision was the pickup in Hawaii and the Q1 beat, why not raise both the top and bottom end of your guidance as opposed to just the low end? Is that just to be conservative or is there something specific in bookings that leads you to want to be more cautious?

Yes, I think, Jeff, honestly there's a little bit of conservatism in there. We thought it made sense to pull forward some of it. We are -- I have to -- I think it's important to send the right message to listeners. We are very encouraged by our first quarter. I am proud of the way this team is gelling. It's a highwire act. You may recall now it's been literally a year since I left my former company and joined Hilton in launching this and to build out a former and complete team, get a Board in place and just to see the way we're gelling, I'm very proud.

So I think the first quarter is a solid print. Our margins were much better than we thought they were and we're -- when you look at RevPAR in context, and certainly looking at some of the disruptions, feel very good about that.

So we thought it made sense to incrementally pull forward. Again, a quarter doesn't make a year; we understand that. We've got to earn our stripes every day and this team is working hard to do that. We'll continue to reevaluate guidance each quarter, as you know. We don't give quarterly guidance. The second quarter will be more challenging, but we're already working our tails off to make sure we can print positive results for investors.

And then maybe as a follow-up, and maybe Rob can speak to this, as it relates to closing that margin gap. Your peers -- I think you mentioned 150 or 175 basis points or more over the next two years or so. I know you can't say date and time, but I'm just kind of curious, when do you expect that inflection to begin to come through? I know it takes time to turn the ship, but the gap has maybe widened a little bit in the last quarter or two with your peers and just maybe you can give some expectations for folks. Do you think that's going to be more late 2017 or early 2018 when you begin to gain on your peers? Just curious how you are thinking about it.

Let me give some macro and then Rob can give you some of the tactics and strategies that we're deploying. Let me be clear, Jeff; we are confident that we can close this gap. The value creation for investors is significant and we are also confident that we can do this in the spirit of partnership with our operating partners at Hilton.

As we've said, you can expect 75 basis points next year, then 100 a year after. I would still hold to that, but, again, the early signs are encouraging. First quarter much better than we thought, again, to be just down 10 bps -- 10 basis points for the quarter in margins. Rob?

Jeff, yes, we're really thrilled by first -- when we look at human capital, that's such an essential part of our team, and just added two great team members who I've previously worked with before who are seasoned and understand the industry and understand the opportunity ahead of themselves. As they further get into their portfolios, we expect great results from that.

And then Tom spoke about the relationship side of this business. We can't speak about that enough given that our relationship with Hilton is fantastic. It's very collaborative. It really has been an alignment of our interests. So with that, we feel very confident in our ability to move the margins.

But when it comes to how we're going to do it, we really are focusing on remixing the mix and we want to improve our group basis for the top 25 hotels, we want to improve our group margin per basis by 400 basis points to 35% over the next three years and we've sat with Hilton and looked at all of our top 25 hotels and have set goals for each and every property on how that group room night production is going to be for the next three years, which is then translating back to the hotel teams to further set their strategies and get aligned.

But we're also adding resources to that, which I am really thrilled about. They're going to be on top of the hotel level. So we're going to have essentially hunters take a look at the portfolio and driving new demand to the assets and essentially taking out these and turning it over to the property and then they are going to find additional leads.

But as we sit and look at the margin perspective, we are really saying what can we do differently? A few of the areas that we think could further drive opportunity for us is how we're selectively raising rates where appropriate, we're reducing the level of discounting, we're further instituting premium room type pricing and we're ensuring that we have the appropriate base of business. We spoke about that with San Francisco, like looking at contract business for our hotels; we feel very confident about that.

And then when it comes to F&B, when we see opportunities when it comes to pricing and our cost controls, we look at our second quarter. We improved our food and beverage margins by 235 basis points, which again is a huge credit to the operating teams in our portfolio.

And then we're analyzing other revenue opportunities. We spoke about last time about resort fees, parking, parking rates, renegotiating retail leases. Two quick examples I just want to share with you, Jeff. One is the -- at our Key West properties, we're going to increase the resort fee by $5 starting May 15. It's going to generate another $250,000 to the bottom line, and then we recently signed Bluemercury to open a flagship store in the Hilton New York. We are really thrilled by that and there was an article this past weekend in the Wall Street Journal and for them, it is going to be a great partnership as we move forward.

