Greetings, welcome to Park Hotels & Resorts Inc.'s first quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. 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, Corporate Strategy. Thank you. You may begin.
Thank you, operator, and welcome everyone to the Park Hotels & Resorts first quarter 2020 earnings call. Before we begin, I would like to remind everyone that many of the comments made today are considered forward-looking statements under federal securities laws. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed, and we are not obligated to publicly update or revise these forward-looking statements. In addition, on today's call, we will discuss certain non-GAAP financial information, such as adjusted EBITDA. You will find this information together with reconciliations to the most directly comparable GAAP financial measure in this morning'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.
This morning, Tom Baltimore, our Chairman and Chief Executive Officer, will discuss the state of Park as a company, including the proactive steps the company has taken to weather the pandemic and the team's deep experience during these difficult times. We will also provide an update on Park's current operations and the various contingency plans in place, as well as a brief review of our first quarter 2020 operating results and thoughts on the industry moving forward. Sean Dell'Orto, our Chief Financial Officer, will provide detail on corporate-level measures that have been taken to ensure liquidity and viability for an extended period of time, in addition to providing more details on our cash analysis. Following our prepared remarks, we will open the call for questions. With that, I would like to turn the call over to Tom.
Thank you, Ian, and welcome everyone. I want to start by saying that I hope all of you that are listening are safe, healthy, and well. It goes without saying that this is an unprecedented time for all of us. Life as we know it has been disrupted in an unimaginable way, and we are all adjusting and doing the best we can to navigate this crisis. Since our last call in early March, the impact of COVID-19 on the hotel industry has completely changed the operating landscape, with stay-at-home orders issued across the nation, many of which are still in place. First and foremost, our top priority has been ensuring the safety of our employees and guests at our hotels, as well as our corporate employees in the midst of the fluid state ordinances and changing regulations.
This has involved constant communication with our operating partners, reviewing local guidelines and restrictions, and discussions with local union partners, and the implementation of various proactive measures at our properties. Our hearts are with those at our hotels who either are facing health or financial risk or have temporarily lost their jobs as a result of this pandemic. I want to remind listeners that Park has a very experienced management team, and we have navigated several disruptive events throughout our careers, including natural disasters, 9/11, and the Great Recession. Nothing has been more challenging than our current operating environment. Once the scope of the global pandemic began to unfold domestically, Park was among the first hotel REITs to pivot and respond accordingly by shoring up our balance sheet and aggressively cutting costs across the portfolio, a trademark of a seasoned and experienced team.
Sean will provide specifics later about our actions to increase liquidity and minimize our cash burn rate. I would like to personally thank our banking group for their ongoing support throughout this crisis, evidenced by the unanimous vote we received from the syndicate group approving the credit amendments we announced last week. Overall, I have great confidence in our talented team of men and women, as well as our essential operating and lending partners who have worked tirelessly to ensure the company's viability and ultimate success throughout this crisis. This is a moment in time, and while admittedly, it is a very challenging one, it is one that will pass, and we will get through it together. We entered 2020 with three key priorities. First, our primary goal was to realize the synergies from the Chesapeake acquisition.
Despite some of the broader industry challenges, we had already realized $20 million of the $24 million of expected year one synergies at the onset of 2020, and we're confident in our ability to complete this goal in a normal operating environment. Second, we remained focused on improving the overall quality of the portfolio through non-core asset sales. By February, we had completed two more asset sales totaling $208 million, while completely exiting out of international markets with the sale of our Hilton São Paulo Morumbi hotel. Over the last two years, we have disposed of over 24 non-core assets for $1.2 billion, resulting in a significant improvement to the overall quality of our portfolio. Finally, we were focused on reducing debt. Following nearly $470 million of non-core asset sales, leverage was on track to be back to 4.2 x post the Chesapeake acquisition.
We're down nearly half a turn since announcing the deal. Overall, we have made significant progress on key improvements to our company, and we believe our core 30 hotels, which represents 87% of our pro forma EBITDA and 90% of our overall portfolio value, are as strong as any portfolio in the sector. We are confident that we have laid the foundation for long-term success. Next, I'd like to provide a brief update on Park's current operating environment. Currently, 22 of our 60 hotels remain open, yet many of our properties are operating at a significantly reduced capacity with consolidated towers and closed floors. In total, only about 15% of our 33,000 total rooms are available to guests. Majority of the hotels that remained open are either airport or suburban properties that are housing airline crews or special circumstance groups.
A small number of our urban hotels are operating with extremely limited capacity to house medical-related demand. We expect to resume operations at some hotels beginning in early June, subject to easing of restrictions and near-term demand. More specifically, we are looking to indicators such as the easing of stay-at-home orders in our drive-to leisure markets, as well as the resumption of airline routes as we assess which hotels to reopen. While it is too early to quantify the pace of openings, medical solutions such as therapies and vaccines will undoubtedly accelerate the pace of the recovery. Turning briefly to our first quarter results. We end the quarter with a 23% RevPAR decline, fueled by a 64% decline in March. From a segmentation point of view, both group and business transient revenues were equally impacted, down 26% each, while leisure was a - 22%.
