Greetings, and welcome to the Park Hotels & Resorts fourth quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to our 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 2021 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 and adjusted FFO. You can find this information together with reconciliations to the most recently comparable GAAP financial measure in yesterday's earnings release, as well as in our 8-K filed with the SEC and the supplemental information available on our website at pkhotelsandresorts.com.
This morning, Tom Baltimore, our Chairman and Chief Executive Officer, will provide a review of Park's major milestones, an overview of our fourth quarter performance, and thoughts on Park's priorities as we head into the recovery. Sean Dell'Orto, our Chief Financial Officer, will provide additional color on fourth quarter results as well as more detail 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. Six weeks ago, we celebrated the fifth anniversary of Park Hotels & Resorts. Over the past five years, the Park team has worked tirelessly and with laser focus and discipline to transform the company. We have sold or disposed of 31 assets for $1.7 billion, including all 14 of the international assets that were part of the spin, vastly simplifying Park's operating profile. We added 18 high-quality assets through the $2.5 billion Chesapeake Lodging Trust acquisition, improving portfolio metrics, and diversifying our geographic brand and operating profile. We facilitated the exit of both Blackstone and HNA from Park's stock, eliminating the perceived equity overhang and taking out HNA in a highly successful secondary offering that allowed us to buy back Park stock at a significant discount to NAV.
We also shut down operations at the three freestanding laundry facilities and turned over management of Park's four select hotels to third-party management, freeing up our internal resources and simplifying our employee base. As we passed the five-year anniversary on January 3rd, 2022, we removed significant built-in gain tax restrictions on the sale of legacy Park assets, giving us increased flexibility and optionality as we expect to enter the growth phase of the lodging recovery. The past two years have been grueling for all of us. When I think about Park's efforts, I'm especially proud of how our experienced team has navigated this environment. We did not panic. We acted swiftly and decisively to stabilize the business, temporarily suspending operations at several hotels to reduce monthly cash burn.
Thanks to the exceptional efforts of our asset management team to reimagine the operating model and reopen hotels only when it was financially beneficial to do so, we reduced our monthly cash burn from a high of $85 million to portfolio breakeven by March 2021. We also worked proactively to maximize our financial flexibility. We were one of the first lodging REITs to enter the bond market in 2020, orchestrating three successful bond offerings between May 2020 and September 2021, and raising $2.1 billion in senior secured notes. In combination with the proceeds from Park's strategic capital recycling program, the bond issuances allowed us to push out debt maturities, pay off 97% of our bank debt, and perhaps most importantly, avoid the need to issue dilutive equity, which we communicated as a key priority.
Looking at 2021 in particular, I'd like to call out four key achievements. First, we successfully reopened six hotels during the year, including the nearly 1,900-room New York Hilton Midtown, with the portfolio now 96% open and only two of our hotels still suspended. Second, we achieved positive FFO for the last two consecutive quarters through the stellar efforts of our asset management team and operating partners to drive top-line growth while working towards reimagining the operating model to permanently cut an estimated $85 million in expenses through the elimination of approximately 1,200 full-time positions across the portfolio, translating into an estimated 300 basis points of margin upside.
Third, we increased our financial flexibility through our strategic capital allocation priorities, opportunistically selling five hotels for nearly $480 million to reduce leverage and issuing $750 million of attractively priced corporate debt. Finally, we restarted work on several key ROI projects, including the Bonnet Creek Meeting Space platform expansion in Orlando, which we expect will drive outsized growth for our portfolio going forward. In sum, we finished 2021 well poised to capitalize on the expected recovery and the return to normalcy. Turning briefly to fourth quarter performance. Results came in ahead of our expectation, driven by strong performance from several core markets. Consolidated pro forma RevPAR of $110 was above expectations, fueled by outsized ADR growth, with 37 of our 46 open consolidated hotels generating positive EBITDA for the quarter.
Similar to the third quarter, leisure strength in Hawaii, Southern California, and South Florida helped drive portfolio performance, generating an average leisure transient ADR that was 5.2% ahead of the fourth quarter of 2019. We saw healthy performance at two hotels in Hawaii during the fourth quarter, with minimal impact from the Omicron variant over the holidays. Hilton Hawaiian Village ran over 96% average occupancy during the last week of the year. In Waikoloa, we continue to see strong rates in comparison to 2019, with ADR up 27% or $63 to the fourth quarter of 2019. On the mainland, our Florida properties continue to post incredible rate growth, increasing by nearly 30% over 2019 levels during the fourth quarter, and by 18% for the full year.
In particular, our two Key West hotels saw a 76% increase in RevPAR compared to 2019 levels during the fourth quarter and a 44% increase for the entire year. We continue to see meaningful sequential improvement in group and business transient demand as well. Business transient revenues increased by over $10 million from the third quarter to account for 30% of the total quarterly revenue mix in the fourth quarter, and group revenues increased by over $19 million from the third quarter to account for nearly 20% of the total mix during the fourth quarter, up from just 7% in the first half of the year.
We saw pockets of group strength in New Orleans, Orlando, and New York, and short-term group demand in Hawaii throughout the quarter, an encouraging sign of the pent-up demand that is present as groups increase meeting in person. Looking ahead to 2022, Park remains laser-focused on key priorities as we move from the pandemic to the endemic phase of the crisis. Park owns among the highest quality hotel portfolio in the sector, with incredible optionality and significant embedded value, which we plan to unlock over the next several years. Our focus over the balance of this year and beyond remains to aggressively asset manage our hotel portfolio and adhere to our principle of relentless pursuit of operational excellence.
I mentioned earlier, we have eliminated an estimated $85 million in expenses through our tireless efforts to reimagine the operating model, translating into an estimated 300 basis points in margin upside. As our portfolio recovers, we seek to demonstrate to the market that the operational efficiencies we achieved over the last two years are permanent while unlocking the embedded growth opportunities across the portfolio. In addition, we will seek to take advantage of the strong demand for hotel real estate in the private markets by continuing to sell an estimated $200 million-$300 million of non-core assets at or near 2019 valuations while evaluating opportunities to buy back upwards of $250 million of stock at a meaningful discount to NAV.
