Greetings and welcome to the Park Hotels & Resorts second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ian Weissman, Senior Vice President of Corporate Communications. Thank you. You may begin.
Thank you, operator, and welcome everyone to the Park Hotels & Resorts second quarter 2025 earnings call. Before we begin, I would like to remind everyone that many of the comments made today are considered forward-looking statements under federal securities laws. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed, and we are not obligated to publicly update or revise these forward-looking statements. Actual future performance, outcomes, and results may differ materially from those expressed in forward-looking statements. Please refer to the documents filed by Park Hotels & Resorts Inc. with the SEC, specifically the most recent reports on Forms 10-K and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements.
In addition, on today's call we will discuss certain non-GAAP financial information such as FFO and Adjusted EBITDA. You can find this information, together with reconciliations to the most directly comparable GAAP financial measure, in yesterday's earnings release as well as in our 8-K filed with the SEC and the Supplemental Financial Information available on our website at pkhotelsandresorts.com. Additionally, unless otherwise stated, all operating results will be presented on a comparable hotel basis. This morning, Tom Baltimore, our Chairman and Chief Executive Officer, will provide a review of Park's second quarter performance and strategic initiatives as well as provide an update to our 2025 outlook. Sean Dell'Orto, our Chief Financial Officer, will provide additional color on second quarter results, an update on our balance sheet, and 2025 guidance. 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. Overall, I was very encouraged by our second quarter results, driven by continued outperformance from recently completed ROI Projects, disciplined cost controls across the portfolio, and steady progress on our strategic initiatives. Q2 RevPAR was relatively flat year- over- year when excluding the Royal Palm South Beach in Miami, which suspended operations in mid-May for a transformative renovation and repositioning. Performance was led by strength in several of our resort markets, including Orlando, Key West, and Puerto Rico, as well as continued improvement in business travel, which drove solid results in urban markets such as New York, San Francisco, Denver, and Boston.
An aggressive asset management strategy is one of our three guiding principles, and I am incredibly proud of the efforts by our team and our operating partners to drive effective expense controls across our portfolio, resulting in total expense growth of just 40 basis points for the quarter, or just 1% when excluding Royal Palm South Beach, marking the second consecutive quarter in which expenses grew by approximately 1% or less. Looking ahead to the remainder of the year, we expect continued low expense growth driven by cost savings identified through our deep dive analysis into cost structures in the first half of the year, in addition to the benefits of a sector-leading 25% reduction in property insurance premiums, which will result in an incremental $5 million in savings through year end.
From a capital allocation standpoint, we made meaningful progress toward our goal of $300 million- $400 million in non-core dispositions with the sale of the Hyatt Centric Fisherman's Wharf for $80 million at an impressive multiple of 64x 2024 EBITDA, demonstrating the underlying real estate value as supported in the private markets. While the transaction market remains challenging, we are actively engaged in discussions with potential buyers for several non-core assets, and we remain laser focused on achieving our target by year end. As a reminder, our strategic initiative to dispose of our remaining 18 non-core hotels is expected to meaningfully enhance the overall quality and long-term growth profile of the company.
In line with our strategic priorities, we made the decision to close the 266-room Embassy Suites Kansas City Plaza Hotel by the end of September, as the asset is projected to achieve just $73 in 2025 RevPAR and generate very little EBITDA. In connection with the hotel closure, we recently agreed to an early termination of the hotel Ground Lease which was set to expire in January 2026. We also made the decision to exit 2 additional non-core hotels, the DoubleTree Seattle Airport and DoubleTree Sonoma, both of which are subject to a Ground Lease that will terminate at the end of this year, at which time the properties will revert to the landlord.
Removal of these assets will materially enhance the quality of our portfolio, increasing nominal RevPAR by over $5 and margins by nearly 70 basis points, and bring us closer to our core portfolio of 20 consolidated hotels, which represents approximately 90% of the value of our portfolio. This core portfolio remains among the highest quality in the sector, with an average RevPAR of nearly $215 and EBITDA per Key exceeding $40,000 based on 2024 performance adjusted for last year's strike disruption. Looking ahead, we expect the core portfolio to outperform the forecasted U.S. average RevPAR growth in the coming years with respect to capital investments. During the second quarter, we commenced the comprehensive renovation project at our Royal Palm South Beach Resort, which we expect will generate returns of 15%- 20% on our $103 million investment.
With the hotel's EBITDA expected to double to nearly $28 million once stabilized, our in-house design and construction team is working diligently to ensure the hotel opens in Q2 of next year ahead of the 2026 World Cup, during which Miami is scheduled to host seven matches in June and July. Additionally, we expect to launch the final phases of room renovation projects for two of our rooms towers in Hawaii this month. At Hilton Hawaiian Village, the second and final phase will encompass a full renovation of the remaining 404 guest rooms in the iconic Rainbow Tower and the addition of 14 new guest rooms, with a total investment of $48 million. At the Hilton Waikoloa Village, this $36 million phase will fully renovate the remaining 203 guest rooms in the Palace Tower and add eight new guest rooms.