Our contract demand was up 1% for the quarter. This is not a trend that has continued, as the vast majority of international flights have been canceled and domestic air travel has slowed significantly. Our resort markets performed slightly better overall, with RevPAR down 16% on average, as travel restrictions generally did not impact leisure travelers as early as they impacted business travelers or group attendees. Roughly 80% of our first quarter hotel adjusted EBITDA came from properties in resort locations, although this is no longer the case in the second quarter. Our airport and suburban assets also experienced less severe RevPAR declines. This is a trend that has continued into the second quarter. As these hotels comprised only approximately 7% of hotel adjusted EBITDA during the quarter, their contribution is not significant.
Looking ahead to the second quarter, we're expecting to see a continuation of the trends we saw in April for the remainder of the quarter. Our portfolio RevPAR was down well over 90% for the month of April, which mirrors the Smith Travel data we have been seeing for urban and resort hotels at the upper end of the chain scale. While the duration and extent of the impact of the pandemic remains unknown, we expect April and May to be the low point, with RevPAR declines of 90% or more in the second quarter overall to be the most challenged. While it is too soon to forecast what hotel demand will look like once travel resumes, we do have some general themes. We look to signs of improving conditions.
We expect leisure travel to be the first segment to generate the highest demand, particularly in our drive-to markets in Florida, like Orlando, Key West, and Miami. We believe the leisure segment will help to gradually fuel confidence in travel, followed by a return of travel by business transient and association and social groups, and then finally, corporate group. Overall, leisure-related revenues account for approximately 40% of our total revenues when considering that nearly all travel to our Hawaiian properties has some leisure component, although demand in Hawaii is heavily dependent on the resumption of airlift. At this time, we are not expecting normal airlift to return until the end of June at the earliest, and this, of course, is subject to change as things continue to unfold.
In terms of group demand for the balance of the year, group revenues are down approximately 55%, with the second quarter a virtual washout. Although at this point, the fourth quarter is holding up relatively well across several of our key markets. The situation obviously remains very fluid, so these numbers will most likely change as the path to recovery unfolds. In general, we are expecting a different operating model overall for our hotels when travel resumes.
We have been in constant communication with our partners at Hilton, Marriott, and Hyatt about how the operating profile may change as hotels slowly begin to open back up. Based on these discussions, we do expect the brands to be accommodating and flexible as we reopen hotels and think about the various components that need to be reimagined to accommodate social distancing, such as food and beverage outlets or meetings and banquet programs, and the changes that need to be made to emphasize a focus on guest and employee safety and cleanliness. We are also expecting housekeeping to be altered in a way that provides guests with added assurance that their guest room is clean and sterilized. We could see a move away from daily housekeeping service and an increase in contactless check-in. For example, such as Hilton's Digital Key program.
I have long been a vocal proponent of the need for a rebalancing between brands and owners. If there is a silver lining in this current crisis, I would speculate this will be one of them. The brands have not been immune to the value destruction of this pandemic. We have been very encouraged by the dialogue we have had with our brand partners. We welcome a more balanced approach to branded hotels and are glad to be part of the discussions of what this may look like. I look forward to sharing more with you on future calls. With that, I'd like to turn the call over to Sean.
Thanks, Tom. Over the last several weeks, we have proactively undertaken several key initiatives to improve the company's liquidity and capital position, including fully drawing down on our $1 billion revolver in March, suspending our quarterly dividend following the payment of our first quarter dividend, slashing our 2020 CapEx budget by roughly 75% to $50 million, reducing our corporate cash G&A by 13%, and working with our operators to aggressively cut hotel expenses by approximately 75% during the month of April, when a majority of our hotels were suspended. Taking into account the significantly reduced cost structures of the hotels, short-term carrying costs for benefits for furloughed hotel employees, and corporate G&A and debt service, we developed a burn rate estimate of approximately $70 million per month based on an extreme scenario where all of the company's hotels suspend operations.
Taking the $1.2 billion of cash currently on the balance sheet against this burn rate estimate, we believe we have approximately 17 months of liquidity under the most extreme scenario. From a capital structure standpoint, I am very pleased to report that we successfully amended our revolving credit facility and term loans, which were finalized last week. In the amendment, we accomplished three key objectives. First, we secured the extension options for the revolver, pushing its maturity to December 2021. Second, we suspended the testing of financial covenants through Q1 of 2021, with some additional flexibility to accommodate our portfolio's recovery after the suspension period over the subsequent four quarters and into 2022. Third, we built in flexibility to manage the business and access capital markets should we need additional liquidity.
I would like to personally thank the members of our bank group for their continued support of the company and their efforts to provide us with this critical amendment as we navigate this extremely challenging environment. That concludes our prepared remarks. We will now open the line for Q&A. To address each of your questions, we ask that you limit yourself to one question and one follow-up. Operator, may we have the first question, please?
Thank you. Ladies and gentlemen, at this time, we will begin conducting a question-and-answer session. If you'd like to ask a question, you may 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 key. Our first question comes from the line of Smedes Rose with Citi. Please proceed with your question.
Hi, good morning.
Morning, Smedes.