We believe that there is no better capital allocation decision than to invest in Park, either through share repurchases or investment in ROI projects. Thanks to the great work of Sean and his team, we recently amended some of our debt covenants to our credit facility to allow for more flexibility going forward. As the recovery broadens over the back half of 2022, we plan to reinstate a modest dividend subject to board approval and plan to selectively pursue attractive acquisitions in our target markets that are immediately accreted to both earnings and NAV, with a continued focus on upper upscale and luxury hotels in top 25 markets and premium resort destinations. Finally, we expect to prioritize portfolio-enhancing ROI projects that are targeted to drive outsized growth and unlock the embedded value in our portfolio.
Significant work is underway on our $110 million Bonnet Creek meeting space expansion project. We seek to repeat the incredibly successful brand conversions at the Hilton in Santa Barbara and the Reach Resort in Key West. We plan to launch two additional brand conversions. DoubleTree San Jose to a Hilton, and the Waldorf Astoria Casa Marina to a Curio branded hotel. Overall, we expect to invest at least $200 million in value-enhancing ROI projects over the next few years with projected attractive returns. Before I hand the call over to Sean, I wanna emphasize the strength of Park's current position as we head into a more broad-based recovery.
We remain committed to maximizing shareholder value and working aggressively to narrow the current valuation gap, which currently stands at over a 25% discount to consensus estimates, and an even wider gap based upon our own internal view of value. Our balance sheet is in excellent shape with over $1.6 billion of liquidity, and we believe we have several levers to pull to generate outsized earnings growth over the next few years as we unblock the enormous embedded value within our portfolio, while also taking advantage of our streamlined operating model and the impending return of the business and international traveler.
We expect our strong leisure base of business in markets like Hawaii, Florida, and Southern California to continue to fuel results, and the recovery of business and group-related demand in markets like New York and San Francisco should translate into a strong second half of the year with overall group pace approximately 62% of 2019 pace as of December 2018. Despite the near-term challenges presented by the Omicron variant, we believe we will remain on track to return to prior peak operating results by 2023. With that, I'd like to turn the call over to Sean, who will provide some more color on our results and updates on our balance sheet and liquidity.
Thanks, Tom. Overall, we are very pleased with our fourth quarter performance, with pro forma RevPAR improving sequentially to $110, driven by a 120 basis point increase in occupancy to 52.5%, while rate averaged $210 during the quarter were just 4% below the same period in 2019. Overall, total operating revenue was $435 million during the quarter, while hotel adjusted EBITDA was $85 million, resulting in hotel adjusted EBITDA margin of nearly 20%. Q4 adjusted EBITDA was $81 million, and adjusted FFO per share was $0.05, marking the second quarter in a row of positive FFO since the start of the pandemic.
We witnessed widespread strength across the portfolio with all four location types, resort, urban, airport, and suburban, reporting flat to positive hotel adjusted EBITDA for the quarter. Among the highlights for Q4, we were very impressed with the overall performance of the New York Hilton Midtown, which averaged nearly 60% occupancy during the months of November and December, while rates surpassed 2019 levels as the hotel was able to host groups, international travelers, and leisure guests looking to take advantage of all that the city had to offer during the holiday season.
Looking to the first quarter of 2022, performance has been negatively impacted by the Omicron variant, particularly in markets like San Francisco, New York, and Chicago, which saw major citywide events cancel, coupled with a delayed return to office, which negatively impacted business transient demand in an otherwise seasonally weaker quarter for leisure travel in these markets. Overall, the portfolio has taken $30 million in group cancellations due to Omicron, although the vast majority of the fallout appears to be contained to just the first quarter. Therefore, we anticipate Q1 RevPAR to dip slightly from Q4 of last year, while margins are expected to be negatively impacted by a projected year-over-year increase in real estate taxes.
Despite the Q1 challenges, we are very encouraged by the end-of-year, year-over-year pickup with nearly $25 million in new group bookings generated just last month for Q2 through Q4, beginning a trend of positive net group booking activity over the past few weeks, especially in the Hilton Managed portfolio, which has seen 2022 corporate group lead volume double versus same time last year and increase nearly four-fold in January versus December. On the transient side, demand has increased from roughly 59% of 2019 levels in early January to around 77% over the past several weeks, while rates have averaged a 3%-4% premium over 2019.
By the end of January, transient booking pace for the weekends was 26% higher than 2019, while weekday pace was down just 8%, improving from down 19% at the beginning of the month. Turning to the balance sheet, our liquidity currently stands at $1.6 billion, including over $900 million available on our revolver and approximately $650 million of cash on hand, while net debt sits at $4.2 billion. Overall, the balance sheet remains in very solid shape with only 2% of total outstanding debt maturing through 2022, and with 99% of our debt obligations currently fixed.
Despite recent volatility, the debt markets remain active and becoming more constructive towards lodging, which should put Park in a solid position to refinance the $725 million CMBS loan on our two San Francisco assets, which comes due in late 2023. We also expect to refinance the $650 million, 7.5% senior secured notes that we issued in May 2020, calling them on or prior to the June 1st call date to realize meaningful interest savings going forward. Finally, as Tom noted, I'm very pleased to report that we successfully amended our revolving credit facility and term loan, which we finalized earlier this week. With this effort, we accomplished three key objectives.
First, we extended our financial covenant waiver period by 2 quarters, with the first test period pushed out to the end of the third quarter of 2022, with the exception of a one-time fixed charge coverage ratio test based on Q2 results, and further modified the covenant thresholds beyond the waiver period. Second, we gained more flexibility to run the business by increasing the amount of investments permitted, eliminating restrictions on asset sales and capital expenditures within the portfolio, while also giving us the flexibility to prepay outstanding secured debt, among other adjustments. Third, we secured the ability to buy back upwards of $250 million of stock, which is permitted so long as there are no outstanding amounts on the revolver and the repurchases are funded solely from cash on hand, cash from operations or proceeds from asset sales.
