What changed in this filing

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Item 1. Business

2021-02-26 compared with 2020-02-27 · 85 added, 35 removed, 268 unchanged (31% of the section changed)

We are the second largest publicly-traded lodging real estate investment trust (“REIT”) with a diverse portfolio of market-leading hotels and resorts with significant underlying real estate value.

We are the second largest publicly-traded lodging real estate investment trust (“REIT”) with a diverse portfolio of iconic and market-leading hotels and resorts with significant underlying real estate value.

We were originally formed as Hilton Hotels Corporation, a Delaware corporation, in 1946 and existed as a part of one of Hilton’s business segments.

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Park Parent owns 100% of the interests in our Operating Company.

We are treated as a REIT for U.S.

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

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.

Our Business and Growth Strategies

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We are focused on continually improving the operating performance and profitability of each of our hotels and resorts through our proactive asset management efforts.

We will continue to identify revenue-enhancement opportunities and drive cost efficiencies to maximize the operating performance, cash flow and value of each property.

The novel strain of coronavirus and the disease it causes (“COVID-19”) has challenged the lodging industry in many ways, and, working with our hotel managers, we have adapted our operational approach and implemented measures in an effort to ensure the safety of both hotel guests and employees and minimize losses.

Examples of such measures include temporarily halting operations at hotels;

seeking alternative, non-traditional sources of demand;

consolidating demand into fewer hotels in markets where we have multiple assets;

reducing the available rooms at hotels to help mitigate expenses;

consolidating or eliminating managerial positions to reduce payroll;

and limiting food and beverage operations for both safety considerations and cost controls.

As we move into what we expect to be a recovery phase, we will continue to identify revenue-enhancement opportunities and drive cost efficiencies to maximize the operating performance, cash flow and value of each property.

As a pure-play lodging real estate company with significant financial resources and an extensive portfolio of large, multi-use assets, including 8 hotels with 125,000 square feet of meeting space or more, we believe our ability to implement compelling return on investment initiatives represents a significant embedded growth opportunity.

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We intend to leverage our scale, liquidity and transaction expertise to create value throughout all phases of the lodging cycle through opportunistic acquisitions and dispositions, which we believe will enable us to further diversify our portfolio.

For example, in September 2019, we completed the $2.5 billion acquisition of Chesapeake, which helped us to increase our scale and achieve greater diversification.

Additionally, since our spin-off, we have sold 23 hotels located in lower growth domestic and non-core international markets for a combined sales price of approximately $1.2 billion, providing us with liquidity to execute on a variety of strategic corporate initiatives .

In 2018, a portion of the proceeds from these sales was used to repurchase 14,000,000 shares of our common stock for $348 million and declare special cash dividends of $0.75 per share, or approximately $150 million.

In 2019, capital recycling proceeds helped to fund the acquisition of Chesapeake and pay down debt.

In September 2019, we completed the $2.5 billion acquisition of Chesapeake, which helped us to increase our scale and achieve greater diversification.

Additionally, since our spin-off, we have sold or otherwise disposed of 24 hotels located in lower growth domestic and non-core international markets for a combined sales price of approximately $1.2 billion, providing us with liquidity to execute on a variety of strategic corporate initiatives.

We will continue to opportunistically seek to expand our presence in target markets and further diversify over time, including by acquiring hotels that are affiliated with leading hotel brands and operators.

Maintaining a Strong and Flexible Balance Sheet .

We intend to maintain a strong and flexible balance sheet with continued focus on optimizing our cost of capital by targeting appropriate leverage levels, which we seek to maintain between three- to five-times net debt (calculated as our long-term debt and our share of investments in affiliates’ debt, both excluding deferred financing costs, reduced by both our cash and cash equivalents and our restricted cash) to Adjusted EBITDA throughout the lodging cycle.

We will also focus on maintaining sufficient liquidity with minimal short-term maturities and intend to have a mix of debt that will provide us with the flexibility to prepay when desired, dispose of assets, pursue our value enhancement strategies within our existing portfolio, and support acquisition activity.

We intend to maintain a strong and flexible balance sheet.