Hi. You talked about, just a little bit in your opening remarks, changing or a different operating model going forward. I guess just kind of bigger picture, could you maybe talk about changes, if any, to your strategy that here, before now had been you talked a lot about overall sort of grouping up the assets, including the Chesapeake properties? Just as a kind of a follow-up to that, could you maybe talk about how you see labor costs trending as the business reopens?
Hi, Smedes.
Okay.
Appreciate the question. Regarding our core strategy for Park, intermediate and long-term, that certainly hasn't changed. We think that obviously this portfolio, as we mentioned in our prepared remarks, obviously we've continued to reshape and improve it. Our top 30 hotels, which obviously are urban convention center resorts, the operating metrics of that I think play very well against our peers and again account for about 87% of our EBITDA and about 90% of our value. We see long-term value in that core portfolio. That hasn't changed. Obviously, as you recall, when we were spun out, we thought given the natural advantage for some of our convention center hotels, it really made sense to group up and anchor our business with group and layering contracts, and we could therefore yield out our transient more efficiently.
We certainly believe in that long term. Obviously, given the unprecedented circumstances that we find ourselves in today, we obviously are going to need to adjust. As Sean mentioned in his remarks about obviously drive-to markets, there are about 12,500 of our rooms that are effectively in drive-to markets, where we think in the interim, as we work our way through this recession and ultimate recovery, that we can certainly be competitive. We certainly are going to have to continue to find ways to fill rooms, given the fact that group is likely to lag. As we said in our prepared remarks, we would expect leisure to come back, followed by corporate transient, and then obviously group and corporate group would certainly lag that. The reality is, a lot of it depends on what happens vis-à-vis medical solutions here.
If we get continued therapies and if we get vaccines, and obviously there's a global race underway, which certainly can also expedite the pace of the recovery as well. As it relates to labor, we are spending a tremendous amount of our time working with our operating partners, our peers, and I really think across the industry in thinking about what's important as we reopen. Clearly, safety and cleanliness are of paramount importance to our guests right now. Social distancing will continue to be an issue as we unfold, and as I mentioned in my prepared remarks, you can see a scenario where the housekeeping model changes, and perhaps there's no housekeeping during stayovers. You can see the room service model being altered. You can see the food and beverage being reduced significantly.
Our obsession here is making sure that both the safety and cleanliness issues are addressed, but also that we figure out a way during the crisis to right-size the model. The business has been out of balance. I think there's a unique opportunity now. I do think the brands are very open to finding a better balance as we move forward.
Thank you.
Our next question comes from the line of Anthony Powell with Barclays. Please distribute the question.
Morning, Anthony.
Hello. Morning.
Good morning. Just on the question on the balance between brands and owners and the operating costs, do you need to make progress on reducing operating costs at your hotels before some of them open? For example, in markets like New York where you're closed, do you need to have that kind of in place or can there be an interim kind of step there?
Yeah. Well, Anthony, you hit obviously the most difficult given the fact that the pandemic, the epicenter of it in the U.S. has been in New York. Clearly, that's the most challenging operating environment, as we all know. It has underperformed this last cycle pretty dramatically. We clearly expect that that hotel, New York Hilton, probably would not be opening until late second quarter, third quarter. Clearly, right sizing and finding the right operating model will be a critical component of that, certainly before we reopen that asset. Many of the other assets, we have work plans already in place. We can reopen in a matter of days. You got to make sure that, one, the stay-at-home orders have been lifted, any other local requirements have also been relaxed, the corporate travel policies have sort of reopened visibility into current demand.
What's on the books, what's in the pipeline, cancellation risk, and all of that will go into the process as we reopen. We tried to be very transparent in the added disclosure so that both investors and analysts understood exactly where we are today. Also understand that we have very detailed reopening plans, and we're also in a position to reopen in a matter of days, assuming the demand justifies. When we reopen, that will be a slow ramp-up. We don't expect that we'll be reopened to full capacity. You've got to right-size the business model to make sure that it makes economic sense. New York, of course, will be the most complicated, just given the devastation that's occurred and the imbalance. There's been too much supply in New York. It has underperformed. There's no rate growth. There's no rate integrity.
We have to make sure that the model makes sense in New York before we reopen the hotel there.
Got it. Thanks, Tom. On Hawaii, there's been some, I guess, headlines about restrictions and other kind of, I would say, negative kind of sentiment towards travel there. What's your sense of the governor and other authorities' position on getting travel restarted to Hawaii? Is that high on the priority list? Could there be a delay there if they take kind of an anti-travel approach?
You know, Anthony, it's a great question. Hawaii is also very complicated. Obviously, it's dependent on the airlift, but there's a 14-day quarantine in place for any visitor. I think it was implemented in late March. We understand that that could be lifted at the end of May, and possible reopening could occur in, say, mid-June. I think some of the airlines are planning to begin operations in sort of early to mid-June, which is an important component. I think Hawaii is a great example of what's happening in our great country right now. You've had about 630 cases approximately of COVID-19 across the islands. You've only had 17 deaths. Any loss of life is horrible and very sad, but in context, 17 is a very small number based on what we're seeing in other jurisdictions.