I would like to personally thank the members of our bank group for their continued support of the company. They have been incredible partners throughout these unprecedented times. This concludes our prepared remarks. We will now open the line for Q&A. To address each of your questions, we ask that you limit yourself to one question and one follow-up. Operator, can we have the first question, please?
Thank you. Just a reminder, if you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press the star key followed by the number two if you would like to remove your question from the queue. As the moderator said, please limit yourself to one question and one follow-up question. Our first question comes from David Katz with Jefferies. Please state your question.
Hi, good morning, everyone. Thanks for taking my questions. I
Morning, David.
Good morning. I will apologize, I was on just a couple of minutes late, but I wanted to just make sure I get a clear take on your views on, you know, New York and San Francisco and how those, you know, qualitatively speaking, are gonna roll through this year, right? They are still, you know, in much earlier stages of recovery. I think that's probably fair, a fair statement. How do you expect those to evolve, you know, as we roll through 2022?
It's a great question, David, and thank you for joining us today. First, if we look at the New York Hilton as an example, you know, we reopened the asset, I believe, October 4th. We studied quite carefully whether or not it made sense to open at that point. We debated whether or not it would make sense to open perhaps even earlier or spring of 2022. We were pleasantly surprised that we made the decision to open in October. If you think back, as Sean pointed out in some of his remarks, but we opened, I think, in December. In November, we were running about 55%-60% occupancy at close to $300 rates, I believe just 7% or 8% below 2019 levels.
December, we were running occupancy there at about 63% at a rate of about $345, and we were about 7%± over 2019 levels. You know, it performed much better. I think, again, to the issue of pent-up demand, you also saw the resurgence of international travel there as well. Obviously, that had been impacted obviously by Omicron and the variant there that sort of disrupted. We remain very, very bullish and constructive on New York. You really have only three boxes that have really significant meeting platforms. I think two, in our view that the Hilton has the best meeting platform.
As we look out in the booking pace and what we're seeing just in group pace in 2022, about 60% of 2019 levels there, about 100,000 room nights. We're encouraged as we sort of move forward. I think as you think about New York or San Francisco, I'd certainly say that New York is really poised as you also think about the return to office. I think we're all seeing and all recognizing that there are really encouraging signs out there. I think this also applies to San Francisco, and I'll respond to your question on San Francisco as well. COVID cases are really declining globally.
I think we're all learning and getting and coming to the conclusion that we've got to accept COVID, and that we're really moving from this pandemic phase to the endemic phase, and return to office is really accelerating. When you think about pent-up demand, and really it's in all segments, it's not only in leisure, but it's in business and even group, you know, the need to be together is more important than ever. And also a resumption of international travel. If you think about just visitation into the U.S., so there was about 79 visitors in 2019. Obviously, that's gonna, we believe, begin to ramp up. That's also gonna be a strong source of demand, not only for the U.S., but particularly for the urban environments, both from a business standpoint and a leisure standpoint as we move forward.
We're very encouraged about what we're seeing in New York. You know, San Francisco is one that many people are quite down on. I would say that it's important to remove some of the emotional clatter and negative energy that's out there and just step back for a second and think about the city. It's one of the great cities of the world, innovation, creativity, the number of universities that are located there. The venture capital is anchored there. I think the demise of San Francisco is a bit premature. Obviously, safety and security is an issue.
I personally was out there in early December with another REIT CEO, meeting not only with The Mayor, the chief of police, their chief of staff, her chief of staff, and really stressing the need for the safety, security issue. I know that those meetings and other meetings were a positive catalyst. As we look out in San Francisco in our own portfolio there, you know, CityWides are about 34 events for this year at about 525,000 room nights, I believe, plus or minus. When you think back to the high watermark, it was 2019, I think it had been reported of about 1.2 million room nights in CityWides. It really was closer to about 1 million.
Their mayor is even now attending sales calls and driving home her commitment to safety, security, and really getting groups back, which I think is also positive. As we look out in San Francisco, we're encouraged. There was some activity this week with three school board members that were recalled. There's talk of the DA, the district attorney, unfavorable views on many issues of him possibly also being recalled. I do think there's some positive things that are happening there. No doubt, the safety and security issues have got to be addressed, but we certainly remain constructive on San Francisco over the intermediate and long term.
Understood. Perfect. Thank you very much.
Yeah.
Our next question comes from Smedes Rose with Citi. Please state your question.
Okay.
Hi. Thanks.
Good morning.
I just wanted to ask you. Good morning. You guys have talked a little bit on your calls about your selling non-core properties and have emphasized, you know, a lot, most of your EBITDA comes from, you know, just kind of your core assets. You know, is now the time, or would you expect in 2022 to kind of formalize a disposition program, you know, given your confidence in a broad-based recovery? Is now the time to kind of, I guess, move maybe more quickly on that? Or how are you thinking about that?
Yes, it's a great question, Smedes. I would tell you that if you think back over the five-year history, we were aggressive and proactive. We've sold now 31 assets for $1.7 billion, and that includes 14 international assets in South Africa, two in Germany, seven in the U.K., an asset in Brazil, an asset in South Africa, all complicated with lots of legal and tax issues. It was really prudent of us to do that. Just think had we not done that heading into COVID and the complexity of issues that we would have faced otherwise. We're proud of all the great work that the team did there. We are going to continue to aggressively recycle. To your point, our top 27 assets really account for about 90% of the value of the company.
We've identified another batch of non-core assets that we're gonna aggressively move. Keep in mind, we also had the built-in gain tax requirements that have now expired. That also gives us even more optionality with the portfolio. We also had four assets that we were self-operating. Given some of the tax restrictions, it was punitive for us to sell those sooner. Those are now easier for us to sell here in 2022. Those sales activities are already underway. It's a core priority for us in 2022. You'll see us accelerate those non-core asset sales. We also have a number of joint ventures. There are nine of those remaining, three of those are consolidated.
