What changed in this filing

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Item 1. Financial Statements

2020-08-06 compared with 2020-05-11 · 146 added, 94 removed, 426 unchanged (36% of the section changed)

3 unchanged sentences

(in millions, except share and per share data)

March 31, 2020

June 30, 2020

December 31, 2019

20 unchanged sentences

235,900,906 shares issued and 235,604,979 shares outstanding as of

March 31, 2020 and 239,589,639 shares issued and 239,386,877

June 30, 2020 and 239,589,639 shares issued and 239,386,877

shares outstanding as of December 31, 2019

7 unchanged sentences

PARK HOTELS & RESORTS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(unaudited, in millions, except per share data)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Food and beverage

10 unchanged sentences

Total expenses

Gain on sales of assets, net

Gain (loss) on sales of assets, net

Operating (loss) income

2 unchanged sentences

Equity in (losses) earnings from investments in affiliates

Loss on foreign currency transactions

Other gain, net

Other loss, net

(Loss) income before income taxes

7 unchanged sentences

Comprehensive (loss) income

Comprehensive loss (income) attributable to noncontrolling interests

Comprehensive loss (income) attributable to noncontrolling

Comprehensive (loss) income attributable to stockholders

8 unchanged sentences

(unaudited, in millions)

Three Months Ended

Six Months Ended

Operating Activities:

Net (loss) income

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating

Depreciation and amortization

2 unchanged sentences

Equity in loss (earnings) from investments in affiliates

Loss on foreign currency transactions

Other gain, net

Other loss, net

Share-based compensation expense

7 unchanged sentences

Proceeds from asset dispositions, net

Contributions to unconsolidated affiliates

Insurance proceeds for property damage claims

1 unchanged sentence

Financing Activities:

Borrowings under Revolver

Repayment of debt

Borrowings on Revolver

Repayments of Revolver

Proceeds from issuance of Senior Secured Notes

Repayment of 2016 Term Loan

Repayment of mortgage debt

Debt issuance costs

Dividends paid

Distributions to noncontrolling interests

Distributions to noncontrolling interests, net

Tax withholdings on share-based compensation

1 unchanged sentence

Net cash provided by (used in) financing activities

Effect of exchange rate changes on cash and cash equivalents and restricted cash

Net increase (decrease) in cash and cash equivalents and restricted cash

Net increase in cash and cash equivalents and restricted cash

Cash and cash equivalents and restricted cash, beginning of period

16 unchanged sentences

Balance as of March 31, 2020

Share-based compensation, net

Other comprehensive loss

Balance as of June 30, 2020

Comprehensive

6 unchanged sentences

Balance as of March 31, 2019

Dividends declared per common share were $ 0.45 for both the three months ended March 31, 2020 and 2019, respectively.

Share-based compensation, net

Other comprehensive income

Dividends and dividend equivalents (1)

Balance as of June 30, 2019

Dividends declared per common share were $ 0.45 for the three months ended March 31, 2020, March 31, 2019 and June 30, 2019, respectively.

Refer to the notes to the unaudited condensed consolidated financial statements.

18 unchanged sentences

Since the beginning of March, we have experienced a significant decline in occupancy and Revenue per Available Room (“RevPAR”) associated with COVID-19 throughout our portfolio, which resulted in a decline in our operating cash flow.

We expect that COVID-19 will continue to negatively affect our operating results for at least the second and third quarters of 2020, as well as the debt and equity capital markets, which in the near-term could make obtaining financing or refinancing debt obligations more challenging.

We and our hotel managers have taken various actions to mitigate the effect of COVID-19, including temporarily suspending operations at 38 of our 60 hotels, limiting capacity at our hotels that remain open, deferring approximately $ 150 million of capital expenditures planned for 2020 and suspending our dividend after the first quarter of 2020.

Additionally, as a precautionary measure to increase liquidity and preserve financial flexibility, we fully drew our $ 1 billion revolving credit facility (“Revolver”).

We were in compliance with our debt covenants under our credit and term loan facilities as of March 31, 2020.

However, in order to maintain compliance under our credit and term loan facilities in future quarters, we have amended our facilities to suspend compliance with all existing financial covenants tested through and including March 31, 2021 and to adjust the levels of particular financial covenants after such period.

We expect that COVID-19 will continue to negatively affect our operating results for at least the remainder of 2020, as well as the debt and equity capital markets, which in the near-term could make obtaining financing or refinancing debt obligations more challenging.