You've got unemployment that's rising at 40%-50%, and you have a state deficit that's at $1.5 billion and rising. At some point, we need to find a better balance. I suspect as part of this that the governor's leadership and encouragement from other business leaders and other men and women in that, we will begin to reopen. I can say, if you look historically at Hawaii visitation, 8.5 million-9 million, obviously north of 60% of it coming out of the U.S., about 17% of that coming, 1.5 million visitors coming out of Japan. That's been pretty consistent for almost 30 years. There's a lot of pent-up demand. We're actually very encouraged as we think out beginning third quarter, but certainly fourth quarter that Hawaii could surprise to the upside.
Obviously, we need the leadership there to reopen and to begin that process. I want to provide that incremental detail so people understand this is a very common situation of balancing really the health risk with the economic realities. I think that will serve as a catalyst to begin, perhaps even accelerate that reopening process there.
Thank you.
Our next question comes from the line of Rich Hightower with Evercore ISI. Please proceed with your question.
Hey, good morning, everybody.
Good morning.
Hope you're doing well.
I hope you're safe.
Yeah, thanks, Tom. All good here. Back to the question earlier related to the relationship between owners and brands. Everybody's operating in an environment right now, sort of in extremis, and you make decisions in that light that might change as the world reopens. Tom, how do you view some of those extreme cost-cutting measures that are allowed by the brands at this particular moment? How do you view that evolving over time as the world reopens and amenity creep or whatever you want to call it? What's going to be the balance 12 months from now, 24 months from now, versus what we see today and what you envision? If you could expound on that.
Rich, thank you. I think it's a great question. I think it's not going to surprise you and the other listeners that the business has been out of balance. I would respectfully submit that certainly the brands, based on their need and all the actions to raise additional liquidity, their business models don't work if they don't have a healthy owner community. I also think that they also got a bit of a wake-up call when your business model doesn't work, when your owners have no revenue, therefore, no fees. I think that there's a natural reset and a reboot, if you will, that's really forced them and owners to come together and talk about ways that, one, we can address the immediate concerns, which are safety and cleanliness, which have got to be addressed as quickly as possible.
There's probably an incremental cost to raise that level of cleanliness. Therefore, how do we take out incremental cost? I think housekeeping is a natural, where you've got really a consensus building throughout the industry that perhaps no additional-- You get a clean room, it's certified or whatever various the brands are going to use. Thereafter that, perhaps there's then no one else enters your room for the duration of that stay unless you opt in or some other benefit is part of that. As you think about food and beverage, the same issue. Room service typically is not profitable and a very high cost center. We at the New York Hilton, given our Herb N' Kitchen , certainly one of the first to eliminate room service and more of a delivery and using biodegradable and other environmentally friendly measures there.
That's a model that I think you could see that getting expanded throughout. Think of buffets probably go away. Food and beverage as we think about social distancing, hopefully, that's temporary in the interim and not permanent. How do we then serve and implement that in that kind of framework, given what we're likely to see over the next few months? I think it starts with first and foremost, Rich, is because the industry has been so decimated and because everybody's feeling that pinch, I think everyone recognizes we have to come together to try to right size the model. I hear some of my peers talk about going on offense.
In my view, what's most important in this industry right now is making sure that we can right size the operating model so that it's sustainable and it's economic and makes economic sense for all the stakeholders, while at the same time addressing those primary concerns that the traveling public's going to have. We need to provide an environment where they're going to feel the trust and the safety. Then they will begin to come back to us. Look, we all believe in this great country. We know they're going to come back. We know we'll get through this. Obviously, vaccines, medical solutions will accelerate that. There's no doubt in order to get through this, we've got to really begin to address a number of these issues. I would expect a year out, cost per occupied room to clean a hotel would be less.
I would expect the brand amenities, the arms race that I've been saying for years, that you'll see that begin to pull back. You would expect that other costs in the business and more flexibility, more access of Digital Key, and bypassing the front desk, all of those things make sense. That's real focus and where I think a lot of the energy needs to be. There are a lot of task forces that are being formed. There are a lot of dialogues that are occurring. Owner groups have come together, the brands have come together. There's an open dialogue that's occurring at multiple levels in the business that I find encouraging.
We have to deliver, but I think given the stark reality of where we find ourselves right now, we have to address these issues.
Okay. That's very helpful color, Tom. Maybe shifting gears for a second, just putting on the lens of the hotel transactions market, such as it is right now, and maybe comparing to the deals for Park that closed in February, where do you see the impact to unlevered asset values between mid-February and where we sit today? Any color there?
Yeah. It's a great question, Rich. You know that we've had a lot of success in selling our non-core. It was a real priority since we were spun out. Really proud that we sold 24 assets, and clearly the 14 international, and reminding listeners, those were deals in South Africa, two in Germany, seven in the U.K., Brazil, a joint venture in Dublin. Every one of those deals had tax, legal, tons of hair on them, but we were able to successfully get through that. It allowed us to continue to reshape this portfolio. Continuing to sell non-core is still a priority for Park. We have been engaged with all of the natural buyers, sovereigns, private equity, family offices. All the types of buyers, private equity, all of those that can move quickly and also that don't need debt, and that can close all cash.