We expect both projects to be completed in early Q1 of next year. Finally, at the Hilton New Orleans Riverside, we are currently underway with the second phase of a three-phase renovation project, investing $31 million to upgrade an additional 428 guest rooms in the main tower, while the remaining 489 guest rooms of the 1,167-room tower are scheduled for renovation in 2026. I'm very excited about the investments we've made in our core portfolio as we continue to enhance asset quality and strategically allocate capital to maximize long-term shareholder value. We are confident that reinvesting in our portfolio is the highest and best use of our capital, positioning us for sustained growth and outperformance. Since 2018, Park will have invested more than $1.4 billion in our core 20 consolidated hotels through 2025, upgrading nearly 8,000 guest rooms and fully repositioning several of our most iconic hotels.
Turning to operations, we witnessed continued strength in Orlando with our Bonnet Creek complex delivering record-setting revenue for the second quarter. RevPAR for the complex exceeded expectations, increasing nearly 12% year- over- year with strong transient demand driven by a surge in advance purchase activity and enhanced commercial strategies. The Waldorf Astoria was particularly strong, reporting a 24% increase in RevPAR year- over- year as demand improved for both group and transient segments, each posting approximately 20% growth compared to last year. Notably, this quarter marked the 15th consecutive quarter of year- over- year group revenue outperformance at the complex. I'm also pleased to share that the Waldorf Astoria Orlando was recently recognized in Travel + Leisure's 2025 World's Best Awards as the fourth best resort in Florida and the top-ranked resort within the Orlando market.
Looking ahead, both transient and group resort demand remains strong at the complex, which is expected to deliver high single-digit RevPAR growth throughout the remainder of the year. Overall results at the Bonnet Creek complex have exceeded our underwriting expectations, with 2025 EBITDA now forecasted to be well over $90 million and nearly 40% above prior peak, further validating our strategy to invest in our core assets. Turning to Key West, our Casa Marina Resort reported a nearly 4% year- over- year increase in RevPAR during the quarter, with transient occupancy increasing by over 20% as the hotel continues its position as one of Key West's premier hotels. Food and beverage outlet and Ancillary Revenue outperformed last year by 8% during the quarter, resulting from the increased transient volume and the newly added Dorado restaurant that opened in Q3 of 2024.
Notably, total food and beverage revenue for our Key West hotels reached a new Q2 record. Looking ahead to the second half of the year, we expect continued strong performance at both hotels driven by sustained transient room demand and food and beverage activity, with total RevPAR projected to grow high single digits over last year. In Puerto Rico, strong leisure and business transient demand drove a nearly 18% increase in RevPAR for the quarter compared to last year. Consistently high occupancy contributed to Caribe Hilton outperforming its Comp Set and delivering a RevPAR Index of 120%, a positive trend we expect to continue, leading to mid to upper single- digit RevPAR growth expected for the back half of the year.
In our urban portfolio, we were particularly pleased with the ongoing strength of business travel during the second quarter, which contributed to solid RevPAR growth in New York, San Francisco, Denver, and Boston. At our JW Marriott hotel in San Francisco, RevPAR growth exceeded 17%, driven by solid transient and group demand as the city benefited from an increase in convention room nights during the quarter. In New York, our Hilton Midtown hotel delivered a nearly 10% RevPAR increase during the quarter, supported by a 16% increase in group revenue and a more than 11% increase in leisure revenue, both of which helped to drive a nearly 230 basis point increase in RevPAR Index during the quarter. In Denver, RevPAR growth at our Hilton Denver hotel exceeded 6% during the quarter, fueled by strong performance across both group and leisure segments.
Meanwhile, in Boston, an over 22% increase in leisure revenue contributed to a 5% RevPAR gain at our Hyatt Regency hotel. Turning to Hawaii, while we continue to face some near term headwinds, we are encouraged by the sequential improvement we are seeing, especially at our Hilton Hawaiian Village. Even as inbound international travel has not fully recovered, combined RevPAR at our two properties declined by approximately 12% during the quarter, with Hawaii continuing to be impacted by weaker inbound travel from abroad. With respect to Hilton Hawaiian Village, the resort continues to recover from the Q4 Labor Strike last year. However, we are encouraged by the hotel's continual improvement in market share, regaining over 1,600 basis points since the beginning of the year and exceeding full share since May.
Looking ahead in the near term, we expect the sequential recovery for Hilton Hawaiian Village to continue, evidenced by a strong forecast for July that had occupancy over 90% and RevPAR Index above pre-strike levels. However, this momentum is expected to be offset by Hilton Waikoloa's weakest quarter of the year, producing a combined RevPAR decline that is expected to be slightly better than Q2. Beyond Q3, performance in Hawaii is expected to accelerate meaningfully in the fourth quarter as Hilton Hawaiian Village lapsed the Labor Strike disruption from last year that drove RevPAR down over 25% in 2024. In addition, combined Group Pace across our two Hawaii resorts is forecasted to increase by nearly 50%, which we expect will translate into high teens combined RevPAR growth during Q4.