Last, but not least, I just want to talk about the key performance indicators. We sat with Hilton and we've looked at our 25 key performance indicators for our portfolio. We think there is quite a bit of opportunity to narrow the gap between the most efficient operation and the most opportunistic hotels. So we're looking at food costs, beverage costs, (inaudible) productivity.

So we really feel confident as we go forward that we can hit our margin expectation of 75 bps next year and 100 the year after.

That's great. Thank you. Actually can I cheat and maybe sneak in a third one. It's just how do the international assets fit into your disposition plans, Tom?

They are part of the discussion. That's why I think, Jeff, it will take a little time. There are -- it's more complicated there, particularly if you want to do a 1031 type exchange, but we'll have more to speak to that again in the months ahead, probably weighted a little more towards the domestic, but, as you know, REITs typically -- lodging REITs haven't gotten credit for really owning assets outside of the US, so you'll see us be US-centric and we will look to lighten our load internationally over time.

Thanks.

Chris Woronka, Deutsche Bank.

Hey, good morning, guys. Just want to ask you a little bit -- drill down a little bit on the group-up strategy, which I think is paying some nice dividends for you. But I mean is there any -- do we read through from that at all that there is any less confidence or conviction in corporate transient rebounding as we look out over the next 6 to 12 months?

No, I don't see that, Chris, at all. I think the thing to keep in mind here is that we start with an iconic portfolio and again, we've got six assets with over 125,000 square feet of meeting space. We've got another 25 assets with over 25,000 square feet of meeting space plus or minus across the portfolio.

So when you look at that base and if we can move, as Rob pointed out, with the top 25 assets, if we can move from 31% to 35% and take less discounted business, yield more on the catering and food and beverage, we can generate tremendous value for shareholders.

So it's just a natural benefit and a natural strategy given the strength of our portfolio that natural I think historically just wasn't as much a focus. It is a strong focus today, certainly coming up from the Park team, as well as from our partners at Hilton.

Regarding some of the transient color, if anything, we're seeing some rays of sunshine outside there, some encouraging stats and I'll let Rob share a few of those with you as we make sure we're responsive to the Q&A.

Chris, as we looked at our transient pace for May, one of the most positive notes is that transient pace for business travelers, up 4% for May and 8% for June and that actually continues a year-to-date trend. And as stated earlier, business transient during the first quarter was up 6.5%.

Thanks. That's great color. Follow-up is -- just to revisit the margin story for a second. Not looking for a property-by-property breakdown necessarily, but as you go across your top 10 and I guess maybe you talk about Hawaii a little bit, what are some of the pluses and minuses there and does the sale of rooms to HGV, is there an implicit bake-in on margins from that as it hopefully shrinks the hotel and gets rates up?

Sure, Chris. When it comes to Waikoloa, we think there is an opportunity as we shrink the hotel to further drive rate. We will have very -- you are not going to be selling as much group, so that's going to allow us to further drive our rate opportunity.

But as we look at our margins throughout the portfolio, we are really encouraged, and as I stated just earlier, if we just take the 25 key performance indicators, KPIs, we really believe there is an opportunity to further narrow the gap among the top-performing hotels with the most opportunistic hotels.

Okay, great. Thanks, guys.

Stephen Grambling, Goldman Sachs.

Hey, good morning. Thanks for taking the questions. A couple of quick follow-ups. I guess on the noncore asset sale program, it seems like implicit in the strategy that there is an expected arbitrage in the value you can obtain in these secondary markets versus what you can buy in the primary markets. Is that a fair assessment? Can you elaborate on the supply/demand and bidding you may be seeing for each of these types of assets?

Yes, it's a great question, Stephen. I think that there's a couple things to keep in mind here having done this before with the noncore asset sale. It really will depend on the individual market, the quality of the assets, what the underlying story is going to be. Some of these hotels we think we can sell unencumbered by flag and management that clearly I think will appeal to certain owner operators. There are some, obviously, that we're going to sell, we can convert to a franchise, others that we would look to sell that are going to be encumbered. So all of that will factor into the value.