We'll also look to, where possible, some of those have legal and tax issues as well. We will continue to work hard to reshape the portfolio, improve the portfolio metrics, and then use those proceeds for share buybacks. We trade at a significant discount to not only NAV, but also to replacement cost, and we're not happy about that, and we wanna work hard to address that immediately. We'd use those proceeds for share buybacks, also for ROI projects, and then also for opportunistic acquisitions that fit our profile.
Okay. Thank you. Just as a follow-up, I wanted just to ask you on the dividend, you know, if you reinstate, I guess, in the back half, obviously sort of starting out with a pretty modest level. Is it driven by taxable concerns, or is it just your, are you sort of messaging that you have increased confidence in, you know, the recovery kind of outlook, or how are you kind of thinking about that in terms of a targeted, you know, payout ratio, I guess, you know, initially?
Yeah. Certainly, we expect that we'll have taxable income. We do have some net operating losses, obviously, coming out of the pandemic that gives us additional optionality. But also having the modest dividend makes us more attractive to some of the income investors that couldn't consider us otherwise. And also it's confidence. It's confidence that we do believe that as we move from this pandemic phase to the endemic phase, that having a return of capital, including not only buybacks but a modest dividend is a prudent move and certainly will benefit shareholders.
Great. Yeah. Thank you.
Our next question comes from Rich Hightower with Evercore. Please state your question.
Hi, good morning, guys.
Morning, Rich.
Tom, I think you intercepted a question I had on the built-in gains implications, so I can move to kind of a different-
Yeah.
A different angle here. Just, you know, from where we sit today, you know, not knowing anything about the future in terms of, you know, potential acquisitions, you know, that you guys are considering. How do you weigh, specifically between, prepaying, some of the higher cost secured debt, that remains on the balance sheet later this year versus share repurchases, you know, kinda competing IRR profiles, you know, with one decision versus the other, but also in terms of overall flexibility? How do we think about those two priorities?
Yeah, it's a fair question, Rich. I just wanna back up for a second and just reemphasize what our priorities are gonna be for this year. First and foremost, operational excellence. We are laser focused on the operational front and reimagining the operating model. As we've said repeatedly, we're confident that we've been able to take $85 million in cost out of the business, and, you know, we estimate about 300 basis points in margin benefit there. Those are 1,200 jobs, part management, really eliminating redundancies. For us, first and foremost, by doing that, demonstrating that, candidly earning credibility there, we're hoping obviously we'll continue to see the stock price improve.
That also gives us optionality for growth and certainly close the valuation gap that is frustrating and we are laser focused on achieving that. You know, again, selling those non-core assets and continuing to reshape the portfolio. Those proceeds, again, being used for share buyback, and if we can address the first on the operational excellence in selling non-core assets and close or approximate to 2019 pricing, it gives us the opportunity for buybacks, reinvesting back into our portfolio and ROI projects, and then using that for acquisitions. Sean and his team have just done an extraordinary job as we think about how we've managed the balance sheet and the moves that we've made.
As Sean pointed out, we've got the $650 million bonds that we can take out, and we're looking probably late spring, early summer to transact there. That clearly will get us interest savings. By selling the non-core and really closing this valuation gap and, you know, using strategically on the buyback side, when you're trading at a, you know, a 25%-30%, and that's, you know, obviously below what we think our internal valuation, our internal NAV is, you know, we see that as a real priority, and we wanna show that we've got confidence. There's no better investment we can make than really investing back into this portfolio. We're trading 10x-11x , if not probably inside of that.
You know, buying assets at 13x, 14x, 15x, 16x multiples than what people are paying is really, we don't think, the prudent move for Park to make at this time. We don't see that really being accretive given where our cost of capital is right now.
That makes perfect sense. Then just a quick follow-up, if you don't mind. I think if I go back to one quarter ago on this call, I believe you said you were planning at that point to open Parc 55 in December. Obviously, you know, Omicron had happened, you know, has happened since then. Was that the only change that really sort of affected that decision, or was there anything else that sort of has led to sort of further delay versus I think the, you know, the target as of 90 days ago?
Yeah. As we said, and again, a lot of credit to Sean, to the asset management team, the men and women there, what we've always said is that we will reopen hotels when it's financially viable to do so. It was certainly our intent to open that in that window. Obviously, the new variant certainly delayed that. But given as we look out now, and encouraging signs in San Francisco, as I mentioned, having you know citywides north of 500,000, about ±34 events , plus the in-house group and the leads that we're seeing, you know, we think it's gonna be probably in that April-May timeframe will make the most sense to maximize and to reopen Parc 55 at that time.
Okay, great. Thank you, Tom.
Yeah. Thank you, Rich.
Our next question comes from Floris van Dijkum with Compass Point. Please state your question.
Thanks, this is Floris. Hey, Tom. I've you know, I wanted to see if I can get you to say something a little bit more in terms of your own view of value. I know one of your peers is out there very publicly talking about, you know, his view of his shares. You know, will you be doing something similar to that? Particularly when we look at your stock and we think, you know, there's a significant value, but The Street, while it's obviously higher, much higher than where your current share price is, you know, appears to be somewhat lagging, and there still seems to be a fair amount of skepticism, particularly regarding, you know, the, well, perhaps your urban exposure.
Can you say anything more in terms of your replacement costs views? Have they changed, you know, since we spoke last and maybe about your thoughts about, you know, being a little bit more explicit with the investment community?
Yeah, it's a fair question. We intend to put out a more detailed summary of NAV. We clearly believe that, and I believe consensus NAV is somewhere in the $27 a share. We would certainly be in a range higher than that, in a $28-$32 range. But we certainly plan to put out more detail, and back that up. I think that's appropriate. Again, we've got to make sure that we're jumping through the appropriate legal and disclosure hoops, but it is our intent to provide more detail there. That's point one. Point two, given obviously inflation, given the barriers to entry that exists within our portfolio, I think it's important to remind listeners, there are many assets in this portfolio that would be impossible to replicate.