I would say that, to be brutally honest, I'd say that the COVID-19 discount gap is too wide right now. I think you see sellers would probably like to sell with a 10%, perhaps even 15% discount, depending on their individual needs. I think buyers are looking for somewhere north of 30%, even 40%. I think there's plenty of liquidity trying to get in this sector, recognizing that now is a good window to begin to build up a portfolio. I think the gap is too wide to really expedite any sort of transaction issue, seeing the number of deals that have blown up here in the last few weeks.
I think in the next couple of months, as we begin to get more operating clarity, you will begin to see that market reopen, and clearly a priority for Park will be to continue to explore non-core asset sales. We have significant liquidity. We've got runway room. We don't feel the need and desire to sell at huge discounts, and to sell at values that don't make sense for our shareholders. We will be thoughtful, and we'll wait for more clarity before we really think a lot of those deals will start to move forward.
Great. Thanks for that color, Tom.
Our next question comes from the line of David Katz with Jefferies. Please proceed with your question.
Hi. Good morning, everyone. Good to hear everyone's voices.
Morning.
Tom, obviously the commentary around balancing between owners and brands is another topical and engaging. We have seen instances with other owners where assets have switched from brand management to third party. Just broadly speaking, how do you think about the dynamics in that market and sort of driving competition, if you will, and where that's really all headed one day?
It's a great question, David. I'd say a couple things. Look, one of the real benefits of the Chesapeake deal, again, it gave us brand and operator diversification. It gave us geographic diversification. On the operator side, we now have eight operators. Getting that best intel, those best practices, seeing the things that are happening not only across the brand operators, but those independent third party operators, is always something that I believed in and the team here at Park has believed in. That competition is a good thing. I think if you think about our portfolio, there are natural situations where having brand management for big convention center hotels or big resort hotels with national sales and complicated purchasing power, where the brands make sense.
There are other hotels that are more nimble, whether they're an Autograph or a Lifestyle brand, don't have the big group component, where clearly having an independent operator is perhaps the right sizing that manager for that business opportunity. We are constantly looking at that. That's, again, one of the benefits that we have of having a very diverse portfolio. I think that will continue to evolve. I have been saying for many years, having worked for Hilton twice and having worked for three of the Marriott companies, that I think there are natural areas that the big brands should stay in, and I think their convention center hotels and luxury hotels, resorts are really, I think, better suited for their wheelhouse versus those more nimble opportunities that can occur elsewhere. I think you're just going to see that continue to accelerate as we unfold.
Got it. Thank you very much.
Thank you.
Our next question comes from the line of Patrick Scholes with SunTrust. Please proceed with your question.
Good morning, Patrick.
Hi. Good morning. There's some industry chatter out there that we could see many hotel rooms in major markets, especially New York, convert to affordable housing or homeless housing as the highest and best use. What are your thoughts on that? Thank you.
I think it's a fair question. I would think markets like New York would probably be the most likely. As we all know, New York is badly underperformed, and badly underperformed because there's too much supply. If you think back nine years ago, 2011, New York had 141, what we call super compression days, where market demand was over 95%. I think we ended 2019 with about 30, and we were forecasting 2020 in low single digits. The amount of supply, and the brands are largely responsible, has decimated that market, and I think given the carnage of what's happening there operationally, and the fact that it probably remains closed, it would not surprise us at Park if you had many hotels that never reopen.
Perhaps converting those to other uses makes a lot of sense, particularly given the incredible need right now, and that those could make more economic sense. You would need, in many cases, the brands to cooperate and work. I would encourage them to do so to help reduce the supply and the pain and suffering that's occurring to owners in that market.
I guess, taking the follow-up step on that, could that possibly happen to one of your hotels in New York? Thank you.
We own the New York Hilton, obviously the second-largest hotel on the market and obviously one of the big convention center hotels, one of the three there. We think we have a natural role there, in that over the intermediate and long term, it can regain its place and be a significant contributor, and be a strong component. Obviously, in this environment right now, as I said earlier, given the devastation that's occurred and being at the epicenter of COVID-19 here in the U.S., we would expect that that would be among the last in our portfolio to reopen. Again, we will continue to manage the health of what we hear, both from the governor, from the city, from health providers, and get a sense for demand patterns as the reopening process begins in New York.
Okay, thank you.
Our next question comes from the line of Bill Crow with Raymond James. Please proceed with your question.
Good morning.
Good morning.
Good morning. Stick with New York for a second. We're hearing from some office brokers that the tenants are leaning towards a post-Labor Day return to the office, and also hearing that Broadway may not reopen until January or possibly Christmas season in December. I'm just wondering if those dates were true, how does that impact your decision to restart, I think you said toward the end of June, on the Hilton?
Yeah. Hey, Bill, it's a great question. Let me clarify. I thought I said that most likely New York, we would be opening in third quarter, just given the reality now. I think the data point that you brought out are terribly important. I think first and foremost, you've got to look at what we're hearing from the governor, from the mayor in terms of their stay-at-home orders and how that process unfolds. What happens with both travel patterns and booking, what happens locally in terms of, to the point you made, whether Broadway opens later, whether companies continue to allow people to work from home, which is, you can understand given the devastation that's occurred there. As I said, I would expect that New York Hilton would be among the last in our portfolio to open.