Looking ahead, the long-term outlook for Hawaii remains very favorable, supported by very limited new supply expected through at least 2030 and the anticipated improvement of inbound travel from abroad. In our opinion, Hawaii is one of the most dynamic and resilient resort markets in the country, with less supply growth forecasted versus any other U.S. market and with over 3,500 fee simple guest rooms at a huge discount to replacement cost, Park remains well positioned to deliver above average long-term growth for shareholders. Finally, I am pleased to report that neither of our Hawaii hotels sustained any damage following the 8.8 magnitude earthquake off the Russian coast on Wednesday and subsequent tsunami alerts throughout the Pacific Ocean.
With respect to fundamentals over the back half of the year, the outlook remains mixed as the ongoing uncertainty around tariffs, elevated inflation, and geopolitical issues are expected to continue weighing on travel demand during the third quarter. While easier comps and improved group travel will help to support strong trends during Q4. Overall, July results have been modestly weaker than expected, with preliminary RevPAR declining by approximately 4%. When you include the nearly 130 basis points of renovation disruption at the Royal Palm South Beach, recent trends are persisting with continued strength in Orlando, Key West, and New York City offset by modestly softer than expected results in Hawaii and Southern California. Based on our current forecast, Q3 RevPAR is expected to decline by approximately 4%- 5%.
Our revised forecast reflects softer than anticipated group demand with Group Pace lower by 380 basis points to down 14%, our weakest quarter of the year. Coupled with softer leisure transient demand forecasted for Q3 mainly due to heightened economic uncertainty, reduction in government demand, and weaker inbound international visitation, we expect a significant improvement during the fourth quarter with Group Revenue Pace increasing 18%, which, when combined with significantly easier year-over-year comparisons, we expect RevPAR growth to reaccelerate to 3%- 5% in the fourth quarter. Overall, the improvement is relatively broad-based with outsized gains expected for Hawaii, Denver, Orlando, Key West, Boston, Seattle, and Chicago. Additionally, we remain laser focused on our strategic objectives of reshaping the portfolio through reinvestments in our iconic portfolio to drive long-term value for shareholders, executing non-core asset dispositions, and further strengthening our balance sheet by extending maturities and reducing leverage over time.
These priorities keep us focused on what we can control and position us to navigate near-term volatility while building a stronger, more resilient platform for sustainable long-term growth and with that I'd like to turn the call over to Sean.
Thanks Tom. Q2 RevPAR was largely in line with expectations with reported results of $196, representing a 160 basis point decline over the prior year period. However, excluding our Hilton Hawaiian Village Hotel, which continues to recover from last year's Labor Strike, and the Royal Palm South Beach, which suspended operations in May for a full-scale renovation, year over year RevPAR growth would have exceeded 2% as these two properties together accounted for a 375 basis point drag on portfolio performance. Total hotel revenues for the quarter were $645 million, and hotel Adjusted EBITDA was $191 million, resulting in hotel Adjusted EBITDA margin of 29.6%. Adjusted EBITDA for the quarter was $183 million, and Adjusted FFO per share was $0.64, both exceeding expectations.
Turning to the balance sheet, we are actively working to address our 2026 debt maturities, including the $1.275 billion CMBS loan on our Hilton Hawaiian Village Resort and the $123 million mortgage loan on our Hyatt Regency Boston hotel. With our strategic priorities in mind, we remain focused on solutions that offer near-term commitments that maximize optionality and minimize cost, and we're currently in the middle of a process to secure the debt and liquidity sufficient to address the $1.4 billion outstanding and reasonably confident we will complete a transaction in the third quarter. With respect to our dividend, on July 15th we paid our second quarter cash dividend of $0.25/ share, and on July 25th we declared a third quarter cash dividend of $0.25/ share to be paid on October 15th to stockholders of record as of September 30th.
The dividend currently translates to an annualized yield of approximately 9%. Turning to guidance, given some of the near-term headwinds Tom discussed earlier, we are lowering our full year RevPAR forecast by 150 basis points at the midpoint to a new range of - 2% to flat growth, or essentially flat at the midpoint when excluding the Royal Palm South Beach. With respect to earnings, we are increasing our Adjusted EBITDA forecast by $2 million at the midpoint to $620 million within a tightened range of $595 million- $645 million, resulting from the improved outlook for annual expense growth that Tom alluded to earlier, helping to offset the softer top line expectations. As a result, hotel Adjusted EBITDA margin range is now 26.1%- 27.5%, or an increase of 30 basis points at the midpoint vs our prior guidance range.
Adjusted FFO per share increases by $0.01 at the midpoint to $1.95 with a range of $1.82- $2.08/ share. Finally, I wanted to provide a brief update on the status of the two San Francisco hotels which have been in receivership since October 2023 after a two year process. I'm very pleased to report that the receiver has made substantial progress toward the sale of the two hotels with a purchase and sale agreement recently signed and closing expected by October 29. This concludes our prepared remarks. We will now open the line for Q and A to address each of your questions. We ask that you limit yourself to one question and one follow up. Operator, may we have the first question please?
Thank you. We will now be conducting a question and answer session. Again, we ask that all callers limit themselves to one question and one follow-up. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Smedes Rose with Citi. Please proceed with your question.