During the first quarter of 2020, we and our hotel managers took various actions to mitigate the effects of COVID-19, including temporarily suspending operations at 38 of our 60 hotels, limiting capacity at our hotels that remained open, deferring approximately $ 150 million of capital expenditures planned for 2020, suspending our dividend after the first quarter of 2020, and as a precautionary measure to increase liquidity and preserve financial flexibility, fully drawing our $ 1 billion revolving credit facility (“Revolver”).

We have since commenced a phased reopening of 20 of our hotels as restrictions are removed and demand returns.

The timing of fully reopening these and the remainder of our hotels will depend primarily on government restrictions imposed or re-imposed, recommendations of health officials and market demand.

Additionally, in May 2020, in order to maintain compliance under our credit and term loan facilities in future quarters, we amended our credit and term loan facilities to suspend compliance with all existing financial covenants tested through and including March 31, 2021 and to adjust the levels of particular financial covenants after such period.

As part of the amendment process, we (i) agreed to comply with a monthly minimum liquidity covenant, to pledge equity in certain subsidiaries to secure the facilities, and for certain subsidiaries to become guarantors under the facilities, and (ii) exercised our two six-month extension options on our Revolver to extend its maturity to December 24, 2021 .

The amendment also added additional covenants that restrict our ability to make dividend and distribution payments (except to the extent required to maintain REIT status) and stock repurchases, make prepayments of other indebtedness, make capital expenditures, conduct asset dispositions or transfers and make investments, including acquisitions or mergers, in each case subject to various exceptions.

We are committed to using our liquidity to support our hotels’ operations during this pandemic and subsequent recovery, while being focused on increasing value for our stockholders.

The amendments also added additional covenants that restrict our ability to make dividend and distribution payments (except to the extent required to maintain REIT status) and stock repurchases, make prepayments of other indebtedness, make capital expenditures, conduct asset dispositions or transfers and make investments, including acquisitions or mergers, in each case subject to various exceptions.

We expect to be in compliance with financial covenants for the quarter ended June 30, 2021 (the first quarter for which compliance is required following the amendments).

If we are unable to comply with such covenants for the quarter ended June 30, 2021, we intend to negotiate with our lenders to amend such covenants as needed and believe we will be able to reach an agreement in advance as we did with the previous amendments.

In May 2020, our Operating Company, PK Domestic and PK Finance Co-Issuer Inc.

(“PK Finance”), an indirect, wholly-owned subsidiary of the Company, issued an aggregate of $ 650 million of senior secured notes due 2025 (“Senior Secured Notes”).

We set aside $ 350 million of the net proceeds for general corporate purposes, further increasing our liquidity, and used the remainder of the net proceeds to repay portions of our Revolver and the term loan we entered into in December 2016 (“2016 Term Loan”).

We are committed to using our liquidity to support our hotels’ operations during the COVID-19 pandemic and subsequent recovery, while being focused on continuing to maintain and enhance our stockholders’ value.

Basis of Presentation and Summary of Significant Accounting Policies

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We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with U.S.

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.

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.

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Reclassifications

Certain line items on the condensed consolidated statements of comprehensive income for the three months ended March 31, 2019 have been reclassified to conform to the current period presentation.

Certain line items on the condensed consolidated statements of comprehensive (loss) income for the three and six months ended June 30, 2019 have been reclassified to conform to the current period presentation.

Summary of Significant Accounting Policies

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Facilitation of the Effects of Reference Rate Reform on Financial Reporting” to provide optional expedients and exceptions for applying generally accepted accounting principles if certain criteria are met to contract modifications, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued.

The ASU is effective from March 12, 2020 through December 31, 2022 and did not have a material effect on our consolidated financial statements as of March 31, 2020.

The ASU is effective from March 12, 2020 through December 31, 2022 and did not have a material effect on our consolidated financial statements.

Acquisitions and Dispositions

34 unchanged sentences

We accounted for the Merger using the acquisition method of accounting.

We preliminarily allocated the purchase price consisting of common stock issued of $ 978 million and cash of $ 1,013 million as follows:

We preliminarily allocated the purchase price, consisting of $ 978 million of common stock issued and cash of $ 1,013 million as follows:

(in millions)

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We will continue to review the underlying inputs and assumptions.

Therefore, the purchase price allocation is not yet complete as of the date of this filing.

