NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1: Organization
Park Hotels & Resorts Inc. (“we,” “us,” “our” or the “Company” and, exclusive of any subsidiaries, "Park Parent") is a Delaware corporation that owns a portfolio of premium-branded hotels and resorts primarily located in prime city center and resort locations. On January 3, 2017, Hilton Worldwide Holdings Inc. (“Hilton”) completed the spin-off of a portfolio of premium hotels and resorts that established Park Hotels & Resorts Inc. as an independent, publicly traded company.
On May 5, 2019, the Company, PK Domestic Property LLC, an indirect subsidiary of the Company (“PK Domestic”), and PK Domestic Sub LLC, a wholly-owned subsidiary of PK Domestic (“Merger Sub”) entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) with Chesapeake Lodging Trust (“Chesapeake”). On September 18, 2019, pursuant to the terms and subject to the conditions set forth in the Merger Agreement, Chesapeake merged with and into Merger Sub (the “Merger”) and each of Chesapeake’s common shares of beneficial interest, $0.01 par value per share, was converted into $11.00 in cash and 0.628 of a share of our common stock. No fractional shares of our common stock were issued in the Merger. The value of any fractional interests to which a Chesapeake shareholder would otherwise have been entitled was paid in cash.
We are a real estate investment trust (“REIT”) for United States (“U.S.”) federal income tax purposes. We have been organized and operated, and we expect to continue to be organized and operate, in a manner to qualify as a REIT. To qualify as a REIT, we must satisfy requirements related to, among other things, the real estate qualification of sources of our income, the real estate composition and values of our assets, the amounts we distribute to our stockholders annually and the diversity of ownership of our stock. From the date of our spin-off from Hilton, Park Intermediate Holdings LLC (our “Operating Company”), directly or indirectly, has held all our assets and has conducted all of our operations. Park Parent owned 100% of the interests of our Operating Company until December 31, 2021 when the business undertook an internal reorganization transitioning our structure to a traditional umbrella partnership REIT ("UPREIT") structure. Effective January 1, 2022, Park Parent became the managing member of our Operating Company and PK Domestic REIT Inc., a direct subsidiary of Park Parent, became a member of our Operating Company. We may, in the future, issue interests in (or from) our Operating Company in connection with acquiring hotels, financings, issuance of equity compensation or other purposes.
Note 2: Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
Principles of Consolidation
The unaudited condensed consolidated financial statements reflect our financial position, results of operations and cash flows, in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with U.S. GAAP. In our opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, including normal recurring items, considered necessary for a fair presentation of the interim periods. All significant intercompany transactions and balances within the financial statements have been eliminated.
These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2023 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on February 28, 2024.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Interim results are not necessarily indicative of full year performance.
Reclassifications
Certain line items on the condensed consolidated statements of operations for the three and nine months ended September 30, 2023 have been reclassified to conform to the current period presentation.
Summary of Significant Accounting Policies
Our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 28, 2024, contains a discussion of significant accounting policies. There have been no significant changes to our significant accounting policies since December 31, 2023.
Note 3: Acquisitions and Dispositions
Acquisitions
During the nine months ended September 30, 2023, we acquired two parcels of land, adjacent to the Hilton Hawaiian Village Waikiki Beach Resort, for a purchase price of approximately $18 million, including transaction costs. We accounted for the purchase as an acquisition of an asset, and the entire purchase price was allocated to land.
Dispositions
In July 2024, the unconsolidated joint venture that owns and operates the Hilton La Jolla Torrey Pines sold the hotel for gross proceeds of approximately $165 million, and our pro-rata share of the gross proceeds was approximately $41 million, which was reduced by our portion of debt of approximately $17 million. We recognized a gain of approximately $19 million, which is included in equity in earnings from investments in affiliates in our condensed consolidated statements of operations.
Additionally, in August 2024, we permanently closed the Hilton Oakland Airport and subsequently terminated its ground lease, returning the property to the ground lessor.
During the nine months ended September 30, 2023, we sold the Hilton Miami Airport hotel for gross proceeds of $118.25 million. We recognized a net gain of approximately $15 million, which is included in gain on sale of assets, net in our condensed consolidated statements of operations.
Additionally, in June 2023, the ground lessor terminated the ground lease for the Embassy Suites Phoenix Airport hotel and, pursuant to an agreement, we received an early termination fee of approximately $4 million, which is included in other (loss) gain, net in our condensed consolidated statements of operations.