Hi. Thanks. Good morning. I wanted to ask you a little bit on your guidance bridge. Looking at the first quarter kind of Comp Set guidance for hotels vs the second quarter, it looks like the decline in revenues is almost offset kind of one for one on the expense side. Which seemed kind of aggressive. I was just wondering if you could sort of talk to that a little bit, or maybe the same store pool is a little bit different for the first quarter versus the second quarter. In your guidance. That's my first question.
Yes, Smedes, this is Sean. I'll address that. First and foremost, I think one thing, it's not the only, you're not the only one to ask that question. I guess when looking at the first quarter guidance relative to second quarter, in between that we sold Fisherman's Wharf, so there's an adjustment that needs to be made for that. I won't get into all the details there, but talk with Ian and Zach on that one. I think it goes back to what Tom mentioned in his prepared remarks around the cost savings that we've produced here. It comes back to his comment around our aggressive asset management being a guiding principle. I think a couple of things happened over the last several months, one in particular from our asset management team side.
They work together with our operators, both at the corporate level and on property, working with them on site, over a dozen properties over the last several months, just doing a deep dive, looking at revenue strategies, finding ways to increase non-room revenues, and ultimately reducing costs across just about every line item you can find in the properties. With all that work which has gone over the last couple of months, I would say we look to produce about a $10 million benefit to GOP. That's been very productive there and kudos to all the efforts they've done there for us. We've got another group of hotels we're looking to do in Q3, ongoing right now through July and into August. Also, our teams on the tax side are aggressively pursuing appeals. We certainly benefited from a few wins over the last quarter or so.
It certainly wasn't part of our guidance before; we took a $5 million benefit in Q2, and we've also got the benefit, about $2.5 million of savings in the back half of the year against what we accrued against property taxes previously. Finally, we'd often talk too about our best-in-class risk management program and how we put a lot of emphasis on protecting our assets, which includes first responder programs where first responders are assigned to each property, trained along with our property operator teams to prepare for situations like hurricanes, water leaks, etc. We also invest in technology to protect both the inside and outside of the hotels. We make investments to harden the assets in coastal areas. All this work and effort gets acknowledged by our insurance carriers. With our last renewal on June 1, we saw a decrease by 25% of our annual premiums.
That gives us a benefit of $1 million roughly in Q2 and then another $5 million in the back half of the year. When you put all that together, it's about $24 million of kind of bottom line benefits we've derived from all the efforts that we undertook over the last several months. I think that's how you see kind of the good flow through pattern you're seeing.
Okay, all right, thank you. I just wanted to ask you a little bit. Yes, go ahead.
Sorry, yes, this is Tom. I just wanted to give another shout out to Sean and to Carl Mayfield, Head of Design and Construction, and the team of men and women that work on the insurance side. What they've accomplished over the last several years is nothing short of extraordinary. The discipline and the amount of work we've done on the resiliency and to get a 25% reduction, there isn't any of our peers even remotely close to that. Furthermore, no one really has the depth of experience or the embedded team internally to be able to work the way that we have. I'm really proud and I'm grateful. I think all of that work, in addition to the deep dive on the operating side and particularly in this challenging environment, really shows the strength of the team.
Going back to one of our guiding principles of being really an aggressive asset manager, I'm very, very pleased with it. I think it shows in the results.
Thank you. I wanted to ask, you mentioned slightly weaker third quarter expectations, with fourth quarter getting better, partly driven. It sounds like some solid group business coming online. Are you seeing continuation of strength on the group booking side into 2026? Are there any particular markets where you're seeing relative strength or maybe relative weakness?
Yeah, I would say as we look to 2026, I think probably relatively flat. Right now. Not unsurprising as we look out to 2027, probably up 4%- 5% right now. Key markets in 2026 that look particularly strong: Bonnet Creek continues to perform well. That transformation is the gift that keeps giving and probably up another 10% or more in 2026 there. San Diego up probably 53% in Group Pace. Chicago up 11%. Hilton Caribbean, I think up another over 40%. Seattle up double- digits. We continue to see really strong on the group side there. It is strong there and looks very good as we look out to 2027 as well. Fourth quarter is particularly strong. We're not seeing any softening at all. Again, third quarter will be tougher, as Sean mentioned, as I had in my prepared remarks, down about 14% and then obviously the fourth quarter up about 18% in Group Pace in the year 2025.
Okay, thank you. I appreciate it.
Thank you.
Our next question comes from the line of Duane Pfennigwerth with Evercore ISI. Please proceed with your question.
Yeah, hi, this is Peter on for Duane. Thanks for taking the questions. Sean, could you maybe unpack the comment about the possible refinancing in 3Q and what sort of options you're looking at?
Sure. As I mentioned, we're down the process. I won't get to too many specifics, but we're certainly working with our banks to find a capital that will kind of get us again the commitments that would kind of give us comfort, obviously, as these loans go current later this year, but the ability to kind of really just draw down on them later next year as we get close to maturity. We can obviously push off what is going to be inevitable increases in interest as well as getting into the par prepayment windows for these loans. That's kind of between a revolver and some other financing. We'll have that. Like I said, we'll have the commitments and the liquidity available to address those.
We'll probably, whether it's the end of this year or into next year, look to work on a second phase of this process which will probably be something of a mortgage secured loan against Bonnet Creek to fulfill the rest of the need.