Think about Hilton Hawaiian Village, 22 acres, nearly 3,000 rooms. We are in the process of working on an out parcel to add a sixth tower there as an example. Think about San Francisco with 3,000 rooms over two city blocks or the New York Hilton there, which is south of 1,900 rooms, would be impossible to replicate. When you think about a replacement cost and given rising inflation and certainly rising costs, we clearly think we're trading at some discount, probably in the 55% range to discount to replacement costs. Clearly, we're undervalued.
When you think about how the recovery is going to unfold and the reopening of offices and people moving and mobility, we are seeing obviously significant growth in RevPAR, and take Key West as an example, north of 70%. I know everyone's focused on leisure markets, as are we. We're also encouraged. Hawaii, we think, obviously, will continue to benefit significantly. We're running in the 60% occupancy there and on a more annualized basis. But keep in mind, that hotel in particular ran, you know, 97% or more pretty consistently. My point being, when you think about growth and where it's going to be, the urban markets, both from a business group and from a leisure standpoint, are gonna be participants in this growth. We're confident in that.
We believe that, and I think over time, we're certainly all gonna see that. Those that are writing off those markets, I would respectfully submit that their conclusions are a bit premature. Hopefully that answers your question for us. We will be providing more detail. I've given you a little bit of summary, but no doubt we trade at significant discounts.
Thanks, Tom.
I think the private market transaction.
Go on.
Yeah, the private market transactions that we've done over the last year or two, I think only reinforce that. We sold two assets in San Francisco last year, both of which were trading at 19 valuations. You know, the underlying value of the portfolio we're confident is there. Again, you can build select service hotels on every corner. Building full service hotels of this scale and scope are very, very difficult, near impossible in many communities to be able to replicate.
Thanks, Tom. If I can have one more question, and maybe this is perhaps more for Sean as well, but as you know, some of your peers are exiting covenant waivers or are getting close to exiting covenant waivers. As you consider, obviously, share repurchases with the fact that you wanna exit your covenant waivers as well, and you've got some. You ideally wanna be able to refinance the bonds, hopefully with proceeds from asset sales as well, perhaps. How do you weigh all of those things and what is going to be, you know, priority one? Is it repurchasing some stock or is it first fixing the balance sheet and then repurchasing some stock? Or maybe think about. Lay out how you think about that, Sean or and Tom.
Sure, Floris. This is Sean. I mean, I think we think about it in terms of some balance here. As you think about, as Tom alluded to, kind of where valuation stands today, I think we're gonna be more, you know, certainly proactive in looking at addressing the cost of equity side of the equation. But we're gonna be prudent. We're certainly at the beginning of the year, we feel confident how it's gonna transpire. But certainly we're gonna be very balanced and continue to be prudent about how we allocate towards stock repurchases, knowing that we do have some capital uses here as we think through refinancing through the latter part of the year. With the bonds, we certainly think that we can refinance those at certainly much lower rates.
Even the market today, it's open, it's working. Certainly, it's not as voluminous as it was prior to the Fed, you know, taking a little more hawkish stance. But I think, you know, the fact that it remains constructive on top of the fact that, you know, we should expect to see, if things hold as we think it's going to hold, improved operations, I think will have a nice tailwind for us as we look to kinda take those out, again, as Tom mentioned in the springtime. It's finding the right balance. It's saving certainly dry powder to allow us to execute on the plans throughout the year.
I think, you know, certainly as we sit here today, I think certainly the focus right now is thinking through the stock, and then kinda layering in the rest of the balance sheet plans as we go forward through the year.
Sean, if you were to quantify today, if you were to be able to refinance those bonds today, what kind of savings would you be looking at on an annual basis?
You'd be probably looking at on the fact that you're probably in the neighborhood of, I would say, $8 million-$12 million on the $650 million.
Thanks. That's attractive.
Well, it starts with an unattractive coupon, which one we want to get rid of as soon as we can. Well worth it-
Fair enough.
in the pandemic.
Thanks, Scott. That's it for me.
Thank you.
Thank you.
Our next question comes from Anthony Powell with Barclays. Please go ahead.
Hi, good morning, everyone.
Morning, Anthony.
Morning. Question on RI projects. I think, Tom, you said you wanna spend $200 million over the next few years on those projects. Why not do more? I mean, when you look at some of your other peers, they're spending a bit more as a percentage of their total sizes on RI projects. You've done well with yours at Santa Barbara and QS. It seems like right now is a good opportunity to maybe lean in on CapEx. Just curious on your thoughts on that.
Yeah, it's a great question, Anthony. We wanna strike the right balance. There's no doubt when you think about our portfolio, obviously the DoubleTree San Jose, low-hanging fruit, the Curio and converting that, the Casa Marina to Curio makes all the sense. The Reach has just been a grand slam. Obviously, we've got the DoubleTree Crystal City, and we sit at the front door of the Amazon campus there. We are evaluating what our options are there and studying. There also are other assets within the portfolio. Obviously we're making a huge investment in the resort in Bonnet Creek and what we're doing there with the expanded meeting platform, both for the Signia by Hilton addition to the Waldorf there.
There are others that we are also studying. Hilton New Orleans Riverside, you know, we've got eight acres there and along the river and, you know, over 5 million sq ft of additional FAR. That's obviously a major project that we would master plan that and certainly execute that most likely with a partner over time. Of course, we're looking, as you know, on adding the sixth tower at Hilton Hawaiian Village, which is a major undertaking, and we've got that entitlement work underway. We do have the site under control. We're really excited about that, but that too is gonna be in the intermediate to longer term.
You'll hear more and more about some of the other embedded ROI projects that we have within the portfolio, and I'm really, really proud of the team, Tom Morey, our Chief Investment Officer, and Carl Mayfield, the head of design and construction, and the men and women on our team that are working so hard on these initiatives.
Got it. Okay. Maybe just one more on pricing. You mentioned New York had pretty strong ADR. Some of the other urban markets maybe trailed a bit. I guess what differentiated the ability for you to drive price in New York? When do you think that comes back some of the other urban markets like Chicago, for example?