We have been working over many years and continuing to right-size that business. As you know, there's very little food and beverage. We have the Herb N' Kitchen . We have room service delivery. There are a number of things that have been underway in that hotel. It's still a very tough operating environment, and as I said earlier, if you have the city remaining closed, and let's take your timeline, and that's extended to third quarter, fourth quarter, I think it only drives home the point that there are probably many owner operators who have levered up at 65%, 70% or more, who probably don't reopen. Park has the luxury of having a large diversified portfolio, significant liquidity. We will get through this. We will get to the other side, and that gives us a lot more optionality.
In terms of finding other sources of demand, everything's open depending on what universities do. They are reaching out and talking to hoteliers about taking students, depending on how they reopen or when they reopen. There are pockets of demand. Clearly, the group component will lag, as we've talked about. In this case, New York is probably the market that will be the toughest over the next several months for all the reasons that we're all aware of.
Yeah, appreciate that. As a follow-up, and not necessarily specific to New York, but how does the decision-making process change on opening or going back a ways, closing the hotels based on whether it's a union hotel or a non-union hotel?
It's a great question, Bill. I think it's another benefit of having a large organization and having a portfolio of scale. The men and women on our asset management team have just done a phenomenal job. Look, the hospitality business that we all love and admire, we never close, right? We're open 365 days a year, other than a natural disaster. Obviously, we get a global pandemic that none of us planned for, we had to work tirelessly with all of our stakeholders, trying to find the right balance to close down. Obviously, we've shut down or suspended ops at 85% of our rooms. Could not be prouder of the interface between our asset management team and our various operating, whether those are the brand partners or whether those are the independent management companies, and we have eight across our portfolio.
At the same time, we've now made the pivot to begin the reopening process. We have work plans, again, developed in conjunction with our asset management team and our local operating partners. We look and try to anticipate what are the current state and local government regulations, when do we think they're going to begin to relax. We can be up and running in most situations in a matter of days, and that's not weeks, but days. We also have to make sure that we've got visibility into current demand. What's on the books, what's in the pipeline? How do we think the ADR? We have to right-size because we're not going to reopen at full capacity. You have to stage as to when and how you're going to bring employees back to make sure that it makes economic sense.
That's a little more complicated, as you would imagine, on the union side. I would say that our union partners have recognized the difficulty of the situation, given the fact that many of them have significant reserves available through the health and welfare. We've also been accommodating to work through those types of issues. Of course, the government and the government programs providing unemployment on steroids has also been helpful. The good news is that people are getting bridged. None of us can go forever without revenue across industries. I do think that we are, as a nation, beginning this reopening process, and every city will have its own timeline. Obviously, the drive to markets, strong demand in South Florida, in Key West, where obviously we are well represented. In parts of California, we think obviously strong drive to Orlando.
All of this fits together where there's still going to be a lot of demand. There'll just be certain markets that certainly are going to be tougher to figure out and probably will be delayed. I think New York, again, is going to be the most likely scenario there.
Okay. Thank you very much.
Thank you.
Our next question comes from the line of Neil Malkin with Capital One Securities. Please proceed with your question.
Hey, good morning, guys.
Good morning, Neil.
Hi. Just first question, wanted to focus on the group side, obviously a pretty sizable part of your business. Can you give us a sense of what first half 2020 cancellations have rebooked, either for the back half of this year or early next year? Secondly, are there any indicators or things that you kind of look for that would allow you to see or be able to ascertain the likelihood that the second half of this year group reservations will actually wind up coming and not just canceling later?
Hey, Neil, it's Sean. Hope you're doing well here. Just kind of to your first question about just kind of activity and rebooking. We had about, kind of at a certain point in time, about $130 million of room revenue from group. It was, again, primarily from March through June that canceled. I would say about 40% of that is in various stages of booking, half booked or in discussions going on right now. I would say the majority of that is beyond 2020. There might be some that rebooked into Q4, but I'd say the majority is beyond this year. There's probably about 50% of that is kind of in a waiting stage. Certainly could be booked in the future.
Majority of this work is obviously going through Hilton sales and marketing and in process, but we're certainly hopeful that they'll continue to place that back into our hotels in outer stages. In terms of how we think about the back half of the year, the deficits on the books haven't changed dramatically. I think it's probably consistent with others that have talked about this, where people kind of have an option here, and they can kind of wait to see how things materialize. We don't place, quite honestly, a lot of faith in the back half, certainly Q3 bookings that are there for group. Clearly, as Tom mentioned, solutions around vaccines and medicines, treatments play a role into this and acceleration of that.
How the brands come together and put the cleanliness programs in place I think certainly gives an advantage to retain those groups or attracting others for future business. As we look at this and see how over the last several weeks and even months, we've seen kind of a window here where 6 to 8 weeks out, you start seeing degradation of the group business. I think that holds for a while. I don't think we have a lot of faith in what's on the books right now in the back half of the year.
Okay. Thanks, Sean, for that color. The other one I have is maybe just a broader or longer-term view. If you look at the disparity between the coastal markets versus Sun Belt, and you look at the governors in those states and their willingness to sort of get the economy back up and running, various hurdles, various things you're hearing on a legislative side, political side, does that make you shift or rethink what the portfolio looks like or what your allocation priorities look like over the next five years or so in terms of maybe Sun Belt markets over the tough-to-operate unionized coasts?
It's a great question. I think the reality is that if you think historically about this business, and no different for Park than our peers, we really want to follow the demand. We are well-positioned overall. When you think through the fact that we are in Center City, iconic assets, impossible to replicate. We're probably today trading $185,000 a key, plus or minus, and to rebuild our portfolio replacement cost is somewhere probably north of $700,000, from take Hawaii to San Francisco, L.A., Chicago, D.C., Boston, et cetera. It's hard to imagine that we're in a world where you still don't have that significant job growth, and therefore those sources of revenue. Having said that, there's no doubt that there are very investor-friendly markets. Nashville is one, Austin is another, although the secret of Austin is certainly out. You can see other parts of Texas over time.
Dallas, some might say San Antonio. Houston always tends to sort of ebb and flow depending on what's happening with oil. We're now seeing the pain there, and that probably continues. Clearly, Florida continues to explode as you look at the population growth there. I would say you'd see a balancing, but at the end of the day, it really is about where is the demand, where are the barriers to entry, and where can you generate the appropriate risk-adjusted returns.
I appreciate the color. Thank you, everyone.
Our next question comes from the line of Brandt Montour with JP Morgan. Please proceed with your question.
Hey, Brandt.
Good morning, everyone, I hope. Hey, how are you? I hope everyone is well, and thanks for taking my questions. I realize I might be splitting hairs here, but on the monthly cash burn estimate that you guys gave, just given that some of the larger brands even today sort of made it sound like nationwide trends in the U.S. may have bottomed here, can you maybe just give us a monthly cash burn estimate for maybe for April? Or where you see it now if today's trends continue into the future?
Hey, Brandt. Yeah, we kind of looked at it. When we started out with it, we kind of had about a $90 million conservative estimate kind of in March as we tried to pull this together. Looking at April's results is kind of what's driven us to what we've reported today at about $70. Now, I'd say of that, the $90, I would say, let me just clarify, $90 included the CapEx and $70 does not. As some people report out and as you guys are looking at it, I think we kind of excluded CapEx. It's really about a $15 million difference, and 10 of that really came from the hotel operating side.
Again, as we looked at our preliminary estimates were based on talking with Hilton in great detail as we looked at the operating model at a kind of a low occupancy level versus shutting down or suspending operations. We looked at various other proxies where we had our Caribe Hilton, for one, where we're shut down post Hurricane Maria. We looked at kind of the carrying cost for that asset, and we just triangulated around what we thought was a pretty good estimate with obviously some prudency in it to kind of take a conservative view. Knowing that April would be a great proxy for this given that April will probably be the one where people may certainly will have the state of 38 assets being suspended, and certainly the ones that are open aren't producing a ton of revenue, but certainly being profitable on a marginal sense.
We ultimately have come down to what we think is a good level here at $70 million a month, the burn rate, $50 for the hotel side, and kind of $10 or $20 for corporate level and debt service-related fixed costs. We feel good about that. We do think that there's always room for improvement, and we're going to continue to do that, and May will be the next test for us. I think that's kind of how we look at it going forward.
Great. Thank you. That's helpful.
Our next question comes from the line of Chris Woronka with Deutsche Bank. Please proceed with your question.
Hey, Chris.
Good morning, guys.
Good morning. Welcome.
Yeah. Thank you. I was hoping to get your view on how directionally you think the recovery ultimately unfolds on the rate side, because I think what's different this downturn versus prior ones, maybe not totally different, but you have this significant downturn riding group and corporate that might continue for some time, but you might have pretty solid leisure demand, which a lot of times leans into the third-party channels, yet the brands have done a ton of work to build loyalty and get reservations directly.
How do you see that all playing out on the rate front? Do you think there can be any rate integrity as we start to see demand recover?
Chris, it's a great question, and I certainly hope so. To the point you made, if you think back, in fact, this is the week that I rejoined Hilton four years ago to partner with Sean and the team and spin out Park. If you think then, Hilton had 53 million members in their loyalty program. I think now they're at 106 million, plus or minus, and they're getting north of 60% of their occupancy from members. I think Marriott is somewhere in the 140 million range. When you think about the strength of the brands and the access that they have to those customers, and to induce demand, to have direct conversation, and to be able to stimulate, you hope that in their desire, same with our desire, to make sure that we are getting the appropriate and the highest possible rate that we can.
I do think that there's an opportunity there. However, if you look historically in this business, sometimes we have the race to bottom, with people heads in beds and trying to fill at any price. I think given the devastation and given the fact that people are working together and understand that revenue is so critical here, that hopefully we'll have more rate integrity. I would also say when you think about the recovery, a lot of it's going to depend on the medical side. As we know right now, it really is about safety and cleanliness and trust. Brands and well-run brands, and we have them in our industry, they're about trust and a promise, and I think they understand the need to address those immediate issues.