I think the greater goal or the more important issue is to think long term where do we want to be and where do we want to take the portfolio. Again, we start with this iconic portfolio, as I said, the top 25 assets, RevPAR at $182, plus or minus, and obviously that accounts for north of 80% of the EBITDA.

So when we look at those assets in secondary, slower growth markets, it's just not a prudent use of capital to continue to invest in some of those. We will evaluate. Again, we have identified so far a short list of 10 to 15. We will continue to evaluate that over time and then look. We think given this thirst for yield, still the debt markets are still active, private equity is still looking, although cautious, but there are players that would be interested in the portfolio of assets that we're talking about.

They are probably single asset sales, could be small portfolios. Most likely, those will be single assets. In a perfect world, of course, you would love to be selling those at low cap rates and then buying at a high cap rate. I honestly think it will be on a case-by-case basis. There will be some that we will sell given their quality, given their market, that may sell given the capital needs that could sell at higher cap rates, but we will evaluate it in its totality as we execute the plan.

Fair enough. And then you noted strength in catering and banquet. If you were to adjust for Easter, what are you seeing in attendance and spending at group events if you were to look at it on a like-for-like basis?

So our group catering contribution, Stephen, was up 6.6% to approximately $175 per group room night, which is fantastic. We're also seeing -- when you look at our -- the quarter -- for the quarter pickup, you saw a 29% pickup, so therefore that shows that there is additional attendance occurring there and the teams are really focused throughout that to see -- to gain additional demand through changing their sales strategy. So we are seeing an increase in business as evidenced by the increasing group catering contribution.

And then very last quick one if I could, just on the improved F&B margins, again, if you were to adjust for Easter and some of the near-term benefits from group, what would that 235 basis point improvement look like and what have been the explicit things done to make those improvements?

Yes, and Rob is exceptional. I think we don't have that information in front of us. I think suffice to say, look, it's a positive tailwind, but I would also say it's really the hard work and effort of the men and women that are working both in our internal asset management group and partnering with our operating partners at Hilton. So more to come, but I think a lot of it has to do with the hard work and the initiatives -- and the initiatives are extensive that we're working with.

This is a core priority and certainly, again, as we've outlined, if you look at 2017, our key priorities -- obviously internal growth story on margins and continuing to look at these embedded ROI opportunities.

Thanks so much.

Shaun Kelley, Bank of America.

Hey, good morning, guys. A lot of my questions have been touched on. So just one sort of specific one. So thanks for giving all the additional disclosures in the supplemental. When I was looking through that, just was kind of curious on -- I noticed that the non-top 25 hotel properties actually posted a really strong RevPAR gain, but it didn't look like that filtered through to margins so much. I was curious if there was anything there or any specific reason why some of those markets may have underperformed on the margin front.

I don't think there is anything specific, Shaun. There could be some isolated issues here and there. I would say, obviously, near term, as we've articulated, really focused on the top 25 assets given their contribution to the overall portfolio.

We're not neglecting the balance. We will get to them as well with the same level of intensity and discipline, but a lot of our collective energy right now is really focused on those top 25 assets.

Great. Thank you very much.

Lukas Hartwich, Green Street.

Good morning, guys. So I just have a quick question. Hilton seems to be gaining traction on the direct booking front and I'm just curious if you are seeing that in your portfolio and if maybe you could quantify the impact to you.

Yes, I would -- I'd say as you look at OTA, just isolated, it's about 12% of our business today at a cost of around 13. Obviously, the direct booking is increasing. The channel is growing and we are pleased to see that. You are still seeing growth on the OTA side, so we're watching. We're very much partnering with our partners at Hilton to continue to force more through the brand.com channels.

Obviously, we believe those to be the most efficient and the cheapest channels. So more to come on that, Lukas, and we share that as a key priority, anything to get our customer acquisition costs reduced.

Great. That's it for me. Thank you.

And it does appear we have no further questions. I'll return the floor to Tom Baltimore for closing comments.

Thank all of you. Look forward to seeing many of you at NAREIT and we are excited about Park's future and the team of men and women here are working hard on your behalf.

This will conclude today's program. Thanks for your participation. You may now disconnect.