Note 4: Property and Equipment
Property and equipment were:
| | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
| | | |
| (in millions) |
| Land | $ | 3,007 | | | $ | 2,990 | |
| Buildings and leasehold improvements | 5,926 | | | 5,814 | |
| Furniture and equipment | 1,028 | | | 947 | |
| Construction-in-progress | 229 | | | 341 | |
| 10,190 | | | 10,092 | |
| Accumulated depreciation | (2,777) | | | (2,633) | |
| $ | 7,413 | | | $ | 7,459 | |
Depreciation of property and equipment was $63 million and $65 million during the three months ended September 30, 2024 and 2023, respectively, and $191 million and $193 million for the nine months ended September 30, 2024 and 2023, respectively.
During the nine months ended September 30, 2024, we recognized impairment losses of approximately $12 million related to two of our hotels subject to ground leases and our inability to recover the carrying value of the assets over the remaining lease term. Refer to Note 7: "Fair Value Measurements" for additional information.
For the nine months ended September 30, 2023, we recognized approximately $202 million of impairment loss related to one of the hotels securing our $725 million non-recourse CMBS loan ("SF Mortgage Loan") as a result of a decision to cease making debt service payments. In October 2023, the two San Francisco Hotels – the 1,921-room Hilton San Francisco Union Square and the 1,024-room Parc 55 San Francisco – a Hilton Hotel (collectively, the "Hilton San Francisco Hotels") that secure the SF Mortgage Loan were placed into receivership. Refer to Note 6: "Debt" and Note 7: "Fair Value Measurements" for additional information.
Note 5: Consolidated Variable Interest Entities ("VIEs") and Investments in Affiliates
Consolidated VIEs
We consolidate VIEs that own three hotels in the U.S. We are the primary beneficiary of these VIEs as we have the power to direct the activities that most significantly affect their economic performance. Additionally, we have the obligation to absorb their losses and the right to receive benefits that could be significant to them. The assets of our VIEs are only available to settle the obligations of these entities. Our condensed consolidated balance sheets include the following assets and liabilities of these entities:
| | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
| | | |
| (in millions) |
| Property and equipment, net | $ | 204 | | | $ | 209 | |
| Cash and cash equivalents | 17 | | | 17 | |
| Restricted cash | 3 | | | 2 | |
| Accounts receivable, net | 5 | | | 5 | |
| Prepaid expenses | 2 | | | 3 | |
| Debt | 200 | | | 202 | |
| Accounts payable and accrued expenses | 11 | | | 11 | |
| Due to hotel manager | 1 | | | 2 | |
| Other liabilities | 3 | | | 3 | |
Unconsolidated Entities
Three of our hotels are owned by unconsolidated joint ventures in which we hold an interest. These hotels are accounted for using the equity method and had total debt of approximately $685 million and $702 million as of September 30, 2024 and December 31, 2023, respectively. Substantially all the debt is secured solely by the affiliates’ assets or is guaranteed by other partners without recourse to us.
Note 6: Debt
Debt balances and associated interest rates as of September 30, 2024 were:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Principal balance as of |
| Interest Rate
at September 30, 2024 | | Maturity Date | | September 30, 2024 | | December 31, 2023 |
| | | | | | | |
| | | | | (in millions) |
HHV Mortgage Loan(1) | 4.20% | | November 2026 | | $ | 1,275 | | | $ | 1,275 | |
Other mortgage loans | Average rate of 4.37% | | 2025 to 2027(2) | | 379 | | | 385 | |
Revolver(3) | SOFR + 1.80%(4) | | December 2026 | | — | | | — | |
2024 Term Loan | SOFR + 1.75%(4) | | May 2027 | | 200 | | | — | |
2025 Senior Notes(5) | 7.50% | | June 2025 | | — | | | 650 | |
2028 Senior Notes(5) | 5.88% | | October 2028 | | 725 | | | 725 | |
2029 Senior Notes(5) | 4.88% | | May 2029 | | 750 | | | 750 | |
2030 Senior Notes(5) | 7.00% | | February 2030 | | 550 | | | — | |
Finance lease obligations | 7.44% | | 2024 to 2028 | | 1 | | | 1 | |
| | | | | 3,880 | | | 3,786 | |
| Add: unamortized premium | | | | | — | | | 1 | |
| Less: unamortized deferred financing costs and discount | | | | (25) | | | (22) | |
| | | | | $ | 3,855 | | | $ | 3,765 | |
_____________________________________
(1)In October 2016, we entered into a $1.275 billion CMBS loan secured by the Hilton Hawaiian Village Waikiki Beach Resort (“HHV Mortgage Loan”).