Yeah. We have a really talented team in New York, and I think across the industry, I think we've all learned that the race to the bottom doesn't help any of us. I think you're seeing rates hold up better. The other thing is we had demand. When you've got anchored business and you've got group and, you know, having it anchored with group, having some contract allows you obviously to continue to push and price the transient accordingly. Very encouraged as we sort of look out. You're also, you know, there's a little bit of confusion in New York, right?
You've got near-term talk of new supply, but the reality is, given some of the legislation that's being talked about and some of the conversions, you know, perhaps over time, New York does get to a better balance and certainly a more economic model as we move forward. But keep in mind, there are only three big hotels that really have the meeting platforms to be able to handle the big group. We would argue that Hilton New York has got the best platform.
All right. Thank you.
Thank you.
Our next question comes from Neil Malkin with Capital One Securities. Please go ahead.
Hey, Neil.
Hey, Tom. Hey, everyone. Thanks. Bigger picture question, Tom. You know, you guys commented that debt markets are improving. You know, you guys in the lodging region in general have lower leverage than the private market players. Then just given the large disconnect in valuation that has been well documented, you highlighted it several times. Do you think that in 2022, given all those things kind of coalescing, that some sort of take privates will start to happen and potentially act as a catalyst for valuations?
Yes. It's a great question, Neil. You would think if you. I mean, I've been around a long time, as many of you know, and think back to the kinda early 2000s through 2006, 2007. Obviously, there was a lot of take private activity then. You know, given the fact that there's been a you know grueling two-year period with COVID, there's been scarring. I think management teams themselves have got to decide what they wanna do. Given the fact that you've got tremendous liquidity, the world is awash with capital. I think you would need the debt markets to improve and I think improve visibility on the demand front. I think we're all getting that.
We're all cautiously optimistic, and we are seeing some real rays of sunshine out there. I do think it's important to keep in mind the fact that we're all crossing the bridge and realizing that we've got to learn to live with COVID, moving from this pandemic to the endemic phase. I would certainly expect that there would be some take private, and I think even some groups might even look at some M&A and some combinations. I've been saying this for north of a decade, but I certainly don't expect that you'll have 15 public lodging REITs, plus or minus here in another year or so.
Super helpful. Thanks. Maybe a little early on, but can you just maybe walk through how your customer service or guest satisfaction is going, as you know, you started to see more of the core traveler, you know, be it group or, you know, larger business travel kind of start to, you know, come back. Obviously, the brand standards mean, you know, revised outlets, amenities, and obviously things being harder to staff. You know, maybe things aren't open as long or and not as many days.
You know, are you hearing from some of your core guests and what, you know, people who are, you know, heavy users that they're not exactly happy, or, you know, frustrated with the new sort of level of service or business model or potential lack of amenities, just given the labor and brand standards sort of, you know, environment we're in today?
Hey, Neil, it's Sean. We have not heard that, and certainly talking with our partners and especially Hilton being our largest, just not seeing the scores diminish relative to where they were prior to the pandemic, actually, in a lot of cases, you know, up a little bit. I think in the end, I think people are, one, are understanding. Two, probably in some ways gotten used to it to a degree. You know, clearly the brands are very focused on that, wanna make sure that we're maintaining market share. We're obviously partnering with them and discuss it and having the right balance. In the end, you know, expect certain services to be coming back, and guests to, you know, fundamentally appreciate that incremental service level.
I think we'll naturally keep our scores at stable levels and positive levels going forward. Yeah, you know, short answer is we haven't heard anything negative really on the whole.
Okay. Yeah, appreciate that. If I could just sneak one more in, I just wondered, Tom, do you think that, again, given the discount in valuations to private market and kind of I would call your portfolio like chunky in terms of its exposure, would you think of sort of proving the value by selling, you know, some of your larger market exposures into a joint venture of sorts and then, you know, using that cost of capital to execute on some of your strategic priorities?
Yeah. Neil, it's a fair question. We're looking at all options. All options are on the table to make sure that we close this valuation gap. We believe it begins first and foremost with the operational excellence, proving out that thesis, building cash flow, getting that momentum, selling non-core assets. Given the fact that we're out of the built-in gains tax requirement is a huge benefit to us, given the fact that we've got net operating losses. The one thing I wanna make sure that listeners understand is that not only do you have a great portfolio, you have a very seasoned team here, and we have a lot of optionality. We are going to create shareholder value. We are steadfast in that commitment and working our tails off to make sure that's gonna happen.
Thank you, guys.
Thank you.
Our next question comes from Ari Klein with BMO Capital Markets. Please go ahead.
Hey, Ari.
Thank you. Good morning. You've previously highlighted a number of hotels with potential alternative uses, including, I think the New York Hilton. Where does that rank on the priority list for you? And is that something we start to see this year?
It's a fair question, as I said, to Neil. I mean, all options are on the table. Look, the beauty is when you think about the quality of the portfolio, the location, the huge barriers to entry be near impossible to replicate. All of those, whether they're encumbered by debt, long-term agreements with Hilton, some have a little bit of timeshare. Those types of opportunities just need to be studied carefully, but there's no doubt that all options are on the table to close the valuation gap and create value for shareholders.
Thanks. Maybe just on wages, you know, what kind of wage growth, you know, have you been seeing and what are your expectations in 2022? From a staffing standpoint, where are you versus maybe where you'd like to get to, ideally?
Yeah, Ari, this is Sean. I think, you know, from a labor standpoint, as we kind of look forward, you know, we're certainly seeing, you know, some increases in markets, you know, Orlando being one of them, but in other markets, you know, generally stable. Clearly, we've got a portfolio that's, it's, you know, heavily, you know, 60% call it union that, you know, you kind of have obviously contracted, uh, wage levels. So we think we're certainly feeling pretty good about our position about, you know, year-over-year increases as we go into 2022. You know, that, you know, that said, I'd say room, you know, from a room, uh, labor standpoint, we're probably, you know, roughly call it around flat.