Got it.
Which, Peter, gives us the optionality of one little friction cost for other strategic things we may explore, and then having both properties in Hawaii completely unencumbered. That is one of the goals that we have through this process. We are very confident. Sean and the team have done a great job. We are out in front, we've got great banking relationships, and we don't anticipate any issues. The process is unfolding very, very well.
Thanks for that. Quickly on the transaction front, could you speak to maybe what kind of feedback you're getting for assets that are currently being marketed, and if possible, what sort of timeline we could be working with for further announcements? Thanks for taking the question.
Yeah, great question. Look, it's a challenging environment. Some have used the phrase sort of frozen or stalled. I think it's an environment where you just got to work a little harder and certainly up to that challenge. I think if you think back, obviously over the last several years we have sold or disposed of now 46 assets for north of $3 billion. We were even selling in the worst of times during the pandemic. We've obviously completed one asset sale, Fisherman's Wharf in San Francisco at $80 million and multiple, I believe, at about 64x . There's plenty of liquidity both on the equity and the debt side. Obviously buyers are being cautious with their underwriting and being disciplined.
We are in active discussions with a number of hotels, multiple work streams and we're confident that we will meet our range that we've communicated from the beginning of the year of $300 million- $400 million in asset sales, obviously using those proceeds to invest back into our core portfolio, reduce debt and then we'll look opportunistically on potential buybacks. We bought back approximately 3 million shares in Q1. We didn't buy back any shares in Q2, but we have purchased, we've bought back about 38.5 million shares over the last 3+ years, about 20% of our float. We've been very disciplined about recycling capital and particularly given all of our capital allocation decisions and we'll continue to proceed accordingly.
Thanks, Tom.
Thank you.
Our next question comes from the line of Chris Woronka with Deutsche Bank. Please proceed with your question.
Hey. Hey guys. Good morning.
Hey. Morning.
Thanks for taking the question. Morning, Tom. I guess it wouldn't really be. A quarterly conference call wouldn't be complete if we didn't go to the Hawaii question. I wanted to direct it more on the citywide front, on the marketing front, and the airlift front. Tom, do you think all the interested parties at the ground level, with the government and the travel people, are adequately getting enough messaging out there to get folks back? Do you think the airlines are any closer to adding more international flights inbound? Thanks.
Yes, it's a great question, Chris. Look, if you think about over the. Last 20 years and kind of Oahu as an example, I mean their RevPAR growth has sort of outpaced the U.S. by approximately 120 basis points. If you look at sort of Key West, Hawaii, you know, their compound annual growth rate has been about 4.5% vs I think the broader U.S. at about 3%. Of course, you've had negative, effectively negative supply growth in Oahu over the last 20 years. As we had in the prepared remarks, we're looking at probably about 0.3% supply growth over the next five years. You know, as we look out and having two world-class resorts owned fee simple, we are very encouraged about Hawaii long term. No doubt the ramp up after the strike is a little longer than certainly.
We would have hoped. You know, we were down about 18% in HHV in Q1, about 13% in Q2. We're obviously expecting probably in the 7%- 8% range in Q3, but obviously a very, very strong Q4. We've got favorable comps, but we've also got significant group business, 18% and about 50% in Hawaii as an example. Domestic airlift is obviously, I think, increased north of 20% since 2019, with Southwest and Alaska, and United, Delta, we're very encouraged on that front. This is part of the ramp up, but we certainly see no concerns on the Japanese front taking a little longer. They had peaked prior, peaked at about 1.5 million. We think this year is probably going to be in this 700,000 passenger visitation range, so a little behind what we had expected.
As you sort of look out, they expect to get back to in the million range by probably 2027, 2028. A lot of that's being replaced by domestic, certainly coming out of Canada as well, and as well as other international destinations. We're not at all concerned over the intermediate long term. I think it's also fair to say when you went through, Hilton Hawaiian Village was the only asset in Hawaii that had a strike. It was targeted, it was aggressive, it was a long process. We got through the process. We're all friends and working through and aggressively working together to accelerate the ramp up.
That's great. Thanks for all that color, Tom. As a quick follow-up, you guys got Fisherman's Wharf done. You talked about Kansas City. If we look at the handful of other kind of non-core airport Ground Lease hotels, if we isolate those, is there any way to think about how much that can add to comparable RevPAR margins or EBITDA just to kind of frame what that could look like going into next year. Thanks.
Yeah, it's a great question. In my prepared remarks I made the comment that if you take out sort of our non-core and just look at our core, I think the RevPAR is about $215 and would be certainly as strong as any of our peers. Chris, we've had this conversation many times. As you know, we are laser focused on reshaping the portfolio and candidly getting down to that core portfolio and taking that overhang, if you will. We've sold or disposed of 46 assets. We've got three that we talked about. Obviously today, the two leases that are expiring we're not going to extend and then obviously the give back in Kansas City and we've got many other discussions underway. The sooner that we can reshape and clean that up, we'd love to deal with just one cleanup trade.
The reality is every asset's got its own story with legal and tax and in some cases joint venture and other complexities. Rest assured, the team is led by Tom Morey and his great team on the investment side are working really hard to reshape the portfolio and clean up those non-core as quickly as we can. You can expect we'll have announcements here in the coming months.