We will focus on maintaining sufficient liquidity with minimal short-term maturities and intend to have a mix of debt that will provide us with the flexibility to prepay debt when desired, dispose of assets, pursue our value enhancement strategies within our existing portfolio, and support acquisition activity.

In order to increase liquidity and extend debt maturities while dealing with the effects of COVID-19, we drew $1 billion from our revolving credit facility (“Revolver”) in March 2020 and issued $650 million of senior secured notes due 2025 (“2025 Senior Secured Notes”) in May 2020 (a portion of

which was used to partially repay amounts outstanding under our Revolver and the term loan due December 2021 (“2016 Term Loan”)) .

In September 2020, we issued $725 million of senior secured notes due 2028 (“2028 Senior Secured Notes”) (a portion of which was used to repay the remaining amount outstanding under the 2016 Term Loan in full as well as a portion of the Revolver) and extended almost 90% of the Revolver commitments until 2023 .

We are maintaining higher than historical cash levels due to the continued uncertainty surrounding COVID-19, and we intend to do so until markets stabilize and demand in the lodging industry begins to recover.

We also deferred $150 million of the $200 million in capital expenditures previously budgeted for 2020 and plan to reduce capital expenditures to approximately $40 million for 2021, as we continue to prioritize hotel re-openings and cost mitigation efforts.

Additionally, we expect to reduce our level of secured debt over time, which will provide additional balance sheet flexibility.

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Hotel Laundry Operations

We own and operate three commercial laundry facilities located in Piscataway, New Jersey, Portage, Indiana, and Portland, Oregon that service approximately 50 hotels, including five of our owned hotels, and employ more than 200 full-time employees.

During the year ended December 31, 2020, we permanently closed operations at our three commercial laundry facilities located in Piscataway, New Jersey, Portage, Indiana, and Portland, Oregon.

Revenue from our commercial laundry operations accounted for less than half a percent of our consolidated revenue in each of the years ended December 31, 2020, 2019 and 2018.

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We incorporate sustainability into our investment and asset management strategies, with a focus on minimizing environmental impact.

During the acquisition of new properties, we will assess both sustainability opportunities and climate change-related risks as part of our due diligence process.

When we evaluate the acquisition of new properties, we will assess both sustainability opportunities and climate change-related risks as part of our due diligence process.

During the ownership of our properties, we seek to invest in proven sustainability practices in our redevelopment projects that can enhance asset value, while also improving environmental performance.

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Our Principal Agreements

In order for us to continue to qualify as a REIT, independent third parties must operate our hotels.

In order for us to continue to qualify as a REIT, independent third parties must operate substantially all of our hotels.

Except for the Select Hotels, we lease substantially all of our hotels to our TRS lessees, which, in turn have engaged third parties to operate these hotels pursuant to management agreements.

Except for the Select Hotels, the hotels not leased to our TRS lessees are owned by TRSs, which have also engaged third parties to operate these hotels pursuant to management agreements.

Certain of our hotels also have franchise agreements.

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Franchise Agreements

Certain of our hotels are subject to franchise agreements.

Twelve of our hotels are subject to franchise agreements.

Pursuant to the franchise agreements, we have been granted a limited, non-exclusive license to use our franchisor’s brand names, marks and systems.

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In addition, notwithstanding the allocation described above, we, HGV and Hilton have agreed that losses related to certain contingent liabilities (and related costs and expenses), which generally are not specifically attributable to any of the separated real estate business, the timeshare business or the retained business of Hilton (“Shared Contingent Liabilities”), will be apportioned among the parties according to fixed percentages of 65%, 26% and 9% for each of Hilton, us and HGV, respectively.

Examples of Shared Contingent Liabilities may include uninsured losses arising from actions (including derivative actions) against current or former directors or officers of Hilton in respect of acts or omissions occurring prior to the distribution date, or against current or former directors or officers of any of Hilton, HGV or us, arising out of, in connection with, or otherwise relating to, the spin-offs and the distribution, subject to certain exceptions described in the Distribution Agreement.

directors or officers of any of Hilton, HGV or us, arising out of, in connection with, or otherwise relating to, the spin-offs and the distribution, subject to certain exceptions described in the Distribution Agreement.