Therefore, the purchase price allocation is not yet complete as of t he date of this filing.

Once the allocation is complete, an additional adjustment to the allocation may occur.

17 unchanged sentences

The unaudited condensed pro-forma financial information is as follows:

For the three months ended March 31, 2019

Three Months Ended

June 30, 2019

Six Months Ended

June 30, 2019

(in millions)

1 unchanged sentence

Operating income

During the three months ended March 31, 2020, we sold the Embassy Suites Washington DC Georgetown and our interests in the entity that owns the Hilton São Paulo Morumbi for total gross proceeds of $ 208 million and recognized a gain, net of selling costs, of $ 63 million on these hotels, which is included in gain on sales of assets, net in our condensed consolidated statements of comprehensive income.

During the six months ended June 30, 2020, we sold the Embassy Suites Washington DC Georgetown and our interests in the entity that owns the Hilton São Paulo Morumbi for total gross proceeds of $ 208 million and recognized a gain, net of selling costs, of $ 64 million on these hotels, which is included in gain (loss) on sales of assets, net in our condensed consolidated statements of comprehensive (loss) income.

Additionally, the net gain includes the reclassification of a currency translation adjustment of $ 7 million from accumulated other comprehensive loss into earnings concurrent with the sale of the Hilton São Paulo Morumbi.

During the three months ended March 31, 2019, we sold the Pointe Hilton Squaw Peak Resort and our interests in the entities that own the Hilton Nuremberg hotel for total gross proceeds of $ 69 million and recognized a gain, net of selling costs of $ 31 million on these hotels which is included in gain on sales of assets, net in our condensed consolidated statements of comprehensive income.

During the six months ended June 30, 2019, we sold our ownership interests in five consolidated hotels listed in the table below for total gross proceeds of $ 235 million and recognized a gain, net of selling costs, of $ 19 million on these hotels which is included in gain (loss) on sales of assets, net in our condensed consolidated statements of comprehensive (loss) income.

Pointe Hilton Squaw Peak Resort

Phoenix, Arizona

February 2019

Hilton Nuremberg

Nuremberg, Germany

Hilton Atlanta Airport

Atlanta, Georgia

Hilton New Orleans Airport (1)

New Orleans, Louisiana

Embassy Suites Parsippany (1)

Parsippany, New Jersey

Hotels were sold as a portfolio in the same transaction.

Property and Equipment

Property and equipment were:

March 31, 2020

June 30, 2020

December 31, 2019 (1)

5 unchanged sentences

Excludes $ 62 million of property and equipment, net, classified as held for sale as of December 31, 2019.

Depreciation of property and equipment was $ 74 million and $ 62 million, respectively, during the three months ended March 31, 2020 and 2019, respectively.

For the three months ended March 31, 2020, we recognized $ 88 million of impairment losses, primarily related to one of our hotels, and our inability to recover the carrying value of the asset because of COVID-19.

Depreciation of property and equipment was $ 75 million and $ 60 million, respectively, during the three months ended June 30, 2020 and 2019, respectively, and $ 149 million and $ 122 million during the six months ended June 30, 2020 and 2019, respectively.

For the six months ended June 30, 2020, we recognized $ 88 million of impairment losses, primarily related to one of our hotels, and our inability to recover the carrying value of the asset because of COVID-19.

Refer to Note 8:

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Our condensed consolidated balance sheets include the following assets and liabilities of these entities:

March 31, 2020

June 30, 2020

December 31, 2019

8 unchanged sentences

Other liabilities

During the three months ended March 31, 2020 and 2019, we did not provide any financial or other support to these VIEs that we were not previously contractually required to provide.

Unconsolidated Entities

Investments in affiliates were:

March 31, 2020

June 30, 2020

December 31, 2019

2 unchanged sentences

All others (6 hotels)

The affiliates in which we own investments accounted for under the equity method had total debt of approximately $ 943 million as of March 31, 2020 and December 31, 2019.

The affiliates in which we own investments accounted for under the equity method had total debt of approximately $ 943 million as of June 30, 2020 and December 31, 2019.

Substantially all the debt is secured solely by the affiliates’ assets or is guaranteed by other partners without recourse to us.

Hilton allocated goodwill to us as part of the acquisition of Hilton by Blackstone in 2007.

Hilton allocated goodwill to us recorded as part of the acquisition of Hilton by Blackstone in 2007.