(2)Assumes the exercise of all extensions that are exercisable solely at our option. The mortgage loan for Hilton Denver City Center matures in 2042 but became callable by the lender in August 2022 with six months of notice. As of September 30, 2024, Park had not received notice from the lender.
(3)Our revolving credit facility ("Revolver") permits one or more standby letters of credit, up to a maximum aggregate outstanding balance of $50 million, to be issued on behalf of us. As of September 30, 2024, we had approximately $4 million outstanding on a standby letter of credit and $946 million of available capacity under our Revolver.
(4)The secured overnight financing rate ("SOFR") includes a credit spread adjustment of 0.1%.
(5)In May 2020, our Operating Company, PK Domestic and PK Finance Co-Issuer Inc. ("PK Finance") issued an aggregate of $650 million senior notes due 2025 ("2025 Senior Notes"), all of which were repurchased or redeemed during the second quarter of 2024. Our Operating Company, PK Domestic, and PK Finance also issued an aggregate of $725 million of senior notes due 2028 (“2028 Senior Notes”) in September 2020, an aggregate of $750 million of senior notes due 2029 (“2029 Senior Notes”) in May 2021 and an aggregate of $550 million of senior notes due 2030 ("2030 Senior Notes") in May 2024.
Credit Facilities
2024 Term Loan
In May 2024, the Company, our Operating Company and PK Domestic amended our existing credit agreement to include a new $200 million senior unsecured term loan facility ("2024 Term Loan") with a scheduled maturity date of May 14, 2027. Borrowings under the 2024 Term Loan bear interest based upon SOFR plus a credit spread adjustment of 0.1%, plus an applicable margin based on our leverage ratio. We capitalized $2 million of financing fees incurred during the nine months ended September 30, 2024.
The amendment did not amend or modify existing financial maintenance covenants or other terms and provisions under our existing credit agreement, except to provide that income, value and debt of the Hilton San Francisco Hotels be excluded from the calculations of our leverage ratio, the fixed charge coverage ratio and the secured leverage ratio under the existing credit agreement.
Senior Notes
2030 Senior Notes
In May 2024, our Operating Company, PK Domestic and PK Finance issued an aggregate of $550 million of 2030 Senior Notes. Net proceeds from the 2030 Senior Notes and the 2024 Term Loan were used to repurchase or redeem all of the 2025 Senior Notes, and the remainder was used for general corporate purposes. The 2030 Senior Notes bear interest at a rate of 7.000% per annum, payable semi-annually in arrears on February 1 and August 1 of each year, beginning February 1, 2025. The 2030 Senior Notes will mature on February 1, 2030. We capitalized approximately $9 million of issuance costs during the nine months ended September 30, 2024.
We may redeem the 2030 Senior Notes at any time prior to August 1, 2026, in whole or in part, at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to, but excluding, the redemption date plus a make-whole premium. On or after August 1, 2026, we may redeem the 2030 Senior Notes at (i) 103.500% of the principal amount on or prior to August 1, 2027, (ii) 101.750% of the principal amount prior to August 1, 2028 and (iii) 100.000% of the principal amount on or after August 1, 2028, in each case plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, at any time prior to August 1, 2026, we may redeem up to 40% of the 2030 Senior Notes with net cash proceeds from certain equity offerings at a redemption price of 107.000% of the principal amount redeemed plus accrued and unpaid interest, if any, to, but excluding, the redemption date.