Ultimately, that's a combination of the fact that we, you know, we have fully staffed labor in certain hotels in the resort markets, but you know, we're understaffed in certain markets as well, so we'll have to kind of see if things stabilize. Secondarily, as you think about more so the F&B side, we're certainly seeing a lot more reduction in kind of year- over- year levels, or certainly relative to 2019 levels, I should say, on F&B. So that's gonna be one a little bit choppy as we kind of bring that business back as well. As a percentage of revenue, generally, it's about holding steady. Again, we've got in certain instances to push revenue levels, so we'll have to see as the portfolio ramps back.
Overall, I think what it comes down to is for us, you know, from the union side too, we've got, you know, contracted labor wage increases. We also have the ability to bring the labor in, you know, versus having issues trying to source the labor. I think that's certainly a big benefit for us.
Maybe just to follow up on that for the union contracts, any of them coming up in the near future?
Yeah, we do have a few that come up through the end of this year. We'll look to negotiate a few in, I think San Francisco and Hawaii, to name a couple of markets.
Thank you.
Our next question comes from Bill Crow with Raymond James. Please go ahead.
Hey, good morning, guys. Tom, I appreciate your.
Good morning.
An optimistic view. Good morning. I appreciate your view on San Francisco, and I'm certainly hopeful the reopening pace picks up and local government improves. You know, this market really began to struggle with groups before COVID, right? Complaints were centered on high costs of holding meetings and homelessness and crime. Does the market need to adjust pricing in order to be more attractive to groups and maybe offset some of the other challenges? I guess more broadly speaking, is there a risk that markets like Portland, San Francisco, even Chicago, start to get redlined by meeting planners and instead we see, like everything else, more of a shift in Sun Belt markets?
Yeah, it's a fair point, Bill, and obviously one of the things that I admire about you, given our long history together in this industry, is you call it the way you see it. I think a couple things to keep in mind. Even this year, when you think about San Francisco, and again, the high watermark was about one million room nights, as I said. I think this year, city-wide, you're looking at just north of 500,000 and about 34 events. You look at certain high-end groups, whether they're pharma, education, whether they're tech, whether it's the healthcare conference, there is a benefit to them being near the capital sources. Given the fact that you've got great airlift, you've got great cities that have got other amenities.
No doubt, San Francisco is a tougher operating environment. I went out and spent a few days there, Bill, walking, talking with employees, meeting with the mayor, meeting with her chief of staff, meeting with the chief of police. I and another REIT CEO, in addition to I know other CEOs and other C-suite leaders, in driving home that you've got to have a safe environment first and foremost. I think the phrase was, what we heard from meeting planners, you can be expensive and safe, but you can't be expensive and unsafe. So I believe that the mayor understands that. I believe that there are initiatives and good work underway. As I mentioned, she's actually won sales calls as groups are trying to pluck away. I think what you're seeing, their threats aren't so much. Orlando is always a threat.
The bigger markets, Atlanta to some extent. Some of the other markets, I think are less of a real competitive threat for them. Vegas is a threat, but it's a very different experience. There's a natural audience for San Francisco. I think they've got to work on the safety security. I think they've also got to make sure that they've got to work on pricing. You're not wrong that it may be that it's at a slightly lower price point as they're rebuilding credibility and rebuilding demand as we move forward. Where I disagree is I think when people sort of redline and write these cities off, I'm in these cities, I'm talking and watching, as are many others, and you still look at capital flows.
You look at California, look at the Bay Area, and I am not happy with some of the things that we saw, but I am cautiously optimistic that they're beginning to move in the right direction, understanding that they're going to kill the golden goose here, because tourism is an important part and visitation is an important part. You think about also the entry coming from the Far East as well, and given the great airlift that you have. San Francisco is still one of the great cities of the world, challenged a little now, but cautiously optimistic that they certainly come out of it. Do I think New York comes out of it sooner? I do. I think we saw evidence of that, given the fourth quarter, how strong it was.
It'd be interesting to see as we come out here in both getting into the spring and summer and you're getting more meetings and people engaging. Zoom worked. It worked as a fill. Zoom is not going to replace the need to be together, and I can't stress that enough. You will see a return to office. You will see people gathering. I have been traveling extensively, and what I find is people can go to the baseball games, the basketball games, the football games, the Super Bowl, the college football. We can do everything but return to work. I think it's time for leaders to provide the kind of encouragement, return to office is a good thing, and I think you're going to see that just accelerate. That also will help and be a catalyst here on the demand front.
Well, I ask you these questions because I always appreciate your answers, so thank you, Tom. That's all for me.
Thank you, Bill.
Our next question comes from Jay Kornreich with SMBC. Please go ahead.
Hey, good morning.
Hey, Jay.
Great to be on the call. You know, as one of the amendments to your credit facility was increasing your acquisition ability to $1 billion, I guess, what would you need to see in order to feel more comfortable turning the acquisition pipeline back on?
Yeah. Listen, we are continuing to underwrite and look, and like many of our peers, I mean, we're focused on top 25 markets and upper upscale and certainly luxury assets and top 25 markets and premium resort destinations. It's got to be immediately accretive or near term accretive. When we look at where we sit today, again, the focus on the operational side, really improving the cash flows, buying back stock opportunistically to get the value so that we can get clearly a cost of capital that's more reasonable for us to buy assets. We don't think it makes sense for us to be buying where some of the assets are trading. If you look at some of the leisure markets as an example, you're getting inflated cash flows and at higher multiples.
In some cases, those cash flows are gonna balance out and are going to have a reversion back to the mean. I think it makes it difficult for those to be economically viable over time. We're being disciplined and careful. We continue to underwrite. You will see Park buying assets. We bought a company. This team is very experienced in buying assets, portfolios, companies, but we'll be thought about-- we'll be thoughtful about it in the context of our near-term priorities. Priority number one is on the operational front. Priority number two is selling non-core, using those proceeds to buy back shares, ROI projects, looking for acquisitions. We will continue to be thoughtful and disciplined about our capital allocation decisions.
Okay. That's that definitely fair perspective and kind of leads me to a little bit to the next question.