We typically evaluate the carrying value of our goodwill annually.

However, due to the effects of COVID-19, including (i) the significant decline in our common stock price, (ii) negative operating cash flows in the first quarter of 2020, (iii) the suspension of operations at certain of our hotels, and (iv) significant declines in occupancy and demand, we assessed goodwill during the interim period.

We determined that the carrying value of our consolidated and unconsolidated hotel reporting units exceeded their respective estimated fair value and fully impaired our remaining goodwill balance, recognizing an impairment loss of $ 607 million.

Refer to Note 8:

3 unchanged sentences

Impairment loss

Balance as of March 31, 2020

Debt balances and associated interest rates as of March 31, 2020 were:

Balance as of June 30, 2020

Debt balances and associated interest rates as of June 30, 2020 were:

Principal balance as of

Interest Rate

at March 31, 2020

at June 30, 2020

Maturity Date

March 31, 2020

June 30, 2020

December 31, 2019

11 unchanged sentences

September 2024

Revolver (4)(5)

December 2021

Senior Secured Notes

Finance lease obligations

4 unchanged sentences

The only 2020 debt maturity is the $ 12 million Doubletree Spokane JV mortgage loan which matures in October.

The 2016 Term Loan was entered into in December 2016, with a maturity date of December 2021 .

In June 2 020, we repaid $ 69 million of the 2016 Term Loan .

In May 2020, we amended our credit and term loan facilities which added a LIBOR floor of 25 basis points .

During the second quarter of 2020, we repaid $ 319 million of the Revolver.

CMBS and Mortgage Loans

We are required to deposit with lenders certain cash reserves for restricted uses.

As of March 31, 2020 and December 31, 2019, our condensed consolidated balance sheets included $ 12 million and $ 13 million of restricted cash, respectively, related to our CMBS loans and mortgage loans.

As of June 30, 2020 and December 31, 2019, our condensed consolidated balance sheets included $ 7 million and $ 13 million of restricted cash, respectively, related to our CMBS loans and mortgage loans.

During the second quarter of 2020, we amended certain mortgage loan agreements to defer interest or interest and principal payments for three to six months and temporarily suspend required cash reserves.

Credit Facilities

1 unchanged sentence

In advance of the Merger, in August 2019, the Company, our Operating Company and PK Domestic entered into a delayed draw term loan agreement (the “2019 Term Facility”).

In September 2019, the 2019 Term Facility was fully drawn to fund the Merger, which was partially repaid in December 2019.

In September 2019, the 2019 Term Facility was fully drawn to fund the Merger and was partially repaid in December 2019.

To hedge the interest rate risk on a portion of the 2019 Term Facility, we assumed an interest rate swap from Chesapeake in connection with the Merger, which is designated as a cash flow hedge.

The interest rate swap requires us to pay fixed interest of 1.86 % per annum maturing on April 21, 2022 on a notional amount of $ 225 million, in exchange for floating rate interest equal to one-month LIBOR.

In March 2020, we fully drew on our $ 1 billion Revolver as a precautionary measure to increase liquidity and preserve financial flexibility in connection with the economic effect of COVID-19.

In May 2020, in order to maintain compliance under our credit and term loan facilities in future quarters, we have amended our facilities to suspend compliance with all existing financial covenants tested through and including March 31, 2021 and to adjust the levels of particular financial covenants after such period.

In March 2020, we fully drew down our $ 1 billion Revolver as a precautionary measure to increase liquidity and preserve financial flexibility in connection with the economic effect of COVID-19.

During the second quarter of 2020, we repaid $ 319 million of the Revolver using $ 219 million of the proceeds from the issuance of the Senior Secured Notes and $ 100 million of existing cash.

In May 2020, in order to maintain compliance under our credit and term loan facilities in future quarters, we amended our credit and term loan facilities to suspend compliance with all existing financial covenants tested through and including March 31, 2021 and to adjust the levels of particular financial covenants after such period.

We capitalized approximately $ 6 million of fees related to these amendments during the three months ended June 30, 2020.

Senior Secured Notes

In May 2020, our Operating Company, PK Domestic and PK Finance issued an aggregate of $ 650 million of Senior Secured Notes.

We set aside $ 219 million of the net proceeds to partially repay the Revolver, $ 69 million to partially repay the 2016 Term Loan and the remainder was used for general corporate purposes.