In addition, costs and expenses of, and indemnification obligations to, third party professional advisors arising out of the foregoing actions may also be subject to these provisions.

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In general, under the Tax Matters Agreement, each party is responsible for any taxes imposed on Hilton that arise from the failure of the spin-off and certain related transactions to qualify as a tax-free transaction for U.S.

federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code, as applicable, and certain

other relevant provisions of the Code, to the extent that the failure to qualify is attributable to actions taken by such party (or with respect to such party’s stock).

The parties share responsibility in accordance with sharing percentages for any such taxes imposed on Hilton that are not attributable to actions ta ken by a particular party.

federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code, as applicable, and certain other relevant provisions of the Code, to the extent that the failure to qualify is attributable to actions taken by such party (or with respect to such party’s stock).

The parties share responsibility in accordance with sharing percentages for any such taxes imposed on Hilton that are not attributable to actions taken by a particular party.

The Tax Matters Agreement also provides for cross-indemnities with respect to tax matters that, except as otherwise provided in the Tax Matters Agreement, are principally designed to place financial responsibility for the tax-related obligations and liabilities of each business with the appropriate company.

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however, the renewal rights are included in the current lease term expiration as the landlord has the option to renew the lease.

In November 2020, the renewal option with the ground lessor was terminated.

Renewal rights are dependent on the amount of capital expenditures invested in the hotel during the term.

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Competition is often specific to the individual markets in which our hotels are located and includes competition from existing and new hotels operated under brands primarily in the upper upscale chain scale segments.

Increased competition could have a material adverse effect on the occupancy rate, average daily room rate and

RevPAR of our hotels or may require us to make capital improvements that we otherwise would not have to make, which may result in decreases in our profitability.

We believe our hotels enjoy certain competitive advantages as a result of being flagged with globally recognized brands, including access to centralized reservation systems and national advertising, marketing and promotional services, s trong hotel management expertise and guest loyalty programs.

Increased competition could have a material adverse effect on the occupancy rate, average daily room rate and RevPAR of our hotels or may require us to make capital improvements that we otherwise would not have to make, which may result in decreases in our profitability.

We believe our hotels enjoy certain competitive advantages as a result of being flagged with globally recognized brands, including access to centralized reservation systems and national advertising, marketing and promotional services, strong hotel management expertise and guest loyalty programs.

Our principal competitors include hotel operating companies, ownership companies (including other lodging REITs) and national and international hotel brands.

We face increased competition from providers of less expensive accommodations, such as select-service hotels or independently managed hotels, during periods of economic downturn when leisure and business travelers become more sensitive to room rates.

We face increased competition from providers of less expensive accommodations, such as

select-service hotels or independently managed hotels, during periods of economic downturn when leisure and business travelers become more sensitive to room rates.

Increasingly, we also face competition from peer-to-peer inventory sources that allow travelers to stay at homes and apartments booked from owners, thereby providing an alternative to hotel rooms.

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and wastewater disposal.

In addition, as a current and former owner of property, we could be

subject to investigation and remediation liabilities that could arise under local, state and federal environmental laws, as well as personal injury, property damage, fines or other claims by third parties associated with environmental compliance or the presence of contamination.

In addition to our hotel accommodations, we operate certain laundry facilities.

We use and store hazardo us and toxic substances, such as cleaning materials, pool chemicals, heating oil and fuel for back-up generators at some of our facilities, and we generate certain wastes in connection with our operations.

Some of our properties include older buildings, an d some may have, or may historically have had impacts from current or historical site operations including dry-cleaning facilities, gasoline and auto service stations, underground storage tanks for heating oil and back-up generators, and other operations t hat may have caused environmental contamination.

In addition, as a current and former owner of property, we could be subject to investigation and remediation liabilities that could arise under local, state and federal environmental laws, as well as personal injury, property damage, fines or other claims by third parties associated with environmental compliance or the presence of contamination.

We use and store hazardous and toxic substances, such as cleaning materials, pool chemicals, heating oil and fuel for back-up generators at some of our facilities, and we generate certain wastes in connection with our operations.

In addition to our hotel accommodations, we previously operated certain laundry facilities.

Some of our properties include older buildings, and some may have, or may historically have had impacts from current or historical site operations including dry-cleaning facilities, gasoline and auto service stations, underground storage tanks for heating oil and back-up generators, and other operations that may have caused

environmental contamination.

We have from time to time been responsible for investigating and remediating contamination at some of our facilities, such as contamination from leaking underground storage tanks or as a result of current or historical dry-cleaning operations, and we could be held responsible for any contamination resulting from the disposal of wastes that we generate, including at locations where such wastes have been sent for treatment or disposal, without regard to whether we complied with environmental laws in sending our wastes to such treatment or disposal sites.

In some cases, we may be entitled to indemnification, but there can be no assurance that we would be able to recover all or any costs we incur in addressing suc h problems.

In some cases, we may be entitled to indemnification, but there can be no assurance that we would be able to recover all or any costs we incur in addressing such problems.

From time to time, we may also be required to manage, abate, remove or contain mold, lead, asbestos-containing materials, radon gas or other hazardous conditions found in or on our properties.

We have implemented an on-going operations and main tenance plan that seeks to identify and remediate these conditions as appropriate.

Although we have incurred, and expect that we will continue to incur, costs relating to the investigation, identification, management, and remediation of hazardous materials or petroleum products known or discovered to exist at our properties, as well as costs of complying with various local, state and federal environmental, health and safety laws, those costs have not had, and are not expected to have, a material adverse eff ect on our financial condition, results of operations or cash flow.

We have implemented an on-going operations and maintenance plan that seeks to identify and remediate these conditions as appropriate.

Although we have incurred, and expect that we will continue to incur, costs relating to the investigation, identification, management, and remediation of hazardous materials or petroleum products known or discovered to exist at our properties, as well as costs of complying with various local, state and federal environmental, health and safety laws, those costs have not had, and are not expected to have, a material adverse effect on our financial condition, results of operations or cash flow.

REIT Qualification

We are treated as a REIT for U.S.

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

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 operated, 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.

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We maintain insurance coverage for general liability, property, including business interruption, terrorism, and other risks with respect to our business for all of our hotels.

We also maintain workers’ compensation insurance for our corporate employees and employees at our Select Hotels and commercial laundry facilities, while our managers maintain workers’ compensation insurance for their employees at our managed hotels.

We also maintain workers’ compensation insurance for our corporate employees and employees at our Select Hotels, while our managers maintain workers’ compensation insurance for their employees at our managed hotels.

Most of our insurance policies are written with self-insured retentions or deductibles that are common in the insurance market for similar risks.

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Our insurance provides coverage related to any claims or losses arising out of the design, development and operation of our hotels.

As of December 31, 2019, we had 488 employees, including 95 corporate employees, 174 employees of the Select Hotels, and 219 employees of our commercial laundry operations.

Human Capital

Through ongoing employee development programs, comprehensive and competitive compensation and benefits, and a focus on our employees’ health and well-being, we strive to help our employees in all aspects of their lives.

As of December 31, 2020, we had 182 employees, including 85 corporate employees and 97 employees of the Select Hotels.

We believe relations are positive between us and our employees.

Our hotel managers are generally responsible for hiring and maintaining the labor force at each of our hotels, other than the Select Hotels.

Although we generally do not manage employees at our hotels (other than the Select Hotels), we still are subject to many of the costs and risks generally associated with the hotel labor force, particularly those hotels with unionized labor.

Although we generally do not manage employees at our hotels (other than the Select Hotels), we still are subject to the costs and risks generally associated with the hotel labor force, particularly those hotels with unionized labor.

We believe relations are positive between our third-party hotel managers and their employees.

For a discussion of these relationships, refer to “Risk Factors—Risks Related to Our Business and Industry—We are subject to risks associated with the employment of hotel personnel, particularly with hotels that employ unionized labor, which could increase our operating costs, reduce flexibility of our hotel managers to adjust the size of the workforce at our hotels and could materially and adversely affect our revenues and profitability.”

Diversity and Inclusion

We value the unique perspectives that a workforce with diverse cultures, ages, genders, and ethnicities brings to our process, and we are committed to enhancing diversity, equity and inclusion at Park.

Our commitment to diversity is exemplified in our highly skilled and diverse board, which includes two female directors, and management team.

The following charts summarize the gender and ethnic diversity of our workforce as of December 31, 2020:

Our commitment to being a positive catalyst for change by enhancing diversity and inclusion is reflected both in the actions we take within our Company and our efforts in our larger community, such as through recruitment, employee development, mentorship, education, advocacy and community outreach.

In 2020, we established a Diversity & Inclusion Steering Committee, which is comprised of employees at our corporate headquarters and includes members of executive leadership, all corporate departments and a broad assortment of levels, genders, ages and races.

The committee is dedicated to enhancing our focus on activities that increase awareness and take actions in support of equality, and it plans to develop partnerships and adopt new initiatives that support systematic change related to racism and diversity.

To date, we have conducted a supplier and vendor diversity, equity and inclusion survey to identify opportunities to strengthen relationships with diverse suppliers and evaluate ways in which we can emphasize the value and benefit of a Diversity & Inclusion Policy for our top suppliers.

All of our employees will be encouraged to take part in initiatives implemented by the Diversity & Inclusion Steering Committee.

Training and Development

Human capital development underpins our efforts to execute our strategy and continue to provide a high-level of service.

We continually invest in our employees’ career growth and provide employees with a wide range of development opportunities, including training on diversity and inclusion, unconscious bias and other social issues, as well as an annual anti-bribery/anti-corruption training.

All associates also participate in anti-harassment and compliance training at least once a year.

Additionally, we provide associates at corporate headquarters with leadership development programs, management development series programs, corporate technical “lunch and learn” trainings, REIT tax training, executive coaching and emotional intelligence training.

Our leadership team encourages associates to continue education and professional certifications with time away from work and training budgets.

Our Corporate Strategy and Design & Construction departments also participate in sustainability training, including Nareit’s ESG JumpStart workshop.

To support employee development, we conduct associate performance reviews with our corporate employees, which includes continuous feedback to encourage immediate and consistent feedback.

Regular one-on-one feedback sessions are conducted in order to ensure feedback is current and to reinforce positive performance.

We encourage our associates to participate in our Associate Satisfaction and Engagement Survey and undertake initiatives to improve areas identified in the survey.

Our Board of Directors receives regular reports on these initiatives to ensure that we continue to demonstrate our strong commitment to our employees, diversity and inclusion and other human capital matters.

Health, Safety and Well-being

We provide benefits to support our corporate employees and their families, including but not limited to medical, vision and dental insurance, gym memberships, a 401(k) match program, paid parental leave, and an employee assistance program.

We also provide mindfulness training with dedicated coaches and leaders and emotional intelligence workshops.

Together with our hotel managers, we also aim to ensure the health, safety and well-being of all our employees and guests at our properties.

For example, in 2020, we committed to the American Hotel & Lodging Association’s 5-Star Promise, which enhances policies, trainings and resources related to the safety of hotel employees and guests.

We aim to promote health and well-being measures in our design and construction projects through the use of natural ventilation, daylighting and air and water quality monitoring.

Hotel employee health and safety factors are designed into projects, which include alarm systems cameras, first aid locations and personal alert devices.

Community Engagement

We have a committee comprised of employees at our corporate headquarters that focuses on engagement with local communities and spearheads volunteer work.

We introduced an annual event, which aims to concentrate our volunteer efforts around one central cause that all corporate headquarters’ employees can participate in if they desire.

In 2020, we also supported over 14 organizations through charitable contributions, sponsorships and volunteer hours.

The hotels within our portfolio are also extremely involved with their respective communities, raising money or donating supplies, food or services as well as contributing countless hours to many worthwhile causes.

For additional information on the above matters, please review our 2020 Annual Corporate Responsibility Report on our website.

Corporate Information

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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-K

Item 1. Business