Yeah
Follow-up, which is, you know, with the return to office finally seemingly underway, which should lead to a strong recovery in corporate travel, are you expecting the, you know, the LT outperformance in business travel and group underperformance to kind of converge as we go throughout the year? Do you see the business travel and group demand returning at a similar pace, or do you expect one to outperform the other?
Yeah, it's a great question and a bit of an unknown for all of us. I will say that there's no doubt as you get the return to office, and we're hearing it broadly across industries, leaders, and I think many of you are as well. I think we've all recognized enough of staying home and there's a benefit. We're all stronger together when you're in your offices, whether it's through two days, three days, four days, whatever that company culture is. We certainly expect that you're gonna see that as the anchor, and then you'll from that see business transient, you'll see group.
What I've heard from a lot of C-suite leaders is because they're allowing people to work more remotely, and then having them come to the office, that you're gonna see more business transient as a result of them coming back to the office more frequently. The other thing is, for those that are allowing their people to work a little more remotely and that balance for that particular company, the need to get people together in more central locations for more group meetings. Either way, portfolios like Park will really benefit from that, given the fact that where we're located, the New Yorks, the Chicagos, the San Franciscos, the New Orleans, the Miamis, et cetera, Boston, D.C. We feel good about that.
The other thing to keep in mind is this concept of leisure travel, which I think is another, growth and another opportunity for the industry as well, where people are beginning on the road and, obviously for what begins as a business or perhaps a leisure trip and then ends up into a blurring of the lines for a business and/or a leisure trip as well, for an extended trip. We see evidence of that. We think that's encouraging. I think the signs, for us, all living in the bunker, the days of the bunker I think are ending. People are getting back to work. They're getting back to the office. They're gonna get back to traveling. We think that there's gonna be this new age of it.
We're excited about it and really believe that our portfolio is gonna benefit from that.
Got it. Thanks so much for the time.
Yeah. Thank you.
Our next question comes from Chris Woronka with Deutsche Bank. Please state your question.
Hey, good morning, guys.
Morning, Chris.
Hey, Tom. Wanted to ask about the Chesapeake portfolio, and you guys obviously hadn't owned that for a very long time before COVID started. You've sold a lot of the assets, I think, and some of those were capital situations. The question is kind of as you look at it now, is there any way to kind of recalibrate the potential of that portfolio once you now get in and finally get to do all the remaining things you wanted to do with the core assets of it? Just any way to measure kind of what your revised expectations for that portfolio are in terms of a return or yield or something like that?
I think, well, Chris, I'll take a stab at it in terms of how we think about this, you know, kind of the synergies that we had talked about when we bought the portfolio. We obviously recognized a good chunk of those through just eliminating the G&A side on the corporate side. You know, we certainly set out to drive through additional synergies operationally through, you know, we thought, you know, you could ultimately drive and yield rate more. We had some various projects we knew we could do within various, you know, certain assets, which we still own today. So we're looking to, you know, obviously, the pandemic kind of put a stall on that. But as we kind of get more familiar with some of these assets, I think we have also seen more opportunity as well.
As we come out of this, you know, with the assets that remain, I still think we have kind of in that neighborhood of $5 million-$10 million of synergies we can drive or, you know, EBITDA synergies we can drive there. And it's still, you know, a good amount of, you know, revenue driving rate. And thankfully through this pandemic, I think people have gotten more emboldened to really drive rate. So I think we certainly think we can get that through these assets, as well as some of the projects we have where we're converting additional meeting space, additional parking revenue sources, and the like, where we just think there's opportunities there, just need the demand to come back to take advantage of it.
Okay. Thanks. Thanks, Sean. Tom, was just hoping to get a little perspective from you, if I could, on whether or not you think resort assets are gonna have a permanently higher multiple or much higher multiple than urban assets once we get a little further down the road into the recovery. You know, is there a way you guys might be able to take advantage of any arbitrage that's out there? 'Cause I know you're not gonna walk away from urban markets.
It's a fair question, Chris. Look, we have always believed in the importance of having a diversified portfolio. Think about our resort collection right now. We obviously have got Bonnet Creek, which, you know, our basis there is about $300,000 a key, 300 acres, a championship golf course. That's next to the Four Seasons that traded at, you know, $1.4 million a key. We feel really good about that transaction and where we are. If you think about the two resorts that we have in Key West and how well they've performed, we've repositioned one, we'll reposition the other. Impossible to replicate either of those two assets. Think about Hilton Hawaiian Village in Waikoloa. Waikoloa, we've shrunk the hotel, and on a GOP basis, it's more profitable than it was.
Nothing compares to Hilton Hawaiian Village with nearly 3,000 rooms, and as we work on the sixth tower there and again, creating more value. We don't think they're mutually exclusive. I think really part of it becomes timing, how you're gonna allocate capital. Clearly, everybody wants a resort property. Those assets are trading at premiums today. Are those premiums sustainable over the long term? I think we'll see. I think we've all recognized that, you know, you're more focused on the leisure front now. There aren't a lot of alternatives. The cruise line business hasn't really returned. International travel abroad hasn't returned.
Keep in mind, in 2019, we had 79 million inbound international travelers, but U.S. citizens traveled about 100 million passengers, excuse me, going into Europe and other parts. These things will balance over time. No doubt there are world-class resorts out there that make sense and those trophy, but it's not unlimited, and these things naturally ebb and flow over time.
Okay. Very good. Thanks, Tom.
Thank you.
Thank you. Next question comes from Robin Farley with UBS. Please go ahead.
Oh, you know, my question.
Robin.
Hi, how are you? It was on the transaction environment, which I think at this point you've probably covered pretty thoroughly. I'm all set. Thanks.
Thank you, Robin.
Thank you. That's our last question we have in queue. I'll now turn the floor back over to Mr. Tom Baltimore for closing remarks. Thank you.
We really appreciate each of you taking time today. We look forward to seeing many of you at the upcoming city conference and other events. Stay safe, be well, and we really look forward to seeing each of you in person.
Thank you. This concludes today's conference call. All parties may disconnect. Have a great day.