The Senior Secured Notes bear interest at a rate of 7.50 0% per annum, payable semi-annually in arrears on June 1 and December 1 of each year, beginning December 1, 2020.

The Senior Secured Notes will mature on June 1, 2025 .

We capitalized $ 13 million of issuance costs during the three months ended June 30, 2020.

The Senior Secured Notes are guaranteed by us and by the subsidiaries of our Operating Company that also guarantee indebtedness under our credit facilities and the guarantees are full and unconditional and joint and several.

The Senior Secured Notes are secured, subject to permitted liens, by a first priority security interest in all of the capital stock of certain wholly-owned subsidiaries of certain of the guarantors and PK Domestic, which collateral also secures the obligations under our credit and term loan facilities on a first priority basis.

The indenture governing the Senior Secured 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 covenants are subject to a number of exceptions and qualifications, including the ability to declare or pay any cash dividend or make any cash distribution to us to the extent necessary for us to fund a dividend or distribution by us that it believes is necessary to maintain our status as a REIT or to avoid payment of any tax for any calendar year that could be avoided by reason of such distribution, and the ability to make certain restricted payments not to

exceed $ 100.0 million , plus 95 % of our cumulative Funds From Operations (as defined in the indenture), plus the aggregate net proceeds from (i) the sale of certain equity interests in, (ii) capital contributions to, and (iii) certain convertible indebtedness of the Operating Company.

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.

We may redeem the Senior Secured Notes at any time prior to June 1, 2022, in whole or in part, at a redemption price equal to 100 % of the accrued principal amount thereof plus unpaid interest, if any, to the redemption date plus a make-whole premium.

On or after June 1, 2022, we may redeem the Senior Secured Notes, in whole or in part, at the applicable redemption prices set forth in the indenture.

On or after June 1, 2024 , we may redeem the Senior Secured Notes at 100 % of the principal amount, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

Debt Maturities

The contractual maturities of our debt, assuming the exercise of all extensions that are exercisable solely at our option, as of March 31, 2020 were:

The contractual maturities of our debt, assuming the exercise of all extensions that are exercisable solely at our option, as of June 30, 2020 were:

(in millions)

5 unchanged sentences

The fair value of our debt and the hierarchy level we used to estimate fair values are shown below:

March 31, 2020

June 30, 2020

December 31, 2019

3 unchanged sentences

2019 Term Facility

Senior Secured Notes

Mortgage loans

During the three months ended March 31, 2020, we recognized impairment losses for goodwill and for certain assets resulting from a significant decline in market value of those assets.

During the six months ended June 30, 2020 , we recognized impairment losses for goodwill and for certain assets resulting from a significant decline in market value of those assets.

The estimated fair values of these assets that were measured on a nonrecurring basis were:

March 31, 2020

June 30, 2020

Impairment Loss

1 unchanged sentence

Property and equipment (1)

Fair value of our property and equipment as of March 31, 2020 was measured using significant unobservable inputs (Level 3).

Fair value of our property and equipment as of June 30, 2020 was measured using significant unobservable inputs (Level 3).

We estimated fair value of the assets using discounted cash flow analyses, with an estimated stabilized growth rate of 3 %, a discounted cash flow term between 1.7 to 10 years, terminal capitalization rate ranging from 7.25 % to 7.75 %, and discount rates ranging from 9.5 % to 12.5 %.

The discount and terminal capitalization rates used for the fair value of the assets reflected the risk profile of the markets where these properties are located.

Fair value of our consolidated and unconsolidated hotel reporting units was measured using significant unobservable inputs (Level 3) for three months ended March 31, 2020, which included discounted cash flows, terminal capitalization rates, and discount rates.

We are treated as a REIT for U.S.

Fair value of our consolidated and unconsolidated hotel reporting units was measured using significant unobservable inputs (Level 3), which included discounted cash flows, terminal capitalization rates, and discount rates.

We are a REIT for U.S.

federal income tax purposes, and we have been organized and operated, and expect to continue to be organized and operate in a manner to qualify as a REIT.

3 unchanged sentences

Accordingly, no provision for U.S.

federal income taxes has been included in our accompanying condensed consolidated financial statements for the three months ended March 31, 2020 and 2019 related to our REIT activities, other than taxes associated with built-in gains related to our assets owned at the date of our spin-off.

federal income taxes has been included in our accompanying condensed consolidated financial statements for the three and six months ended June 30, 2020 and 2019 related to our REIT activities, other than taxes associated with built-in gains related to our assets owned at the date of our spin-off.