Indenture
The 2030 Senior Notes are guaranteed by Park Parent, PK Domestic REIT Inc., and by the subsidiaries of our Operating Company that also guarantee indebtedness under our credit facility, the 2028 Senior Notes and 2029 Senior Notes. The guarantees are full and unconditional and joint and several. The indenture governing the 2030 Senior Notes contains customary covenants that limit the issuers' ability and, in certain instances, the ability of the issuers' subsidiaries, to borrow money, create liens on assets, make distributions and pay dividends on or redeem or repurchase stock, make certain types of investments, sell stock in certain subsidiaries, enter into agreements that restrict dividends or other payments from subsidiaries, enter into transactions with affiliates, issue guarantees of indebtedness, and sell assets or merge with other companies. These limitations are subject to a number of exceptions and qualifications, including exceptions and qualifications related to the declaration and payment of dividends and the making of distributions in order to maintain our status as a REIT. In addition, the indenture requires our Operating Company to maintain total unencumbered assets as of each fiscal quarter of at least 150% of total unsecured indebtedness, in each case calculated on a consolidated basis.
Debt Maturities
The contractual maturities of our debt, assuming the exercise of all extensions that are exercisable solely at our option, as of September 30, 2024 were:
| | | | | |
| Year | (in millions) |
2024(1) | $ | 2 | |
| 2025 | 60 | |
| 2026 | 1,563 | |
| 2027 | 230 | |
| 2028 | 725 | |
| Thereafter | 1,300 | |
| $ | 3,880 | |
_____________________________________
(1)Excludes the SF Mortgage Loan secured by the Hilton San Francisco Hotels.
Debt Associated with Hotels in Receivership
In June 2023, we ceased making debt service payments towards the SF Mortgage Loan secured by the Hilton San Francisco Hotels, which was due November 2023, and we received a notice of default from the servicer. The stated rate on the loan is 4.11%; however, beginning June 1, 2023, the default interest rate on the loan is 7.11%. Additionally, beginning June 1, 2023, the loan accrues a monthly late payment administrative fee of 3% of the monthly amount due. In October
2023, the trustee for the SF Mortgage Loan filed a lawsuit against the borrowers under the SF Mortgage Loan. In connection with the lawsuit, the court appointed a receiver to take control of the Hilton San Francisco Hotels, which serve as security for the SF Mortgage Loan, and their operations, and thus, we have no further economic interest in the operations of the hotels. The receiver will operate and has authority over the hotels and, until no later than March 31, 2025, has the ability to sell the hotels. The court order contemplates that the receivership will end with a non-judicial foreclosure by July 15, 2025, if the hotels are not sold within the predetermined sale period.
We derecognized the Hilton San Francisco Hotels from our consolidated balance sheet in October 2023 when the receiver took control of the hotels. For the three and nine months ended September 30, 2024, we recognized a gain of $15 million and $44 million, respectively, which is included in gain on derecognition of assets in our condensed consolidated statements of operations. The gain represents the accrued interest expense associated with the default of the SF Mortgage Loan, which results in a corresponding increase of the contract asset on our condensed consolidated balance sheets as we expect to be released from this obligation upon final resolution with the lender on the SF Mortgage Loan, in exchange for the transfer of ownership of the Hilton San Francisco Hotels. As of September 30, 2024 and December 31, 2023, the contract asset on our condensed consolidated balance sheets was $804 million and $760 million, respectively. The SF Mortgage Loan will remain a liability until final resolution with the lender is concluded and is included in debt associated with hotels in receivership on our condensed consolidated balance sheets.
Note 7: Fair Value Measurements
We did not elect the fair value measurement option for our financial assets or liabilities. The fair values of our other financial instruments not included in the table below are estimated to be equal to their carrying amounts.
The fair value of our debt and the hierarchy level we used to estimate fair values are shown below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2024 | | December 31, 2023 |
| Hierarchy
Level | | Carrying
Amount | | Fair Value | | Carrying
Amount | | Fair Value |
| | | | | | | | | |
| | | (in millions) |
| Liabilities: | | | | | | | | | |
| HHV Mortgage Loan | 3 | | $ | 1,275 | | | $ | 1,217 | | | $ | 1,275 | | | $ | 1,195 | |
| Other mortgage loans | 3 | | 379 | | | 367 | | | 385 | | | 365 | |
| | | | | | | | | |
| 2024 Term Loan | 3 | | 200 | | | 199 | | | — | | | — | |
| 2025 Senior Notes | 1 | | — | | | — | | | 650 | | | 652 | |
| 2028 Senior Notes | 1 | | 725 | | | 725 | | | 725 | | | 713 | |
| 2029 Senior Notes | 1 | | 750 | | | 727 | | | 750 | | | 702 | |
| 2030 Senior Notes | 1 | | 550 | | | 572 | | | — | | | — | |
The fair value of the SF Mortgage Loan, which has a carrying value of $725 million as of both September 30, 2024 and December 31, 2023 and categorized as Level 3 of the fair value hierarchy, was $718 million as of both September 30, 2024 and December 31, 2023. Refer to Note 6: "Debt" for additional information.