Okay, very good, very helpful. Thanks, Tom.
Thank you.
Our next question comes from the line of Floris van Dijkum with Ladenburg. Please proceed with your question.
Hey guys, thanks for taking my question. Just follow up on the follow up on the disposals. I think you mentioned 18 non-core hotels. Three of them were Ground Leases. That would appear so. 15 left. Do you think by the end of next year? All of those hotels will be out of the portfolio and sold. To give you a clean, get a sense of what the clean EBITDA production will be and then maybe if. You can also relate it. Do you think that 2026 is going to be a year where Hawaiian Village. Stabilizes, or do you think it's more? Likely to be 27 before you get. Back to $185 million of EBITDA level?
Yeah, great, great questions. I'll take the first look. We'd love to have the non-core solved next quarter. As you know, for us, I think you know and other listeners how hard we've been working. I would expect by the end of next year that we have made significant progress, that the vast majority, there could be a straggler or two that remains. We're doing everything in our power to clean up as quickly as we can. We know there's a small overhang there. We want it removed and to get back to that core portfolio because it gives us such great optionality. I think it really reflects the core value of the Park portfolio. As we've said, that accounts for about 90% of the value of the company.
You can see where we're investing those dollars, and we really believe that we can generate higher development yields than we can through acquisition yields at this point. I think the great work in Orlando, the extraordinary work in Key West, are just great examples of that, of how well they've done. You think about just Orlando being obviously listed as our Bonnet Creek with Waldorf Astoria being the top hotel in Orlando and just given the complete transformation in the north of $200 million that we put in the entire complex and then what we're seeing in terms of that outperformance. Very proud of that. Very pleased with that. We really want to focus our energy obviously on the core portfolio. On the Hawaii front, I don't think it's a matter of if but when.
I would fully expect that 2026 would certainly be, we would be closer to that peak EBITDA range and that $185 million. Clearly, that will not occur in 2025, but very encouraged as we look out sequentially improving, and we're expecting the fourth quarter to be very, very strong across the entire portfolio, particularly given the favorable comps that we have in Q4 in Hawaii.
Thanks, Tom.
Thank you.
Our next question comes from the line of David Katz with Jefferies. Please proceed with your question.
Hey David.
Hi, morning everybody. Thanks for all of the commentary and perspective on stuff. I'd like to just go back and if we're double clicking on this, I hope you'll humor me. I'd like to understand and just discuss Hawaii a bit and just unpack kind of where you are because the sort of demand dynamics are a little bit complex and there's some work being done there too. We've heard some peer reports, you know, where Maui went super well for them. I know everybody's assets are not same place and the same thing. That's what I'd like your help. If you can.
Yeah, I think the. I think one way, David, just to take another sort of step back. As I said, the last 20 years it's certainly been among the strongest performers both from a demand and performance standpoint. Obviously, you've got muted supply, virtually negative supply over the last 20 years. Obviously, we think over the next five years it's going to continue to be muted, you know, 0.3%. You're coming on the heels of a really intense 45. Day strike. was not helpful during that period of time and certainly impacted demand Group Pace. You can't sort of dismiss that. I don't want to use that as an excuse, but it certainly was an impediment as we came out of that as we began the year. As you look at obviously the demand patterns as we've talked about, we were down 18% in Q1, down 13% here in Q2, Hawaiian Village, and then obviously down we expect probably 7%, 8%. In the third quarter.
Probably up high teens plus or minus in the fourth quarter and very well set for there. We're not at all concerned from an operational standpoint. We also have continued to gain RevPAR Index. We're up to about 102%. We were probably running 115%, 120% probably pre-strike. We were certainly sub-100% obviously coming out of the strike. That's ramping up as well. You've got sort of cleanup trade as you know through TripAdvisor and the sooner we get through to sort of wash through, the cleaner reviews will also make the destination more attractive as well. That also will help as we look to the future. Airlift continues to grow. We see Canada continuing to pick up. That's been a growth. Japan continues to lag. That has been certainly a disappointment. Pre-pandemic, again about 1.5 million. We expect this year, originally expected to be at about 770,000.
They've sort of lowered that forecast now to about 700,000, but we fully expect to get back. They're targeting now about a million probably in that 2027, 2028 range from that standpoint. Hopefully that helps, David, give you a little more color on it. We're not at all concerned over the intermediate and long term. We think obviously again over the long term it's been one of the strongest performers in all of the U.S. and the fact that we own both resorts completely fee simple, we're investing significant capital and excited. If you think about the results that we've seen with the renovated product, you can take Tapa as an example, the Tapa Tower. We ended up getting a $50, $60, $70 increase in ADR after renovating that tower.
Thank you. Appreciate it.
Thank you.
Our next question comes from the line of Dan Pollitzer with JP Morgan. Please proceed with your question.