I have to believe, as Warren Buffett said, "Don't bet against America." We will get through this, and the fact that we have this global race underway to find the medical solutions, they really are the game changer because once we have those in place, it erases a lot of the fear. We have so much fear today. I think people want to get out. They want to get out of the bunker. You're seeing it all over the country. You're seeing the reopening process. It's going to be uneven, it's going to be choppy. I do think that we could get back to 2019 levels. Wouldn't surprise me if we were back in 2022. I know some push it out to 2023, 2024, 2025. We're not believers in that. We think that it will wrap up sooner.
Great. Appreciate that, Tom. Just a quick follow-up. What percent of your hotels in Florida are drive to demand?
I don't have the Florida piece offhand. Right now, I would say about 12,000, 12,500, about 40% overall of our rooms are in leisure markets. That's Key West, that's Miami, that's Orlando, Santa Barbara in California, L.A., San Diego. You can make the case for Chicago, a wonderful city, certainly in season, where people are going to be driving too, and gas is cheap. I think where people may have done the normal commute of six to seven, eight hours, that might get extended until, again, the medical solutions are in place and people feel a little more comfortable. I do think you're going to have people accepting longer drives. Clearly, there's significant pent-up demand for people to get out and certainly plan vacations with their loved ones.
Sure. Very good. Thanks, Tom.
Thank you.
Our next question comes from the line of Robin Farley with UBS. Please proceed with your question.
Great. Thanks. This maybe is a little too early to ask, but do you see with all the changes going on in the world, that maybe there's opportunity for consolidation among lodging REITs?
As you know, Robin, I've certainly been among the most vocal advocates for that for north of a decade. We at Park are laser focused on the priorities that we've outlined. Cash preservation, our burn rate, shoring up the balance sheet, working with the brands and our operating partners to make sure that we can right size the business as we reopen. It would not surprise me, but you will not see Park in that dialogue right here in the near term. It wouldn't surprise me coming out of this, depending on the individual situations of teams, on companies, whether they chose to find a dance partner . Yeah.
You're saying Park not interested in those discussions on either end of that?
Park is not interested in that at this time. We are laser focused on all the initiatives that we've outlined. Laser focused on getting through the recession so that we are well-positioned when the recovery begins.
Maybe just one follow-up. You talked about the transaction market for assets, and you talked about waiting to sell some non-core things because you're not in a hurry, you don't need to sell at a big discount. Do you have any thoughts on are there opportunities for assets that you might want to buy that are cheaper now than maybe on your radar screen?
Yes, again, we're more focused on the balance sheet and cash preservation, and right-sizing the operating model. I think there will be plenty of time as the process unfolds for single assets, small portfolios that may be available, but not a focus for Park at this time to be a buyer.
Okay, great. Thank you very much.
Yeah.
Our next question comes from the line of Lukas Hartwich with Green Street Advisors. Please proceed with your question.
Hey, Lukas.
Good morning.
Morning.
Hey. Morning. I'm just curious, Tom, do you have any thoughts on the potential for a lasting impact on hotel demand as a result of this pandemic?
As I said earlier, Lukas, I mean obviously we are all living through unprecedented circumstances that none of us planned for. You see the devastation that's occurring and the ultimate shutdown that we're all living through, which has never happened before. I believe in our great country. I believe in our American spirit. I do believe we'll get through this. Clearly, there are going to be industries that are going to be disrupted, possibly impaired. I do think as we think about lodging and the role that we play, lodging survives. I don't know about listeners, but I can speak from my own experience being on so many Zoom calls and Webex. I can't wait till the days that we could have board meetings and industry meetings in person. I can't wait to be able to resume the normal life of vacations and business travel that we all appreciate.
Everywhere, all the people that I'm talking to feel the same way. Clearly in the interim, life is going to change, and it's going to get adjusted as we work through making sure that people are safe, that cleanliness issues are addressed, social distancing is adhered to. When we get on the other side of this, people are excited about beginning to resume their lives. No doubt there will be secular industries, where I think there will be some permanent change. I do think there are certain markets in lodging where there's too much supply. New York, we've talked about extensively on this call, where there are hotels in New York and other markets that probably will not reopen, and perhaps alternative uses will be the best outcome for them.
Just maybe thinking out a couple of years when the transaction market's functioning again, I'm just curious, do you think there will be an increased risk premium applied to hotel real estate? Do you think cap rates will be permanently wider relative to other asset classes as a result of this? I mean, this is the third downturn in a row now where it's just been a severe impact to hotel fundamentals. Perhaps, the private market pricing has historically not reflected the risk of hotel real estate. I'm curious, do you think there'll be a lasting impact on cap rates and valuations?
I do not, Lukas. I would also say, as you know, I mean, rates have been coming down for a long time, look, rates are going to remain low indefinitely. When you think about those pensioners, think about those retirees who need yield. Real estate, and particularly hotels, provide a wonderful alternative for that. I don't think that's going to decline. Obviously, it's been a tough environment the last 20 years. There is still significant value that can be created both through the public markets, the private markets, and there's been no shortage of inbound calls and discussions that we've had. There's plenty of liquidity looking for hotel real estate.
Great. Thank you.
Thank you. Stay safe.
That is all the time we have for questions. I'd like to hand it back to Tom Baltimore for closing remarks.
Thank you very much. It was great to talk with all of you today. Stay safe. Be well. We look forward to our next earnings call, and hopefully we can meet in person at some point over the next few months.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.