During the nine months ended September 30, 2024, we recognized impairment losses related to two of our hotels due to our inability to recover the carrying value of the assets. During the nine months ended September 30, 2023, we recognized an impairment loss related to one of our hotels and in October 2023, that hotel, along with the other hotel securing our SF Mortgage Loan, were placed into receivership. Refer to Note 6: "Debt" for additional information. The
estimated fair value of the assets that were measured on a nonrecurring basis were: | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2024 | | September 30, 2023 |
| Fair Value | | Impairment Loss | | Fair Value | | Impairment Loss |
| (in millions) |
Property and equipment(1) | $ | 2 | | | $ | 12 | | | $ | 234 | | | $ | 202 | |
| Total | $ | 2 | | | $ | 12 | | | $ | 234 | | | $ | 202 | |
____________________________________________________________________________________
(1)We estimated fair value of the assets during the nine months ended September 30, 2024, using a discounted cash flow analysis, with an estimated stabilized growth rate range of 2% to 3%, a discounted cash flow term of 10 years and a discount rate ranging from 17.0% to 20.0%. We estimated fair value of the asset during the nine months ended September 30, 2023, using a discounted cash flow analysis, with an estimated stabilized growth rate of 3%, a discounted cash flow term of 10 years, terminal capitalization rate of 6.3% and discount rate of 9.5%. The discount and terminal capitalization rates used for the fair values of the assets reflected the risk profile of the markets where the properties are located. Fair value as of both September 30, 2024 and 2023 were measured using significant unobservable inputs (Level 3).
Note 8: Income Taxes
We are a REIT for U.S. federal income tax purposes. We have been organized and operated, and we expect to continue to be organized and operate in a manner to qualify as a REIT. To qualify as a REIT, we must satisfy requirements related to, among other things, the real estate qualification of sources of our income, the real estate composition and values of our assets, the amounts we distribute to our stockholders annually and the diversity of ownership of our stock. To the extent we continue to remain qualified as a REIT, we generally will not be subject to U.S. federal (and state) income tax on taxable income generated by our REIT activities that we distribute annually to our stockholders. Accordingly, no provision for U.S. federal income taxes has been included in our accompanying condensed consolidated financial statements for the three or nine months ended September 30, 2024 and 2023 related to our REIT activities. Our taxable REIT subsidiaries (“TRSs”) are generally subject to U.S. federal, state and local, and foreign income taxes (as applicable).
During the three months ended September 30, 2024, we recognized income tax expense of $2 million, which was primarily related to taxable income from our TRSs. During the nine months ended September 30, 2024, we recognized an income tax benefit of $9 million, which was primarily associated with the effective exit from the Hilton San Francisco Hotels and the reversal of $14 million of tax expense that is no longer expected to be incurred.
During the nine months ended September 30, 2023, we recognized income tax expense of $5 million, which was primarily related to taxable income from our TRSs.
Note 9: Share-Based Compensation
We issue equity-based awards to our employees pursuant to the 2017 Omnibus Incentive Plan (the “2017 Employee Plan”) and our non-employee directors pursuant to the 2017 Stock Plan for Non-Employee Directors (the “2017 Director Plan”), both of which are amended and restated from time to time. The 2017 Employee Plan provides that a maximum of 14,070,000 shares of our common stock may be issued, and as of September 30, 2024, 6,430,660 shares of common stock remain available for future issuance. The 2017 Director Plan provides that a maximum of 950,000 shares of our common stock may be issued, and as of September 30, 2024, 154,166 shares of common stock remain available for future issuance. For both the three months ended September 30, 2024 and 2023, we recognized $5 million of share-based compensation expense and $14 million for both the nine months ended September 30, 2024 and 2023. As of September 30, 2024, unrecognized compensation expense was $24 million, which is expected to be recognized over a weighted-average period of 1.5 years. The total fair value of shares vested (calculated as the number of shares multiplied by the vesting date share price) for the nine months ended September 30, 2024 and 2023 was $14 million and $7 million, respectively.