Hey, good morning everyone and thanks for taking my question. I wanted to go back to the group commentary that you gave, Tom. I think you said 2026 group would be flat. 2027 would be up 4%- 5%. Can you just maybe talk about that dynamic? Has that changed, I guess from a few months back in terms of what you're seeing? Can you kind of talk about lead volumes or are there rotations in there? I'm just trying to get a better sense of that dynamic where it feels like 3Q came in a bit lighter on group. Next year is going to be flat. On the other side you have fourth quarter and 2027.
Yeah, let me try to frame kind of just the scope of it and take Q4 as an example. Q3 is a little softer, I think about 380 basis points, so down about 14.4%. We knew that was going to be our toughest quarter. Also, keep in mind we had tough comps. Right.
We had Chicago last year, the DNC, over 100,000 group room nights there. New Orleans had an incredibly strong year. You've got that tough comp. It certainly impacts you. Look at Q4, up 18%, and it's broad based. Hilton Hawaiian Village up 54%. New York City up north of 19%. Hilton Chicago again, up 14%. New Orleans up 11%. Bonnet Creek obviously continues to be a strong performer, up 45%, I believe. Washington, D.C. up 25%, and then San Francisco, and this number is accurate, up 214%. We're not seeing any pullback. If you take Hawaii out of it as an example, we're still up 14% as we look at the Group Pace for Q4, so we feel very good about 2025, 2026. There are puts and takes there. We would expect that to continue to improve.
As we look out to 2026, we're already up same time last year, we're up about 4% o r 5%. Based on the earlier commentary that I gave, I feel very good. Lead volumes look good. Obviously, national sales and our partners at Hilton, among others, and our operators are working very hard. So. Given the renovated product and the amount of capital that we're putting in, particularly into our core portfolio, we think obviously we'll continue to position and strengthen those assets as we move forward. We're very, very encouraged about group as we look out. Obviously, an accelerated economic environment and less uncertainty would help. Clearly, the uncertainty out there is causing some groups and business leaders to sort of pause and wait for clarity. Despite that, we're still having obviously a solid year. As you look at obviously EBITDA and flows, top line continues to be a little softer, but we're in a GDP environment. When you combine Q1 and Q2, really at about 1.2%, so probably not unexpected. It's a little choppy right now.
That makes sense. Thank you for the detail. For my follow up, you guys have done an impressive job managing your operating expenses, and it sounds like a good chunk of that's on the labor line. How should we think about the expenses there this year? As you think about kind of puts and takes to 2026, how are you kind of—how should we think about labor expense growth as we look out?
I think just given that we do have a good amount of union in our portfolio and, you know, a lot of it went through last year in terms of agreements being negotiated, I think it's pretty consistent as you kind of think about going into 2026 from a labor standpoint. You know, a lot of things we've done, I talked about, will be sustained, we believe, and we're certainly going to be, team will be very focused on that during the budget process. There are some, you know, you obviously got Royal Palm coming back online. That will be the adjustments that we're already making this year as well. That will be a kind of a, you know, put and take to consider. I think kind of on the whole, we kind of see just continued kind of labor benefits growth kind of in that 4%-4.5% range.
Got it. Thank you so much.
Thank you.
Our next question comes from the line of Cooper Clark with Wells Fargo. Please proceed with your question.
Great. Thank you for taking the question on the Royal Palm . Appreciate the confidence on executing there from a timing perspective. Just wondering how we should think about the ramp up on that asset sequentially come 2026 in terms of your underwriting assumptions, and how much of that is driven by expected demand from the World Cup games in early to mid June?
Yeah, let me take the first part of it. We are really excited about this transformation. It's bullseye real estate, well located obviously in South Beach. We've studied it carefully, $103 million investment. We think the internal rate of return unlevered 15%- 20%. You know, we've said in my prepared remarks about doubling EBITDA. If you think about RevPAR pre-renovation was about $265 and you look at all of the ultra luxury that exists in South Beach and from the Auberge that's in the works, obviously the Rosewood, the Aman, the Andaz, recently done. As you go further up to sort of North Miami Beach and the Four Seasons, St. Regis and others and the kind of rates there, you know, we've really underwritten this at inside of $400 and at that level are confident that we can certainly double obviously EBITDA to the $27, $28 million range that we've communicated.
Obviously you're opening in May, you're sort of late into the season. Obviously we want to see certainly be there for the World Cup which will be significant. You know, we certainly don't expect that we'll be double EBITDA or even half of that given the fact that we're opening in that May time frame. Sean may have some additional thoughts and comments to share on that.
No, I would concur with Tom. You're missing the peak season. Obviously, you get a little bit of benefit from, we expect, from the World Cup coming through kind of in a low season timeframe. I would say that we probably won't generate, kind of, you know, EBITDA for 2026, you know, relative to where it was before. Obviously, we expect that to kind of really grow towards that double, you know, call it high 20s EBITDA as we approach 2027.
Great, thanks. Just to follow up on some of the CapEx projects, just curious, following the Royal Palm , what the timing is on sort of the next big project. You spoke to some renovations in Hawaii next year where you have a good track record on execution. Just wondering kind of the next big project and what's the right way to think about renovation disruption long term with the CapEx spend?