We will be subject to U.S.

federal income tax on taxable sales of built-in gain property (representing property with an excess of fair value over tax basis held by us on January 4, 2017) during the five-year period following the date of our spin-off.

federal income tax on taxable sales of built-in gain property (representing property held by us with an excess of fair value over tax basis on January 4, 2017) during the five-year period following the date of our spin-off.

In addition, we are subject to non-U.S.

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federal, state and local, and foreign income taxes (as applicable).

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) (P.L.

116-136) that was signed into law by President Trump on March 27, 2020 includes several tax provisions that may impact us and our subsidiaries.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) includes several tax provisions that may impact us and our subsidiaries.

These changes include:

the ability for our TRSs to carry back net operating losses (“NOLs”) arising in 2020 to all of its post spin-off taxable years preceding the taxable year of the loss;

the ability for our TRSs to carry back net operating losses (“NOLs”) arising in 2020 to all post spin-off taxable years preceding the taxable year of the loss;

an increase of the business interest limitation under section 163(j) from 30 percent to 50 percent of adjusted taxable income for taxable years beginning in 2019 and 2020 and addition of an election by taxpayers to use their 2019 adjusted taxable income as their adjusted taxable income in 2020 for purposes of applying the limitation;

1 unchanged sentence

the elimination of the taxable income limit for NOLs for all taxable years beginning before January 1, 2021, thereby permitting corporate taxpayers to use NOLs to fully offset taxable income (although as a REIT we will continue to only be able to use NOLs against taxable income remaining after taking into account any dividends paid deduction).

During the three months ended March 31, 2020, we recognized $ 10 million of income tax expense, which is comprised of $ 12 million of built-in gains tax expense from assets sold during the period and $ 14 million of non-U.S.

income tax expense on the gain from the entity sold during the period, partially offset by a TRS income tax benefit of $ 17 million from utilizing the NOL carryback provisions of the CARES Act.

During the three months ended March 31, 2019, we recognized $ 7 million of income tax expense.

During the six months ended June 30, 2020, we recognized $ 13 million of income tax expense, which is comprised of $ 12 million of built-in gains tax expense from assets sold during the six months ended June 30, 2020 and $ 14 million of non-U.S.

income tax expense on the gain from the entity that owns the Hilton São Paulo Morumbi that was sold during the six months ended June 30, 2020, partially offset by a TRS income tax benefit of $ 16 million from utilizing the NOL carryback provisions of the CARES Act.

We expect $ 23 million of refunds related to the carryback of 2020 NOLs of our TRSs to prior years, as provided by the CARES Act.

During the three and six months ended June 30, 2019, we recognized $ 5 million and $ 12 million of income tax expense, respectively, primarily related to taxable income from our TRSs.

Share-Based Compensation

We issue equity-based awards to our employees pursuant to the 2017 Omnibus Incentive Plan (“2017 Employee Plan”) and our non-employee directors pursuant to the 2017 Stock Plan for Non-Employee Directors (“2017 Director Plan”).

The 2017 Employee Plan provides that a maximum of 8,000,000 shares of our common stock may be issued, and as of March 31, 2020, 4,490,773 shares of common stock remain available for future issuance.

The 2017 Director Plan provides that a maximum of 450,000 shares of our common stock may be issued, and as of March 31, 2020, 276,521 shares of common stock remain available for future issuance.

For the three months ended March 31, 2020 and 2019, we recognized $ 2 million and $ 4 million of share-based compensation expense, respectively.

As of March 31, 2020, unrecognized compensation expense was $ 28 million, which is expected to be recognized over a weighted-average period of 2.1 years.

The total fair values of shares vested during the three months ended March 31, 2020 and 2019 were $ 17 million and $ 15 million, respectively.

The 2017 Employee Plan provides that a maximum of 8,000,000 shares of our common stock may be issued, and as of June 30, 2020, 4,513,582 shares of common stock remain available for future issuance.

The 2017 Director Plan provides that a maximum of 450,000 shares of our common stock may be issued, and as of June 30, 2020, 94,478 shares of common stock remain available for future issuance.

For both the three months ended June 30, 2020 and 2019, we recognized $ 4 million of share-based compensation expense, and $ 6 million and $ 8 million, respectively, for the six months ended June 30, 2020 and 2019.