Restricted Stock Awards
Restricted Stock Awards (“RSAs”) generally vest in annual installments between one and three years from each grant date. The following table provides a summary of RSAs for the nine months ended September 30, 2024:
| | | | | | | | | | | |
| Number of Shares | | Weighted-Average
Grant Date
Fair Value |
| Unvested at January 1, 2024 | 982,585 | | $ | 15.40 | |
| Granted | 616,092 | | 16.20 | |
| Vested | (537,578) | | 15.81 | |
| Forfeited | (51,934) | | 15.48 | |
| Unvested at September 30, 2024 | 1,009,165 | | $ | 15.66 | |
Performance Stock Units
Performance Stock Units (“PSUs”) generally vest at the end of a three-year performance period and are subject to the achievement of a market condition based on a measure of our total shareholder return relative to the total shareholder return of the companies that comprise the FTSE Nareit Lodging Resorts Index (that have a market capitalization in excess of $1 billion as of the first day of the applicable performance period). The number of PSUs that may become vested ranges from zero to 200% of the number of PSUs granted to an employee, based on the level of achievement of the foregoing performance measure.
Additionally, in November 2020, we granted special awards with vesting of these awards subject to the achievement of eight increasing levels of our average closing sales price per share, from $11.00 to $25.00, over a consecutive 20 trading day period (“Share Price Target”). One-eighth of PSUs will vest at each date a Share Price Target is achieved and any PSUs remaining after a four-year performance period will be forfeited. As of September 30, 2024, six of the eight Share Price Targets were achieved and thus 75% of the awards granted were vested.
The following table provides a summary of PSUs for the nine months ended September 30, 2024:
| | | | | | | | | | | |
| Number of Shares | | Weighted-Average
Grant Date
Fair Value |
| Unvested at January 1, 2024 | 1,527,576 | | $ | 19.72 | |
| Granted | 591,672 | | 17.75 | |
| Vested | (337,283) | | 26.99 | |
| Forfeited | (22,720) | | 16.04 | |
| Unvested at September 30, 2024 | 1,759,245 | | $ | 17.72 | |
The grant date fair values of the awards that are subject to the achievement of market conditions based on total shareholder return were determined using a Monte Carlo simulation valuation model with the following assumptions:
| | | | | |
| Expected volatility | 36.0 | % |
Dividend yield(1) | — | |
| Risk-free rate | 4.5 | % |
| Expected term | 3 years |
_____________________________________
(1)Dividends are assumed to be reinvested in shares of our common stock and dividends will not be paid unless shares vest.
Note 10: Earnings Per Share
The following table presents the calculation of basic and diluted earnings per share (“EPS”):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
| | | | | | | |
| (in millions, except per share amounts) |
| Numerator: | | | | | | | |
| Net income (loss) attributable to stockholders | $ | 54 | | | $ | 27 | | | $ | 146 | | | $ | (90) | |
| Earnings attributable to participating securities | (1) | | | — | | | (1) | | | (1) | |
| Net income (loss) attributable to stockholders, net of earnings allocated to participating securities | 53 | | | 27 | | | 145 | | | (91) | |
| Denominator: | | | | | | | |
| Weighted average shares outstanding – basic | 206 | | | 212 | | | 208 | | | 216 | |
| Unvested restricted shares | 2 | | | — | | | 2 | | | — | |
| Weighted average shares outstanding – diluted | 208 | | | 212 | | | 210 | | | 216 | |
| | | | | | | |
Earnings (loss) per share – Basic(1) | $ | 0.26 | | | $ | 0.13 | | | $ | 0.70 | | | $ | (0.42) | |
Earnings (loss) per share – Diluted(1) | $ | 0.26 | | | $ | 0.13 | | | $ | 0.69 | | | $ | (0.42) | |
_____________________________________
(1)Per share amounts are calculated based on unrounded numbers and are calculated independently for each period presented.
Certain of our outstanding equity awards were excluded from the above calculation of EPS for the three and nine months ended September 30, 2024 and 2023 because their effect would have been anti-dilutive.
Note 11: Business Segment Information
As of September 30, 2024, we have two operating segments, our consolidated hotels and unconsolidated hotels. Our unconsolidated hotels operating segment does not meet the definition of a reportable segment, thus our consolidated hotels is our only reportable segment. We evaluate our consolidated hotels primarily based on hotel adjusted earnings before interest expense, taxes and depreciation and amortization (“EBITDA”). Hotel Adjusted EBITDA, presented herein, is calculated as EBITDA from hotel operations, adjusted to exclude the following items that are not reflective of our ongoing operating performance or incurred in the normal course of business, and thus excluded from management's analysis in making day to day operating decisions and evaluations of our operating performance against other companies within our industry:
•Gains or losses on sales of assets for both consolidated and unconsolidated investments;
•Costs associated with hotel acquisitions or dispositions expensed during the period;
•Severance expense;
•Share-based compensation expense;
•Impairment losses and casualty gains or losses; and
•Other items that we believe are not representative of our current or future operating performance.
The following table presents revenues for our consolidated hotels reconciled to our consolidated amounts and net income to Hotel Adjusted EBITDA: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
| | | | | | | |
| (in millions) |
| Revenues: | | | | | | | |
| Total consolidated hotel revenues | $ | 628 | | | $ | 657 | | | $ | 1,910 | | | $ | 1,977 | |
| Other revenues | 21 | | | 22 | | | 64 | | | 64 | |
| Total revenues | $ | 649 | | | $ | 679 | | | $ | 1,974 | | | $ | 2,041 | |
| | | | | | | |
| Net income (loss) | $ | 57 | | | $ | 31 | | | $ | 153 | | | $ | (82) | |
| Other revenues | (21) | | | (22) | | | (64) | | | (64) | |
| Depreciation and amortization expense | 63 | | | 65 | | | 192 | | | 193 | |
| Corporate general and administrative expense | 17 | | | 18 | | | 52 | | | 50 | |
| Impairment and casualty loss | — | | | — | | | 13 | | | 204 | |
| Other operating expenses | 21 | | | 19 | | | 62 | | | 61 | |
| Gain on sales of assets, net | — | | | — | | | — | | | (15) | |
| Gain on derecognition of assets | (15) | | | — | | | (44) | | | — | |
| Interest income | (6) | | | (9) | | | (16) | | | (29) | |
| Interest expense | 54 | | | 51 | | | 161 | | | 155 | |
| Interest expense associated with hotels in receivership | 15 | | | 14 | | | 44 | | | 31 | |
| Equity in earnings from investments in affiliates | (28) | | | (2) | | | (29) | | | (9) | |
| Income tax expense (benefit) | 2 | | | — | | | (9) | | | 5 | |
| Other loss (gain), net | 1 | | | — | | | 4 | | | (4) | |
| Other items | 8 | | | 8 | | | 17 | | | 21 | |
| Hotel Adjusted EBITDA | $ | 168 | | | $ | 173 | | | $ | 536 | | | $ | 517 | |
The following table presents total assets for our consolidated hotels, reconciled to total assets:
| | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
| | | |
| (in millions) |
| Consolidated hotels | $ | 9,163 | | | $ | 9,406 | |
| All other | 10 | | | 13 | |
| Total assets | $ | 9,173 | | | $ | 9,419 | |
Note 12: Commitments and Contingencies
As of September 30, 2024, we had outstanding commitments under third-party contracts of approximately $113 million for capital expenditures at our properties, of which $34 million relates to guestroom renovations at the Hilton Hawaiian Village Waikiki Beach Resort, $19 million relates to guestroom renovations at the Hilton Waikoloa Village and $6 million relates to guestroom renovations at the Hilton New Orleans Riverside. Our contracts contain clauses that allow us to cancel all or some portion of the work. If cancellation of a contract occurred, our commitment would be any costs incurred up to the cancellation date, in addition to any costs associated with the discharge of the contract.
We are involved in litigation arising from the normal course of business, some of which includes claims for substantial sums, and may make certain indemnifications or guarantees to select buyers of our hotels as part of a sale process. We are also involved in claims and litigation that is not in the ordinary course of business in connection with the spin-off from Hilton. The spin-off agreements provide that Hilton will indemnify us from certain of these claims as well as require us to indemnify Hilton for other claims. In addition, losses related to certain contingent liabilities could be apportioned to us under the spin-off agreements. In connection with our obligation to indemnify Hilton under the spin-off
agreements, we have reserved approximately $8 million as of September 30, 2024 related to litigation with respect to an audit by the Australian Tax Office (“ATO”) of Hilton related to the sale of the Hilton Sydney in June 2015. This amount could change as the litigation of the ATO’s claim progresses.