It's a great question. The next phase last year. Next year will be obviously the third phase in New Orleans and finishing that tower. We'll continue to look at Ali'i Tower in Hawaii, a smaller tower, but certainly renovating that as well. We've been really laser focused on putting capital back into those core assets. Obviously, again we're confident that we can deliver higher development yields than we can acquisition yields at this point. We are going to study New York and look at the timing of a potential renovation there. I certainly don't see that being in 2026. There'll be more to follow in the future as we obviously complete our current pipeline of the ROI Projects.
Thank you.
Our next question comes from the line of Robin Farley with UBS. Please proceed with your question.
Great, thanks. Hi, how are you? I wanted to ask about 2026. You mentioned that labor costs might be up about 4%- 4.5% next year. This year you've done an amazing job of, you know, other offsets between insurance and maybe some tax credits. I guess are there other levers for 2026 that we should think about how you could offset this, you know, that higher wage level next year?
Yeah. Let me make one observation. Robin and Sean can jump in. I don't think you should think about wage rates and where people thought. Obviously, given the fact that we do have some union operated and, I think, very fair and equitable deals with our labor partners, again a credit to our operators in negotiating those. In that 4%- 4.5% range, we don't see that really being out of bounds. Again, to our asset management team, Joe P., and Sean and the team and the amount of work that we're doing, just line item in those deep dives, we remained very, very confident in the team ability to continue to take cost out of the business and to think about it differently.
Candidly, advances in technology, we think that there are going to be opportunities through technology to continue to find different ways to be more efficient, whether that's sales and marketing, the guest experience. We've all got to be thinking about how we can respond to those customer needs, but also taking cost out of the business given the operating model. I know our peers have talked about that, are working on it, and it's certainly an area that we too are spending time and we're also encouraging the brands and our operators to continue to think out of the box as well.
Great. No, it's super helpful, thank you. You talked about addressing some debt maturities. Do we need that $300 million- $400 million of asset sales to be completed before we're likely to see the maturities addressed? In other words, is a lot of your negotiations currently sort of contingent on those asset sales happening?
No. Because the short answer is no. Robin.
Robin, we enjoy great banking relationships. I just remind some of the listeners, think about during the pandemic we did three bond deals. We pushed out maturities, we paid back all of the banks, plus everybody earned fees. We have no shortage of banks that want to work with us. Huge credit to Sean, his leadership and the team, and very confident that we will get this done in the third quarter. We don't. They're not at all dependent on those asset sales.
Okay. No, thank you. Can I squeeze in a tiny clarification on Hawaii if you don't mind? One more line on Hawaii. Just when you were calling out groups so flat for next year overall, but you mentioned you called out a number of hotels where it was up significantly. I was surprised that Hawaii wasn't in the sort of, you know, 2024 up significantly vs 2025 given the sort of challenging 2025 Hawaii has had. Is that, was that just, you know, you think it will be up? Just didn't happen to mention it in that list or is there still sort of ongoing group issues in Hawaii? Thank you. That's it.
Hawaii has a smaller percentage. But. We don't expect.
I. I would say too, you got, you're up 50% in Q4. We'll lap that. The convention center is shutting down for renovation, which will impact 2026 in terms of at least convention-related type of business. There are a few things going on that we'll kind of have. As Tom noted though, it's not obviously a major part of that demand for that asset.
Okay, thank you very much. Thanks.
Thank you.
Our next question comes from the line of Ken Billingsley with Compass Point. Please proceed with your question.
Hello, I wanted to ask about. Visitor spending. Looks like overall total RevPAR growth has been stronger than hotel RevPAR. Can you talk about where they're spending their dollars out of the room, and any near term concerns just given market conditions?
Sure. I think for one on the group side, banquet and catering continues to be a strength inclusive of audiovisual. The group said that we still see strong performance. Certainly the in-house groups and their spending related to banqueting and catering, which catering contribution was up 5%. Q2 again looking against prior forecast and there's a number of things that we look at and have seen obviously some deterioration. I would say this is one thing that we're not seeing. It's going to continue to strengthen spend on that side. Outlets roughly up about 1.5% in Q2, helped by things like Casa Marina was up 18% year- over- year with the help of the addition of our Dorada restaurant, the nice Oceanfoot restaurant restaurants. You're seeing enough spending and sufficient spending in the outlet especially in the resort areas.
Parking is up 9%, continuing a strong trend along with some Ancillary fees that we continue to evaluate the market and increase things like facility fees and whatnot. Those are up 6% in June. Expect them to be up 5% for the year. I would say overall across the board we got some healthy out of room spend across the portfolio.
To follow up on that specifically, I know urban RevPAR was a strong bright spot in the quarter, but it looked like total RevPAR for this group has had softer growth. In fact, almost like it's declined. Can you talk about maybe what's going on. On the urban side, with out-of-room spend?
I don't necessarily think it's dramatic. I would have to get back. We'd have to look at that. I don't have that in front of me as to where we're seeing some of that softness that you're talking about.
Okay, I'll follow up later. Thank you.
We have no further questions at this time. I'd like to turn the floor back over to management for closing comments.
We appreciate everybody taking time and we look forward to seeing you at upcoming conferences. We hope you have a great summer. Please know that the team at Park continues to be laser focused on our strategic priorities and excited about Q3, Q4 and closing out 2025 on a high note.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.