As of June 30, 2020, unrecognized compensation expense was $ 26 million, which is expected to be recognized over a weighted-average period of 1.8 years.

The total fair values of shares vested (calculated as the number of shares multiplied by the vesting date share price) during the six months ended June 30, 2020 and 2019 were $ 17 million and $ 19 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 three months ended March 31, 2020:

The following table provides a summary of RSAs for the six months ended June 30, 2020:

Number of Shares

1 unchanged sentence

Unvested at January 1, 2020

Unvested at March 31, 2020

Unvested at June 30, 2020

Performance Stock Units

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The number of PSUs that may become vested are zero if neither goal is achieved, 100% if one performance goal is achieved and 200% if both goals are achieved.

The following table provides a summary of PSUs for the three months ended March 31, 2020:

The following table provides a summary of PSUs for the six months ended June 30, 2020:

Number of Shares

1 unchanged sentence

Unvested at January 1, 2020

Unvested at March 31, 2020

Unvested at June 30, 2020

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:

6 unchanged sentences

Dividends are assumed to be reinvested in shares of our common stock and dividends will not be paid unless shares vest.

As of March 31, 2020, the achievement of the performance condition associated with the special one-year awards was not probable and thus no compensation expense was recognized for the three months ended March 31, 2020.

As of June 30, 2020, the achievement of the performance condition associated with the special one-year awards was not probable and thus no compensation expense was recognized for the three and six months ended June 30, 2020.

Earnings Per Share

The following table presents the calculation of basic and diluted earnings per share (“EPS”):

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in millions, except per share amounts)

Net (loss) income attributable to stockholders

7 unchanged sentences

(Loss) earnings per share - Diluted

Per share amounts are calculated based on unrounded numbers.

Certain of our outstanding equity awards were excluded from the above calculation of EPS for the three months ended March 31, 2020 and 2019 because their effect would have been anti-dilutive.

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 six months ended June 30, 2020 and 2019 because their effect would have been anti-dilutive.

Business Segment Information

As of March 31, 2020, we have two operating segments, our consolidated hotels and unconsolidated hotels.

As of June 30, 2020, 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”).

We evaluate our consolidated hotels primarily based on hotel adjusted earnings (loss) before interest expense, taxes and depreciation and amortization (“EBITDA”).

Hotel Adjusted EBITDA is calculated as EBITDA from hotel operations, adjusted to exclude:

Gains or losses on sales of assets for both consolidated and unconsolidated investments;

Gains or losses on foreign currency transactions;

Costs associated with hotel acquisitions or dispositions expensed during the period;

4 unchanged sentences

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 Hotel Adjusted EBITDA to net income:

Three Months Ended March 31,

The following table presents revenues for our consolidated hotels reconciled to our consolidated amounts and Hotel Adjusted EBITDA to net (loss) income:

Three Months Ended June 30,

Six Months Ended June 30,

(in millions)

6 unchanged sentences

Corporate general and administrative expense

Casualty gain and impairment loss, net

Impairment loss and casualty gain, net

Other operating expenses

Gain on sales of assets, net

Gain (loss) on sales of assets, net

Interest income

1 unchanged sentence

Equity in (losses) earnings from investments in affiliates

Loss on foreign currency transactions

Income tax expense

Other gain, net

Other loss, net

Net (loss) income

The following table presents total assets for our consolidated hotels, reconciled to consolidated amounts:

March 31, 2020

June 30, 2020

December 31, 2019

2 unchanged sentences

Commitments and Contingencies

As of March 31, 2020, we had outstanding commitments under third-party contracts of approximately $ 47 million for capital expenditures at certain hotels.

As of June 30, 2020, we had outstanding commitments under third-party contracts of approximately $ 29 million for capital expenditures at certain hotels.

Our contracts contain clauses that allow us to cancel all or some portion of the work.

4 unchanged sentences

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 $ 7 million related to ongoing claims as of March 31, 2020 with respect to an audit by the Australian Tax Office (“ATO”) related to the sale of the Hilton Sydney in June 2015.

In connection with our obligation to indemnify Hilton under the spin-off agreements, we have reserved approximately $ 7 million related to ongoing claims as of June 30, 2020 with respect to an audit by the Australian Tax Office (“ATO”) related to the sale of the Hilton Sydney in June 2015.

This amount could change as more information becomes available about the progress of Hilton’s defense against the ATO’s claim.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements